PLANADVISER - November/December 2021 - 38

ERISA vista
Fred Reish and Joan Neri
Nonenforcement Policies
Some of the DOL's prohibited transaction exemptions apply now
QUESTION: I'm a registered investment adviser [RIA], and
I know if I recommend that an individual roll over 401(k)
plan monies to an individual retirement account [IRA] that
I manage, I'm considered an Employee Retirement Income
Security Act [ERISA] fiduciary under the Department of Labor
[DOL]'s expanded interpretation of fiduciary advice. I also
know that I'll need to comply with DOL Prohibited Transaction
Exemption [PTE] 2020-02 in order to avoid a prohibited transaction.
I understand that the DOL has extended its nonenforcement
policy regarding the PTE. How will this affect me?
... you need to ensure that
your rollover advice satisfies
ERISA's prudence standard
and duty of loyalty.
ANSWER: The DOL has extended, until January 31, 2022, its
policy not to enforce the PTE, and it has extended its nonenforcement
approach to the specific documentation and
disclosure requirements for rollovers until June 30, 2022.
However, there is no extension of the effective date for the
expanded fiduciary definition or the obligation to comply
with the impartial conduct standards, including the best
interest standard.
Under the DOL's expanded interpretation of investment
advice, most distribution and rollover recommendations are
now considered ERISA fiduciary advice for which the PTE will
be needed. We discussed this in detail in our column " Now
A Fiduciary " (PLANADVISER, July/August 2021). The extension
of the nonenforcement policy issued in Field Assistance
Bulletin (FAB) 2021-02 gives you additional time to meet the
conditions of the PTE. Note: The IRS has concurred with the
nonenforcement policy, which is important, as that agency
has enforcement jurisdiction over prohibited transactions
in both qualified plans and IRAs.
The original nonenforcement policy was set to expire on
December 20, and the one-month-plus extension gives you
more time to work on compliance with the PTE's conditions.
Also, you have until next July 1, to comply with the requirement
that you document the specific reasons why a rollover
recommendation is in the best interest of the participant
and provide that person with the documentation.
There are, however, some limitations on the extension.
First, the nonenforcement policy does not affect your
fiduciary status. The DOL's expanded interpretation of fiduciary
advice was effective on February 16, and it has not been
extended. Therefore you need to ensure that your rollover
advice satisfies ERISA's prudence standard and duty of loyalty.
Second, the policy is available only if you're working
" diligently and in good faith " to comply with the impartial
conduct standards. In other words, the obligation to meet
the impartial conduct standards applies now and has applied
since February 16. The standards require: 1) satisfaction of
the best interest standard of care, which is identical to ERISA's
duties of prudence and loyalty; 2) no more than reasonable
compensation and best execution of recommendations; and
3) making no materially misleading statements.
This means you already must engage in a best interest
process for rollover recommendations. Based on DOL guidance,
you need to consider
the participant's options-
leaving the money in the plan, taking a taxable distribution,
rolling over to an IRA, and transferring to a new employer's
plan, if relevant, and then gather information so you can
compare the services, fees and investments for each option.
This information needs to be evaluated in light of the participant's
needs, investment objectives, financial circumstances
and risk tolerance in order to determine whether
the recommendation is in the person's best interest. For risk
management, the process should be documented.
Third, because the nonenforcement policy does not apply
to your fiduciary status, private litigants still have the right to
file lawsuits for fiduciary breach where violations occur. Note
that while ERISA's private rights of action apply to fiduciary
breaches for advice to plans and participants-including rollover
recommendations-it does not include private rights of
action for violations related to standalone IRAs.
In sum, the extended nonenforcement policy provides
additional time to meet conditions of the PTE. However,
there are still some practices you need to have in place now.
For rollover recommendations, you need to engage in a best
interest process to satisfy your fiduciary duty under ERISA
and to comply with the impartial conduct standards, which
are a condition for the protection the policy affords.
Fred Reish is chairman of the financial services ERISA practice at
law firm Faegre Drinker Biddle & Reath LLP. Joan Neri, a nationally
recognized expert in employee benefits law, is counsel in the firm's
financial services ERISA practice.
38 | planadviser.com November-December 2021 Art by Tim Bower
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