Starting Friday, advisors and firms will face more stringent rollover rules under the Labor Department's new fiduciary prohibited transaction exemption (PTE) 2020-02, Improving Investment Advice for Workers & Retirees, which became effective on Feb. 16.
ERISA attorney Fred Reish, partner at Faegre Drinker, told ThinkAdvisor in a previous interview that the PTE, as of Friday, says that advisors and broker-dealers "will need to provide to the participant, in writing, the specific reasons why a rollover is in [their] best interest."
We caught up with Reish on Monday to get his views on where firms are in their compliance — and where they should be.
What is due July 1?
Here are the effective dates for PTE 2020-02.
The PTE became effective on Feb. 16, 2020, but the DOL delayed enforcement of all of its provisions until Feb. 1, 2022. The one exception was delayed till July 1, 2022. That was the requirement to provide "retirement investors" with the specific reasons why a rollover or transfer of their retirement money is in the best interest of the retirement investor.
That would apply to a number of recommendations, but the most common are: (1) recommendations to rollover from a plan to an IRA, and (2) recommendations to transfer from one IRA to another.
There is another effective date. The preamble to PTE 2020-02 expanded the definition of "fiduciary advice" to include almost all rollover recommendations.
The DOL said that it would not enforce that fiduciary definition to recommendations before Feb. 16, 2020, but they would use that definition beginning Feb. 16, 2020. I am concerned that some people don't realize that fiduciary status applied to rollover recommendations as of that date.
