IRA Rollover 'Tsunami' Worries Ex-DOL Official

Neal's Automatic IRA Act of 2024 would require businesses with 10 or more employees to offer a workplace retirement plan.

These employers would be required to automatically enroll all full-time and long-term part-time employees in an automatic IRA or similar plan like a 401(k) plan. Workers could decline to participate or drop out at any time after enrollment.

Neal has been fighting for auto-IRAs since the plan was dropped from the Secure 2.0 Act.

DOL Rule Compliance — What's Still in Effect

Industry attorneys have also been reminding advisors what's still required since the two Texas courts halted Labor's new fiduciary rule.

The 2020 version of PTE 2020-02 on rollover advice, is still in effect, ERISA attorney Fred Reish, partner at Faegre Drinker, told me in a recent email.

"The amended version — adopted this year and to be effective on Sept. 23 — was stayed. The two versions are similar, but not identical," Reish said.

Further, "the original, and much less demanding, version of PTE 84-24 [dealing with annuity advice] is still in effect," Reish said. "But the amended, and much more demanding (and similar to 2020-02 in some ways), version," which was also to be effective Sept. 23, has been stayed.

The amended PTEs "are stayed pending the trials and any appeals," Reish noted.

With the court orders, the current standard for determining whether a financial professional is acting as a fiduciary under ERISA and the Internal Revenue Code in connection with providing nondiscretionary advice remains the five-part test from the DOL's 1975 regulation, attorneys at K&L Gates noted in a recent alert.

"A financial professional that is an ERISA fiduciary engages in a prohibited transaction if the financial professional uses its fiduciary authority to generate additional fees for itself or a person in whom the financial professional has an interest that may affect its best judgment as a fiduciary (e.g., an affiliate), unless a PTE applies," the attorneys state.

"For example, advice to rollover a 401(k) account to an IRA managed by the advice provider would likely be prohibited unless the advice is structured to comply with an applicable PTE," the alert states.

To address this risk, many financial professionals rely on PTE 2020-02.

The fiduciary rule "would have amended the exemption's conditions. Because of the court orders, parties relying on PTE 2020-02 should continue to comply with the current (non-amended) version of PTE 2020-02," the K&L Gates attorneys agreed.