Page 24 - Investment Advisor - December 2023

Top News of 2023

The plan seeks to amend the regula- the prohibited transaction rules appli- Labor from using any funds to imple-
tion defining when a person renders cable to fiduciaries under Title I and ment its new fiduciary rule.
“investment advice for a fee or other Title II of ERISA. The plan amends Industry trade groups and lawmak-
compensation, direct or indirect” with Prohibited Transaction Exemptions ers were quick to weigh in on Labor’s
respect to any moneys or other property 84-24, applying to annuities, as well as plan. Rep. Virginia Foxx, R-N.C., chair-
of an employee benefit plan, for purpos- 2020-02, concerning rollover advice, woman of the House Committee on
es of the definition of a “fiduciary” in the and other PTEs. Education and the Workforce, said
Employee Retirement Income Security The proposals include a 60-day peri- Labor’s plan “reaches well beyond
Act of 1974. od for public comments, ending on Jan. its jurisdiction. Instead of regulating
The proposal also would amend the 2, and Labor intends to hold a public retirement plans, DOL is trying to regu-
parallel regulation defining for pur- hearing approximately 45 days after the late what individuals do with their own
poses of Title II of ERISA, a “fiduciary” proposals were published on Oct. 31. retirement savings. This kind of over-
of a plan defined in Internal Revenue Trade groups pressed Labor on Nov. 8 reaching interference spells disaster.”
Code section 4975, including an indi- to grant at least a 60-day extension of But Rep. Bobby Scott, D-Va., the
vidual retirement account, according the comment period and to schedule the ranking member of the committee,
to Labor. public hearing for a date after the initial said in another statement that Biden’s
Labor also has published proposed comment period closes, followed by an plan will “close loopholes and pre-
amendments to Prohibited Transaction additional 30-day comment period. vent unscrupulous financial advisers
Exemption 2020-02 (Improving At press time in mid-November, the from ripping off their retirement cli-
Investment Advice for Workers & House was expected to vote on a spend- ents. Every hardworking American
Retirees) and to several other exist- ing bill to fund several federal agen- deserves access to a secure and digni-
ing administrative exemptions from cies that contains amendments blocking fied retirement.”

IrA rollovers the NUA tax break,” Slott warned. lem is though, that wanting to do what’s
“An advisor who rolls those funds right and having the knowledge to do
Advisor recommendations over to an IRA without ana- that are both necessary.”
on IRA rollover transactions lyzing the NUA option could Labor’s new rules, he explained,
are fiduciary advice under end up losing that tax break, “stress that advisors need to produce
the Labor Department’s pro- because they were just not evidence that they have gone through
posed new fiduciary rule, aware of it,” Slott relayed. a process to help clients make the roll-
and “would fall within the “That’s just one example over choice that is best for them. The
scope of investment advice,” of many where an unedu- best option will depend on each client’s
according to Ed Slott of Ed Slott & Co. cated advisor could inadvertently run particular financial and personal facts
IRA rollovers “will continue to be afoul of these DOL rules and be held and circumstances.
‘among the most, if not the most, impor- responsible, for thousands or hundreds
tant financial decisions that plan partici- of thousands of dollars lost to taxes due
pants and beneficiaries, and IRA owners to poor planning,” he continued.
As in all the prior iterations of Labor’s Annuity
and beneficiaries are called upon to
make,’” Slott told Investment Advisor in fiduciary rule, “when it comes to IRA roll- Commissions
early November via email, citing the text overs — it is imperative that advisors be
of Labor’s proposed rule. Labor, Slott aware of all possible rollover options and New draft fiduciary regulations issued by
said, “is putting rollover advice right up have a process of explaining and review- DOL would let annuity sellers continue to
there with investment advice.” ing the pros and cons of each option to earn commissions for selling non-variable
Labor’s new rules “mean that advisors their clients,” Slott said. “Only then can indexed annuities. Independent agents
need to know the tax rules on each option the client be served in their best interest.” who operate under one set of Labor
when rolling over 401(k) plan funds to an While DOL’s rules “are meant to Department regulations, PTE 84-24,
IRA, or when not to do the rollover, or somehow eliminate advisors who may would have to become fiduciaries, but
when to take a lump-sum distribution, be bad apples and put their own profit they could continue to earn commissions.
which for example means being educated ahead of what’s best for their clients,” he They would have to disclose their initial
on the NUA (net unrealized apprecia- added, “that is not most advisors.” commissions and renewal commissions,
tion) tax rules when there is appreciated Most advisors, Slott said, want to do both in terms of dollar amounts and as
stock in the 401(k) that may qualify for “what’s best for their clients. The prob- a percentage of the premium payments.

22 Investment AdvIsor December 2023 | ThinkAdvisor.com