The U.S. Department of Labor’s Employee Benefits Security Administration has issued a temporary enforcement policy on prohibited transaction rules applicable to investment advice fiduciaries.
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On Dec. 18, 2020, the department adopted a new exemption for fiduciaries who provide investment advice to ERISA-covered pension plans and individual retirement accounts. The exemption became effective on Feb. 16, 2021, but the department has provided transitional relief, which will continue through Dec. 20, 2021.
“The department understands that the Dec. 20 expiration date of the current transitional relief poses practical difficulties for financial institutions. These institutions have expressed specific concern that they would incur significant additional costs to distribute disclosures because Dec. 20 does not align with their regular distribution cycle for disclosures,” Dol officials stated.
Officials also said the expiration date would make it difficult to conduct the required review on an annual basis. Further, financial institutions face challenges in implementing the rollover documentation and disclosure requirements by the Dec. 20 deadline.
“The class exemption provides meaningful protections for individual investors, and we continue to emphasize the importance of compliance,” Acting Assistant Secretary of Labor for Employee Benefits Security Ali Khawar said. “Based on concerns raised, we’ve concluded that providing additional transition relief for financial institutions that are working in good faith to build systems to comply with the exemption conditions is appropriate.”
From Dec. 21, 2021, through Jan. 31, 2022, the department will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently, and in good faith, to comply with the Impartial Conduct Standards (i.e., best interest, reasonable compensation, and without misleading statements) for transactions exempted in PTE 2020-02
Also, the department will not treat such fiduciaries as if they were violating the applicable prohibited transaction rules. Finally, the department will not enforce the specific documentation and disclosure requirements for rollovers in PTE 2020-02 through June 30, 2022. However, all other requirements of the exemption will be subject to full enforcement on Feb. 1, 2022.