Field Assistance Bulletin No. 2021-02: Temporary Enforcement Policy on Prohibited Transaction Rules Applicable to Investment Advice Fiduciaries (Oct. 25, 2021)
The DOL has announced a short extension of its temporary nonenforcement policy for investment advice fiduciaries. That policy, set out in Field Assistance Bulletin (FAB) 2018-02 (see our Checkpoint article) was adopted in 2018 after a panel of the Fifth Circuit Court of Appeals vacated the DOL’s 2016 regulations reinterpreting ERISA’s fiduciary definition and making related prohibited transaction changes (see our Checkpoint article). In its nonenforcement policy, the DOL stated that it would not pursue prohibited transaction claims against investment advice fiduciaries who were working diligently and in good faith to satisfy the impartial conduct standards described in the vacated prohibited transaction exemptions (PTEs). The DOL subsequently incorporated the impartial conduct standards into PTE 2020-02 (see our Checkpoint article), which became generally effective on February 16, 2021. To allow more time for the transition to the new PTE, the DOL extended the FAB 2018-02 temporary nonenforcement policy through December 20, 2021.
In FAB 2021-02, the DOL notes that the December 20, 2021 expiration date for the temporary nonenforcement policy poses practical difficulties, and may create additional costs, for investment advice fiduciaries who are seeking to come into compliance with PTE 2020-02. The expiration date does not align with some fiduciaries’ existing disclosure schedules or with their desire to satisfy the PTE’s retrospective review requirement on a calendar-year basis. And some fiduciaries may need additional time to build the required systems for implementing the rollover documentation and disclosure requirements under the PTE. In deference to these and other concerns, the DOL has decided to further extend its temporary nonenforcement policy through January 31, 2022, for fiduciaries who are “working diligently and in good faith to comply with the Impartial Conduct Standards for transactions that are exempted in PTE 2020-02.” While the policy remains in effect, such fiduciaries will not be treated as violating the applicable prohibited transaction rules. The nonenforcement policy will continue even longer, through June 30, 2022, as to the specific documentation and disclosure requirements for rollovers. These extensions, like the original nonenforcement policy, do not address the rights or obligations of other parties (and thus do not preclude private litigation). The guidance also affirms that IRS enforcement of the Code’s prohibited transaction provision remains suspended on matters covered by the DOL’s extended nonenforcement policy.
EBIA Comment: The DOL focuses at some length on the challenges investment fiduciaries must address when they analyze and document why a rollover (e.g., from a 401(k) plan to an IRA) is in the investor’s best interest. As explained in PTE 2020-02, that analysis requires considerable information about the participant’s current plan. The PTE assumes that this information will ordinarily be provided, at least in part, by plan participants. But if participants cannot easily locate the necessary information, it seems likely that they will turn to their plan administrator for help. Knowing this, administrators (of larger plans, especially) might want to consider what steps they can take to ease the burden of responding to a new influx of information requests triggered by the PTE’s disclosure requirement (e.g., by creating a dedicated area on their website that collects plan-related information frequently requested by investment advice fiduciaries). For more information, see EBIA’s 401(k) Plans manual at Sections XXIV.D (“Investment Advice Fiduciaries”) and XXIV.L (“Prohibited Transactions”), and EBIA’s Consumer-Driven Health Care manual at Section XVI.E.2 (“Who Is a ‘Fiduciary’ With Respect to an HSA?”).
Contributing Editors: EBIA Staff.