Investment adviser firms advising plan participants on IRA rollovers should review the recently published guidance of the U.S. Department of Labor (“DoL”) regarding PTE 2020-02, a new fiduciary advice prohibited transaction exemption. Compliance with PTE 2020-02 now permits investment advisers to provide advice regarding IRA rollovers without violating Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code of 1986 (“IRC”), both of which prohibit investment advisers from receiving payments that create a conflict of interest when providing fiduciary investment advice to plan sponsors, plan participants, and IRA owners. The adoption of PTE 2020-02 follows several years of rulemaking, court actions, and DoL guidance regarding the definition of fiduciary investment advice and clarifies that advice regarding IRA rollovers is considered a fiduciary activity, in contrast to the DoL’s prior interpretation.
September 21, 2012
The U.S. Department of Labor (“DOL”) recently announced a new proposal to provide a web-based tool for ERISA covered retirement plans to report violations of the new 408(b)(2) disclosure requirements. Under the new 408(b)(2) regulations, as of July 1, 2012 ERISA covered service providers were required to provide retirement plans, to which they provide services, with certain disclosures. Failure to provide the required disclosures will result in services to the ERISA covered plan being classified as a prohibited transaction under ERISA and the Internal Revenue Code. The purpose of the new tool is to assist plan sponsors in determining whether they have all the required information and to provide an easy way for plan sponsors to report service providers who fail to make the required 408(b)(2) disclosures.
Dale Brown, President and CEO of the Financial Services Institute (“FSI”), wrote a letter to Representative John Kline, (R – MN) Chairman of the U.S. House Education and Workforce Committee and to ranking member George Miller, (D – CA) in response to comments made by Phyllis Borzi, Assistant Secretary of the Department of Labor, (“DOL”) in a letter to the same members of the Committee. Borzi told the ranking members she was disappointed with the lack of participation in the DOL’s request for data as part of its “effort to expand the definition of fiduciary under the Employee Retirement Income Security Act of 1974 (“ERISA”).”In Brown’s letter he is critical of DOL Assistant Secretary Borzi for what he calls an impractical request.
The new ERISA 408(b)(2) regulations, which were recently issued by the U.S. Department of Labor (“DOL”), place disclosure requirements on “service providers” to ERISA covered plans. Specifically, a covered service provider is required to disclose in writing the services to be provided, the service provider’s fiduciary status to the Plan, and a description of all direct and indirect compensation received in connection with services provided to the Plan. Service providers must provide these disclosure requirement to plan fiduciaries in order for a contract for plan services to be “reasonable” as required by ERISA section 408(b)(2).
Service providers are required to provide the new 408(b)(2) disclosures to any ERISA covered plan for which they provide services. However, what exactly is an ERISA covered plan?
Under the new ERISA 408(b)(2) regulation a covered service provider is required to disclose in writing to the responsible plan fiduciary of an ERISA covered plan the services to be provided, its fiduciary status to the plan, and what compensation the service provider is to receive in connection with services provided. The deadline for covered service providers to make these disclosures is July 1, 2012.
May 24, 2012
The final deadline for ERISA covered service providers to meet the 408(b)(2) disclosure requirements is July 1, 2012. Failure to provide the required disclosures will result in a prohibited transaction under ERISA and the Internal Revenue Code. For an investment advisor who is a service provider to an ERISA covered plan this would likely result in the investment advisor having to repay any compensation received after July 1, plus interest. Additionally, the investment advisor could face a fine from the U.S. Department of Labor (“DOL”).
On Monday May 7th, the U.S. Department of Labor’s Employee Benefits Security Administration (“EBSA”) issued Field Assistance Bulletin No. 2012-02 to provide further guidance on compliance with the new 408(b)(2) regulations, which impose disclosure requirements on service providers, such as investment advisers, to retirement plans covered under the Employee Retirement Income and Security Act of 1974 (“ERISA”).
The July 1, 2012, deadline for ERISA service providers to be in compliance with the new 408(b)(2) regulation requirements is quickly approaching. Under the 408(b)(2) regulation requirements, ERISA service providers are required to deliver written disclosures to the plan sponsor to describe the service provider’s services to the plan, the service provider’s fiduciary status to the plan, and the total compensation received by the service provider that is related to the service provider’s services to the plan. Service providers who fail to make the required 408(b)(2) disclosures by the July 1, 2012, deadline may be forced to repay to the plan any compensation received and ultimately can be subject to a twenty percent civil penalty imposed by the Department of Labor.