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Individual Retirement Accounts

Investment Advice Exemption Confirmed

On February 12, 2021, the Department of Labor issued a press release confirming that the new fiduciary investment advice guidelines under Prohibited Transaction Exemption 2020-02 will go into effect on February 16, 2021.  The Department also confirmed that the temporary enforcement relief provided by Field Assistance Bulletin 2018-02 will remain in place until December 20, 2021.

The Biden administration previously issued a memo to regulatory agencies suspending new regulations issued during the waning days of the Trump administration.  The purpose of the suspension is to provide the incoming administration with the opportunity to review those regulations.   As a result, there was some question whether the Exemption would become effective.

DOL Finalizes Fiduciary Investment Advice Guidance

On December 15, 2020, the Department of Labor finalized its new guidelines for fiduciary investment advice.  Prohibited Transaction Exemption 2020-02 both clarifies the circumstances under which financial institutions and investment professionals are considered “fiduciaries” under ERISA and the Internal Revenue Code, and also establishes a new framework under which such fiduciaries may provide services and receive compensation.

The preamble to the final Exemption provides the Department’s long-awaited final interpretation of when investment advice – such as a recommendation to roll over retirement plan assets to an IRA (or between IRAs) – creates a fiduciary relationship under ERISA or the Code. The substantive terms of the Exemption allow investment advisers who are fiduciaries to receive compensation and engage in principal transactions that would otherwise violate prohibited transaction rules.

The Exemption applies to SEC- and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees, agents and representatives that are investment advice fiduciaries under the newly interpreted “five-part” test of fiduciary status.  It imposes certain conditions to protect the interests of retirement plans, participants, beneficiaries, and IRA owners.  The Exemption is set to become effective February 16, 2021, absent a delay by the Biden Administration.  Thus, employers will need to be aware of the Exemption and its conditions in their engagement of (and interactions with) plan service providers.

SECURE ACT – Provisions Unique to
403(b) Plans, Governmental 457(b) Plans, and IRAs

On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020, which includes the Setting Every Community Up for Retirement Enhancement Act (the “SECURE” Act).   The SECURE Act represents the most significant retirement legislation in more than a decade (i.e., since the Pension Protection Act of 2006).

This is the third in a series of articles describing key provisions of the SECURE Act.  Our focus in this article is on the provisions that are unique to Section 403(b) tax-sheltered annuity plans, governmental Section 457(b) plans, and Individual Retirement Accounts/Annuities (IRAs).  Many of the SECURE Act provisions that are broadly applicable to retirement plans (such as the increase in the age at which required minimum distributions must begin, and the new rules curtailing the ability to “stretch” post-death minimum distributions under defined contribution plans over the life expectancy of the participant’s designated beneficiary) also apply to 403(b) plans, 457(b) plans, and IRAs.  Because we addressed those provisions in the second article in this series, we will not do so again here.

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