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Determining when an investment professional is subject to a fiduciary standard of care for making a rollover recommendation to a retirement saver is challenging. Multiple agencies’ overlapping compliance requirements and fiduciary definitions complicate this determination. And the Department of Labor’s (DOL’s) thwarted efforts to revise its fiduciary rules leaves a trail of pockmarked guidance.

Below is an overview of the rules for brokers and advisors working with retirement savers today. Under these rules, a one-time recommendation to roll over retirement plan assets to an IRA is not fiduciary advice that requires a prohibited transaction exemption (PTE). But brokers and registered advisors providing securities recommendations must still meet the SEC’s requirements. These requirements are similar to the DOL’s PTE conditions with a few significant differences.

…a one-time recommendation to roll over retirement plan assets to an IRA is not fiduciary advice that requires a prohibited transaction exemption (PTE). But brokers and registered advisors providing securities recommendations must still meet the SEC’s requirements.

The DOL

The DOL’s latest fiduciary rule and amendments to existing PTEs are now on hold while two Texas courts determine whether to vacate these rules. Consequently, investment professionals working with retirement savers should look to the 1975 five-part test under ERISA and the Internal Revenue Code to determine what is considered fiduciary investment advice. Under this test, an investment professional will be a fiduciary if they render advice for a fee or other compensation and meet all five elements:

1. Render advice to a plan or IRA as to the value of or the advisability of investing in securities or other property;

2. The advice is on a regular basis;

3. Advice is given pursuant to a mutual agreement, arrangement, or understanding; that

4. The advice will serve as a primary basis for investment decisions with respect to the plan or IRA assets; and that

5. The advice will be individualized based on the needs of the plan or IRA.

If an investment professional meets this test (or otherwise assumes fiduciary status), they cannot engage in prohibited transactions that create conflicts of interest for themselves or their financial institution/firm. If there is a conflict of interest, such as earning commissions or other compensation that is dependent on the advice provided, the fiduciary (and their firm) must operate under a PTE.

While several PTEs are still available (pending the Texas courts’ decisions), most ERISA/Code fiduciaries will look to PTE 2020-02. The PTE’s conditions should be familiar to firms and advisors because full compliance has been required since June 30, 2022. The conditions that must be met under PTE 2020-02 have not changed from the original version. However, the DOL’s re-interpretation of the “regular basis” prong of the five-part test in the preamble to PTE 2020-02 has been vacated for one-time rollover recommendations from an ERISA retirement plan to an IRA.

The preamble to PTE 2020-02 re-interpreted “regular basis” to include a rollover recommendation to a new client if there would be an ongoing advice relationship after the rollover. The DOL reasoned that the same provider is giving advice to the same person with respect to the same assets (or proceeds of those assets), pursuant to identical five-part tests. The DOL reiterated this position in Q&A 7 of its 2021 FAQs on how to meet PTE 2020-02. But, in 2023, a Florida court vacated Q&A 7 and the applicable parts of the preamble, ruling that advice to an investor on ERISA plan assets could not be combined with advice on IRA assets to meet the “regular basis” test.

…if there is not an existing advice relationship with an ERISA plan or participant, a recommendation to roll over plan assets to an IRA will not meet the regular basis prong of the 1975 test…

As a result, if there is not an existing advice relationship with an ERISA plan or participant, a recommendation to roll over plan assets to an IRA will not meet the regular basis prong of the 1975 test, even if an advice relationship will be established with the IRA. This type of rollover recommendation is not fiduciary advice under the DOL’s rules in effect today, so the conditions of PTE 2020-20 do not need to be met.

The SEC

The SEC adopted “Regulation Best Interest” (Reg. BI), effective June 30, 2020, to create greater consistency in standards of conduct for brokers and Registered Investment Advisors (RIAs). RIAs are subject to fiduciary standards under the Investment Advisers Act of 1940. Reg BI affirms this standard for RIAs and holds brokers to a “best interest” standard when making recommendations to retail customers regarding any securities-related transaction or strategy. These rules apply when making recommendations to retirement savers, including transfer and rollover recommendations.

Comparing PTE 2020-02 and Reg. BI Requirements

Investment professionals who are subject to the SEC’s requirements must satisfy both the SEC requirements and the conditions of PTE 2020-02 (or another PTE) if providing fiduciary investment advice under ERISA or the Code and receiving conflicted compensation. The SEC’s and DOL’s compliance requirements and standards of care are similar but not the same. Both require investment professionals to put the investor’s interests ahead of their own and to compare relevant factors for the existing and recommended accounts to determine that a rollover is in the retirement saver’s best interests. However, the SEC does not require brokers to claim fiduciary status nor disclose the rollover analysis to the customer.

Agency – Rule	SEC – Reg. BI	DOL – PTE 2020-02
Applicable to	Brokers recommending securities transactions to a retail customer, including a retirement investor	Investment professionals providing nondiscretionary fiduciary advice or a fiduciary rollover recommendation to a retirement investor for conflicted compensation
Fiduciary status	N/A, but must disclose capacity in which broker is acting in the Client Relationship Summary (CRS)	Advisor & firm must acknowledge fiduciary status under ERISA &/or the Code in writing to the investor
Standard of care	Act in the best interest of the customer at the time the recommendation is made, without placing the broker or broker-dealer’s interests ahead of the customer’s interests	Adhere to Impartial Conduct Standards – Provide prudent & loyal advice in the best interest of the retirement investor – Charge only reasonable compensation – Avoid misleading statements
Financial institution compliance	Follow written policies & procedures to ensure compliance with Reg. BI & identify & eliminate or mitigate & disclose conflicts of interest	– Follow written policies & procedures to ensure compliance with Impartial Conduct standards & to mitigate conflicts of interest – Conduct annual retrospective review, with a written report certified by a senior executive officer
Disclosures	Provide written disclosures of services, fees, material conflicts of interest & material limitations on the securities that may be recommended	Provide written disclosures of services, fees & material conflicts of interest
Rollover analysis	Analyze relevant factors to determine if a rollover is in the best interest of the customer; documentation recommended to prove compliance	Analyze relevant factors to determine if a rollover is in the best interest of the retirement investor; documentation & disclosure to retirement investor required

For more details, see the SEC’s Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Conflicts of Interest and the DOL’s PTE 2020-02 Improving Investment Advice for Workers & Retirees Frequently Asked Questions (except Q&A 7).

Investment professionals should work with their compliance staff to evaluate their business model and compensation structure to determine their compliance requirements under the SEC, the DOL, and any other governing agencies or state law.

[25-year Finance Executive of High-Growth Private and Public Tech Companies]

Pittsburgh, PA, September 10, 2024 – IRALOGIX, a leading retirement industry fintech provider, today announced the appointment of Keith Haas as Chief Financial Officer. Haas assumed his new position September 3 and reports to Peter de Silva, Chief Executive Officer.

“We are excited to welcome Keith to the IRALOGIX team and are eager to leverage his passion, expertise, and financial acumen to drive our continued growth,” said Peter de Silva, IRALOGIX CEO. “With his extensive background in the tech industry and a proven track record of financial leadership, Keith is the perfect fit to help us achieve our strategic objectives. We are confident that his insights and contributions will play a pivotal role in accelerating our growth and strengthening IRALOGIX’s position as a leader in the marketplace.”

“I’m excited to join IRALOGIX as CFO, especially at such a transformative time for our technology solutions to benefit the massive individual retirement account space. I look forward to shaping our business and financial strategy to fuel growth and deliver outstanding value to both customers and stakeholders,” Haas said.

Most recently, Haas served as CFO for FutureView Systems, a leading provider of solutions that empower financial transformation of management and accounting processes through innovative technology.

Previously, Haas held CFO positions at LeaseAccelerator, an enterprise SaaS company; Bridgestreet, a travel-tech platform; and Snagajob, a hiring and talent management solution for employers.

He has led multiple acquisitions and raised equity and debt totaling over $500 million across more than 15 transactions. Haas played a key role in the $1.3B sale of GeoEye, a commercial satellite data and imagery company, named the “Hottest Exit” by the Northern Virginia Technology Council in 2013.  “As IRALOGIX grows, Keith’s experience leading financial transformations will be critical,” said Pete Littlejohn, CRO and one of IRALOGIX’s founders. “Keith’s proven track record in driving operational efficiency and creating sustainable growth will ensure that we continue to deliver exceptional value to our clients while scaling our business to new heights.”

Haas is a Certified Public Accountant and has an MBA in finance. He resides in Virginia.

Beneficiaries of retirement savings have been in limbo for the past 4½ years because the SECURE Act of 2019 (1.0) radically changed the beneficiary distribution rules and the Treasury/IRS proposed an interpretation of those rules that was unexpected and never finalized. That uncertainty ends now, as the IRS finalized its regulations on the required minimum distribution (RMD) and beneficiary distribution rules under SECURE 1.0. The final regulations primarily confirm the proposed interpretations and apply beginning January 1, 2025. 

The question

SECURE 1.0 changed the rules so that most types of beneficiaries inheriting a retirement plan account or IRA in 2020 or later must deplete the inherited account by the end of the 10^th year after the account holder’s death. (The only beneficiaries who can stretch payments over their life expectancy are spouses, and those who are less than 10 years younger than the account holder, disabled or chronically ill,) The wording in SECURE 1.0 led many in the industry to believe the 10-year rule would apply in the same way as the old 5-year rule so that beneficiaries could take distributions at any time, including waiting until the 10^th year.

The IRS’s proposed regulations, however, indicated that beneficiaries whose only option is the 10-year rule and who inherit from an account holder who died after they had reached the beginning date for taking RMDs must take a life expectancy payment each year in addition to depleting the account by the end of the 10^th year. But because that interpretation wasn’t published until 2022 and has since remained just a proposal, it hasn’t been clear whether those beneficiaries need to take a payment each year. Due to this confusion, the IRS has waived the excise tax for beneficiaries in this category who did not take a required payment in 2021, 2022, 2023 or 2024.

The answer

The final regulations confirm the proposed interpretation of the 10-year rule for beneficiaries whose only option is the 10-year rule:

• If the account holder died BEFORE their required beginning date for RMDs, the beneficiary may take distributions at any time so long as the inherited account is depleted within 10 years.
• If the account holder died AFTER their required beginning date for RMDs, the beneficiary must take annual distributions based on the longer of their life expectancy or the account holder’s remaining life expectancy AND deplete the inherited account within 10 years.

The preamble to the regulations also confirms that beneficiaries affected by this issue don’t have to go back and take any missed distributions, but they must still count the years 2021–2024 in their 10-year countdown. For example, if an IRA owner died in 2020, the beneficiary’s 10-years to deplete the account expires at the end of 2030.

Financial advisors and financial institutions can now confidently assist clients with investment and tax strategies surrounding the timing of beneficiary distributions under the 10-year rule.

Stay tuned

The final regulations are lengthy and include other notable clarifications. The IRS also published proposed regulations to implement the additional changes for RMDs and beneficiaries made by SECURE 2.0.  IRALOGIX will continue analyzing both sets of regulations and will provide more details in the coming months.

Two federal courts in Texas have granted plaintiffs’ requests to delay the effective date of the DOL’s new fiduciary rule, pending further court action. As a result, the DOL’s most recent final regulations to re-define an “investment advice fiduciary” to cover more investment professionals, retirement accounts, and types of investments will not become effective September 23, 2024 – or possibly ever.

While one court’s ruling provides a stay of the fiduciary rule and PTE 84-24, the other court’s ruling includes the fiduciary rule and all accompanying PTE amendments, including PTE 2020-02.

Reasons for the stay

One lawsuit, filed in the Eastern District of Texas by the Federation of Americans for Consumer Choice and others, requested the court to stay the effective date and vacate the DOL’s final rule and PTE 84-24. Plaintiffs claim these pieces conflict with ERISA in several ways, including

• treating as fiduciaries those who engage in one-time recommendations to roll over assets from an ERISA plan to an IRA, and
• treating IRA fiduciaries as subject to the fiduciary duties under ERISA Title I.

On July 25, the court granted a stay of the effective date for the rule and PTE 84-24, stating the rule was too close to the DOL’s fiduciary rule that was vacated by the U.S. 5^th Circuit Court of Appeals in 2018, which also eliminated the “regular basis” and “primary basis” elements of the 1975 Five-Part test.

Another lawsuit, filed in the Northern District of Texas by the American Council of Life Insurers and others, requested a stay of the effective date of the DOL’s new fiduciary rule and all PTE amendments released with the rule. On July 26, this court granted plaintiffs’ request, citing the court order from the Eastern District and agreeing that the DOL’s new fiduciary package conflicts with ERISA and exceeds the DOL’s statutory authority.

Both court rulings state that plaintiffs are likely to succeed on the merits of their claim, with the Northern District stating that “plaintiffs are virtually certain to succeed” with their request for the new rule to be vacated.

Status Quo for now

Investment professionals providing advice to retirement savers should continue operating under the 1975 Five-Part test for determining non-discretionary fiduciary status under ERISA. If an advisor meets all five criteria of that test, the advisor will be deemed to be a fiduciary under ERISA and would need to meet the conditions of the existing PTE 2020-02 (or another exemption) to receive compensation that would otherwise be prohibited.

A federal court in Texas has granted plaintiffs’ request to delay the effective date of the DOL’s new fiduciary rule that would have assigned ERISA fiduciary status to more investment professionals, including insurance agents. The DOL’s new definition of fiduciary will not become effective September 23, 2024 and is stayed until further order of the Court. The Court also stayed the effective date of the amended PTE 84-24, which the DOL had amended to apply solely to independent insurance agents.

Reasons for the stay

Although the Court order includes details on several reasons for granting the stay, the Court summarizes as such:

“Plaintiffs are likely to succeed on the merits of their claim because the 2024 Fiduciary Rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in onetime recommendations to roll over assets from an ERISA plan to an IRA. DOL’s related amendments to Prohibited Transaction Exemption 84-24 are also unreasonable and arbitrary and capricious.”

What about PTE 2020-02?

The DOL’s regulatory package changing the definition of an “investment advice fiduciary” included amendments to expand PTE 2020-02 and to eliminate the availability of several other PTEs.  These were not included in the Court’s stay order because the plaintiffs, an insurance industry trade association and others in the insurance industry, did not include them in their request.

Now what?

Pending clarification from the DOL, presumably the amendments to PTE 2020-02 and the other PTEs will still become effective on September 23, 2024, along with the one-year transition period for full compliance with PTE 2020-02. The DOL stated in its preamble to the amended PTE 2020-02 that each of the PTEs “operates independently and should continue to do so if any component of the rulemaking is invalidated.”

This means that PTE 2020-02 would still be the primary PTE available to most providers of non-discretionary fiduciary investment advice that need a PTE to receive compensation that would otherwise be prohibited.  The big difference now is that only non-discretionary investment advice fiduciaries under the existing rules would need a PTE.  And one-time rollover recommendations do not typically trigger fiduciary status under existing regulations.

Until we have more guidance, only investment professionals and financial institutions whose service models trigger fiduciary status under the existing rules may need to prepare to comply with the amended PTE 2020-02 by September 23, 2024.