Compliance Steps Fiduciaries Should Take Now to Help Ensure Continued Adherence with the DOL’s New ERISA Exemption

Professionals who work with “Plans”, as defined under the Employment Retirement Income Security Act of 1974 (ERISA), and for those that recommend certain investments to individual retirement accounts (“IRA”), such individuals must be mindful to update their firm’s policies and procedures now that the U.S. Department of Labor (DOL) is proceeding with the adoption of a fiduciary exemption that can impose restrictions upon and prevent fiduciaries from engaging in certain activities.

The exemption, designated by the DOL as Prohibited Transaction Exemption (PTE) 2020-02, is particularly noteworthy in that it allows financial institutions and investment professionals “who provide fiduciary investment advice to retirement investors to receive otherwise prohibited compensation and engage in riskless principal transactions and other principal transactions.” To do so, certain analyses and procedures must be in place and established throughout the firm.

For example, the DOL now considers that a financial institution may be a fiduciary when it gives advice to roll assets out of a Plan and subsequently receives a fee for the management of those assets held in an IRA.

The adoption of PTE 2020-02, which took effect on February 16, 2021 (it is noteworthy that the non-enforcement policy established for a prior version of a similar exemption will remain in effect until December 20, 2021), likely will prompt DOL investigators to focus on fees charged, potential conflicts of interest, and rollovers from retirement Plans that do not serve the best interest of clients. As such, professionals that may fall within the scope of PTE 2020-02 also should be forewarned that just because a Plan transaction complies with U.S. Securities and Exchange Commission (SEC) regulations, the transaction in question may run afoul of DOL regulations.


The DOL’s Five-Part Fiduciary Test

Given the evolving nature of the PTE 2020-02, the DOL continues to provide supplemental guidance on this matter. Most recently, the DOL issued additional guidance[1] wherein the DOL established the definition of fiduciary investment advice and the application of the five-part test. Based on the guidance, such five-part test considers the totality of the circumstances under which a financial institution or investment professional:

  1. Render advice to the Plan, Plan fiduciary, or IRA owner as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing, or selling securities or other property
  2. On a regular basis;
  3. Pursuant to a mutual agreement, arrangement, or understanding with the Plan or Plan fiduciary (including an IRA owner), that
  4. The advice will serve as a primary basis for investment decisions with respect to Plan assets, and that
  5. The advice will be individualized based on the particular needs of the Plan.


How Would You Answer These Questions?

While PTE 2020-02 is in effect, the DOL has said it will not bring action before December 20, 2021, against fiduciaries who are working diligently and in good faith to comply with the new standards. Accordingly, the DOL’S FAQ as provided herein should be considered a must read for all financial and compliance professionals.  Now is the time to write clear answers to the following potential questions from professionals to ensure your firm is adhering to the DOL’s regulations regarding retirement plans.

  • Are you a fiduciary under federal laws specifically applicable to retirement accounts?
  • What fees and expenses will I be charged and how will they be paid?
  • What conflicts of interest do you have in making investment recommendations to me?
  • Will you make investment recommendations that are not proprietary to your firm?
  • Why are you recommending I roll money out of my current 401(k) account or IRA?

Be Prepared!

Here’s a short compliance to-do list investment advisers and broker-dealers should consider that will help meet the requirements of PTE 2020-02.

  • An analysis should be made on all compensation received by the firm and its investment professionals to make certain the appropriate supervisory and mitigation controls are implemented toward addressing the potential for incentivizing conflicts.
  • Extensive training and education should be provided all employees, supervisors, and investment professionals regarding the requirements of PTE 2020-02 and the firm’s relevant policies and procedures.
  • A comprehensive review should be made to ensure that the firm’s written policies and procedures address all applicable ERISA requirements and exemptions.

Jacko Law Group can use its customized expertise in regulations governing the fiduciary exemption to help you and your team navigate the finer points of the DOL’s new PTE 2020-02. For more information, contact us at (619) 298- 2880 or visit us online at to schedule a consultation.

[1] See

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