Last week, the U.S. Department of Labor (the “DOL”) on December 15, 2020 issued a release (the “Release”) finalizing an important new initiative for retirement accounts (“Plans”) that are subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) or Section 4975 of the Internal Revenue Code of 1986 (the “Code”). The Release finalizes Prohibited Transaction Class Exemption (“PTCE”) 2020-2, which provides an exemption from ERISA’s and the Code’s prohibited transaction rules for individuals and institutions that wish to assert they are (or otherwise are at risk of being) fiduciaries by virtue of providing “investment advice” as defined under ERISA or Section 4975 of the Code (“Investment Advice”) to Plans and that also intend to offer them financial products and services. The Release is also important because it sets forth in the Release’s preamble the DOL’s views regarding certain aspects of what makes one an Investment Advice fiduciary. Our OnPoint on the proposed version of PTCE 2020-2 (the “Proposed Exemption”) can be found here.
By way of brief background, the original 1975 Investment Advice Regulation (the “1975 Rule”), which had stood for over 40 years, had been substantially amended in 2016 under the prior presidential administration. The 1975 Rule sets forth a five-part test (“Five-Part Test”) under which one may be considered an Investment Advice fiduciary. The path to finalization of 2016’s amended rule (the “2016 Rule”) was extremely circuitous, and the 2016 Rule was ultimately vacated in 2018 by the U.S. Court of Appeals for the Fifth Circuit.1 In connection with the release of the Proposed Exemption, the DOL expressly reinstated the 1975 Rule, and also reinstated Interpretative Bulletin (“IB”) 96-1, which relates to what is considered investment education (as opposed to Investment Advice) and which had been superseded when the 2016 Rule was finalized. The DOL also continued in effect certain transition relief (discussed below) that had been contained in Field Assistance Bulletin (“FAB”) 2018-02.
The Release gives rise to at least three broad important considerations:
We expect in the coming weeks to have an extensive OnPoint on the Release with further and more in-depth analysis.
1 Chamber of Commerce v. US Dep’t of Labor, 885 F.3d 360 (5th Cir. 2018).