Advisor Best Interests Standard # 68: PTE 2020-02 Compliance: Factors to Consider for a Recommendation for Renewal (Part 4) | Faegre Drinker Biddle & Reath LLP


This series focuses on the new DOL fiduciary “rule”, which came into effect on February 16. This article, and the following ones, examine the Frequently Asked Questions (FAQ) issued by the DOL to explain the fiduciary definition and conflict of interest exemption.

Key points to remember

  • The DOL FAQs generally explain PTE 2020-02 and the expanded definition of fiduciary boards.
  • FAQ 15 explains DOL’s opinion on the factors to consider in determining whether a roll recommendation is in the best interests of a plan member. One of the requirements is that the investment professional and the financial institution obtain information about the plan and the member’s account. The preferred approach is to use “primary” data (i.e. actual and current diet data), but in some circumstances “alternative” or secondary data may be used.
  • The requirement that a recommendation to renew a plan to an IRA meet the best interest standard of care already applies, since the DOL’s no-application policy delays the conditions for exemption but not the termination. fiduciary definition.


DOL forbidden transaction exemption, (PTE) 2020-02 (Improving investment advice for workers and retirees), allows investment advisers, brokers, banks and insurance companies (“financial institutions”) and their representatives (“investment professionals”) to receive conflicting compensation resulting from non-trust investment advice. discretionary pension plans, members and IRA owners (“retirement investors”). In addition, in the preamble to the PTE, the DOL announced an expanded definition of fiduciary boards, which means that many other financial institutions and investment professionals will be fiduciaries of their recommendations to retirement investors and therefore will need the protection provided by the exemption.

In April, the DOL published FAQs that explain the fiduciary interpretation and the conditions of the exemption.

This article discusses FAQ 15, a question and answer from DOL on the factors that must be considered in meeting the best interest standard of care for reappointment recommendations. The first article in this sub-series, Best Interest # 65, cited all questions and answers. This week’s article focuses on using primary plan data and alternative plan data.

When most people think of the plan data a trustee needs to recommend a rollover, their thoughts automatically turn to disclosure form 404a-5. However, that is not what the guide says. Here is a quote from FAQ 15:

To meet the documentation requirement for transfers from a benefit plan to an IRA, investment professionals and financial institutions should make diligent and prudent efforts to obtain information about the benefit plan. existing social policies and the interests of the participant therein.

As you can see from this quote, the requirement is that the participant’s plan and account information be reviewed. And earlier in FAQ 15, the DOL explains that the information required on the plan is: the fees and expenses associated with both the plan, whether the employer pays some or all of the administrative costs of the plan, the different levels of service and the investments available under the plan.

It’s pretty clear… information is needed on the plan’s current investments, services, and spending (which I call “master” data). Further details on the requirement are explained in the FAQ, where the DOL says: When considering alternatives to a rollover, the financial institution and investment professional should generally not focus solely on the retirement investor’s existing investment allocation, without any consideration of other options. investment in the plan.

Thus, the position of the DOL is that in order to have a compliant and prudent process for recommending a transfer from a plan to an IRA, one of the requirements is that the investment professional and the financial institution obtain information on :

  • Investments in the plan;
  • The allocation of the member’s assets;
  • Plan fees and expenses; and
  • The services in the plan.

But how can the investment professional get this “key” information?

Concretely, there are several ways:

  • From a 404a-5 disclosure statement;
  • At the benefit office of the participant’s employer (with the assistance of the participant);
  • From the plan’s website (with the help of the member); Where
  • From a sales department which probably obtains the information from the regime’s archivist.

In the above quote, the DOL stated that financial institutions and investment professionals should make a diligent and careful effort to obtain primary information. Is it “diligent and prudent” to just ask? Should the member be advised that they can obtain copies from their plan’s website or from their employer’s benefits office? These questions were not answered by the DOL… but they may be at some point.

In FAQ 15, the DOL uses an example of obtaining information from disclosure 404a-5: In general, this information should be readily available due to departmental regulations requiring disclosure of plan information to plan members (see 29 CFR 2550.404a-5).

However, this is only one way to do it.

But what if none of these options work?

Then, with appropriate warnings to the participant, “alternative” data can be used. FAQ 15 says: If the retirement investor does not provide the information, even after a full explanation of its meaning, and the information is not readily available, the financial institution and the investment professional should a reasonable estimate expenses, asset values, risks and returns based on publicly available information. The financial institution and the investment professional must document and explain the assumptions used and their limitations.

As explained in bold text, in order to use alternative data, the financial institution and the investment professional:

  • Must provide the member with a “full explanation of the importance” of not providing current plan information, and
  • Must document and explain the assumptions used and their limitations.

Even then, there are unanswered questions. For example, this process allows alternative data to be used for “a reasonable estimate of expenses, asset values, risks and returns”. (This data could come from a benchmarking service or from a Form 5500 previously filed by the plan.) But what does that really mean? Does the use of alternative data mean that it is no longer necessary to have information on how the participant is invested in their account? What about the range of investments in the plan? What about the plan’s services? Unfortunately, the DOL did not answer these questions, leaving financial institutions at risk – at least, the risk of the unknown – if they do not have this information. At the very least, it underscores the importance of obtaining primary data, whether it comes from a participant’s quarterly statement, 404a-5 disclosure statement, a sales department, or otherwise.

Final thoughts

The bottom line is that the “master” data clearly meets the DOL’s plan information requirements for a renewal recommendation. However, it is not clear whether the alternative meets all the requirements for obtaining participant plan and account information, or only the requirement, for example, for information on expenses. It is also unclear how much effort is required to meet the “diligent and prudent effort” requirement.

Accordingly, the effort to obtain primary data must be demonstrably diligent and careful (and possibly documented), and warnings to the participant must be complete and meaningful.

A reasonable reading of the guidelines is that the DOL understands that in some cases alternate data may be used. It therefore wants to be a way. But, to take this route, the additional requirements of the DOL must be met.

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