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May 2024

The DOL Adopts Its Final Regulations For Definition of an Investment Advice Fiduciary And PTE Exemption 2020-02

The Department of Labor (DOL) issued on April 26, 2024 its new regulation defining who is an investment advice fiduciary. The final fiduciary regulation is effective as of September 23, 2024. The DOL has stated that it is primarily concerned with voluntary compliance so it will not be aggressive in any enforcement actions for the period of September 23, 2024 to September 22, 2025.

The DOL has written its final regulation so that every rollover or transfer transaction involves a fiduciary act by the financial institutions involved in the transactions. Moving funds from a retirement plan to an IRA is a fiduciary act as is the moving of funds from one IRA to another IRA.

The DOL also defines what a fiduciary needs to do in any rollover or transfer transaction. Regardless of what the customer (retirement investor) wants or expects, the IRA custodian is required to perform certain tasks. The DOL’s position is - not performing these tasks is a prohibited transaction for which the DOL may impose penalties. However, an IRA custodian’s compliance with PTE 2020-02 means there will be no penalties imposed.

The DOL has set forth in the final regulation that it has the authority to impose Title I penalties and/or Title II penalties against an IRA custodian unless it has determined that the best interests of the retirement investor will be met. An IRA custodian must meet its duties of loyalty and care with respect to the customer or client.

As a practical matter, this should not be that difficult when the individual has made the decision to rollover the IRA or transfer funds to your institution.
When IRAs are involved the DOL has little authority it can cite as to why it has the authority to define that any rollover or transaction is a fiduciary act. Congress has not written the laws as the DOL wants them to be written.

We at CWF have expressed our belief that the DOL is overreaching. We still believe this. The DOL argues that Congress has clearly given it the authority to regulate rollovers and transfers of both retirement plan to IRA rollovers and IRA to IRA rollovers. We believe the law is clear - the DOL has been given only limited authority, if any, regarding IRA to IRA rollovers and transfers.
Litigation against the DOL has already commenced. There will be additional litigation.

An IRA custodian/trustee should adopt rules and procedures before September 23, 2024 so that it can demonstrate to the DOL or any other regulator that its procedures are in compliance with the requirements of the amended PTE 2020-02.

We set forth on our IRA System the forms which may be used to show your compliance with the requirements of this new final regulation. Ultimately we expect the courts will rule that the DOL has exceeded its authority.

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