For at least the past five years, firms building rollover compliance programs have been aiming at a moving target. Now they finally have some clarity. Two federal courts vacated the 2024 Retirement Security Rule earlier this year. In March, the Department of Labor implemented the vacatur, republished the 1975 investment advice regulation, and confirmed that the operative text of PTE 2020-02 remains applicable and enforceable. The DOL also stated that it has no current plans to reopen formal rulemaking, though it left the door open to additional guidance.
The result is a period of relative regulatory stability and a rare opportunity for firms to reassess how they handle rollover recommendations.
Many firms responded to years of uncertainty by applying PTE 2020-02 procedures to every compensated rollover recommendation, whether reliance on the exemption was legally required or not. While that approach was defensible, and even sensible, when the rules were shifting, it may now be worth reexamining.
PTE 2020-02 Remains In Effect
The DOL’s 1975 investment advice regulation, commonly called the “five-part test,” once again governs whether a person is an investment advice fiduciary under ERISA and the Internal Revenue Code. All five elements must be satisfied. The advice must relate to the value or advisability of investing in securities or property; be provided on a regular basis; be delivered pursuant to a mutual agreement, arrangement or understanding that such advice is intended to serve as a primary basis for investment decisions; and be individualized to the retirement investor’s needs.
A disciplined rollover review process and the decision to rely on PTE 2020-02 are not the same thing. Firms can maintain a rigorous process that satisfies applicable best-interest, fiduciary and supervisory standards regardless of whether reliance on the exemption is required. The narrower question is when the exemption’s specific conditions, including the rollover disclosure, written fiduciary acknowledgment and retrospective review, actually apply.
What Has Changed
When the DOL republished the operative text of PTE 2020-02 in March, it did not carry over the preamble. The DOL explained that the vacated portion was so closely connected to the surrounding guidance that it no longer had confidence in the soundness of what remained.
Read alongside the litigation history, the withdrawal gives firms a basis to reassess whether PTE 2020-02 applies to a plan-to-IRA rollover recommendation when no pre-existing ERISA fiduciary relationship exists with the participant. The litigation did not alter the exemption’s operative requirements. Instead, it changed the guidance firms had been using to determine whether certain rollover recommendations constitute fiduciary advice and therefore require reliance on the exemption.
That analysis can still be complicated. A firm may have an ERISA fiduciary relationship with a participant even if it receives no compensation directly from the plan or the participant’s plan account. An advisor who provides advice on a regular basis concerning plan assets as part of a broader wealth management relationship may satisfy the five-part test, depending on the facts and circumstances.
Why Precision Matters
Firms relying on PTE 2020-02 must adopt specific policies and procedures. Failure to follow them can create exposure not only under the exemption but pursuant to rules administered by the firm’s primary regulator. Overworked and understaffed compliance programs may need help to get it right because any regulator can enforce a firm’s failure to follow its own policies, even if they are required to be in place by a different regulator.
Overworked and understaffed compliance programs may need help to get it right.
Errors in PTE-required rollover disclosures, for example, understating IRA fees or overstating plan fees, may be treated as misleading statements under SEC, FINRA or OCC rules. The exemption also requires a written acknowledgment that the firm and its investment professionals are fiduciaries under ERISA or the Code, as applicable, and that acknowledgment alone can create a significant hurdle in litigation or arbitration.
Where PTE 2020-02 applies, full compliance remains essential. If a condition is not satisfied and the violation cannot be self-corrected, the firm may face repayment obligations, interest, excise taxes and other liability. The advisor’s intent and the client’s eventual outcome do not eliminate that exposure. Undercompliance is, therefore, not an option.
Overcompliance also carries a real cost. Firms that adopted the broadest posture during years of uncertainty may now be carrying obligations that certain rollover recommendations do not require.
A Chance To Recalibrate
The path between those two outcomes is what I call “optimal compliance”: covering what the exemption requires for each recommendation, and no more.
Achieving that balance requires more than revising a disclosure form. Policies, advisor and supervisor training, and internal documentation should distinguish recommendations that require reliance on PTE 2020-02 from other rollover activity. For larger firms, optimal compliance may require technology that adjusts client-facing disclosures based upon whether the exemption applies while preserving a consistent advisor workflow and internal records that can be made available to primary regulators upon request.
Determining where the exemption applies is not always straightforward.
Determining where the exemption applies is not always straightforward, and firms should work with knowledgeable consultants or ERISA counsel before changing existing requirements. Firms that reassess their procedures now will be better positioned to maintain competitive and compliant rollover programs when, as tends to happen, the rules change again.
Jason C. Roberts is Founder and CEO of Pension Resource Institute and Partner at Fiduciary Law Center.
