On February 16th, 2021, new fiduciary investment advice guidelines issued by the U.S. Department of Labor (DOL) went into effect. Enforced by the Employee Benefits Security Administration (EBSA), the rule follows the guidelines explained within Prohibited Transaction Exemption 2020-02. This final rule comes after the DOL issued a rule on employee benefit plan rights.

The Biden administration previously issued a memo to suspend new regulations issued during the final days of the Trump administration. Specifically, the purpose of the suspension is to provide the current administration with the opportunity to review those regulations. The EBSA, however, announced on February 12th, 2021, that this rule would still go into effect as planned.

Summary of the Rule

Named “Improving Investment Advice for Worker & Retirees,” the rule is an exemption targeted towards investment advice fiduciaries (IAFs). The exemption allows IAFs, as defined under the Employee Retirement Income Security Act (ERISA), to receive compensation for investment advice. The rule also allows the fiduciaries to engage in principal transactions that would otherwise violate ERISA provisions. The exemption also provides the DOL’s final interpretation of when advice pertaining to plan asset rollovers is fiduciary investment advice. This includes advice dealing with retirement plan asset rollovers to or between IRAs.

According to EBSA Deputy Assistant Secretary of Labor Ali Khawar, the exemption “… allows for important investor protections.” These include a stringent the ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA-protected retirement accounts. Khawar continued, “We recognize […] providers have been preparing for [this], and this step [allows] them to implement important changes.”

Employer Takeaways

In summary, the exemption clarifies that it applies to SEC- and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees. Any agents and representatives that are investment advice fiduciaries are also included within the exception. Employers, however, should be aware of the exemption and its conditions in their engagement and interactions with plan service providers. The allowances now included within the exemption, detailed above, could affect the plan provisions offered to employees.