Will ERISA’s Fiduciary
Exemption “Rollover”
to the New Administration?
DOL Issues Year-End Package
Relating to “Investment Advice.”
Authored by
Steven Rabitz, Andrew Oringer
and Aryeh Zuber
January 2021
Will ERISA’s Fiduciary Exemption “Rollover” to the New Administration?
DOL Issues Year-End Package Relating to “Investment Advice.”
January 2021 | Authored by Steven Rabitz, Andrew Oringer and Aryeh Zuber
Overview
The U.S. Department of Labor (the “DOL”) on December 15, 2020 issued a release (the “Release”) finalizing
Prohibited Transaction Class Exemption (“PTCE”) 2020-2 (the “Final Exemption”) 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 Final Exemption provides relief 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 preamble to the Final Exemption (the “Final Preamble”) the DOL’s most recent
published views regarding significant aspects of what makes one an Investment Advice fiduciary. We previously
noted the issuance of the Release in a prior NewsFlash, and our OnPoint on the proposed version of PTCE 2020-2
(the “Proposed Exemption”) can be found here.
Introduction
In General
The 1975 regulation regarding the definition of Investment Advice (the “1975 Rule”), which had stood for
approximately 40 years, had been substantially amended in 2016. The 1975 Rule set forth a five-part test (the “Five-
Part Test”) under which one may be considered to be providing Investment Advice and therefore be a Plan fiduciary.
The path to finalization of the 2016 amendment of the 1975 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
1Chamber of Commerce v. US Dep’t of Labor, 885 F.3d 360 (5th Cir. 2018).
Dechert LLP
January 2021 Page 2
which had been superseded when the 2016 Rule was finalized2. The DOL also continued in effect certain transition
relief (discussed below) that had been contained in Field Assistance Bulletin (“FAB”) 2018-02.3 In FAB 2018-02, the
DOL generally stated it would not pursue prohibited transactions claims against Investment Advice fiduciaries who
work to comply with the “impartial conduct standards” that had been set forth in the now-vacated exemptive relief
issued in connection with the 2016 Rule.
The Release is the latest chapter in the saga of the amended fiduciary rule, although, especially in light of the
upcoming change from a Republican administration to a Democratic one, likely not the last. The Release does not
establish a new fiduciary rule. Rather, it is essentially a package that (along with the release relating to the Proposed
Exemption) includes (i) a reinstatement of the 1975 Rule, (ii) additional color from the DOL on a variety of elements of
the 1975 Rule and (iii) a new exemption that can be used by financial institutions to the extent they affirmatively wish
to be, or otherwise conclude that they are or may be, regarded as Investment Advice fiduciaries. The Final
Exemption may be relevant in many circumstances, including where an institution and/or its personnel seek to
rollover assets from employer-sponsored Plans to individual retirement accounts (“IRAs”).
There are at least three broad areas of interest surrounding the Release:
The Conditions of the Final Exemption. The Final Exemption is substantially similar to the Proposed
Exemption with some exceptions, including changes regarding the required compliance report and regarding
who may provide the necessary certification. The DOL also clarifies that, while the consequence of showing
deficiencies in the compliance report could result in the possibility of a prohibited transaction, there is now a
new limited self-correction provision.
DOL’s Interpretation of Five-Part Test, Including as to Rollover Solicitations. The preamble to the
Proposed Exemption (the “Proposed Preamble”) contained some arguably unexpected color on the DOL’s
thinking about key elements of the Five-Part Test, particularly as regarding the solicitation of rollovers. The
Release generally stands by that additional color, and believes it has given “a clear roadmap for determining
when they are and are not [investment advice] fiduciaries.” There may, however, be some additional
flexibility indicated by the Release, and the Final Preamble expressly notes that “parties can make clear in
2 IB 96-1 sets out the DOL’s view of what constitutes investment education as opposed to Investment Advice. IB 96-1 was
substantially modified under the 2016 Rule, and the Release proposes officially to reinstate it as it was. The fact that IB 96-1
permits models to include a given individual’s entire financial picture (i.e., not just assets in a Plan) has been helpful not only
for individual Plan participants, but also for Financial Institutions, in developing materials that allow Plan participants and
fiduciaries to choose among a suite of possible investment options and other products and services.
IB 96-1 provides guidance on Plan related information that informs “a participant or beneficiary about the benefits of plan
participation, the benefits of increasing plan contributions, the impact of preretirement withdrawals on retirement income, the
terms of the plan, or the operation of the plan” and “investment alternatives under the plan (e.g., descriptions of investment
objectives and philosophies, risk and return characteristics, historical return information, or related prospectuses.” IB 96-1
characterizes as investment education, among other things, the use of certain asset allocation models and the use of certain
“questionnaires, worksheets, software, and similar materials which provide a participant or beneficiary the means to estimate
future retirement income needs and assess the impact of different asset allocations on retirement income.”
3 The Proposed Exemption also had the effect of reinstating several important prohibited transaction class exemptions in the
form that they were in immediately prior to their 2016 Rule form. These include widely used exemptions such as PTCE 75-1,
PTCE 77-4, PTCE 84-24 and PTCE 86-128, as well as PTCE 80-83 and PTCE 83-1.
