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Prohibited Transaction Exemption – Transition Period Extension

Reymann Law Group

Authors:  Lisa M. Kennerly and Greg Reymann 

On December 18, 2020, the Department of Labor (“DOL”) adopted the Prohibited Transaction Exemption 2020-02 (“PTE 2020-02”) in its every-lasting effort to help promote investment advice that is in the best interest of retirement investors. This exemption puts an emphasis on mitigating conflicts of interest and ensuring that the retirement investors are receiving advice that is prudent and loyal.  

The exemption will be necessary in circumstances where an investment professional provides fiduciary investment advice to plan sponsors, plan participants, or IRA owners, and receives payment which potentially creates a prohibited transaction, and therefore, to avoid breaching a prohibited transaction the professional will be able to comply with the exemption. Timewise, the exemption was first effective on February 16, 2021, but the DOL provided transitional relief through December 20, 2021. Notwithstanding this relief, the financial industry requested additional time and the DOL on October 25, 2021, granted the additional time as described below. The following summary provides general insight into PTE 2020-02, including the new transition periods: 


1. Who is eligible to use the exemption? Basically, anyone in financial services such as investment advisers, broker-dealers, banks, insurance companies, and their employees, agents, and representatives who provide fiduciary investment advice and who therefore may run afoul of the ERISA prohibited transaction rules.

2. What are the conditions to this exemption? There are number of conditions to the exemption, including the following: 

  •   Disclosure – the investment professional must acknowledge their fiduciary status in
        writing and disclose their services and any material conflict of interest; further
        disclosure must be made providing the reasons the recommendations are in the
        retirement investors’ best interest; 
  •   Impartial Conduct – this requires the professional to investigate and evaluate any
        recommendation under a prudent standard, must act with undivided loyalty to the
        retirement investor, charge no more than a reasonable compensation, comply with the
        best execution rule, and avoid making any misleading statements; and
  •   Policies and Procedures – implement written policies and procedures designed to
        ensure compliance with the Impartial Conduct Standards; these procedures must also
        require an annual retrospective compliance review. 

3. DOL’s Timeline. As noted, on October 25, 2021, the DOL announced under Field Assistance Bulletin 2021-02 (“FAB 2021-02”) that the DOL will not pursue prohibited transaction claims against fiduciaries as follows:       

How RLG Can Assist?

The new Rules discussed in this article will result in practice changes for investment adviser fiduciaries. If you are not sure where to start, RLG can review your current compliance manual and suggest changes that will assist with helping you meet your obligations. We recommend you pay close attention to the DOL’s timeline above and not wait until the last minute to implement your new policy.  


U.S. Department of Labor News Release-October 25, 2021

Federal Register

FAB 2021-02

This article does not in any way create an attorney-client relationship. This article should not be seen as legal advice. You should consult with an attorney before you rely on this information.

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