The DOL PTE Deadline is Approaching – Is Your Firm Ready?

By Ed Wegener

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Most of the DOL’s Prohibited Transaction Exemption (PTE) is in effect and you should have in place policies and procedures for complying with the Impartial Conduct Standards required by the exemption. Enforcement for the requirement to document and disclose rollover assessments began on July 1, 2022. If you haven’t started already, it is important that you address this requirement now, as it is the exemption’s heaviest lift.

In our previous Blog on the Prohibited Transaction Exemption we outlined the requirements of the exemption, including the impartial conduct standard, specific disclosures requirements, compliance requirements and the requirement to conduct annual retrospective reviews. In this blog, we want to highlight the specific requirements related to rollovers. The DOL requires specific considerations when making rollover recommendations, and it also requires a written disclosure to the client outlining why the recommendation was in the best interest of client.

The DOL has stated that, when recommending a client roll over assets from an employee benefit plan to an IRA, firms must consider, among other things:

  • alternatives to a rollover, including leaving the money in the investor’s employer’s plan, if permitted;
  • fees and expenses associated with both the plan and the IRA;
  • whether the employer pays for some or all of the plan’s administrative expenses; and
  • the different levels of services and investments available under the plan and the IRA.

When recommending rollovers from another IRA or recommending a client transfer from a commission-based account to a fee-based arrangement, the DOL will be looking to ensure that consideration was given to the differing fees and costs and the services available in the new arrangement. These considerations should be documented. Consideration must be given to the long-term impact of any increased costs and why the rollover is appropriate given any additional costs.

One of the most challenging components is going to be obtaining information about employer-sponsored plans. The DOL expects firms to make “diligent and prudent efforts” to acquire information about the existing plan and to provide a “full explanation” of the significance of the information to the client. If clients are unwilling or unable to provide the information and it is not otherwise readily available, firms are allowed to make a “reasonable estimation of expenses, asset values, risk, and returns based on publicly available information.” In such cases firms can rely on sources such as the employer’s most recent Form 5500, or they can use estimations based on reliable benchmarks on typical fees and expenses for the type and size of plan at issue. There are a number of vendors that can help in this regard. If using such an estimation, it will be important to document and explain the assumptions that were used and the limitations of the assumptions.

Firms will also be expected to monitor for compliance with the requirements of the PTE.  Firms can use manual forms and disclosures, but that will make monitoring difficult. There are a number of vendors that have effective tools for guiding firms through the assessment process, documenting the assessment and providing the required disclosures to clients. Using such a system can make monitoring for compliance much easier.

As you can see, there will be a lot to do. Oyster’s professionals can help you prepare your procedures, train of your staff and conduct an assessment of available tools and vendors. We can also assist in conducting the required annual retrospective review. Click here for more information about how Oyster can provide your firm with additional compliance support.

About The Author
Photo of Ed Wegener

Ed Wegener

Ed Wegener is an innovative compliance, risk management and supervisory controls expert with deep understanding of Federal Securities Laws and the rules of self-regulatory organizations, as well as technology optimization and risk mitigation. Prior to joining Oyster, Ed held several posts in FINRA, most recently as  Senior VP and Midwest Regional Director.