DOL Issues Temporary Rules on Transactions

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) has issued a new prohibited transaction rules policy. Accordingly, Field Assistance Bulletin 2021-02, “Temporary Enforcement Policy on Prohibited Transaction Rules Applicable to Investment Advice Fiduciaries,” is now available. In light of the release on October 25th, 2021, investment advice fiduciaries are now subject to new enforcement policies regarding prohibited transactions. Earlier, in April 2021, the EBSA issued cybersecurity guidance to help employers protect worker retirement benefits for the first time.

Background of the Temporary Prohibited Transaction Rules Policy

Previously, on December 18th, 2020, the EBSA adopted Class Prohibited Transaction Exemption 2020-02, “Improving Investment Advice for Workers & Retirees.” Basically, the new exemption fell under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. Generally, the exemption applies to fiduciaries who provide investment advice to ERISA-covered pension plans and individual retirement accounts. To sum up, under ERISA and the Internal Revenue Code, benefit plan fiduciaries, could not engage in certain activities. For example, any self-dealing or compensation from third parties in connection with associated plan transactions was illegal. Exemption 2020-02, however, allowed investment advice fiduciaries to receive payment and engage in principal transactions. As shown above, those actions would typically violate the prohibited transaction provisions of both ERISA and the Internal Revenue Code. Correspondingly, the exemption became effective on February 16th, 2021. Markedly, the EBSA provided transitional relief for institutions until December 20th, 2021. By and large, the relief allows affected entities to meet the requirements under Exemption 2020-02.

Overview of the New Temporary Prohibited Transaction Rules Policy

The EBSA received concerns from affected parties as a result of the exemption and the looming implementation date. For instance, institutions worried that they would incur high costs to disclose information to clients by the December 20 cutoff. Chiefly, the disclosures would state the prohibited transaction rules now in effect. Financial institutions also asserted that the December date would make conducting required retrospective reviews challenging for the 2021 calendar year. For those reasons, the new Field Assistance Bulletin provides that from December 21st, 2021, through January 31st, 2022, the EBSA will not pursue expressly prohibited transaction claims. Specifically, claims against investment advice fiduciaries working diligently and in good faith to comply with the December 2020 exemption. Finally, the EBSA will not enforce specific documentation and disclosure requirements within the December 2020 exemption until June 30th, 2022. However, all other exemption provisions will be subject to full enforcement on February 1st, 2022.