FOR FINANCIAL PROFESSIONALS:
New ERISA Rules from the Biden Administration
On Halloween last week, the Biden administration released it’s new rules for ERISA Fiduciaries available to the public.
I spent most of the weekend reading every article I could find about the rule.
There were numerous articles written and most were very general in nature.
However, there were several I read from ERISA law firms which were .factual and informative.
(Unlike, the highly critical articles I read from those in the insurance industry).
In full disclosure, I have not read all of the 600+ pages.
However, based off of what I read regarding the (proposed) rules, I have a few opinions.
First and foremost, if you are an IAR who has been fully complying with PTE2020-02, this new rule will not affect you that much.
(If you are a financial professional and you don’t know what PTE 2020-02 is, then you will soon be barred from the industry)! - Just kidding (kind of).
The Biden administration is looking to make the Trump Rollover Rule (PTE 2020-02) the most used exemption for financial professionals doing rollovers.
PTE 2020-02 basically says, don’t lie, don’t put your clients interest ahead of yours, and (this is the BIG ONE) put in writing a side by side comparison of all the costs and services related to the employer plan and the IRA you are recommending AND write (in English) why it’s in your client’s best interest to move their money to your IRA.
Again, if you are already doing this, then the Biden rules won’t affect you that much.
If you haven’t been doing this, mainly because your selling insurance products, then you are going to HATE the Biden proposal.
They are looking to move all insurance agents and brokers under the PTE 2020-02 rules (which they are not currently required to use).
This will be a BIG deal for the insurance industry if the rule survives.
I fully expect the insurance industry to throw every legal challenge they can think of at this one.
They have already started writing opinion pieces about not being able to sell Fixed and Equity Indexed Annuities if they have to use PTE 2020-02.
So, I am looking forward to watching the battle between the insurers and the Biden Administration.
The other big takeaway I have seen, and this will affect EVERY financial professional, is the DOL is trying to pull IRAs into Title I of ERISA.
This is where it gets a little complicated!.
SHAMELESS PLUG: Don’t worry, we have an ERISA Best Practices course coming out soon.
IRAs are currently under Title II of ERISA.
Most of Title II is regulated by the IRS, not the DOL.
Title I is regulated by the DOL and has to do with employer sponsored plans.
If the DOL is successful in pulling in IRAs into Title I protections, many financial “professionals” may no longer be able to work with IRAs.
ERISA is very strict in regards how assets are managed and advised.
ERISA is very “check the box” on what is required before one can advise or trade an ERISA covered accounts.
ERISA allows for participants to go directly to court and file class action lawsuits.
Currently IRAs do not allow this.
Most IRA agreements use a mandatory arbitration clause to prevent any participants from using the court system and from being able to file any class action lawsuits.
This could be a dramatic change to the financial industry as a whole if the DOL is able to pull IRAs under section Title I of ERISA.
I am looking forward to seeing this battle play out as well.
As an ERISA Nerd, I am really excited about what I have read so far.
And I am really excited that the changes will keep ERISA Fiduciary duties in the spotlight for quite sometime as most don’t even know what that means!
I will be writing on this often, so be sure to check back.
Do not let me know your thoughts and comments on this.
Please send them to kevin@planconfidence.com (and let me know when you send the email if it is ok to publish your thoughts in a future blog).
Stay confident my friends!
This update has been written by Kevin T Clark, RF™.
All opinions expressed are those of the author and not that of Plan Confidence Corporation nor any other firm or individual.
Kevin T Clark, RF™ is the CEO and Co-founder of Plan Confidence Corporation.
Kevin is an ERISA Nerd and one of only a hundred(ish) Dalbar certified Registered Fiduciaries (RF™) in the United States.
He has been helping hard working Americans invest their money since 1997!
Plan Confidence Corporation is an SEC registered investment firm specializing in providing advice to hard-working Americans investing in their employer’s retirement plans (401k, 403b, TSP, etc).
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