How to Handle the DOL’s New IRA Rollover Rule

How are advisors coping with the new Department of Labor (DOL) rollover rules? Here are a dozen observations.

A couple of weeks ago, I received a question from an Inside Information reader: She was wondering how other advisors are coping with the new DOL regulations regarding IRA rollovers – formally known as Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees.

As of February 1 of this year, the DOL regards any recommendation to rollover assets from a 401(k) plan not managed by you, the advisor, to an IRA that is managed by you to be a prohibited transaction – unless you can document, to the client and (probably) the satisfaction of a future auditor, that the rollover is in his/her best interests. That sounds to me like ”guilty until proven innocent,” but it’s now something the advisory community has to live with.

Moreover, the rule takes the position that the rolled-over assets in the IRA are now subject to ERISA rules that the DOL administers, which means that any and all activities around managing those assets, including collecting fees, would fall under the fiduciary requirements of ERISA, presumably for as long as the IRA is under your management.

Most advisors reading this are not in danger of not providing prudent investment advice to your clients or making misleading statements. Meanwhile, the rule says you must charge ”reasonable compensation,” which is unhelpfully not defined, but most of you will fit whatever definition the DOL people had in mind.

The rule requires written disclosures to your prospects and clients that outline the reason the rollover recommendation is in their best interest – and that’s the part of the question that I passed on to the community. What does that written document look like? What should be included, and where do you get the relevant information about the current plan (not just fees, but also services provided) in order to make a fair comparison?