Whether or not to roll over retirement savings from an employer-sponsored plan is one of the most important financial decisions an investor will make in his or her lifetime.

When an investor rolls over an employer-sponsored retirement plan into an individual retirement account (IRA), the financial professional stands to benefit.  To ensure rollover recommendations are in the investor’s best interest, the Department of Labor (DOL) has established new requirements under Prohibited Transaction Exemption (PTE) 2020-02, Improving Investment Advice for Workers and Retirees.

As outlined in the DOL’s Frequently Asked Questions (FAQ), the fundamental goal of PTE 2020-02 is that “investment advice fiduciaries who rely on the exemption must render advice that is in their plan and IRA customers’ best interest in order to receive compensation that would otherwise be prohibited in the absence of an exemption.” To achieve this goal, the rule outlines specific analysis and disclosure requirements.

This article reviews the PTE 2020-02 disclosure requirements and outlines how financial professionals and compliance teams can adequately meet them.

What Are the Disclosure Requirements for PTE 2020-02?

The DOL’s PTE 2020-02 FAQ outlines three disclosure requirements:

1. An acknowledgment that the financial institution and the financial professionals are fiduciaries.
2. A description of the services provided, including the expected fees, and the material conflicts of interest.
3. An analysis that outlines why the rollover recommendation is in the investor’s best interest.

Though the first two requirements are important, they may be easier to operationalize given that they can be addressed by a one-time standard disclosure document. The third requirement will comprise the bulk of work for firms, as it necessitates a consistent and compliant framework for outlining why a rollover recommendation is in an investor’s best interest.

Compliance teams will also need to keep the retrospective review requirement of rollover recommendations top-of-mind. Specifically, they will need to ensure the rollover analysis framework and ensuing investor disclosure is reasonably streamlined across the firm. This exercise alone will require significant planning and resources. This is largely why the implementation deadline to adopt the specific documentation and disclosure requirements has been delayed until June 30.

Requirements for Making Best Interest Rollover Disclosures

The DOL’s FAQ outlines the factors that financial institutions and investment professionals should consider when documenting best interest rollover recommendations. As outlined in Question 15, recommendations to roll over assets from an employee plan into an IRA should include the following relevant factors:

• The alternatives to a rollover, including leaving the money in the employer-sponsored plan, if permitted.
• The 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.
• The different levels of services and investments available under the plan and the IRA.

Similarly, Question 15 also explains that, for rollovers from another IRA or from a commission-based account to a fee-based arrangement, “the analysis should include consideration of factors such as the long-term impact of any increased costs; why the rollover is appropriate notwithstanding any additional costs; and the impact of economically significant investment features such as surrender schedules and index annuity cap and participation rates.”

As outlined in the FAQ, rollover recommendations must be thoroughly documented, and copies must be maintained for both internal and external review. To meet the third disclosure obligation, documentation must include a balanced presentation with full details of the analysis demonstrating why the rollover recommendation is in the client’s best interest.

Making Best Interest Rollover Recommendations Using Technology

Firms can check many boxes, including the PTE 2020‑02 disclosure requirements, by deploying technology that allows financial professionals to analyze, document and disclose rollover recommendations within a single workflow.

InvestorCOM RolloverAnalyzer is a drop-in, cloud-based application for financial professionals to make best interest rollover recommendations and consistently document and disclose their analyses to clients. RolloverAnalyzer is intuitive to use and the only technology available today that digitizes and automates a firm’s rollover processes via a single end-to-end workflow. Using this application, financial professionals will find it easier to meet their PTE 2020-02 regulatory obligations, and compliance teams will find it easier to administer a consistent, firm-wide process for disclosure and documentation of rollover recommendations.

With RolloverAnalyzer, financial professionals can intuitively and quickly:

1. Analyze a rollover by comparing the rollover recommendation against cost, service and fit criteria.
2. Access plan data via automated integration with Form 5500 and benchmark data, enabling financial professionals to assess and compare plan costs.
3. Document and disclose the recommendation to clients and maintain a record of it for compliance review.

Firms of all sizes are opting to deploy RolloverAnalyzer to get ready for the PTE 2020‑02 deadline. Learn more about RolloverAnalyzer or request a demo.

Tags: PTE 2020-02