Application of the Prohibited Transaction Exemption

Q. On Dec. 18, 2020, the DOL released Prohibited Transaction Exemption (PTE) 2020-02, “Improving Investment Advice for Workers & Retirees.” It reinterpreted and broadened the five-part test under DOL’s 1975 regulation defining who an advice fiduciary is. To what investment advice does this exemption apply?

A. The final exemption applies to investment advice given to “Retirement Investors”: 

• a participant or beneficiary of a plan subject to Title I of ERISA, or a plan described in Code Section 4975(e)(1)(A) of but not subject to Title I of ERISA, with authority to direct the investment of assets in his or her plan account or to take a distribution; 
• the beneficial owner of an IRA acting on behalf of the IRA; and 
• a fiduciary with respect to a plan or IRA (no matter the size of the plan). ERISA welfare plans with an investment component are covered (e.g., health savings accounts).