Karen Shriver is an associate and Greg Nowak and Michael Crumbock are partners at Troutman Pepper. This post is based on a Troutman Pepper memorandum by Ms. Shriver, Mr. Nowak and Mr. Crumbock, Greg Parisi, Terrance James Reilly, and Evelyn Traub.
On June 29, 2020, the U.S. Department of Labor (DOL) announced a new proposed class exemption to certain prohibited transaction restrictions in the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code of 1986, as amended (the Code), entitled “Improving Investment Advice for Workers & Retirees.” The proposed exemption is intended to help workers and retirees by preserving the wide availability of investment advice arrangements and products for retirement investors. The proposed exemption is expected to be well-received by “investment advice fiduciaries,” because it is broader and more flexible than the DOL’s pre-existing prohibited transaction class exemptions which generally provide relief for more discrete transactions. Here are five things you should know about the proposed exemption.
1. Background
In 1975, the DOL established a five-part test for fiduciary status under ERISA. The Code uses identical wording for the five-part test in its definition of fiduciary. Under both ERISA and the Code, a person is an investment advice professional if the person renders “investment advice” for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, OR has any authority or responsibility to do so.