January 14, 2022
New PTE 84-24 Requirements for Independent Agents Effective February 1
In December 2020, the Department of Labor (DOL) announced its interpretation of the five-part test to determine who is an investment advice fiduciary for ERISA plans and IRAs. One prong of the five-part test is whether the recommendation regarding ERISA plan assets or IRAs occurs on a regular basis.
The DOL will examine the conduct of parties when deciding if a transaction satisfies the regular basis prong:
- Was there was a mutual understanding between the client and financial professional that the investment advice was expected to continue and the parties were to have an ongoing relationship after the transaction?
- Does the client’s and financial professional’s conduct show that the purchase was intended as a one-time sales transaction where the client was not relying primarily on the advice of the financial professional and no ongoing relationship was intended?
The DOL’s interpretation means the following recommendations may constitute fiduciary investment advice if the parties’ conduct satisfies the DOL’s five-part test:
- Recommendations to roll over assets from an ERISA plan into an IRA.
- Recommendations about making rollovers or annual contributions to an IRA.
- Recommendations about transferring funds from one IRA to another.
What this means for you
The DOL previously indicated that it would temporarily refrain from bringing any enforcement actions alleging breach of fiduciary duty or prohibited transactions. However, this non-enforcement period ends on January 31, 2022.
Therefore, beginning February 1, 2022, you must determine whether the sale of a fixed or fixed-indexed annuity product involving an ERISA plan or IRA constitutes fiduciary investment advice under the DOL’s interpretation.
A key factor in this analysis is the understanding you and your client have about your relationship before and after the transaction. If there is an ongoing relationship, an independent agent will need to use Prohibited Transaction Exemption (“PTE”) 84-24 to avoid having the sale and your commission treated as a prohibited transaction.
This requirement includes both new sales and additional purchase payments to existing contracts. In addition to DOL enforcement activity related to sales to ERISA plans and rollovers from ERISA plans to IRAs, prohibited transactions are subject to excise taxes (15% of the amount involved for each year before the transaction is reversed, plus an additional 100% of the amount involved if the transaction is not reversed before the 15% per year excise tax is assessed).
How to use PTE 84-24
n order to use PTE 84-24, you must disclose certain information to clients prior to the execution of the transaction. We have created sample PTE 84-24 disclosure forms that you may complete and provide to your client prior to the transaction. The forms are now available on our website. They will be available on our electronic platforms by January 31, 2022. For sales made in connection with a broker/dealer, our sample forms will be available, unless your broker/dealer asked us to exclude them.
- You do not have to use the Great American Life sample forms, but you are responsible for complying with the applicable requirements.
- You do not need to submit the disclosure to us as part of the new business process.
- You should retain a copy of the executed 84-24 form in your records, together with documentation that supports your recommendation as being in the best interests of the ERISA plan participant or beneficiary or IRA owner.
View a sample 84-24 disclosure.
1 (800) 772-6881 x7731 | firstname.lastname@example.org