Phyllis Borzi: DOL's New Rollover Rules a 'Reasonable Step Forward'

Phyllis Borzi, the former head of the Labor Department’s Employee Benefits Security Administration under President Barack Obama, sees Labor’s new fiduciary prohibited transaction exemption (PTE) 2020-02, Improving Investment Advice for Workers & Retirees, as “a reasonable step forward” for those firms and their representatives who want to continue to receive conflicted compensation.

But the “basic problem,” Borzi told ThinkAdvisor, “lies with the glaring loopholes in the 5-part test [of ERISA setting out who’s a fiduciary] that allows many to escape fiduciary status and accountability, and that needs to be changed directly.”

Borzi told ThinkAdvisor in a previous interview that she expects Labor to update the 5-part test rule in its upcoming new fiduciary rule proposal “… to formally incorporate the evolution of their thinking on several aspects of the five-part test that they discussed in the preamble to PTE 2020-02.”

We asked Borzi, who now serves on Edelman Financial Engines Board, to share her views on PTE 2020-02, which became effective on Feb. 16. Starting Friday, the PTE subjects advisors and firms to more stringent rollover rules.

THINKADVISOR: Do you have other views on PTE 2020-02? 

PHYLLIS BORZI: For those firms subject to [Regulation Best Interest], it clearly builds on what the SEC has done, and since those firms were required to comply with Reg BI in June 2020, their compliance activities should be less burdensome than for firms offering non-security investment products.

Unfortunately, the [National Association of Insurance Commissioners] NAIC model law simply codifies a less-stringent version of the existing suitability standard in those states that have adopted it.

Insurance companies and their representatives have a more significant task to comply with PTE 2020-02 than those firms who have already taken the interim step of complying with Reg BI, but the DOL has given them a reasonable period of time to get up to speed and comply.

Which firms will need to comply with the July 1 deadline?  

Not every financial institution or person providing financial advice is required to comply with any PTE, including PTE 2020-02. But those financial institutions and their investment professionals (both are defined terms in the PTE) who want to receive conflicted compensation in connection with IRA recommendations to plans, participants or IRA owners must comply.