Fiduciary issues

Executive Order Includes Review of ESG Factors in Retirement Plans

Last week, President Biden issued an Executive Order on Climate-Related Financial Risk, which includes a directive to the Department of Labor (DOL) Secretary to consider publishing, by September 2021, a proposed rule to suspend, revise, or rescind the Financial Factors in Selecting Plan Investments and Fiduciary Duties Regarding Proxy Voting and Shareholder Rights final rules that were published during the Trump administration regarding environmental, social, and governance (ESG) investments and proxy voting by employee benefit plans.

The Secretary is also directed to identify what actions the DOL can take under ERISA and the Federal Employees’ Retirement System Act to “protect the life savings and pensions of United States workers and families from the threats of climate-related financial risk,” along with assessing “how the Federal Retirement Thrift Investment Board has taken environmental, social, and governance factors, including climate-related financial risk, into account.”

Within 180 days, the Secretary is to submit a report to the President on the actions taken in response to this executive order.

This executive order follows the DOL Employee Benefits Security Administration’s March 10, 2021 announcement that it would not enforce either of the final rules until it publishes further guidance. That announcement arose from a January 25, 2021 executive order directing federal agencies to review existing regulations.

Retirement Spotlight: DOL Releases Additional Investment Advice Guidance

Objective investment advice. Simple concept, right? And most everyone agrees that every saver and retirement investor is entitled to this. But ensuring that individuals have access to objective investment advice is easier said than done. In fact, the Department of Labor (DOL) has been trying to make this happen since the 1970s, when it first released a five-part test to help determine whether investment professionals owed their clients a duty to provide objective advice.


This five-part test was created in 1975 to define investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. Since then, regulations have been issued, revised, and vacated. Another round of guidance came in July 2020, when the DOL issued proposed prohibited transaction exemption (PTE) 2020-02 and a technical amendment to DOL Regulations 2509 and 2510. Then in December 2020, the DOL finalized PTE 2020-02, a class exemption and interpretation, entitled Improving Investment Advice for Workers & Retirees. The final PTE outlines the factors that determine when investment professionals are considered fiduciaries—which gives rise to certain duties—and shows how fiduciaries must comply with these responsibilities.

In February 2021, the DOL confirmed that PTE 2020-02 would take effect as scheduled on February 16, 2021. At the same time, the DOL indicated that “in the coming days” it would publish related guidance for retirement investors, employee benefit plans, and investment professionals. This happened on April 13, 2021, when the DOL released two new pieces of guidance. The first piece, entitled New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers & Retirees Frequently Asked Questions, contains a detailed set of frequently asked questions (FAQs) for investment professionals and financial organizations.

The second piece, Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts, contains a list of questions that retirement savers should consider asking their investment professional before following their recommendations.

While some of this information is new, most of it was previously released in PTE 2020-02. For the most part, the DOL has simply released the same guidance in a new, more accessible format. The rest of this article summarizes the main takeaways from this latest round of guidance.

FAQs for Investment Advice Fiduciaries

This first piece of guidance contains FAQs that are separated into four main sections.

  • Background
  • Compliance Dates
  • Definition of Fiduciary Investment Advice
  • Compliance with PTE 2020-02

There is only one Q&A in the Background section, which provides some context and explains why the DOL issued PTE 2020-02.

Compliance Dates

The Compliance Date section explains that the DOL considered delaying the February 16, 2021, effective date. But it believes that the PTE’s core components provide “fundamental investor protections” that will benefit retirement investors. The DOL also states that it will not delay its new interpretation related to rollover recommendations. Although the DOL now rejects the original analysis provided in Advisory Opinion 2005-23A (the “Deseret Letter”), the DOL reiterates that it will not pursue claims for breach of fiduciary duty or prohibited transactions between the 2005 release of the Deseret Letter and February 16, 2021, for recommendations that would have been considered “nonfiduciary conduct under the reasoning in the Deseret Letter.” (The Deseret Letter stated that advice to roll assets out of an ERISA plan did not constitute investment advice.)

The DOL mentions in Q&A 5 that it anticipates issuing additional investment advice guidance, possibly by amending or revoking other class exemptions and by amending PTE 2020-02 and the investment advice regulation. This approach will allow the DOL to update current guidance without delaying enforcement of the PTE’s core components, such as the policy and procedure requirements.

Definition of Fiduciary Investment Advice

In this section (Q&A 7), the DOL explains the point at which the advice to roll over assets meets the “regular basis” requirement for the five-part test. This prong of the five-part test is satisfied when an investment professional recommends rolling over plan assets to an IRA—either at the beginning of an ongoing relationship with the retirement investor or after a relationship has already been established.

Q&A 8 addresses the “mutual agreement, arrangement, or understanding” element of the five-part test. The DOL emphasizes that, although statements containing fiduciary disclaimers may be considered when determining whether this prong of the test has been met, the statements alone will not insulate from fiduciary liability. Instead, the DOL will consider the “reasonable understandings” of each party, based on the overall situation. This is meant to prevent organizations and investment professionals from using written disclaimers to avoid becoming a fiduciary.

Q&A 9 describes what financial organizations and investment professionals must do to receive relief under the PTE when providing rollover recommendations. For example, financial organizations and investment professionals must make “diligent and prudent efforts to obtain information about the existing employee benefit plan.” If this information is not readily available, then the organization or investment professional may rely on other public data sources, such as the current plan’s most recent Form 5500.

Compliance with PTE 2020-02

This section (which is the largest) explains how financial organizations and investment professionals can comply with PTE 2020-02. In Q&A 13, the DOL explains why a written fiduciary acknowledgment is required. The DOL believes that this requirement will help all parties taking advantage of the PTE to make a conscious, up-front determination that they are acting as a fiduciary. The DOL provides sample language that financial organizations and investment professionals can use to meet the written fiduciary acknowledgement requirement.

Q&A 14 requires financial organizations and investment professionals to disclose any conflicts of interest that they create based on their services or recommended investment transactions. The DOL warns that these disclosures cannot be a mere “check-the-box” transaction. Retirement investors must receive “meaningful information” that will help them assess the financial organization’s conflicts of interest.

Q&A 15 discusses documentation requirements for rollover recommendations. Financial organizations and investment professionals must document the factors they considered when determining whether a rollover was in the retirement investor’s best interest. When making a rollover recommendation, financial organizations and investment professionals should focus on more than just the retirement investor’s existing investment allocation: they should consider all investment options in both the current plan and the new arrangement.

Financial organizations must have policies and procedures in place to reduce any conflicts of interest. Q&A 16 describes how financial organizations can meet this mitigation standard. The DOL explains that policies and procedures must be designed to protect retirement investors. They must prevent recommendations to make excessive trades, to choose investments that are not in the investor’s best interest, or to allocate excessive amounts to illiquid or risky investments.

The conflict mitigation requirement extends not only to investment professionals but also to the financial organization’s own interests—including interests in proprietary products and limited menus of investment options that generate third-party payments (e.g., revenue-sharing arrangements). The DOL points out that financial organizations must comply with the PTE’s requirements to obtain relief from the prohibited transaction rules: there is no safe harbor for an organization that solely complies with other regulators’ standards.

A financial organization’s compensation structure must avoid any quotas, bonuses, prizes, or performance standards that a reasonable person would conclude are likely to encourage recommendations that are not in a retirement investor’s best interest. The DOL acknowledges that financial organizations cannot eliminate all conflicts of interest, but it stresses the need to lessen conflicts. For example, if a financial organization offers mutual funds, it could provide the same level of compensation regardless of which mutual fund the investment professional recommends.

An organization’s policies and procedures must include supervisory oversight of investment recommendations. Financial organizations should carefully monitor recommendations involving certain key liquidity transactions (such as rollovers), and recommendations that are at or near compensation thresholds. They should also closely monitor recommendations to invest in assets that are prone to conflicts (such as proprietary products). These requirements were previously mentioned in PTE 2020-02 and align with options identified by the U.S. Securities and Exchange Commission.

Q&A 17 revives some familiar concepts that financial organizations should consider when designing payout grids that determine an investment professional’s compensation.

  • Financial organizations that profit more from certain investments should not shift this potential conflict to their investment professionals by rewarding them with higher commissions on such products.
  • Grids with modest or gradual increases are less likely to create impermissible incentives. Financial organizations should be careful about using grids that disproportionately increase compensation at specified thresholds. These may cause investment professionals to favor their own interests above the client’s.
  • When an investment professional reaches a compensation threshold on the grid, any increase in the compensation rate should be made prospectively: the new rate should apply only to new investments after the threshold is met.
  • To encourage recommendations that are made in the retirement investor’s best interest, financial organizations using escalating pay grids should monitor and supervise investment professional recommendations. Financial organizations should ensure that the thresholds do not create inappropriate sales incentives.

Q&A 18 speaks to how the insurance industry can comply with PTE 2020-02. An insurance company (as the supervisory financial organization) must ensure compliance with the PTE’s terms. Alternatively, the insurance company can work with insurance intermediaries (such as independent marketing organizations), which can assist with its independent obligations under the PTE. Insurers and agents may also rely on PTE 84-24, which provides relief for a smaller range of compensation practices.

Q&A 19 discusses the annual retrospective review requirement. To ensure accountability, senior executive officers must thoroughly review the report before certifying compliance with the PTE: certifying compliance without reviewing the report would violate the PTE.

The DOL explains how to correct PTE violations in Q&A 20. A financial organization can correct violations within 90 days after it learns (or should have learned) about the violation. Both the violation and correction must be included in the retrospective review’s written report.

The DOL concludes this section (Q&A 21), by explaining its PTE enforcement process. The DOL plans to investigate and enforce ERISA-plan compliance. But participants, beneficiaries, and fiduciaries can also pursue fiduciary breaches and prohibited transactions under ERISA Section 502. For IRAs and other non-ERISA plans, the DOL has “interpretive authority” to determine whether the PTE requirements have been met. If the requirements have not been met, the DOL can report any noncompliance to the IRS, which can then enforce any applicable penalties.

Questions for Retirement Investors to Consider

The DOL’s second piece of guidance contains a list of questions that retirement investors should consider asking their financial professionals before following their investment recommendations. The publication also contains a list of FAQs about PTE 2020-02. Overall, this publication is designed to educate retirement investors about a fiduciary’s roles and responsibilities—and why it’s important to know whether an investment professional is, in fact, a fiduciary.

Questions to Ask an Investment Advice Provider

The DOL believes that retirement investors should consider asking these fundamental questions of investment professionals before following a recommendation.

  • Are you a fiduciary?
  • Can I have a written statement that you are a fiduciary (and if not, why)?
  • Are you and your organization complying with PTE 2020-02? If not, are you relying on another exemption, or do you believe that you do not have any relevant conflicts? (If an investment professional indicates that it is a fiduciary but is not relying on the new exemption or a previously issued exemption, the DOL recommends asking why.)
  • What fees will I be charged? Can you give me a list of those fees?
  • What conflicts of interest do you have? Do you or your organization pay anyone else if I follow your recommendations?
  • Are there limitations on the investments you will recommend?
  • Will you monitor the investments in my account? If yes, how frequently?
  • Why are you recommending that I roll money out of my 401(k) plan? (The DOL reminds retirement investors that there are many factors to consider before completing a rollover. Retirement investors should ask multiple questions to ensure that they understand the reasons for the recommendation.)

Questions About PTE 2020-02

To help educate retirement investors about PTE 2020-02, the DOL includes the following Q&As.

  • How do I know if my investment advice provider is relying on the exemption?
  • I received a Client or Customer Relationship Summary from my investment professional. Is that document required by PTE 2020-02?
  • What does it mean to have investment advice provided in my best interest?
  • Is my investment professional automatically on the hook if I lose money?
  • Does my investment professional have to identify the best investment for me?
  • Does PTE 2020-02 contain protections related to rollovers? (The DOL explains that investment professionals must give retirement investors a written document explaining why the rollover is in the investor’s best interest.)

Additional Resources, Online Publications, and Appendix

The last few sections provide a list of additional online resources that retirement investors may find helpful. There is also an appendix that defines common terms that retirement investors should be familiar with.

The DOL stresses the importance of hiring an investment professional who is a fiduciary (as opposed to a nonfiduciary) when getting investment recommendations on retirement accounts. Hiring a fiduciary will help retirement investors protect their interests from harmful conflicts of interest. The DOL also reminds retirement investors to consider hiring a different investment professional if their current investment professional says that they are not a fiduciary with respect to the investor’s retirement account, or that they have conflicts of interest but are not relying on PTE 2020-02.

The Takeaway

This latest DOL guidance package presents helpful information in a more understandable format. Investment professionals and plan sponsors should review this guidance and take any necessary steps to comply with it. They should also make sure that clients and plan participants know and understand their rights under PTE 2020-02.

Ascensus will continue to analyze any new guidance as it is released. Visit for the latest developments.


Click here for a printable version of this issue of the Retirement Spotlight.

Washington Pulse: Department of Labor Releases Cybersecurity Guidance

Recent cyberattacks have gotten a lot of attention. Some of these hacks have created turmoil through a broad swath of the business community. But another widespread menace threatens our financial security. In fact, even as you read this, the global threat of cybercrime continues around the clock as criminals try to steal retirement plan assets.

A recent Government Accountability Office (GAO) report recommended that the Department of Labor (among other things) establish minimum expectations for addressing cybersecurity risks in retirement plans. According to recent estimates, IRAs and defined contribution plans alone hold well over $10 trillion in assets. And they are ripe for exploitation. On April 14, the DOL’s Employee Benefits Security Administration (EBSA) issued—for the first time—guidance for plan sponsors, fiduciaries, recordkeepers, service providers, and plan participants on best practices for maintaining cybersecurity. This guidance comes in three pieces.

While the links above bring you to the full text of the DOL’s guidance, here are some of the highlights from each.

Tips for Hiring a Service Provider with Strong Cybersecurity

Business owners want to run their businesses. So they often hire third-party vendors to handle matters outside their core competencies. This is also true for administering a retirement plan. Employers regularly look to recordkeepers, third-party administrators, and other service providers to conduct a plan’s day-to-day operations. These suggestions may help business owners and others to select and monitor those who provide plan services.

  • Ask about security standards, audit results, and other practices and policies; look for service providers that use an outside auditor to review cybersecurity.
  • Look for contract provisions that allow a review of audit results to verify whether providers comply with industry standards.
  • Ask about past security breaches—and about the provider’s response to any such breaches.
  • Find out whether they have sufficient insurance coverage to cover losses caused by identity theft and other cybersecurity breaches (both internal and external).
  • Make sure that the contract requires ongoing compliance with cybersecurity and information security standards—and use caution if the contract limits responsibility for IT security breaches.
  • Try to include additional cybersecurity-enhancement terms in the contracts, such as
    • a requirement that the provider obtain an annual security audit;
    • clear provisions on using and sharing confidential information;
    • prompt notification of security breaches, and an investigation into the causes of any breaches;
    • assurance of compliance with all laws pertaining to privacy, confidentiality, or security of participants’ personal information; and
    • adequate insurance coverage (including for errors and omissions, cyber liability, and data breach), which employers should understand to avoid surprises.

Cybersecurity Program Best Practices  

This second EBSA piece points out that “responsible plan fiduciaries have an obligation to ensure proper mitigation of cybersecurity risks.” Keep in mind that many service providers carefully avoid taking on an employer’s fiduciary duties. This does not mean, however, that these providers are somehow abdicating their responsibilities. To the contrary, most service providers recognize that, in order to compete in today’s retirement plan marketplace, they must adhere to the highest compliance standards. And employers—as fiduciaries—must select and monitor providers to make sure that these standards are met. So these EBSA best practices can help employers meet their own fiduciary duties by “making prudent decisions on the service providers they should hire.” They can also help service providers see how their current practices measure up, and then take action to improve any deficiencies.

EBSA lists 12 practices that a plan’s service provider should adhere to.

  • A formal, well-documented cybersecurity program. The organization should fully implement a program that identifies internal and external cybersecurity risks.
  • Prudent annual risk assessments. The organization should document the assessment’s scope, methodology, and frequency.
  • Reliable annual third-party audit of security controls. An independent auditor should assess the organization’s security program—including any documented corrections of weaknesses.
  • Clearly defined and assigned information-security roles and responsibilities. An effective cybersecurity program must be managed at the senior executive level and executed by qualified personnel.
  • Strong access control procedures. This helps guarantee that users are who they say they are. It also ensures that they have access to the data they seek. These access privileges should be reviewed at least every three months and disabled or deleted in accordance with a clear policy.
  • Cloud-stored data-security reviews and independent assessments. Because cloud computing raises unusual security concerns, employers must be able to evaluate how a third-party cloud service provider operates. Protections should include certain minimum provisions, such as multi-factor authentication and encryption procedures.
  • Cybersecurity awareness training for all personnel. Because employees can be the weakest link in cybersecurity, frequent training on identify theft and current trends in security breaches is essential.
  • Secure System Development Life Cycle Program. Such programs ensure that regular vulnerability assessments and code review are integrated into any system development. Best practices include requiring validation if a distribution is requested following changes to an individual’s personal information, or if a request is made to distribute an individual’s entire account balance.
  • Business Resiliency Program. Providers need to quickly adapt to disruptions while keeping assets and data safe. Core components of an effective program include a business continuity plan (for business functions), a disaster recovery plan (for IT infrastructure), and an incident response plan (for responding to and recovering from security incidents).
  • Encryption of sensitive data stored and in transit. This includes encryption keys, message authentication, and hashing (which can be used, for example, to avoid storing plaintext passwords in a database).
  • Strong technical controls. Best security practices include robust (and current) antivirus software, intrusion detection, firewalls, and routine data backup.
  • Responsiveness to cybersecurity incidents or breaches. Prompt action should be taken to protect the plan, including notifying appropriate agencies and individuals (e.g., law enforcement, insurer, participants), investigating the issue, and fixing the problem.

Online Security Tips

The final installment of EBSA’s three-part release gives practical pointers that retirement account owners can use to reduce cybersecurity risk. Some tips are fairly self-evident reminders about creating and protecting passwords, avoiding free Wi-Fi networks, and recognizing phishing attacks. Some other tips may not be so obvious—and they bear mentioning here.

  • Register, set up, and routinely monitor online accounts for retirement plans. Failing to register for an online account may enable cybercriminals to assume an account owner’s online identify. Account owners that regularly check their accounts can help detect and respond to fraudulent activity.
  • Use multi-factor authentication. This requires a second credential (like texting or emailing a code) to verify the account owner’s identity before an inquiry or transaction is allowed.
  • Keep personal contact information current. Account owners should ensure that their contact data includes multiple ways to reach them (by phone, text, or email). This will enable more effective communication if there is a suspected security breach.
  • Close unused accounts. Even dormant accounts can contain personal information. If an account isn’t needed, close it. Why give fraudsters the opportunity to steal data?

Next Steps

The previously mentioned GAO report also recommended that the DOL formally state whether cybersecurity is a fiduciary responsibility under ERISA. The DOL declined. It stated that fiduciaries must already “take appropriate precautions to mitigate risks of malfeasance to their plans, whether cyber or otherwise.” Instead, the DOL identified minimum expectations for reducing cybersecurity risks, which should be undertaken by all private-sector employer-sponsored defined contribution plans.

This best-practice guidance (and other tips) does not specifically apply to other types of plans. Nevertheless, prudent employers, financial organizations, and service providers should certainly consider this guidance when determining their approach to cybersecurity for other plans, such as IRAs and healthcare plans. Any time that an entity maintains access to personal information of clients, it must rigorously protect that data. Adhering to EBSA’s cybersecurity best practices is a good place to start.

Ascensus will continue to monitor future guidance on this subject and on other retirement and healthcare plan topics. Visit for the latest updates.


Click here for a printable version of this issue of the Washington Pulse.

DOL Releases Additional Prohibited Transaction Exemption Guidance

The Department of Labor (DOL) has issued two pieces of guidance on its new fiduciary advice prohibited transaction exemption, PTE 2020-02. The first piece is titled, “Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts,” which is intended to educate retirement savers about considerations when choosing a potential advisor. The second piece of guidance, which is briefly highlighted further below, is titled, “New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers & Retirees,” and is a detailed set of frequently asked questions (FAQs).

PTE 2020-02 was issued under the Trump administration and replaced a fiduciary investment advice guidance package issued under the Obama administration that was struck down in federal court in 2018. While the exemption became effective February 16, 2021, the DOL had indicated related guidance would be published soon.

The guidance again confirms that a temporary EBSA enforcement policy that has been in place since the Obama era guidance was vacated—Field Assistance Bulletin (FAB) 2018-02—will remain in place until December 20, 2021.

The DOL indicates that it is considering additional actions to improve the exemption and the investment advice fiduciary regulation, but that core components of the exemption, including the impartial conduct standards, are fundamental investor protections which should not be delayed, and that any regulatory actions will be preceded by notice and opportunity for comment.

Several questions in the FAQ focus on rollover recommendations, including when the recommendation is considered to be on a “regular basis” and what considerations and documentation are needed to obtain prohibited transaction relief for such recommendations.

In the section titled, “Compliance with PTE 2020-02”, the DOL reviews requirements of the PTE related to the following.

  • Impartial conduct standards, including standards of best interest, reasonable compensation, and making no misleading statements
  • Disclosures concerning acknowledgement of financial institution and investment professional status as fiduciary, as well as any conflicts of interest
  • Policy and procedures to include addressing potential conflicts of interest related to financial institution “payout grid” or fixed percentage commission compensation schemes
  • Retrospective review including careful review and certifications by senior executives of a written report

DOL Releases Cybersecurity Guidance for Plan Sponsors, Fiduciaries, Service Providers, and Participants

The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) today released a three-part guidance package on cybersecurity for plan sponsors, plan fiduciaries, service providers, and participants. This guidance comes on the heels of the Government Accountability Office (GAO) report on cybersecurity risks for retirement plans released earlier this year. An EBSA news release accompanies the guidance release.

Tips for Hiring a Service Provider with Strong Cybersecurity Practices is a list of tips and questions for plan sponsors and fiduciaries to ask of their service providers about the providers’ cybersecurity practices. The tips are designed “to help business owners and fiduciaries meet their responsibilities under ERISA to prudently select and monitor such service providers.” Fiduciaries are encouraged to ask about a service provider’s security standards and practices, how those practices are validated, and how the service provider responded to any past security breaches. Additionally, fiduciaries are advised to ensure that their contract with a service provider covers areas regarding cybersecurity protection for the plan and its participants.

Cybersecurity Program Best Practices is a list of 12 best practices that recordkeepers and other service providers responsible for plan-related IT systems and data should follow. While designed as best practices, in implementation the list appears to establish minimum standards that recordkeepers should follow regarding their IT systems that hold plan and participant data. Among the recommendations, the best practices define how a “prudently designed” cybersecurity program will operate, including reviews of annual risk assessments and third-party audits, and how a recordkeeper maintains access control of information among its employees. Recordkeepers are also advised to maintain business continuity, disaster recovery, and incident response plans.

Online Security Tips is a list of common-sense recommendations for participants and beneficiaries to follow to help reduce the risk of fraud and loss in their retirement accounts. While designed with retirement accounts in mind, this list provides good recommendations for all general online activity that everyone should keep in mind. Individuals are advised to register and routinely monitor their online accounts while using strong and unique passwords with multi-factor authentication. Being mindful of phishing attacks and wary of free wi-fi are also important to reduce a criminal’s access to one’s personal information and accounts.

DOL Announces Non-Enforcement of ESG and Proxy Rules

The Department of Labor (DOL) has issued a statement that it will not enforce two final rules that were issued late in 2020. One rule, “Financial Factors in Selecting Plan Investments,” was published November 13, 2020, and effective January 12, 2021. This rule codified requirements for fiduciaries to consider regarding the promotion of nonfinancial objectives when selecting plan investments, generally requiring investment selection to be predicated on financial or “pecuniary” factors.

The other rule, “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,” was published December 16, 2020, and effective January 15, 2021. This rule governs the proxy voting and shareholder rights exercised by fiduciaries of ERISA-governed retirement plans. They amend existing investment duties regulations that have been in place since 1979.

Federal agencies have been directed to review certain regulations that may be inconsistent with policies set forth under Executive Order 13990 titled, “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis”. The DOL indicates that they have heard from a variety of stakeholders who have questioned whether the rules fail to appropriately consider the merits of environmental, social, and governance (ESG) factors in improving investment returns for retirement investors.

Until further guidance is published, the DOL will not pursue actions against plan fiduciaries based on a failure to comply with those rules with respect to an investment, including a qualified default investment alternative, or with respect to an exercise of shareholder rights. However, the DOL notes it is not precluded from enforcing any statutory requirement under ERISA, including the duties of prudence and loyalty in ERISA Section 404.

Retirement Spotlight: Missing Participants – Prevention is the Best Cure

When employers start a retirement plan, they may ask who should be eligible to participate, what kind of contributions should be made, and how and when can employees access their account balances? Unfortunately, many employers don’t consider how to handle missing participants’ account balances—or more importantly—how to prevent losing track of participants in the first place.

The DOL did provide guidance for locating missing participants in 2014 with the issuance of Field Assistance Bulletin (FAB) 2014-01. Although FAB 2014-01 is helpful, it deals mainly with terminated defined contribution plans.

In January 2021, the DOL released three pieces of new guidance: Missing Participants – Best Practices for Pension Plans, Compliance Assistance Release No. 2021-01, and FAB 2021-01. The first piece in this package gives practical guidance on concerns to watch out for and actions to consider. The second piece sheds some light on the DOL investigative process for defined benefit plans. And the third piece gives temporary enforcement relief for terminating defined contribution plans that transfer missing participant benefits to the PBGC. This article will focus on the main points of this guidance and the steps that a plan fiduciary (typically the employer) can take to address concerns related to missing and unresponsive participants.

Tips for Reducing Missing Participant Issues

The DOL’s Missing Participants – Best Practices for Pension Plans identifies practical steps that plan fiduciaries can take to resolve problems created by missing participants. Plan fiduciaries should determine which reasonable, cost-effective practices will yield the best results considering the circumstances—such as the amount of accrued benefits and the cost of various search methods.

  • Maintain accurate census information. Although plan fiduciaries may obtain accurate contact information for new employees, there may be little follow-up afterwards. This often leads to inaccurate contact information, which makes it harder to distribute plan assets once the participant incurs a distributable event. The DOL lists several steps that fiduciaries can take to help ensure that participants’ information is up-to-date.
    • Periodically contact current participants, retired participants, and beneficiaries to verify that the correct contact information is on file. This information may include individuals’ home and business phone numbers and addresses, social media contact information, and emergency contact information.
    • Provide a contact information change request form when sending out other plan communications. Use these communications to encourage participants to notify the plan fiduciary when there is a change in contact information.
    • Offer a secure online portal that participants can use to update their contact information. In addition to offering an online portal, have messages or prompts appear when individuals log into the plan’s website. These messages or prompts should be linked to the online portal and should ask participants and beneficiaries to verify their contact information.
    • Identify uncashed checks and undeliverable mail or email. Once these items are identified, consider how to address and prevent these occurrences in the future.
    • During a merger, acquisition, or the hiring of a new record keeper, ensure that relevant employment records are provided to appropriate parties.

In addition to taking these steps, plan fiduciaries should also continually monitor census information and promptly correct any errors.

  • Create good communication procedures. The DOL suggests that plan fiduciaries take the following steps to ensure that participants are fully informed of their rights and benefits under the plan.
    • When sending correspondence to participants, include the plan sponsor’s name within the communication, and if delivered by mail, on the envelope that it’s delivered in. Clearly state why the participant is receiving the information. Plan fiduciaries should also ensure that their non-English-speaking participants get help in interpreting the correspondence.
    • Provide specific communications to new employees and to participants who are retiring or leaving the company. These communications should stress the importance of providing correct contact information. For example, the communications should explain that this information helps determine when participants can receive their benefits and what amount they’re eligible to receive.
    • Inform participants about their options to consolidate accounts from other employer plans and IRAs.
    • Make it easy for participants to ask questions about their plan benefits by explaining how to access the plan sponsor’s toll-free phone number and website.
  • Use reliable, extensive search methods. Sometimes, despite having good communication and audit procedures in place, plan fiduciaries lose track of their participants. When this happens, plan fiduciaries need to demonstrate that they’ve regularly taken sufficient measures to locate the missing individual, including these DOL-approved search methods.
    • Search all employer records (e.g., payroll records or group health plan records) for more accurate contact information, including email addresses, phone numbers, and social media.
    • Ask the participant’s beneficiaries, emergency contacts, or former colleagues for updated contact information.
    • Try to locate the participant through free online search engines, public databases, social media, commercial locator services, certified mail, or private delivery services.
    • Add participants to pension registries, such as the National Registry of Unclaimed Retirement Benefits, and publicize the registries (e.g., through email or newsletters) to current and former employees and union members.
  • Document steps taken to locate missing individuals. To help with compliance, plan fiduciaries should adopt clear, concise policies—and follow them. And they should document everything they do to locate the missing participant. For example, fiduciaries may develop a checklist of search methods that captures the result of each attempt to find a participant. Plan fiduciaries that use third-party administrators (TPAs) should identify and remedy any communication or recordkeeping concerns and should ensure that the TPA is performing all services that it has agreed to perform.

The DOL emphasizes that, when missing participants’ assets are forfeited under the terms of the plan, plan fiduciaries must still keep records of these participants’ accounts in order to distribute their benefits when due.

Issues the DOL Looks for During an Investigation

Several years ago, the DOL’s Employee Benefits Security Administration’s Regional Offices started a compliance initiative called the “Terminated Vested Participants Project (TVPP).” While this project is aimed at identifying defined benefit plan compliance problems, the DOL may look for similar problems in defined contribution plans. Similar fiduciary obligations apply regardless of the plan type. The Compliance Assistance Release No. 2021-01 (the second piece of the DOL’s guidance package) explains which types of noncompliance may cause the DOL to investigate a defined benefit plan. The DOL also explains that this guidance will help ensure a consistent investigative process for TVPP audits. For example, the DOL considers certain problems (such as missing or incorrect data, undeliverable mail, or uncashed benefit checks) “red flags” that could hint at more serious systemic failures. This guidance may help plan fiduciaries develop a checklist to formalize procedures that help keep track of participants.

  • Reasons for defined benefit plan investigations. The DOL may investigate a plan that appears to have systemic administration problems—especially those related to plan distributions and terminated participants’ vested benefits. Such problems increase with business bankruptcies or with mergers or acquisitions that result in the loss of participant data.
  • Information the DOL may ask for during an investigation. Once a defined benefit plan investigation starts, the DOL will typically seek documents that
    • relate to the plan’s distribution requirements;
    • contain demographic and participant information, such as actuarial reports, participants’ contact information, and employment status; and
    • describe communication and locating procedures: specifically, how the plan fiduciary communicates to individuals who are entitled to benefits and how internal policies dictate the steps taken to locate missing or unresponsive terminated participants.
  • Errors the DOL looks for during an investigation. Inadequate procedures, especially those used to identify and contact missing participants and their beneficiaries, will likely be on the DOL’s radar. For example, when reviewing plan communications, the DOL may examine whether the fiduciary repeatedly sends communications to a known “bad address” without seeking the correct address. Incomplete census data, including the use of placeholders (such as 01/01/1900 birth dates or “John Doe participants”) may also indicate procedural deficiencies.

Once the DOL completes the investigation, it will work with the plan fiduciary to correct any identified issues.

Don’t Forget About the PBGC

DOL regulations provide a safe harbor both to plan fiduciaries of terminating defined contribution plans and to qualified termination administrators (QTAs) of abandoned plans. This safe harbor generally permits plan fiduciaries and QTAs to roll over missing participants’ and beneficiaries’ assets to an IRA. And in certain cases, the assets can be placed in a federally insured bank account or a state’s unclaimed property fund.

In December 2017, the Pension Benefit Guaranty Corporation (PBGC) created a new program for terminating defined contribution plans. This program allows fiduciaries of terminating defined contribution plans to transfer missing participants’ and beneficiaries’ assets to the PBGC. This option helps plan fiduciaries complete the termination process—while making the plan assets accessible to missing individuals.

The DOL envisions expanding the safe harbor to include the transfer of missing individuals’ assets to the PBGC. FAB 2021-01 (the third piece of the DOL’s guidance package) states that, pending the expansion of the safe harbor, the DOL will not penalize plan fiduciaries of terminating defined contribution plans or QTAs of abandoned plans if they transfer plan assets to the PBGC. This temporary DOL policy provides another option when handling abandoned assets. Before transferring plan assets, however, the plan fiduciary or QTA must take all necessary steps to identify and locate the missing individual.

The DOL released FAB 2021-01 in part because it believes that the coronavirus pandemic may make it harder for plan fiduciaries and QTAs to stay in contact with former employees and their beneficiaries. Transferring assets to the PBGC could be a reasonable alternative to moving plan assets to an IRA, transferring the assets to a federally insured bank account, or escheating the account to the state.

The Takeaway

Plan fiduciaries should develop, document, and regularly review procedures that integrate best practices relative to missing participants. Taking decisive steps now may help prevent problems later—and may ensure that plan participants and their beneficiaries receive their proper benefits.

As always, visit for the latest news and information.


Click here for a printable version of this issue of the Retirement Spotlight.

Washington Pulse: DOL Releases Final PTE on Investment Advice

The Department of Labor (DOL) has released Prohibited Transaction Exemption (PTE) 2020-02, which addresses how a financial organization or financial professional can receive certain compensation that would otherwise violate the prohibited transaction rules. This DOL class exemption and interpretation—entitled Improving Investment Advice for Workers & Retirees, is important for those who provide investment services to retirement plan participants, IRA owners, retirement plan and IRA beneficiaries, and plan fiduciaries. The PTE becomes effective on February 16, 2021, and outlines the factors that determine whether financial professionals are considered fiduciaries—while giving clear guidance about how fiduciaries must comply with their responsibilities.

In July 2020, the DOL released the proposed investment advice PTE. At that time, Ascensus published a Washington Pulse, which detailed the provisions of the proposed guidance. Because the final PTE is similar to the proposed PTE, this article will focus on the final PTE’s modified guidance and its practical implications.


Guidance on investment advice creating fiduciary duties has evolved throughout the years.

  • Giving investment advice may create a fiduciary duty. Fiduciary duty—a legal concept with important implications for retirement plans—requires certain people to act with the utmost care when they serve in a particular role. While this duty may apply in numerous situations, it is especially relevant in retirement plans when one person owes this special duty of care to another. For example, this includes an employee benefit plan administrator, who must, among other things, administer the plan in the participants’ sole interest. The Employee Retirement Income Security Act of 1974 (ERISA) addresses some specific roles that give rise to this fiduciary duty. ERISA Section 3(21)(A)(ii) specifically lists someone who “renders investment advice for a fee” regarding plan assets as a fiduciary. (Internal Revenue Code Section 4975(e)(3)(B) contains a parallel definition of “fiduciary.”)
  • Guidance on investment advice has shifted. Over the years, the DOL and other regulatory entities have issued guidance on what constitutes investment advice. They have tried to strike a balance between protecting participants’ retirement assets while avoiding overly burdensome rules that could limit participants’ access to meaningful investment counseling. We now have a complex array of rules that dictate when financial professionals are providing investment advice—and that govern when they are bound by a duty to act in the best interests of those they serve. Even as this “final” PTE is being implemented, the new administration has indicated that proposed regulations (and other pronouncements that have not yet gone into effect) may be suspended pending further review. Although we do not know whether (or to what extent) the DOL or other departments may add to or modify investment advice guidance, understanding the latest guidance is still important.

The DOL Makes Four Changes in the Final PTE

The DOL received more than 100 written comments in response to last summer’s proposed PTE. Although the final PTE “retains the proposal’s broad protective framework,” it makes four important changes.

  • The disclosure requirements have been changed. The final PTE now requires financial organizations to document the reason that a rollover recommendation is in the retirement investor’s best interest—and they must provide this documentation to the investor before the rollover transaction. This differs from the approach in the proposed PTE. The proposed PTE did not require that financial organizations provide this rollover documentation to retirement investors before engaging in the rollover transaction. Rather, they were required to make this documentation available to a potentially broad range of parties.
  • Recordkeeping requirements have been narrowed. The broad access allowed to a financial organization’s compliance records generated concern. The proposed PTE permitted access by any
  • authorized employee of the DOL;
  • plan fiduciary that engaged in an investment transaction under the PTE;
  • contributing employer and any employee organization whose members were covered by a plan that engaged in such a transaction; or
  • participant or beneficiary of a plan, or IRA owner that engaged in such a transaction.

Several commenters objected that allowing such broad access to records would create a significant burden on financial organizations. This access might encourage information requests for use in litigation, which in turn might lead financial organizations to avoid addressing compliance concerns for fear of disclosure. Consequently, the final PTE limits access to a financial organization’s records to the Departments of Labor and Treasury. (The Treasury Department’s access was added as part of the final PTE.)

  • Retrospective review certification rules have been relaxed. Financial organizations must still conduct an annual review that is designed to assist the organization “in detecting and preventing violations of, and achieving compliance with, the Impartial Conduct Standards and the policies and procedures governing compliance with the exemption.” But while the proposed PTE required that the financial organization’s Chief Executive Officer (or equivalent) certify the details of the report, the final PTE now allows a “senior executive officer”—which includes the chief compliance officer, the president, the chief financial officer, or one of the financial organization’s three most senior officers—to certify compliance.
  • A self-correction provision has been added. Based on comments, the DOL added a new provision to the final PTE: a self-correction feature. Under this provision, the DOL will not consider a prohibited transaction to have occurred because of a failure to meet the PTE’s conditions if the
    • violation did not create a loss to the investor or if the financial organization made the investor whole for the loss;
    • financial organization corrects the violation and notifies the DOL within 30 days of the correction;
    • correction occurs no later than 90 days after the financial organization learned (or should have learned) of the violation; and
    • financial organization notifies those responsible for conducting the retrospective review, and the violation and correction are specifically set forth in the written report of the review.

The “Five-Part Test” Still Determines Fiduciary Status

In 1975, the DOL established a five-part test to determine fiduciary status, paralleled under the definition of “fiduciary” in Treas. Reg. 54.4975-9(c)(ii)(B). In 2016, the DOL finalized a new regulation meant to expand the definition of “investment advice.” In 2018, this final regulation was vacated by the U.S. Court of Appeals for the Fifth Circuit. Consequently, the 1975 regulatory text was restored. Under the 1975 regulation, an investment professional or a financial organization that receives a fee or other compensation is considered a fiduciary if it meets all of the following prongs of the test.

  • The investment professional or financial organization gives advice on investing in, purchasing, or selling securities, or other property.
  • The investment professional or financial organization gives investment advice to the retirement investor on a regular basis.
  • Investment advice is given pursuant to a mutual agreement or understanding with a retirement plan, plan fiduciary, or IRA owner.
  • The retirement investor uses the advice as a primary basis for investment decisions.
  • The investment professional or financial organization provides individualized advice, taking into account the IRA’s or plan’s demographics, needs, goals, etc.

This five-part test relies on all the facts and circumstances that surround each scenario. But the DOL points out that not all recommendations, including recommendations to roll over plan assets to an IRA, would qualify as providing investment advice “on a regular basis.” Some such advice may truly be an isolated, one-time event. But other similar recommendations could be part of an ongoing relationship—or the start of an ongoing relationship—that could trigger fiduciary responsibilities. This is one reason that the DOL advises financial organizations and investment professionals to carefully consider their roles—even if they don’t think that their advice is provided on a regular basis.

The Final PTE Retains Four Main Requirements

Although the final PTE contains four provisions absent from the proposed PTE, the fundamental requirements remain. Briefly, here are those four elements.

  • Impartial Conduct Standards. The Impartial Conduct Standards impose three conditions.
    • The investment advice must be in the retirement investor’s best interest.
    • The compensation for the advice must be reasonable (and the best execution of the investment transaction must be sought, as required by federal securities laws).
  • The advice, when made, must not be materially misleading.
  • Before engaging in a transaction under the PTE, the financial organization must provide
    • a written acknowledgement that the financial organization and its investment professionals are fiduciaries under ERISA and the Internal Revenue Code (whichever applies);
    • a written description of the services to be provided and a conflicts-of-interest statement that is accurate and not misleading in all material respects; and
    • documentation that lists specific reasons for a rollover recommendation—before engaging in a rollover recommended under the PTE.
  • Policy and Procedures. Three requirements pertain to this element.
    • Financial organizations must establish, maintain, and enforce written policies and procedures prudently designed to ensure compliance with the Impartial Conduct Standards.
    • The policies and procedures must mitigate conflicts of interest to the extent that a reasonable person reviewing them as a whole would conclude that they do not create an incentive for the financial organization or investment professional to place their interests ahead of the retirement investor.
    • The financial organization must document the specific reasons that any recommendation to roll over assets from a plan to another plan or an IRA, from an IRA to a plan, from an IRA to another IRA, or from one type of account to another (such as from a commission-based account to a fee-based account) is in the retirement investor’s best interest.
  • Retrospective Review. Three requirements also apply to this provision.
    • The financial organization must conduct reviews (at least annually) that are designed to help achieve compliance with the Impartial Conduct Standards and with the policies and procedures governing compliance with the PTE.
    • A senior executive officer must receive a written report that addresses the methodology and results of the retrospective review.
    • A senior executive officer must certify each year that the retrospective review meets the detailed requirements in the PTE.

The DOL Rejects Its Analysis in the Deseret Letter

Throughout the final PTE, the DOL focuses on the potential conflicts of interest that rollover recommendations can pose. The final PTE cites the cumulative $2.4 trillion in ERISA Title I plans that was expected to be rolled over between 2016 and 2020. Given the enormous sums involved—and the general prohibition against an investment advice fiduciary receiving fees for recommending that a Title I plan participant roll over assets from a plan to an IRA—the DOL reaffirms an important assertion that it made in the proposed PTE.

In the final PTE, the DOL holds firm to its assertion in the proposed PTE that its analysis in Advisory Opinion 2005-23A (the “Deseret Letter”) was incorrect. The Deseret Letter stated that the advice to roll assets out of a Title I plan, even when combined with a recommendation as to how the distribution should be invested, did not constitute investment advice. The DOL now rejects this analysis. But the DOL has also indicated that it will not pursue claims for breach of fiduciary duty or prohibited transactions between the 2005 release of the Deseret Letter and February 16, 2021, “based on a rollover recommendation that would have been considered non-fiduciary conduct under the reasoning in the Deseret Letter.”

Other Takeaways from the Final PTE

The final PTE remains largely the same as the proposed PTE. But some of the DOL’s responses to the many comments it received—and other details contained in the preamble—seem worth noting.

  • Parties can clearly communicate that they do not intend to enter into an ongoing relationship to provide (or receive) investment advice. And a single sales transaction may not confer fiduciary status. So when reviewing the transaction, the DOL will consider the reasonable understanding of each of the parties. While statements forbidding reliance on advice are not determinative, they can be considered, as can marketing materials and other communications.
  • Compliance with the standards of other governing entities (such as the Securities and Exchange Commission) does not constitute compliance with the DOL’s final PTE. Although the DOL’s standards are intended to be consistent with securities law standards, the DOL has not provided a compliance safe harbor.
  • As mentioned above, before engaging in a transaction under the PTE, the financial organization (or investment professional) must provide the retirement investor with an acknowledgment of the organization’s fiduciary status in writing, a written description of the services to be provided (along with any material conflicts of interest), and—if recommending a rollover—documentation that lists specific reasons for the rollover recommendation. Although the PTE does not include model language that satisfies all aspects of the disclosure requirement, it does include model language that will satisfy an entity’s acknowledgment of fiduciary status. In addition, although the PTE does not require it, the DOL has included plain-language, model text that spells out a fiduciary’s obligations to the retirement investor.
  • What if investment professionals or financial organizations are uncertain about their fiduciary status? Clearly, they wouldn’t want to sign a fiduciary acknowledgement if they don’t meet each prong of the five-part test. And yet the final DOL indicates that parties cannot rely on the PTE “merely as back-up protection for engaging in possible prohibited transactions” while they try to deny the fiduciary nature or their investment advice. In particular, the DOL believes that, “in light of the broad scope of relief in the PTE, it is critical for [those] who choose to rely on the PTE to determine up-front if they intend to act as fiduciaries, and structure their relationship with the Retirement Investor accordingly.” So if investment professionals or financial organizations intend to act as fiduciaries, they should disclose this clearly; if they do not intend to act as fiduciaries, they should also disclose this—clearly and unequivocally—so that they do not tempt retirement investors to place unwarranted trust in them.
  • The DOL has extended the relief provided in Field Assistance Bulletin (FAB) 2018-02 until December 20, 2021. This FAB provides a transition period for parties to develop ways to comply with the final PTE. Specifically, the DOL indicates that “it [will] not pursue prohibited transaction claims against investment advice fiduciaries who worked diligently and in good faith to comply with Impartial Conduct Standards for transactions that would have been exempted in the new exemptions . . . .”

Looking Ahead

Over the past several years, we have experienced a whirlwind of investment advice guidance from different regulatory entities. This includes the DOL’s revising some of its own guidance. It is possible that, as a new administration evaluates priorities, it could revisit previously released guidance, including this final PTE. Ascensus will continue to analyze any new guidance as it is released. Visit for the latest developments.



Click here for a printable version of this issue of the Washington Pulse.

New Administration to Review Retirement Plan ESG Investments Guidance

On his first day in office President Biden issued an Executive Order entitled Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis. Included within the Order was what was described as a “non-exclusive” list of federal agency actions that will be reviewed for possible revision or withdrawal. Of particular interest on this list are recent Department of Labor final regulations issued under the title, Financial Factors in Selecting Plan Investments, which became effective on January 12, 2021.

This guidance is viewed by some as discouraging fiduciaries from considering environmental, social, and governance (ESG) factors when choosing retirement plan investments. It establishes in regulations parameters that fiduciaries must consider when selecting investments; for example, evaluating plan investments solely on financial factors and ensuring that participant interests are considered ahead of unrelated objectives. Further Biden administration action on this and other recent federal agency guidance of relevance will be closely monitored.

Investment Advice Fiduciary Class Exemption Published, Effective Date Set

Appearing in today’s Federal Register is Department of Labor Employee Benefits Security Administration (EBSA) Prohibited Transaction Exemption (PTE) 2020-02, which will provide guidance to investment advisors who counsel retirement and other investors. As noted in an Ascensus December 16 announcement, the guidance completes a process that began with 2016 regulations and exemptions issued under the Obama administration. Those regulations and exemptions were subsequently vacated in 2018 by a federal appeals court.

PTE 2020-02 maintains the impartial conduct standard that has been in effect since 2018, under which those who advise retirement and retail investors are to adhere to several principles:

  • receive only reasonable compensation;
  • make no misleading statements in the course of their advising; and
  • act in the client’s best interest.

With today’s publication of the guidance, PTE 2020-02 becomes effective February 16, 2021.