ERISA and the IRC establish prohibited transaction provisions that generally exclude fiduciaries, with respect to workplace retirement plans (Plan or Plans) and individual retirement accounts and annuities (IRAs), from engaging in self-dealing and receiving compensation from third parties in connection with transactions involving the Plans and IRAs. The provisions also prohibit purchasing and selling investments with the Plans and IRAs when the fiduciaries are acting on behalf of their own accounts (i.e. principal transactions).
Under these prohibited transaction provisions, a fiduciary may not deal with the income or assets of a Plan or an IRA in his or her own interest or for his or her own account, and a fiduciary may not receive payments from any party dealing with the Plan or IRA in connection with a transaction involving assets of the Plan or IRA. DOL has authority under ERISA section 408(a) and IRC section 4975(c)(2) to grant administrative exemptions from the prohibited transaction provisions.
On December 18,2020, the Department of Labor (DOL) published the Prohibited Transaction Exemption 2020–023, known as Improving Investment Advice for Workers & Retirees. This exemption is available to registered investment advisers, brokerdealers, banks, and insurance companies (Financial Institutions) and their individual employees, agents, and
representatives (Investment Professionals4) that provide fiduciary investment advice to Retirement Investors5. The new exemption allows Plan investment advice fiduciaries to receive compensation, including as a result of advice to rollover assets from a Plan to an IRA, and to engage in principal transactions. The exemptions are made effective as of February 16, 2021.
Financial Institutions and Investment Professionals can receive a wide variety of payments that would otherwise violate the prohibited transaction rules, including, but not limited to, commissions, 12b–1 fees, trailing commissions, sales loads, mark-ups and mark-downs, and revenue sharing payments from investment providers or third parties.
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