New Restrictions Loom for IRA Rollovers

Updates to the Department of Labor’s (DOL) fiduciary definition could hinder financial advisers’ efforts to target retirement plan clients for individual retirement account (IRA) rollovers.

Such efforts already bring an important service to clients and represent a significant revenue stream for advisory businesses, according to a white paper published by Pershing LLC, a BNY Mellon company. But regulatory changes could add certain IRA rollovers to the DOL’s list of transactions prohibited under the Employee Retirement Income Security Act (ERISA).

Authors of the white paper, called “Pursuing Rollovers in an Evolving Regulatory Landscape,” said it is impossible to predict what the new definition will entail before it is actually issued. Still, advisers can be proactive by understanding current fiduciary limits on rollover services and the types of conflicts of interest they are meant to prevent.

According to the paper, advisers who are not fiduciaries can help participants freely with distributions and rollovers. For those who are fiduciaries, or those who become fiduciaries under the expanded definition, the DOL’s new interpretation will force advisers to consider a more prudent approach for assisting clients with rollovers.

Specific pieces of advice for fiduciary advisers include the following:

–  Clearly define the fiduciary services provided to a plan so as not to include rollovers.

–  Ensure the decision to take a distribution and to rollover an IRA is the participant’s decision.

– Offer clients unbiased education materials regarding distribution alternatives and rollover services.

–  Provide written fees and expense disclosures for the IRA and its investments, as well as the adviser’s compensation levels.

Other experts have weighed in on the subject recently, sharing Pershing’s outlook.

Dan Notto, senior retirement plan counsel at AllianceBernstein, recently told PLANADVISER it’s likely the DOL will put out the new fiduciary definition in the next few months.

“From what I have seen the head of EBSA, Phyllis Borzi, is very intent on getting it out. I think she will follow through on that soon,” Notto said. “There appears to be a belief among observers that the new rule will cover IRAs and IRA rollovers, so that the advice to the participant in a qualified plan to take the money out of the plan and roll it into an IRA, that would be considered a fiduciary act.”

Notto agreed it is difficult to predict what the bottom-line impact of the new definition might be before the actual ruling comes out, as plan fiduciaries already carry considerable responsibility for preventing conflicts of interest.

“If you are in a position where you are giving advice on rollovers then you are already subject to ERISA’s conflict of interest rules,” Notto said. “If, as a result of your advice on a rollover, you receive more in fees than you otherwise would have received, that’s a potential conflict of interest. What the DOL officials continuously stress is that they want to try and identify new situations where there might be conflicts of interest that have been overlooked.”

Pershing partnered with Fred Reish, an ERISA attorney and retirement plan expert, to develop the white paper. A full copy of the paper is available at