The U.S. Court of Appeals for the Fifth Circuit recently granted the Department of Labor’s (the “Department’s”) motion to withdraw its appeal of court challenges to the Retirement Security Rule, colloquially referred to as the “Fiduciary Rule.” This leaves the Prohibited Transaction Exemption (“PTE”) 2020-02 and its many requirements in effect for investment advice fiduciaries.
The Court’s order dismisses the legal challenges to the Fiduciary Rule effective the date the “Motion to Voluntarily Dismiss Consolidated Appeals” was filed, November 2025. The dismissal follows the current administration’s lengthy review and assessment of the Fiduciary Rule, as finalized under the prior administration, and various delays due to the government shutdown. The Department is expected to issue a revised fiduciary rule in or about May 2026, as included in the Department’s regulatory agenda. Pending the issuance of regulation, financial institutions and certain covered entities must continue to comply with the requirements of PTE 2020-02, affecting retirement asset investments and rollovers, as finalized in December 2020 and as subsequently vacated, in part, by court order.
What is PTE 2020-02?
The Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“Code”) generally prohibit a plan fiduciary from engaging in self-dealing transactions and receiving compensation related to those transactions. PTE 2020-02 allows investment advice fiduciaries to receive compensation for riskless principal transactions, covered principal transactions and rollover advice – transactions that would otherwise be prohibited. The exemption requires investment advice fiduciaries to act in the best interest of their clients and to prevent conflict of interests.
In the preamble to the final regulation issued in December 2020, the Department provided examples that meet the “regular basis” prong under the five-part test to determine investment advice fiduciary status. The examples revolved around assets rolled over from a retirement plan to an individual retirement account (“IRA”). Earlier this year, the U.S. District Court for the Northern District of Texas vacated portions of the regulation related to IRAs, noting the Department had exceeded its authority in rulemaking. Specifically, the Court ruled that a single rollover recommendation would not result in an ongoing advice relationship and that the existence of an investment advice fiduciary relationship with respect to a retirement plan would not be indicative of an on-going or future relationship with respect to an IRA. The ruling applies nationwide and has not been appealed by the Department.
Investment advice fiduciaries engaging in transactions covered by the exemption must continue to meet its requirements to preserve exemptive relief. The exemption permits investment advice fiduciaries to receive reasonable compensation, mark-ups or mark-downs or other payment related to the purchase of an asset in a riskless principal transaction or a Covered Principal Transaction (“CPT”). As a reminder, the exemption is not available to financial institutions or affiliates that act as the employer of the employees covered by the retirement plan, investment recommendations generated by a computer website or a software-based model, or any person that is acting as a fiduciary other than as an investment advice fiduciary.
Requirements Under the PTE 2020-02
Amongst its many requirements, the exemption requires investment advisers to comply with the Impartial Conduct Standards, provide written disclosure and adopt policies and procedures to ensure compliance with the exemption, as follows:
1- Impartial Conduct Standards: requires the investment advice fiduciary to act in the best interests of its client by accepting no more than reasonable compensation for its services and ensuring the statements related to the recommendation are not misleading.
2- Disclosure: requires the investment advice fiduciary to provide a written acknowledgement of its fiduciary status, a description of the services to be provided and any conflicts of interest, and, prior to engaging in the applicable transaction, provide the client with specific reasons for the recommendation.
3- Policies and Procedures: requires the investment advice fiduciary to establish policies and procedures that ensure conflicts of interest are mitigated to prevent acting contrary to the best interests of the client. Investment advice fiduciaries must amend policies and procedures, as necessary, must maintain records related to recommendations provided, and must perform a retrospective review of applicable transactions. To the extent the investment advice fiduciary has failed to comply with the exemptions’ requirements, the investment advice fiduciary must take steps to correct any deficiencies.
Pending the issuance of revised regulations affecting the fiduciary rule and related exemptions, investment advice fiduciaries relying on PTE 2020-02 should continue to comply with the exemptions requirements as issued in 2020 and as modified by the recent Court ruling.
Harris Beach Murtha’s Corporate and Labor and Employment practice groups will keep close watch on this and related legislation. If you have questions or concerns, please contact attorney Erika M. Medina at (212) 314-5450 and emedina@harrisbeachmurtha.com, or the Harris Beach attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
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