What About Life Insurance Sales?
That’s the primary question we’ve been seeking clarity on regarding the DOL Fiduciary Rule and the end of Temporary Enforcement Action effective February 1, 2022.
As is often the case in our business, the answer has some nuances.
To answer this question fully, it is critical to understand what changed at the start of February, and that requires understanding the DOL’s Temporary Enforcement Action relative to the Fiduciary Rule. Essentially, this delayed the beginning of formal enforcement of many of the elements of the Rule:
“…provides that from Dec. 21, 2021, through Jan. 31, 2022, the department will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently, and in good faith, to comply with the Impartial Conduct Standards (i.e., best interest, reasonable compensation and without misleading statements) for transactions exempted in PTE 2020-02. In addition, the department will not treat such fiduciaries as if they were violating the applicable prohibited transaction rules. Finally, the department will not enforce the specific documentation and disclosure requirements for rollovers in PTE 2020-02 through June 30, 2022. However, all other requirements of the exemption will be subject to full enforcement on Feb. 1, 2022.”1
Of course, if that policy expired January 1, 2022, it follows that the department will enforce all of the above on a go forward basis, including enforcement for transactions and advisors that fall under PTE 84-24, which applies to insurance transactions (The PTE 2020-02 applies to securities transactions).
This outcome takes us back to our initial question: What about Life Insurance sales?
Some in the Insurance Carrier community have long required a PTE 84-24 form for life insurance sales in a qualified plan. That remains unchanged. The grey area and one not addressed specifically by the Rule revolves around life insurance sales that are ultimately funded with a distribution from a qualified plan. Those sales generally involve a two-step process of distribution first, followed by policy funding versus funds being transferred directly from the current custodian to the life insurance company.
As of this writing, AIN is not aware of an Insurance Company requiring a PTE 84-24 form for these sales based on their interpretation of the Rule. That said, the party responsible for executing the PTE 84-24 is the advisor, not the insurance company.
As part of our research into this issue we asked a subject matter expert affiliated with Finseca for their thoughts on the Rule’s applicability to these types of sales. They confirmed the Insurance Company position in large part. They did make the point that, again, the advisor is ultimately responsible, and it is much easier to defend any questions about a transaction like this with a properly executed PTE 84-24 than it is without one. Clearly a conservative opinion, but one that may align with the advisor’s appetite for risk.
For this reason, AIN has created a sample PTE 84-24 document as a starting place for agencies and advisors who elect to take this conservative approach and need assistance in sourcing a suitable form. This form is NOT intended for direct use, but only as a starting point for a form developed and deployed by your firm under the guidance of your legal counsel. This form has also been added to the Model Documents collection in the Operations Intel section of AIN Essentials
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