Request to Extend Compliance Date for Prohibited Transaction Exemption 2020-02

The Honorable Ali S. Khawar, Acting Assistant Secretary
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Dear Mr. Khawar:

The American Bankers Association (ABA) hereby requests that the Department of Labor (Department) extend the December 20, 2021 compliance date regarding Prohibited Transaction Exemption 2020-02, “Improving Investment Advice for Workers & Retirees” (PTE 2020-02 or Exemption). We appreciate the Department’s outreach to stakeholders in order to understand the ongoing compliance challenges raised by PTE 2020-02. We further affirm and support the Department’s express recognition of the bank business model’s “unique aspects” regarding investment advice. Our members, however, continue to grapple with implementing the Exemption’s requirements, notwithstanding certain regulatory guidance provided in the Department’s Frequently Asked Questions (FAQ) on PTE 2020-02. Based on the estimates of our members and their vendors with whom they are working, we believe that an extension period of 180 days would be warranted in order to achieve compliance with PTE 2020-02’s requirements, assuming that the Department does not further modify, amend, or revise PTE 2020-02 between now and the end of such extension period.

In recent conversations that ABA and other trade groups have had with Department, agency staff have stated that the Department would appreciate being informed of specific issues that are contributing to, or will likely result in, affected parties being delayed in meeting the December 20th compliance date. We provide below a summary of the operational issues and challenges which have been communicated to us by our members:

Rollover Cost Comparisons: In connection with determining whether a rollover of a customer’s plan assets to an individual retirement account (IRA) is consistent with the Exemption’s Impartial Conduct Standards, there are complexities raised by the lack of standard and scalable ways to obtain relevant information about the plan. Moreover, members are grappling with determining how best to obtain such information and/or how to guide existing and prospective customers to find, and share, the plan information. For rollover cost comparisons, there are logistical challenges with pursuing a vendor-provided automated solution (which would involve onboarding a technology, together with a vendor due diligence review and contractual negotiation) versus a manual solution, and with a combination of the two approaches. There is further an absence of regulatory guidance on how to evaluate or compare plan data with a possible rollover, particularly with those retirement plans that hold plan-specific investment options.

Rollovers and Transfer Assessments: There are further complexities in defining and systematically controlling for rollover and transfer assessment requirements, based on the type of money movement (e.g., from plans, from IRAs, etc.). Members are finding that the current compliance deadline may not allow for the implementation required for changes to workflows (e.g., onboarding tools), building the necessary funding blocks (in order to systematically prevent assets from coming into the bank prior to the requisite assessment), and developing the necessary processes to deliver customized customer communications in an automated fashion.

Brokerage Trading, Including Principal Transactions: Due to the time constraints involved in making certain bank retirement products available to customers, some of our members may be compelled (at least temporarily) to exclude products from trading in brokerage retirement accounts that might otherwise be permissible. Specifically: (i) trading unsolicited trades in the same manner as solicited trades, thereby precluding permissible unsolicited transactions; and (ii) eliminating entire product types that are not readily offered on an agency basis (e.g., third party structured products) and are sold only on a principal basis.

Trade Flows and Execution: Additional time is required to formulate adequately a clear and consistent construction of “moderate credit risk” and “sufficient liquidity” that aligns to the Department’s expectations (in the absence of regulatory guidance), and then to identify systematically those debt instruments that meet, or do not meet, that internal formulation in real time (i.e., at each point of sale). Otherwise, members might be compelled to adopt interim approaches – such as trading all brokerage accounts on an agency basis rather than principal basis – that would deny customers the availability of optimal trading opportunities.

Fiduciary Acknowledgment Communication to Customers: While PTE 2020-02 requires notifying certain customers of fiduciary status, banks generally rely on a prepared year-end statement mailing to cover all customers (new and existing), thus placing time and resource constraints to generate and provide a separate notice of fiduciary acknowledgment to existing customers by the December 20, 2021 compliance deadline date. An extension would ensure a timely mailing of fiduciary acknowledgment to existing customers to occur during the first part of 2022.

Vendor Procurement Process and Solutions Development: The federal bank regulators generally require banks to have an established, robust process to engage vendors for compliance solutions. Thus, many banks, as part of a prudent planning process, are taking a thorough and deliberative approach to vendor procurement (including due diligence) prior to drafting policies and procedures and building the additional systems and solutions necessary to achieve compliance with PTE 2020-02. The banks, moreover, must fully understand the vendor’s software before it can begin drafting policies and procedures. We further understand that several vendors upon which banks rely are still in the process of developing compliant tools and software, with no guarantee that such efforts will meet the December 20, 2021 compliance deadline date, or that the banks will be able to install and test such tools and software within such timeframe.

Bank Personnel Training: Once Exemption-compliant policies and procedures are adopted and compliant systems and solutions (including, where applicable, vendor solutions) are in place, banks will require additional time to prepare and equip their officers and employees for the changes involved in administering and managing the bank’s retirement products, services, and programs. For example, in connection with rollover determinations, banks need additional time to educate and train their personnel (both advisers and non-advisers) on the bank-adopted policies, procedures, compliant systems, and vendor solutions and other tools for obtaining and reviewing the relevant information to comply with the Impartial Conduct Standards (especially the “Best Interest” advisory standard and the reasonable compensation standard).

Internal Reviews of Policies, Procedures, and Related Matters and Approvals: Banks have had to amend or rewrite and approve their policies and procedures consistent with the Exemption’s requirements. This very complex process has involved (i) consulting with counsel of the Exemption-required policies and procedures, (ii) determining where there are gaps in the bank’s policies and procedures and where they must be revised, (iii) incorporating vendor-provided solutions, (iv) drafting new or revised language to bank policies and procedures, (v) drafting new or revised language to disclosures, standards, governing documents, and other related materials, and (vi) assessing and revising compensation structures and fee schedules. All of these require internal reviews and approvals, often through multiple bank committees. The logistics and deliberative process required for committee approvals, even where prioritized, makes the December 20, 2021 deadline date a daunting task for many members.

We believe that a 180-day extension would assist our members in working to address and resolve these and other compliance issues internally and with their vendors. As described above, this would include the additional time that is necessary to (i) adopt workable strategies for compliance with PTE 2020-02, (ii) procure vendors where applicable, (iii) establish and/or modify – working with vendors where applicable – compliant policies and procedures, systems, technology, and software requirements, (iv) educate and train bank advisory and non-advisory personnel, (v) make changes to compensation structures and fee schedules, and (vi) complete the requisite internal reviews and approvals. Without this extension, many of our members would be unlikely to avail themselves of relying on PTE 2020-02, which would result in significantly reduced retirement services and investment choice for retail retirement investors. We would be pleased to meet with Department staff to discuss this request in order to facilitate an expeditious determination.

Thank you for your consideration of our request. If you have any questions, please do not hesitate to contact the undersigned at 202-663-5479 ([email protected]).

Sincerely,
Timothy E. Keehan
Vice President & Senior Counsel