401(k) to IRA Rollovers: Navigating the DOL’s Fiduciary Rule and PTE 2020-02
By Tim Hayes, Financial Advisor & MA Public Employee Specialist
Your 401(k) is one of the most significant assets you own. Deciding what to do with it when you leave your employer is a critical financial decision.
To help protect investors during this process, the U.S. government has been on a decade-long quest to develop a regulatory scheme that requires financial professionals to provide advice in their clients’ best interests. While many of the rules involve advice provided within a plan, the primary focus is on the direction a financial advisor provides on whether you should roll your 401(k) into an IRA.
The Fiduciary Standard: Where We Stand Today
The definition of a financial advisor’s responsibilities in the retirement space has been a constant source of litigation and regulatory back-and-forth.
- The First Attempts: The journey began with the Department of Labor’s (DOL) proposed 2010 Fiduciary Rule, which was eventually vacated by the 5th Circuit Court of Appeals in 2018. This action reinforced the difficulty in expanding the definition of an investment advice fiduciary under ERISA.
- The SEC and Reg BI: Concurrently, the 2010 Dodd/Frank Act tasked the SEC with reviewing the two regulatory silos of financial advice: broker-dealers (who historically operated under a suitability standard) and investment advisers (who are fiduciaries). In response, the SEC established Regulation Best Interest (Reg BI), which now requires broker-dealers to act in a retail customer’s best interest when making a recommendation.
The Current Mandate: Compliance with PTE 2020-02
The most recent attempt by the DOL to expand the definition of a fiduciary—the Retirement Security Rule finalized in April 2024—was met with immediate legal challenges. As of late 2025:
- The New Rule is Stalled: Federal courts issued nationwide stays on the 2024 rule package, blocking its effective date.
- Appeal Withdrawn: The DOL has since withdrawn its appeal of those court rulings, effectively ending the implementation of the 2024 rule.
This means the current standard for advisors recommending rollovers is governed by the longstanding “five-part test” for fiduciary status, combined with the requirements of Prohibited Transaction Exemption 2020-02 (PTE 2020-02).
PTE 2020-02 allows financial professionals and institutions to receive compensation (like commissions or 12b-1 fees) that would otherwise be prohibited in connection with rollover advice, provided they satisfy strict conditions. If a professional provides advice that constitutes a fiduciary recommendation, they must:
- Comply with Impartial Conduct Standards: Provide advice that is prudent, loyal, and for no more than reasonable compensation.
- Acknowledge Fiduciary Status: Provide a written acknowledgment of their fiduciary status under ERISA.
- Document Rollover Justification: Provide written documentation explaining the reasons why the recommendation to roll over is in your best interest.
This regulatory framework is designed to protect you by requiring the advisor to adhere to a high standard of care and loyalty, including the mitigation of conflicts of interest.
Tim: Trusted Advisor for Market Insights and Decision Making
“I have known Tim for over 30+ years and he has always guided me in making good decisions. Tim is extremely knowledgeable about how the world works and how the market is affected by decisions made by elections, and the volatility of the world in general. He is always looking out for your best interest, along with he is someone you can count on to keep you in the know!”
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So, Should You Roll Over Your 401(k)?
As you can see, the government is highly concerned that people who roll a 401(k) to an IRA may end up paying higher fees.
- The Case for Staying: If you have a plan with institutional share classes and an excellent, low-cost fund lineup, and you work with a financial advisor, moving your plan to an IRA could likely increase your costs.
- The Case for Moving: Many 401(k) plan participants work for employers that do not offer institutional pricing or a great fund lineup. For them, a rollover may not incur higher expenses and may even lead to better choices.
There are also compelling non-cost reasons to consider a rollover:
- Convenience: Consolidating all your retirement assets in one place simplifies management, beneficiary changes, and withdrawals.
- Specialized Advice: The skill set required for growing accounts differs from that needed to provide retirement income. You may find an advisor well-versed in specialized tools like bonds, annuities, and dividend stock funds—the tools needed to generate income.
- Comprehensive Services: An advisor can also provide additional services, such as estate planning, and can keep you abreast of vital rules or law changes, such as recent changes affecting retirement account beneficiaries.
Final Consideration: Please speak with your advisor to compare your company retirement account with an IRA investment. These factors include, but are not limited to, changes to the availability of funds, the flexibility of withdrawals, fund expenses, fees, and IRA-required minimum distributions.
Tim Hayes
I am a fiduciary financial advisor with over 30 years of experience helping public employees and educators with retirement planning, including 403(b) plans. I offer transparent, fee-based advice tailored to each client’s goals and needs.
“My goal is to ensure your retirement plan is built on your best interests, not a product sale.”
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