PTE 84-24 FAQs

Independent Insurance Agents

June 2017

Frequently Asked Questions (FAQs)

The Department of Labor recently amended Prohibited Transaction Exemption (“PTE”) 84-24, which includes a phased implementation period between June 9, 2017 and December 31, 2017. Under the current PTE 84-24, insurance agents can use this exemption to sell insurance and annuity products. However, effective January 1, 2018, insurance agents will no longer be permitted to sell indexed or group variable annuities under PTE 84-24 and will be required to use the BIC Exemption for those products. The following is set of frequently asked questions which explains the basics of how amended PTE 84-24 applies to insurance agents.

Question 1 / Who do these FAQs apply to?
Answer / These FAQs apply to independent insurance agents who are not registered representatives of a Lincoln broker-dealer (LFA/LFS). If you are a registered representative, there is a separate set of FAQs.
Question 2 / To which types of customers or sales do these FAQs and new rules apply?
Answer / These new rules apply only to sales of annuity products to: ERISA plans, IRAs or other plans subject to section 4975 of the Internal Revenue Code, or to any individual using assets of or distributions from either account type (for example, a rollover). These are generally referred to as “covered clients.”
Question 3 / When are these changes effective?
Answer / Some changes apply beginning June 9, 2017 and others apply January 1, 2018.
Question 4 / What types of changes will apply to sales to covered clients?
Answer / Beginning June 9, 2017,[1] your sales of annuity products to covered clients become subject to “impartial conduct standards” designed to ensure that the recommended product is in the client’s best interest. These standards are in addition to the disclosures of commissions and other information about the sale as are currently required and discussed below. You may continue to sell previously approved types of annuities until December 31, 2017, as long as you comply with the impartial conduct standards and the current disclosure and other requirements of PTE 84-24.
Effective January 1, 2018, the only type of annuity you may sell to covered clients is a fixed rate annuity. You may no longer sell fixed indexed annuities (or any other annuity types) to covered clients effective January 1, 2018. In addition, there are certain stricter disclosure requirements that go into effect, and limitations on the definition of permissible commissions.
A “fixed rate annuity” includes annuities commonly referred to as immediate annuities, traditional annuities, declared rate annuities, and fixed rate annuities. Fixed indexed annuities, variable annuities, and other types of annuity products are not included or permitted to be sold to covered clients through this channel after December 31, 2017.
Question 5 / Why are these changes happening?
Answer / The Department of Labor recently finalized a new definition of “fiduciary” under ERISA and the Internal Revenue Code (the “Fiduciary Rule”) which goes into effect June 9, 2017. At the same time, the DOL amended various prohibited transaction exemptions, including PTE 84-24, with phased implementation starting June 9, 2017 and other changes becoming effective on January 1, 2018. The changes described in these FAQs are designed to help prevent any potential violations of ERISA or other applicable law.
Question 6 / After January 1, 2018, can I sell other types of annuity products (such as fixed indexed annuities) to covered clients if the annuity contracts are issued by another carrier?
Answer / No. If you are an independent insurance agent, effective January 1, 2018, the only type of annuity product you can offer to covered clients is a fixed rate annuity, regardless of whether it is a Lincoln product or another carrier’s product.
Question 7 / What is a PTE and generally why is it necessary?
Answer / Under ERISA and the Code, certain “prohibited transaction” concerns (such as self-dealing or conflicts of interest) arise from transactions involving commissions paid by covered clients. The Fiduciary Rule expands the conduct considered “fiduciary” and therefore the commissions subject to these prohibited transaction concerns, beginning June 9, 2017.
In order for a commission paid to a fiduciary to be legally permissible, a prohibited transaction exemption (or “PTE”) must be available and complied with. PTE 84-24 is the relevant PTE for commissions and other compensation paid in connection with certain sales of annuity contracts. As noted above, PTE 84-24 was significantly amended in connection with the Fiduciary Rule, with some changes becoming effective on June 9, 2017 and others effective January 1, 2018.
Question 8 / What are the general requirements for compliance with amended PTE 84-24?
Answer / Effective June 9, 2017, you must comply with the impartial conduct standards. This includes giving advice that is in the best interest of the investor, charging no more than reasonable compensation, and making no misleading statements about investment transactions, compensation, or conflicts of interest. You must also comply with any other provision of PTE 84-24 as in effect until December 31, 2017, including the current disclosure requirements. As an example of the disclosures required prior to January 1, 2018, see the sample template 84-24 Disclosure & Consent Form provided by LFN, or you may use a similar form that meets the disclosure requirements of PTE 84-24.
Effective January 1, 2018, in addition to the impartial conduct standards, you are limited to selling fixed rate annuity contracts. You also must meet revised disclosure requirements. Although similar, the disclosures are slightly more detailed than the previously required disclosures. As an example of the new disclosure requirements, see the sample template 84-24 Disclosure & Consent Form provided by LFN for use on or after January 1, 2018, or you may use a similar form that meets the disclosure requirements of PTE 84-24. Finally, a different definition of permitted “commissions” goes into effect January 1, 2018, which includes only sales commissions paid by the insurance company and excludes revenue sharing payments, administrative fees, or marketing payments.
Question 9 / What resources are available to assist me with PTE 84-24 compliance?
Answer / This set of FAQs and the sample 84-24 Disclosure & Consent Form are provided for your reference. You may also access other industry education and training materials regarding the fiduciary rules. Some law firms and industry trade associations may provide more detailed training. You should read PTE 84-24 closely to ensure that your actions comply with the requirements of the exemption.
Question 10 / Will LFN be supervising my compliance with PTE 84-24?
Answer / No. You are solely responsible for compliance with PTE 84-24 and will be solely responsible for any consequences of your failure to comply. LFN and its affiliates are not responsible for your compliance with PTE 84-24 or any other ERISA requirements. As a courtesy to our valued agents, LFN may provide various summaries and materials (such as these FAQs and the sample template disclosure forms), but any such materials are provided as a convenience and should not be taken as legal or investment advice or training by LFN or its affiliates.
Question 11 / What happens if I sell products other than fixed rate annuity contracts after December 31, 2017 or do not comply with PTE 84-24?
Answer / You will need to determine whether a non-exempt prohibited transaction has occurred, the consequences, if applicable, and next steps. Insurance carriers may reserve the right to rescind your status as an appointed producer and take any other actions necessary, to the extent permitted by law, to protect themselves from the consequences of your non-compliance with their policies or PTE 84-24.
Question 12 / What happens if the DOL revises the DOL fiduciary rule or PTE 84-24 before January 1, 2018?
Answer / Depending on the type of modification, the industry will reassess their policies.

For verbal use only. Do not forward or distribute.

US_ACTIVE-134609504.1-SHMINCEM 06/12/2017 8:11 AM 2

[1] The Department of Labor issued Conflict of Interest FAQs in May 2017 stating that the transition period begins at 11:59 PM local time on June 9, 2017. As a practical matter, compliance is required beginning the morning of June 10, 2017.