February 11, 2008

Office of Regulations and Interpretations

Employee Benefits Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, DC 20210

Re: Class Exemption for Plan Fiduciaries When Plan Service Arrangements
Fail To Comply With ERISA Section 408(b)(2)

Ladies and Gentlemen:

The Investment Adviser Association[^1] appreciates the opportunity to
provide comments concerning the proposed class exemption[^2] for plan
service arrangements that fail to comply with the proposed regulation
under section 408(b)(2) of ERISA.[^3]

Under the Proposed Exemption, the restrictions of section 406(a)(1)(C)
of ERISA would not apply to a plan fiduciary who uses its authority to
cause an employee benefit plan to enter into (extend or renew) a written
service contract or arrangement, notwithstanding the service provider's
failure to comply with its contractual obligation to disclose certain
information under the final version of the Proposed Regulation.

**Substantive Comments**

According to the preamble to the Proposed Exemption, failure to comply
with the final section 408(b)(2) regulation may subject service
providers to excise taxes under section 4975 of the Internal Revenue
Code. We question this statement, given that the Department has not
proposed changes to the regulations under section 4975(d)(2). We
therefore request that the Department confirm that the excise tax
provisions do not apply to prohibited transactions that occur solely
because of a failure to satisfy the final regulation under section
408(b)(2).

In the alternative, we request that the Proposed Exemption be expanded
to provide protection for service providers in two contexts. First, we
request that the Proposed Exemption include within its scope an
exemption for a service provider that is responsible under the Proposed
Regulation to provide compensation and other disclosure on behalf of a
third party, but does not receive the requested information from the
third party.

Proposed Regulation section 2550.408b-2(c)(1)(iii)(a)(*3*) would require
a service provider offering a bundle of services to be responsible for
disclosing to the responsible plan fiduciary the aggregate compensation
or fees to be received by "the service provider, any affiliate or
subcontractor of the service provider, or any other party in connection
with the bundle of services." The bundled service provider therefore
could be responsible for disclosing to the fiduciary information about
the compensation received by a variety of parties, although it might not
have direct access to this information. To the extent, therefore, that a
third party failed to provide the required disclosure to the bundled
services provider, the bundled services provider might be deemed to have
failed to fulfill its obligations under the section 408(b)(2) regulation
to provide this information to the responsible plan fiduciary, and a
prohibited transaction may result. If the excise tax were to apply, then
the bundled service provider might be subject to an excise tax under
section 4975, even though it did not have access to the required
information.

We submit that bundled services providers - or other providers that
would have to rely on third parties for information - should not be
subject to excise taxes for failing to provide information that they
have not received from third parties. We therefore request that the
Proposed Exemption be expanded to include an exemption from the excise
tax provisions of section 4975 of the Code for a service provider that
fails to comply with the requirements of section 408(b)(2) solely
because a third party fails to provide the information necessary for
compliance. The conditions to such relief should parallel those in the
Proposed Exemption, including a requirement that the bundled services
provider request the information from the third party in writing.

Second, we request that the Proposed Exemption be revised to extend the
same protection to a service provider in the event that a plan fiduciary
fails to execute a contract reflecting the requirements of the final
regulation. In the period following the finalization of the regulation
under section 408(b)(2), service providers will be providing disclosures
and amending contracts with numerous plan fiduciaries, some of whom may
not respond in a timely manner to communications asking that they sign
revised agreements. To the extent that such revised agreements are
required, we submit that the service provider should not be penalized
for a plan fiduciary's failure to act. We also request clarification
from the Department that revised agreements under the final regulation
would not be precluded from incorporating negative consent provisions
under which the revised contracts would become effective automatically
unless the plan fiduciaries took some action. This approach would assure
that plans will continue to operate without interruption during the
implementation of the final regulation, and without triggering
prohibited transactions.

**Procedural Comments**

As we have noted above and in our separate comments concerning the
Proposed Regulation, plan fiduciaries and service providers will need
much more information concerning the scope of the Proposed Regulation
and its application to particular circumstances before they can assess
its full effect. We are concerned also that the final regulation under
section 408(b)(2) might raise new prohibited transaction issues. We
therefore request that the Department reopen the comment period
concerning the Proposed Exemption upon finalization of the regulation
under section 408(b)(2) so that affected parties can update their
comments to reflect any changes. Furthermore, we have requested in a
separate letter that the effective date of the final regulation be
extended. Such extension would accommodate, among other things,
supplemental comments on the Proposed Exemption and the Department's
consideration thereof.

Please do not hesitate to contact me if you have any questions or would
like any additional information.

Sincerely,

![](media/image1.jpeg){width="1.9861111111111112in"
height="0.3611111111111111in"}

Karen L. Barr

General Counsel

[^1]: The Investment Adviser Association (formerly the Investment
    Counsel Association of America) is a not-for-profit association that
    represents the interests of SEC-registered investment advisers.
    Founded in 1937, the IAA's membership today is comprised of more
    than 500 firms that collectively manage in excess of \$9 trillion
    for a wide variety of individual and institutional clients. For more
    information, please visit our web site:
    [www.investmentadviser.org](http://www.investmentadviser.org/).

[^2]: *Proposed Class Exemption for Plan Fiduciaries When Plan Service
    Arrangements Fail To Comply With ERISA Section 408(b)(2)*, 72 Fed.
    Reg. 70893 (2007) ("Proposed Exemption").

[^3]: *Reasonable Contract or Arrangement Under Section 408(b)(2) -- Fee
    Disclosure*, 72 Fed. Reg. 70988 (2007) ("Proposed Regulation"). The
    IAA has filed separate comments on the Proposed Regulation.