June 24, 2015

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Definition of the Term “Fiduciary”; Conflict of Interest Rule—

Retirement Investment Advice. Document No. 2015-08831, RIN 1210-

AB32.

To Whom it May Concern:

The U.S. Chamber of Commerce (“Chamber”) is the world’s largest business

federation representing the interests of over three million companies of every size,

sector, and region. The Chamber welcomes the opportunity to provide input and

comment to inform the re-proposed rule, Definition of the Term “Fiduciary”;

Conflict of Interest Rule—Retirement Investment Advice (“Fiduciary Proposal”).

The Chamber will be submitting, prior to the comment deadline, separate

comments on the Fiduciary Proposal, the related prohibited transaction exemptions

(“PTEs”), the associated information collections, and the economic impact analysis

U.S. Department of Labor (“DOL”) issued for this rulemaking. We write today,

however, to separately submit for the record a study recently released by the Chamber

entitled Locked Out of Retirement: The Threat to Small Business Retirement Savings (“Small

Business Retirement Study”).

In reviewing the effects of DOL’s Fiduciary Proposal on small businesses and

their employees, the Small Business Retirement Study finds that it will have a particularly

negative impact on the many small employers offering Simplified Employee Pension

(“SEP”) and Savings Incentive Match Plan for Employees (“SIMPLE”) IRA plans in

lieu of traditional retirement plans. As the Small Business Retirement Study explains,

small employers opt for SEP and SIMPLE IRA plans because they provide a simple,

affordable way to contribute to employees’ retirement savings without imposing

excessive costs or complex eligibility, testing, and reporting requirements that many
Employee Benefits Security Administration

June 24, 2015

Page 2

small business cannot handle. Over 9 million households have retirement savings

through small business SEP and SIMPLE IRA plans, which held $472 billion in

retirement assets as of the end of 2014.

The Small Business Retirement Study explains that DOL’s Fiduciary Proposal will

not just increase the cost and complexity associated with SEP and SIMPLE IRAs, but

is also likely to result in many financial advisors ceasing to offer or service such plans.

Many advisors would be unable to justify the risks and expenses associated with

changing business models and fee structures for these small business plans to

accommodate the regulatory scheme the Fiduciary Proposal creates. Advisors who

are able to make these changes would have to pass significant costs on to their small

business clients to make the provision of services to SEP and SIMPLE IRAs

economically viable. Such increased costs may well be too much for many small

employers, who will have to cease offering these retirement savings plans to their

employees.

Throughout DOL’s rulemaking process, the Chamber has been concerned that

DOL has not fully considered the impacts of its Fiduciary Proposal on small

businesses and the retirement savings of their employees. The Small Business Retirement

Study affirms these concerns. We are submitting the study for DOL to consider as it

fashions a final rule that the Chamber hopes will avoid the adverse consequences that

the current Fiduciary Proposal would have on the ability of small businesses to

provide a secure retirement for their employees.

Thank you for including the Small Business Retirement Study in the rulemaking

record. We would be happy to meet to discuss the study and its implications further.

Sincerely,

David Hirschmann Randy Johnson

President Senior Vice President

Center for Capital Markets Labor Immigration and

Competiveness Employee Benefits

Attachment
Locked Out of Retirement

The Threat to Small Business Retirement Savings
The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of 

more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and 

industry associations. 

Copyright © 2015 by the United States Chamber of Commerce. All rights reserved. No part of this publication 

may be reproduced or transmitted in any form—print, electronic, or otherwise—without the express 

written permission of the publisher.
1

Locked Out of Retirement:

The Threat to Small Business Retirement Savings

Bradford P. Campbell, Counsel

Drinker Biddle & Reath LLP
2

SUMMARY

 Small business owners, through SEP and SIMPLE-type IRA plans, 

provide roughly $472 billion in retirement savings for over 9 million 

U.S. households.

 Ninety-nine percent of U.S. employers are small businesses, and they 

produce 63% of new private-sector jobs. These small business owners 

and employees need retirement plans at work.

 The DOL is proposing broad new regulations that would impose 

significant new compliance costs and legal liabilities on advisors to SEP 

and SIMPLE IRAs, costs that will be passed on to these small business 

plans and employees.

 Many small businesses cannot offer 401(k) or similar “traditional” 

retirement plans because of administrative complexity, costs, or 

eligibility requirements, and instead offer simplified, basic retirement 

plans built around IRAs.

 SEP IRAs and SIMPLE IRAs are popular choices that are easy and 

inexpensive to set up and operate. Studies estimate that more than 9 

million households own IRAs as a result of these small employerprovided retirement plans.
3

Executive Summary

Stretching its current regulatory authority over employer-provided retirement plans, the U.S. 

Department of Labor (DOL) proposed in April a new regulatory package that would put DOL in 

charge of financial advice provided to all Individual Retirement Accounts (IRAs) as well as to all 

private-sector, employer-provided retirement plans. This regulatory expansion would change the 

rules governing how financial advice is provided to roughly $15 trillion in retirement savings, 

putting DOL in charge. Unsurprisingly, this kind of sweeping change would result in a lot of 

unintended consequences.

The DOL is expanding the definition of fiduciary investment advice under a federal law known 

as the Employee Retirement Income Security Act (ERISA). The result would be that many 

traditional forms of compensation, such as commissions that vary from one investment to 

another, for financial advisors could become illegal under special provisions in that law called 

“prohibited transactions.” A number of aspects of the proposal appear unworkable in actual 

practice, and would negatively impact how advisors assist small businesses in providing

retirement benefits for their employees. In particular, the change would impact two of the most 

popular retirement savings vehicles for small businesses: Simplified Employee Pension IRAs 

(SEP IRAs) and Savings Incentive Match Plan for Employees IRAs (SIMPLE IRAs).

The proposal would adopt a broad definition of fiduciary “investment advice” encompassing 

“sales” communications, certain educational materials, and other situations where no intention to 

provide individualized fiduciary advice traditionally has been expected. Under the DOL’s new 

proposal, even providing a small business with marketing materials containing sample 

investment lineups for SEP IRAs or SIMPLE IRAs could constitute investment advice, as could 

providing an individual account holder with certain educational materials that reference the 

specific investment funds that are available to him or her. Consequently, small businesses may 

find it even harder to offer retirement plans than they do today.

Small businesses make up 99% of all U.S. employers, and account for 63% of new private-sector 

jobs, as well as almost half of all private-sector employment and output.1Like their large 

employer counterparts, small business entrepreneurs and the millions of workers they employ 

need retirement savings opportunities. But unlike large employers, many small businesses may 

not be able to offer a 401(k) or similar “traditional” retirement plan due to cost, administrative 

complexity, or eligibility rules. Instead, many of these small businesses rely on simplified 

retirement plans to cover their owners and employees.

Two of the most attractive and popular retirement savings solutions used by small businesses are 

SEP IRAs and SIMPLE IRAs. SEP IRAs and SIMPLE IRAs are easy and inexpensive to set up, 

and do not impose ongoing administrative or reporting requirements on employers, allowing 

 

1

See U.S. Small Business Administration, Office of Advocacy, “Frequently Asked Questions,” March 2014, 

available at https://www.sba.gov/sites/default/files/FAQ_March_2014_0.pdf.
4

their focus to remain on growing their businesses. These special IRAs have been very successful 

in helping small business workers save for retirement—nearly 10% of all current IRAs come 

from SEP/SIMPLE-type plans.2 As of the end of 2014, there were approximately $472 billion of 

retirement savings in these types of IRA plans.3 Another study of IRA data concluded that more 

than 9 million U.S. households owned employer-sponsored IRAs like SEP and SIMPLE IRAs.4

More complex regulations mean more hurdles and compliance costs, and a greater likelihood of 

lawsuits. Main Street advisors will have to review how they do business, and likely will decrease 

services, increase costs, or both. Small business SEP IRA and SIMPLE IRA arrangements that 

currently depend on these advisors for affordable assistance are likely to disproportionately bear 

the costs of excessive regulation—their small scale means they are more expensive to serve. The 

U.S. Chamber believes that DOL’s proposed regulations risk hurting the very small businesses

and workers they are intended to protect.

 

2

“Individual Retirement Account Balances, Contributions, and Rollovers, 2013; With Longitudinal Results 2010–

2013: The EBRI IRA Database,” Craig Copeland, EBRI Issue Brief #414, May 2015.

3

See Investment Company Institute, “The U.S. Retirement Market, Fourth Quarter 2014,” March 2015, available at

www.ici.org/info/ret_14_q4_data.xls.

4

See Investment Company Institute, “How Many Households Own IRAs,” based on year-end 2012 data, available 

at http://www.ici.org/faqs/faq/faqs_iras.
5

Introduction

This DOL regulatory expansion would change the rules governing how financial advice is 

provided to roughly $15 trillion in retirement savings. Unsurprisingly, this kind of sweeping 

change would result in significant unintended consequences. One such unintended consequence 

is that small businesses may find it even harder to offer retirement plans than they do today, and

some may stop offering employer-sponsored IRA plans to employees. SEP and SIMPLE IRAs 

are basic retirement plans that allow small businesses to offer retirement savings opportunities to 

their employees, and are set up with the help of financial professionals that they trust. DOL, 

however, thinks these Main Street financial advisors need a new set of complex rules and

regulations to prevent potential conflicts of interest.

The DOL proposal would adopt a broad definition of fiduciary “investment advice” 

encompassing “sales” communications, certain educational materials, and other situations where 

no intention to provide individualized fiduciary advice traditionally has been expected. Under the 

DOL’s new proposal, even providing a small business with marketing materials containing 

sample investment lineups for SEP IRAs or SIMPLE IRAs could constitute investment advice, 

as could providing an individual account holder with certain educational materials that reference 

the specific investment funds that are available to him or her.

The proposed standards for defining what would or would not be fiduciary investment advice are

highly subjective and would be difficult to observe in practice. Even well-meaning advisors who 

do not intend to provide specific, individualized investment advice may inadvertently “step in” to 

fiduciary status, triggering potential prohibited transactions and greater legal liability. To 

compensate for the significant liability they could face, these advisors, and the financial 

institutions they work for, would likely have to include an additional risk premium in the fees 

they charge to clients.

This expanded fiduciary definition can also make it hard for advisors to recommend SEP and 

SIMPLE IRA investments that use certain proprietary investment products. For example, an 

insurance agent advising a SEP or SIMPLE might not be able to discuss some of the investments 

offered by the insurance company for which the agent works, regardless of their performance or 

suitability for the individual.

In order to comply with the proposed regulatory package, many advisors and their related 

financial institutions would have to change how their products and services are structured, and 

how the retirement plans and IRA accounts are charged fees. If finalized in its current form, the 

proposed rule would very likely increase the costs associated with SEP IRAs and SIMPLE IRAs, 

and would make it more difficult for retirement savers to receive meaningful assistance, such as 

choosing appropriate asset allocations, within their accounts. Some Main Street advisors may 

choose to exit the SEP and SIMPLE IRA marketplace in light of the costs and risks of 

compliance with the new rule.
6

Benefits of SEP and SIMPLE IRAs

SEP and SIMPLE IRAs provide benefits for more than 9 million households because they are 

simpler for employers to offer than 401(k)s, but give employees more generous benefits than 

traditional IRAs not offered through employers. Though SEP and SIMPLE IRAs are built around 

IRAs, they are plans provided by the employer, and the tax laws permit more tax-preferred 

contributions than are allowed in a non-employer provided IRA, which limits contributions to 

$5,500 in 2015 ($6,500 for individuals 50 and older). SEP and SIMPLE IRAs are different from 

one another, however, and one may be better for a particular small business over another.

SEPs and SIMPLE IRAs are simplified plans presenting less administrative burden than 401(k) 

and other plans. For example, unlike many other plans, the assets and investments in SEP and 

SIMPLE IRAs are held within each participating employee’s IRA account rather than in a 

common trust account. This reduces the record keeping at the plan level. Likewise, unlike other 

plans, there is no annual Form 5500 filing requirement for a SEP IRA or SIMPLE IRA, a 

significant cost savings in and of itself. Perhaps the most significant differences relate to 

investments. Under a traditional 401(k) or other defined contribution plan, the employer (or its 

plan committee, etc.) must evaluate, select, and monitor each of the core investment options 

offered to participants. There has been a significant uptick in lawsuits against 401(k) plan 

sponsors in recent years, often alleging excessive fees and expenses associated with selected 

investments.

For a SEP IRA or SIMPLE IRA, the investment funds offered are not individually selected by 

the employer—rather, they generally constitute a broad range of alternatives offered by the 

vendor through its IRA platform. The employer does not generally have involvement with 

monitoring the options or instructing the IRA vendor to add, replace, or discontinue the 

alternatives made available. Employers considering a SEP IRA or SIMPLE IRA that select the 

IRA vendor should review potential providers and make a prudent determination that the vendor 

selected offers a suitable product at a commercially reasonable price. Likewise, DOL guidance 

indicates that employers should periodically monitor the vendors (that is, the IRA trustees) to 

ensure they are doing their jobs and not charging unreasonable fees.5 But, in comparison with a 

traditional qualified plan, the employer’s fiduciary obligations as to a SEP IRA or SIMPLE IRA 

are very limited in scope. Not only does this limit the fiduciary liability of small business 

owners, but it also allows them to focus more of their time in managing and growing their 

business while increasing jobs.

Of course, the significant reductions in cost and administrative burdens also mean that SEP IRAs 

and SIMPLE IRAs are less flexible than traditional retirement plans. Employers have less ability 

to limit eligibility for participation, to vary contribution amounts for different employee groups, 

 

5

See DOL, SEP Retirement Plan for Small Businesses, “Monitoring the Trustee,” available at

http://www.dol.gov/ebsa/publications/SEPPlans.html; and SIMPLE IRA Plans for Small Businesses, “Monitoring 

the Trustee,” available at http://www.dol.gov/ebsa/publications/simple.html. 
7

and to offer certain other features than they would under a traditional qualified plan. However, 

this loss of flexibility is often a blessing in disguise for small businesses—with the flexibility of 

a traditional qualified plan comes complex nondiscrimination testing, numerous participant 

disclosures, government reporting, vendor oversight, and day-to-day administrative tasks.

SEP IRAs

SEP IRAs provide benefits similar to qualified profit sharing plans, in that contributions are 

funded by the employer. Contributions are limited to 25% of each eligible employee’s 

compensation, and the same percentage must be applied for each eligible employee. Annual 

contributions are also capped at $53,000 (for 2015) and cannot be based on compensation 

exceeding $265,000 (also for 2015), which are the same limits that apply to qualified defined 

contribution plans. Employees are not allowed to contribute to a SEP IRA, but they benefit from 

the employer contributions, which are not taxed to the employee until the funds are withdrawn at 

retirement. As such, SEP IRAs are mostly utilized by sole practitioners or employers with a very 

small number of employees.

A SEP IRA can be established by executing Form 5305-SEP, issued by the Internal Revenue 

Service (IRS), or another prototype or individually designed plan document. All contributions 

are immediately 100% vested, and can generally be withdrawn or rolled over according to the 

same rules governing traditional IRAs.

Once a SEP IRA is established, the employer may, but is not required to, make contributions 

each year. Each eligible employee must be provided with certain information about the SEP IRA, 

and must have an IRA account established for his or her benefit. Eligible employees, subject to a 

few exceptions, generally include all employees who (i) receive $600 or more in compensation 

during the year (for 2015), (ii) are at least 21 years of age, and (iii) have worked for the employer 

during three of the previous five years. The employer can always be more generous in terms of 

eligibility, but cannot exclude employees who meet these eligibility criteria.

SIMPLE IRAs

SIMPLE IRAs are an option for employers that do not maintain other retirement plans, and have 

100 or fewer employees. If the business grows, a two-year grace period is allowed in most cases 

after the 100-employee threshold is exceeded to transition to a 401(k) plan or some other 

retirement plan. SIMPLE IRAs are more similar to 401(k)s—eligible employees can make 

elective deferral contributions from their own pay, subject to a $12,500 annual limit (for 2015, 

plus up to $3,000 in catch-up deferrals for employees aged 50 and over), and employers make 

either (i) a dollar-for-dollar matching contribution on elective deferrals up to 3%, or (ii) a flat 

(nonmatching) contribution for all eligible employees equal to 2% of compensation. Again, 

contributions cannot be based on compensation exceeding $265,000.
8

A SIMPLE IRA can be established by executing IRS Form 5304-SIMPLE or 5305-SIMPLE 

(depending on whether each employee can select his or her own IRA institution, or if there is a 

designated financial institution for the entire arrangement), or another prototype or individually 

designed plan document. Again, all contributions are immediately 100% vested, and can 

generally be withdrawn or rolled over according to the same rules governing traditional IRAs.

Once a SIMPLE IRA is established, each eligible employee must be provided with certain 

information about the SIMPLE IRA, and must have an IRA account established for his or her 

benefit. Eligible employees, subject to a few exceptions, generally include all employees who are 

expected to earn at least $5,000 in compensation during the year, and have earned $5,000 or 

more during any previous two years. Again, the employer can always be more generous in terms 

of eligibility, but cannot exclude employees who meet these eligibility criteria.

Small Businesses Are Most Harmed by the DOL Proposal

The DOL proposal expands the 

universe of financial advisors 

considered to be fiduciaries. The effect 

of being a fiduciary is that many 

traditional compensation arrangements, 

such as commissions that vary from 

investment to investment, utilized by 

advisors to SEP and SIMPLE IRAs

would no longer be permitted. 

Unfortunately, the proposal puts small 

business retirement plans at a further 

disadvantage relative to large employer 

plans because they are not treated the

same.

Small Business Advisors Unfairly 

Excluded From the Seller’s Carve Out

The DOL proposal “carves out” large 

plan advisors from fiduciary status. If a 

plan has 100 or more participants, or 

$100 million or more in plan assets, the 

advisor to that large plan does not have 

to be a fiduciary, while an advisor to a 

small plan does. Because an advisor to 

a small plan is not carved out of the 

rule, the advisor who is trying to 

market retirement saving vehicles to a 

small plan is considered to be providing investment advice and must determine how to comply 

Realizing the Impact

Consider Kathleen’s Wedding Kakes, a 

hypothetical small business in Tucson, Arizona, 

that employs about eight people in its shop, 

bakery, and delivery service. Like most small 

business owners, the founder, Kathleen Carver, 

wanted to help her employees save for their 

retirements, but because her business was so 

small, she could not afford to offer a traditional 

401(k).

Instead, she established SEP IRAs for each of 

her employees, and contributes matching funds 

each month. When these new rules go into 

effect, the cost of offering these plans could 

significantly increase. Her financial advisor says 

he may have to change his whole business 

model, and that he may not be able to afford to 

spend the time it takes to help her and her 

employees with their small account balances 

unless he charges higher, up-front fees. If this 

happens, Kathleen will have to reassess her 

ability to offer this important benefit to her 

employees.
9

with the rule. This advisor must either now provide advice for a level fee or, if the advisor has 

variable compensation, he or she must comply with the many conditions of an applicable 

prohibited transaction exemption (an exemption that may still limit fee variation). Advisors to 

large plans are not burdened with these additional hurdles under the carve out. Due to these 

additional burdens, advisors to small plans are likely to incur additional costs, which will be 

passed on to the plan. Further, some advisors to small plans may determine that the small-scale 

of such plans means the expense and risk of changing business models and fee structures is not 

justified, and may no longer offer their services to small plans.

It does not make sense that small business plans should have to absorb costs that large plans do 

not simply because of regulatory fiat. While DOL may intend this as “extra protection” for small 

plans, it really represents “extra cost.” SEP IRAs and SIMPLE IRAs are popular among small 

businesses because they are cheaper and easier to offer and operate than 401(k) plans; therefore, 

imposing additional costs would make SEP and SIMPLE IRAs less attractive to small business 

owners, making it harder to offer plans to their employees.

The Proposal Will Increase the Cost of Providing Services to Small Businesses

Because advisors to small businesses are not carved out of the fiduciary definition, they must

change their fee arrangements, or qualify for a special rule called an “exemption” in order to 

provide services on the same terms as before. However, the new exemption proposed by the 

DOL may not apply to small business plans. It does apply to individual owners of IRAs, but it is 

not clear whether this exemption is available for SEP and SIMPLE IRAs while they are being 

offered by the employer. Further, even if it does apply, the new exemption—called the “Best 

Interest Contract Exemption”—would itself substantially increase costs for advisors due to its 

many conditions and requirements.

The reason the DOL regulatory package causes such significant change is that a fiduciary 

investment advisor under ERISA generally has engaged in a prohibited transaction if the advisor 

recommends investments that either pay the advisor a different amount than other investments, 

or that are offered by affiliates (for example, the advisor is connected with the insurance 

company that offers the investment). There are certain exceptions to these rules, called 

“prohibited transaction exemptions,” but as the DOL has proposed the new rules, the exemptions 

generally won’t help Main Street financial advisors who are working with small businesses to set 

up plans. Therefore, it may be illegal for those advisors to get commissions or to recommend 

certain investments.

For example, it may not be possible for a bank official to recommend that an IRA invest in the 

bank’s own certificates of deposit under some circumstances. Or if a financial institution 

provided SEP IRA or SIMPLE IRA marketing materials to a prospective small business client, 

and those materials described a sample allocation that included some of the institution’s own 

investment products, the marketing materials could be viewed as prohibited advice.
10

One way advisors might try to comply is by charging a flat fee for their SEP or SIMPLE IRA 

services. However, many IRA vendors prefer not to charge a direct fee to account holders, and 

many account holders prefer not to pay flat fees, especially in small accounts where a flat fee 

may be a significant portion of the assets. Logically, a vendor must generate a certain amount of 

revenue from servicing a SEP IRA or SIMPLE IRA account to generate some profit from it, or it 

will not provide the service. If advisors and vendors change to a flat fee model, they may 

actually charge more than before to account for the risk and expense associated with changing 

their method of doing business. This potential loss of low-cost investment assistance was one of 

the reasons why the DOL’s previous proposal to redefine fiduciary investment advice several 

years ago—a proposal that was ultimately withdrawn—raised objections from many within 

Congress.6It is important to note, however, that some advisors may already be compensated in a 

manner consistent with the proposed DOL requirements, though this is less common in IRAs and 

small 401(k) plans.

How to Make a Difference

The public comment period for this proposal is open until July 20, 2015. After the comment 

period, there will also be public hearings at DOL. After all of the comments and hearings are 

concluded, DOL will have to review the comments and take them into account in writing a final 

rule. In all likelihood, this process will not be complete until sometime in 2016, and DOL 

proposed an eight-month transition period before the final rule would take effect.

To be most effective, the DOL proposal needs to strike a proper balance between protecting the 

interests of retirement investors and ensuring they have access to reasonably priced investment 

services. To accomplish this, advisors and financial institutions need to be provided with 

practical and clearly defined boundaries as to what is or is not fiduciary investment advice, as 

well as with commercially realistic and reliable standards.

Under the current proposal, Main Street advisors are very concerned that there may be no 

reasonable avenue to communicate meaningfully with individual and small plan investors 

(including SEP IRAs and SIMPLE IRAs) about matters related to investments without incurring 

potentially significant new costs and legal risks.

 

6

See, e.g. Letter from members of the Congressional Black Caucus serving on the House Financial Services 

Committee to then-Acting Labor Secretary Seth Harris dated March 15, 2013, warning that the “if the re-proposal 

reflects the Department’s initial fiduciary proposal it could disparately impact retirement savers and investment 

representatives in the African American community...We are particularly concerned about the effects these 

regulations will have on savers in [IRAs]. If brokers who serve these accounts are subject to ERISA’s strict 

prohibitions on third-party compensation, they may choose to exit the market...[i]f that occurs, it could cause IRA 

services to be unattainable by many retirement savers in the African American community.” 
1615 H Street, NW | Washington, DC 20062-2000

www.uschamber.com