The carve-out should be revised to permit asset allocation models to identify funds that
match an asset class as permitted currently by IB 96-1. At a minimum, the identification to
Retirement Investors of investments on a particular product or platform which match allocation
models needs to be permitted. Ideally, this could be narrowed to one or two funds, so long as the
criteria used to identify the smaller set of funds is disclosed.

Selection & Monitoring Assistance Aides Retirement Investor: :

Plan sponsors also require assistance that may not be covered by the selection and
monitoring carve-out in creating a plan investment line-up. For example, a plan sponsor may
require additional assistance in order to even generate the objective criteria needed under that
carve-out. The recent U.S. Supreme Court decision Tibble v. Edison International, 575 U.S. ___
(decided May 18, 2015) also suggests plan sponsors need to periodically reassess their plans’
fund alignments in order to meet their own fiduciary duties. These sponsors will not be well
served if a result of the Department’s fiduciary rule is to reduce access to evaluation tools for this

purpose.

Proposed Change To Allow Analytical Tools To Assist Selection & Monitoring:
The Department should modify the proposal to clarify that making such analytical tools
available to other plan fiduciaries does not constitute investment advice.

4, Create a Limited Rollover and Roll-In Carve-out
=Teate a Mamited Kollover and Roll-In Carve-out

Rollovers & Roll-Ins Mitigate “Leakage”:
In a recently released longitudinal study by the U.S., Bureau of Labor Statistics (“BLS”)

the average person born between 1957 and 1964 held 11.7 jobs from age 18 to age 48.” Roughly
6 of these jobs were held after these workers turned age 24. BLS has not published a similar
study of younger workers, although BLS statistics indicate that in January 2014 the average
tenure with the current employer for all workers 25 years and over was 5.5 years, which indicates
that workers younger than the cohort studied in the BLS longitudinal study may change jobs
more frequently than the studied workers. Assuming younger workers change jobs at the same
rate as workers included in the longitudinal study, the average American worker over age 24 will
likely have 5 to 6 decision points before retirement in which he or she may be called upon to
decide whether to:

e Take a taxable distribution of account assets;

¢ Leave account assets with a former employer’s plan (if permitted);

e Rollover to an IRA; or

¢ Rollover to a new plan (if permitted).

The consequences of taking a taxable distribution can be very damaging to a person’s
retirement readiness. For example, a participant who is age 35 and has $3,000 in their 401(k)

7 Bureau of Labor Statistics, Number Of Jobs Held, Labor Market Activity, And Earnings Growth Among
The Youngest Baby Boomers: Results From A Longitudinal Survey (March 31,
2015), http://www. bls.gov/news.release/pdf/nlsoy.pdf

14


Il. John Hancock Clients and Services

John Hancock was established in Boston in 1862. Since 2004, our parent company has
been Manulife Financial Corporation, a global financial services group founded in 1887 that
serves millions of customers in 22 countries and territories. As of December 31, 2014, Manulife
Financial and its affiliates had $597 billion under management; of that, $343.5 billion is under
management by John Hancock and its U.S. affiliates. Founded as a life insurance company, and
still a leader in that field, John Hancock now offers a broad range of financial services, almost all
of which are offered to Retirement Investors, among others. Those services include:

o Insurance: John Hancock continues to offer a wide range of life insurance
products, and is a market leader in the field of long-term care insurance.

o Annuities: Although John Hancock stopped selling almost all annuities in 2011,
we still have an in-force block of 543,100 contracts with $51.4 billion invested.
Of those, there are approximately 285,000 variable annuity contracts with $27
billion invested issued to IRAs.

© Plan Recordkeeping and Administration: John Hancock offers recordkeeping and
other administrative services to approximately 55,000 U.S. pension plans
covering 2.5 million participants, with approximately $135 billion in assets.

o Mutual Funds: John Hancock offers a wide range of mutual funds and closed-end
funds. We function as a “manager of managers,” with rigorous manager selection
criteria utilizing affiliated and non-affiliated subadvisors. We currently offer 211
funds, with approximately $193.9 billion under management.

© Investment Management: John Hancock has a number of affiliated investment
managers. Some of these managers are retained to manage assets of the general
account of an affiliated insurance company. Others may manage assets for John
Hancock mutual funds. Finally, some of them manage assets for unrelated
institutional investors, including large defined benefit plans.

o Broker-Dealer and Investment Advisory Services: Signator Investors, Inc. (“SII”)
and Signator Financial Services (“SFS”) (collectively referred to as “Signator”)
are U.S. broker-dealers and registered investment advisors. Signator has 350
offices and 1,600 representatives. Signator provides a broad range of investment
products and investment advisory services as well as insurance products,
including proprietary and non-proprietary fixed and variable annuities, among
others. Among the clients served by Signator are 41,000 pension plans and over
150,000 IRA accounts. Signator provides clients with comprehensive information
regarding products and services available through Signator, and the compensation
received by Signator and its representatives. Signator representatives work with
plan sponsor clients, including those that may elect one of the John Hancock
recordkeeping platforms. Signator client plans may also utilize unaffiliated
investment platforms. Signator also works with IRA owners in both a brokerage
and investment advisory capacity.

With the exception of products sold by Signator, almost all of John Hancock’s products
and services are sold through unrelated third parties. That is to say, our internal sales force is
made up of “wholesalers,” who work to engage these third parties and educate them as to the

5


John Hancock is committed to its customers and appreciates the opportunity to provide
these comments to the Department. If the Department has any questions or would like more
information regarding this letter, please contact me or John Hancock's outside counsel, Jennifer
Eller of Groom Law Group, at jeller@groom.com and 202-861-6604.

Sincerely,

; dD. (Gabba rbeer

James D. Gallagher,
General Counsel and Chief Administrative
Officer

John Hancock Life Insurance Company
(U.S.A.)

JHGR 12015

18


Clarify that the expanded fiduciary definition applies specifically to financial advisors,
registered representatives making point-in-time recommendations, and insurance agents, and not
to recordkeepers and/or individuals providing distribution education and/or self-directed rollover
services. Meanwhile, specifically state that the definition does not include education-based, self-
directed service models designed to help terminating and retiring participants understand their
distributions options, including proprietary IRAs, as referenced in FINRA Notice 13-45 (Dec.,
2013). This would ensure that large numbers of Retirement Investors — particularly those with
smaller balances — would continue to have access to the information and resources they very
much need.

B. Carve-Outs

The breadth of the proposed definition of investment advice fiduciary makes expansion
of the carve-outs, including providing coverage for advice given to small employers and to IRAs,
essential in order for services to continue to be available.

1. Seller’s Carve-Out

The seller’s carve-out found in section (b)(1) of the Proposal is available with respect to
transactions with plans represented by a fiduciary with responsibility for managing at least $100
million in employee benefit plan assets (provided that the advisor/counterparty confirms the
fiduciary’s “size” qualification either by relying on the plan’s most recently filed Form 5500 or
by obtaining a written representation from the fiduciary regarding its assets under management).
For transactions with plans represented by fiduciaries having less than $100 million in assets
under management, the advisor/counterparty must obtain a written representation from the plan
fiduciary that: (i) it exercises authority and control with respect to the management and
disposition of plan assets; (ii) the plan has 100 or more participants; and (iii) the fiduciary will
not rely on the person to act in the best interest of the plan, to provide impartial investment
advice, or to give advice in a fiduciary capacity. Regardless of the size of the plan or its assets,
the fiduciary must be independent of the seller, and the seller must inform the fiduciary of the
“existence and nature of the person’s financial interests in the transaction” and must not receive a
fee for the provision of investment advice.

Marketing To Distributors Should Be Covered:

While it is critical that the definition itself be changed to permit non-fiduciary sales
activities, to the extent that a sales carve-out continues to be a part of the final tule, there is no
reason to believe that sales to distributors, who could become fiduciaries under the Proposal,
should not be covered under a sales carve-out. In the proposal, the Department characterizes the
seller’s carve-out as being available for advice provided to an “expert plan investor” in
circumstances involving the sale of a product or service.’ Distributors are, by definition, experts

* 80 Fed. Reg. 21928, 21941 (Apr. 20, 2015). In the Proposal, the Department also explains that small plan
sponsors typically lack the sophistication necessary to manage financial investments and lack access to investment
advisors. In practice, John Hancock believes that many small sponsors, while quite sophisticated in investment
matters, decide that it is efficient and helpful to utilize the services of an advisor or other financial expert to help
guide the sponsor through various plan-related decisions.


The Proposal defines the term “recommendation” broadly, to include a “communication
that, based on its content, context, and presentation, would reasonably be viewed as a suggestion
that the advice recipient engage in or refrain from taking a particular course of action.”

The “functional test” requires only that a person (a) provide one of the four categories of
advice, (b) pursuant to written or verbal agreement or understanding, (c) the advice must be
either individualized or “specifically directed” to the individual, (d) for consideration in making
investment or management decisions.

Under the Proposal, ordinary sales and support activities, where coupled with any kind of
discussion, comparison or identification of available investment options, strategies, advisors or
managers, could reasonably be viewed as a recommendation. Moreover, since a
recommendation need not be individualized if it is “specifically directed to” a recipient, many
communications that are not tailored to the needs of an individual or a plan may nevertheless be
considered by the recipient in some way.

2. Definition of Fiduciary Comments and Proposed Changes

Treating sales as a fiduciary act will be to the detriment of Retirement Investors. The
scope of the proposed fiduciary advice definition does not currently make it clear that sales and
marketing are still permitted in the Retirement Investor space.

Wholesale Distribution Not Taken into Account:

John Hancock does not market its recordkeeping services or insurance and investment
products and services directly to the end purchaser. Like many other providers, John Hancock
instead, through its “wholesale” workforce, provides information about its products and services
to “distributors.” For example, John Hancock wholesalers market John Hancock mutual funds to
unaffiliated plan recordkeepers in an effort to ensure that John Hancock funds are available on
multiple recordkeeping platforms. Similarly, John Hancock provides information and support to
representatives or investment advisors who assist plan sponsors in selecting from among the
available platforms, and, once on a platform, in selecting investment options and other available
plan features and services.

This wholesale distribution approach is an efficient means of accessing groups of buyers
for products and services. In addition, wholesalers are experienced financial services
professionals who only succeed through long term relationships with quality distributors who
protect the interests of the end consumer. Therefore, they are uniquely situated to encourage and
share responsible sales activities that provide long term value to the end consumer. In this regard,
John Hancock provides a variety of information, services and support to financial advisors that
are intended to enhance the advisor’s ability to professionally engage and support clients in all
facets of retirement savings and general investment advisory services. John Hancock is
concerned that this business model is not adequately addressed in the Proposal and that
Retirement Investors will be substantially harmed if the Proposal is not clarified to fix this
problem.


ways that our products and services may be appropriate for their clients. For example, the
wholesalers for our plan recordkeeping business educate unrelated broker-dealers and retirement
plan consultants about the services we offer; it is those third-party financial advisors who then
work with plan sponsors to select a recordkeeper for a plan. Similarly, wholesalers for John
Hancock mutual funds work to get other recordkeepers to offer our mutual funds on their
investment platforms and then work to educate the salespeople for those recordkeepers as to
when and whether a John Hancock mutual fund might be right for their plan clients.

John Hancock focuses on customer centricity, which simply means finding ways of
serving end customer needs and leaving them satisfied, and ideally, delighted. Customer
centricity includes understanding customer needs, providing good products at an appropriate
price, servicing customers, providing them with other solutions and unearthing new needs,
relating to their dreams and aspirations. Customer centricity recognizes that some customers
prioritize lower prices and strives to build service models consistent with that customer value.
We suggest changes be made to the rule proposed by the Department in order to better achieve
and maintain our customer centricity and the consumer choice it permits.

Il. Comments and Recommendations

Below, we provide detailed comments on the Proposal, focusing on five key areas,
including: (A) the operational terms of the fiduciary definition; (B) the seller’s carve-out; (C) the
platform carve-out; (D) the educational carve-out; and (E) ensuring that the Proposal does not
exacerbate the problem of leakage of assets out of the retirement system.

A. Definition of Fiduciary
1. Background

Section (a) of the Proposal redefines investment advice fiduciary status broadly so that
any person who provides any of four categories of “covered advice” for a fee (broadly defined)
and either acknowledges fiduciary status, or satisfies a streamlined functional test, is a fiduciary.
The four categories of advice are:

i. Recommendations on securities or other property, including
recommendations on distributions and rollovers to IRAs

ii. Recommendations on the management of securities or other property,
including recommendations on amounts to be rolled over or distributed

iii, Appraisal or fairness opinion, verbal or written, concerning value of
securities or other property in connection with a specific transaction(s)
involving the plan or IRA

iv. Recommendation of a person who provides covered investment advice
(¢.g. recommending an investment advisor or manager, including oneself
(or an affiliate)).


Marketing and Generic Investment Information Materials Should Not Be Fi iduciary:

John Hancock does not believe that providing a research report that discusses a potential
investment, or a select list, to a plan sponsor (whether directly or indirectly) should be a fiduciary
activity because it is not intended as a recommendation, but only to make the sponsor or
distributor aware of information that may be relevant or helpful to them. Similarly, a brochure
discussing a platform with an advisory program option (¢.g., an independent advisory tool to
create a plan line-up) should not be fiduciary advice. Finally, presenting a sample 401(k) menu
or a proposed set of investment guidelines in connection with a response to a Request For
Proposals (“RFP”) should not result in fiduciary status of the potential provider.

Proposed Change to Permit Sales Activity:

Fundamentally, the information described above is part of a sales process that is clearly
identifiable as such. The Department should revise the proposal to ensure Retirement Investors
have access to basic information and to allow financial firms to educate, inform and sell products
and services. These changes should include requiring a materiality standard such that the
Retirement Investor must actually take into account and rely on the advice given as something
other than simply generic education or marketing. If the Department uses elements of FINRA
guidance as a definition of recommendation (as it currently proposes to do), then the Department
should also adopt the rest of FINRA’s interpretive guidance, that effectively limits the scope of
the definition. The Department should clearly indicate that whether a communication constitutes
a recommendation is a facts and circumstances inquiry to be determined on a case-by-case basis.
These facts and circumstances take into account how individualized the communication is and
whether a “call to action” has been made such that a reasonable person under similar
circumstances would understand that advice is being provided rather than a sale. Specific items,
such as information requested by an investor are generally excluded from the scope of what
constitutes a “recommendation”?

Rollover Assistance Should Not Be Fiduciary:

John Hancock does not believe that providing distribution education to terminating and
retiring 401(k) participants or providing information about proprietary rollover IRA solutions
should be deemed a fiduciary activity. Nor does it believe that helping a participant willingly
self-direct into a proprietary IRA should be considered a fiduciary activity. Small balance
participants (those with less than $10,000) accounted for 62% of all rollover eligible distributions
from John Hancock guaranteed annuity 401(k) plans in 2014. Many of these individuals rely on
the educational services provided by recordkeepers like John Hancock for help with distributions
and rollovers, as these Retirement Investors in particular do not have sufficient assets to make
them of interest to most financial advisors. That said, John Hancock recommends clarifying the
definition to ensure valuable educational resources, information and services are not
inadvertently “shut off” by the expanded fiduciary definition.

Proposed Change To Allow Rollover Assistance:

3 See FINRA Regulatory Notice 11-02 and NASD Notice to Members 01-23.


John Hancock Financial Services

601 Congress St.,
13th Floor
Boston, MA 02210-2805

(617) 663-2126
Fax: (617) 6633096
jdgallagher@jhancock.com

James D. Gallagher
Executive Vice President
General Counsel &

Chief Administrative Officer

July 17, 2015

Office of Regulations and Interpretations
Employee Benefits Security Administration
Attn: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Re: John Hancock’s Comments on_the Department’s Fiduciary Definition

Re-Proposal; RIN 1210-AB32

Ladies and Gentlemen:

On behalf of John Hancock Life Insurance Company (U.S.A.) (collectively referred to
along with its affiliates and subsidiaries as “John Hancock”)', this comment letter responds to the
request by the U.S. Department of Labor (“Department”) for comments to the proposed
Definition of the Term “Fiduciary”; Conflict of Interest Rule — Retirement Investment Advice,
published in the Federal Register on April 20, 2015 (the “Fiduciary Proposal” or “Proposal”). A
separate letter regarding the Department’s related exemption proposals is being sent
simultaneously to the Office of Exemption Determinations.

‘John Hancock Life Insurance Company (U.S.A.) and its subsidiary John Hancock Life Insurance
Company of New York manufacture and issue fixed and variable annuities, life insurance, and long-term care
insurance that may be issued to employer pension and welfare plans. John Hancock’s U.S. affiliates also include:
John Hancock Retirement Plan Services LLC (recordkeeping service provider); John Hancock Trust Company LLC
; John Hancock Investments (registered investment companies); John Hancock Distributors LLC (U.S. broker-
dealer); John Hancock Funds, LLC (U.S. broker-dealer); John Hancock Advisers, LLC (U.S. investment adviser);
Hancock Capital Investment Management LLC (U.S. investment adviser); Hancock Natural Resource Group, Inc.
(U.S. investment adviser); Declaration Management & Research LLC (U.S. investment adviser); John Hancock
Investment Management Services, LLC (U.S. investment adviser); Manulife Asset Management (US) LLC (U.S.
investment adviser); John Hancock Personal Financial Services LLC (U.S. investment adviser); and Signator
Investors, Inc. (U.S. broker-dealer and investment adviser). John Hancock completed the acquisition of New York
Life’s Retirement Plan Services business on April 14, 2015.


We request clarification that the platform “carve-out” is meant as a safe harbor and that it
is not the exclusive means for avoiding fiduciary status when offering or making available a
platform.

Distributors Should Be Able to Market Segmented Platforms:

John Hancock maintains two separate platforms intended to meet the needs of different
market segments. One platform is typically utilized by the small and micro plan market
(generally under $10 million assets in the plan). A second platform is typically utilized by mid-
size and large plans (generally having at least $10 million of plan assets). As proposed, the
platform carve-out is limited to marketing by the platform provider fo a plan. There is no reason
why the platform carve-out (and the safe harbor analysis discussed above) should not apply
equally to: (a) marketing by the platform provider to a third party distributor who may (or may
not) be acting on behalf of a specific plan; and (b) marketing by such third party distributors of
platforms to plans on behalf of an unaffiliated platform provider. Unless this carve-out is
extended, the Department will unfairly disadvantage certain providers (i.e., those who utilize a
wholesale model), thus harming plans and participants.

Proposed Change to Permit Third-Party Marketing of Segmented Platforms:

This safe-harbor should be expanded to clearly permit marketing of multiple platforms
that are segmented based upon market characteristics. We also seek clarification that the
platform carve-out covers marketing to a distributor and by such distributor to Retirement
Investors.

Group Annuity Contracts Are Platforms:

Group annuity contracts should be considered to be a platform for purposes of this carve-
out. A group annuity contract is a bundle sold to a plan sponsor that wraps together services and
investments allowing the sponsor to select various separate accounts with specified investment
strategies, much like electing a mutual fund on a traditional recordkeeping platform.

Proposed Change Clarifying Group Annuity Contracts Are Platforms:

We ask that the Department confirm that a group annuity contract would be considered a
“platform or similar mechanism” for purposes of the carve-out or any similar safe-harbor
established by the Department in the final rule.

Exclusion of IRAs Disadvantages Individuals:

The Proposal’s failure to apply the platform carve-out to IRAs may well have unintended
consequences that harm plan participants. Just as plan sponsors and participants find it helpful to
have a limited number of investment choices, IRA owners do as well. So long as the contours
and limits of the platform of investments available are clearly noted, IRA owners should be able
to learn about such platforms. As discussed further, in section III.B.4, below, lack of options for
participants considering a rollover, particularly low-balance participants, is a real concern that
the Department should not ignore. One approach to addressing this concern would be to allow
the platform exception to be available in connection with communications with IRA owners and
plan participants.

Proposed Change To Include IRA Platforms:

12


with a sophisticated understanding of the financial services marketplace. John Hancock requests
that the Department take this expertise into account in re-designing the seller’s carve-out.

Proposed Change To Facilitate Distribution:

We request that the Department expand the seller’s carve-out to cover sales activities to
other investment advice fiduciaries as defined in section 3(21) of ERISA (as interpreted by the
final regulation). We suggest that the “assets under management” requirement should be
inapplicable to advice fiduciaries, and that the carve-out should apply to fiduciaries (whether
advice or discretionary) who represent an aggregate of over 100 Retirement Investors whether
through one or more plans or multiple IRAs. In addition, any representations required under the
carve-out should be required before the transaction occurs, not before a recommendation is
made. This would allow for a more natural interaction between the recipient of the information
and the seller.

IRA Owners and Plan Participants Need a Carve-Out:

We also suggest that some form of carve-out should be available for certain IRA owners
or plan participants involving rollovers or roll-ins.

Proposed Change Expanding Coverage of Seller's Carve-out:
While this could be part of the seller’s carve-out, we discuss it separately in section
III.B.4, below, as we think it may be best addressed in a separate carve-out.

2. Platform Carve-out

Section (b)(3) of the Proposal includes a “carve-out” from fiduciary status for those who
market and make available platforms from which a plan fiduciary can select investment
alternatives that are offered to participants and beneficiaries, provided that the person
acknowledges in writing that they are not providing investment advice to the plan. Moreover, in
connection with those platform provider services, a platform provider may avoid fiduciary status
if the person “merely identifies investment alternatives that meet objective criteria specified by
the plan fiduciary (e.g., stated parameters concerning expense ratios, size of fund, type of asset,
credit quality)”; or “merely provides objective financial data and comparisons with independent
benchmarks to the plan fiduciary.”

Platform Creation Is Not A Fiduciary Act:

Even under the Proposal’s broad fiduciary definition, the offering of a platform should
not typically be viewed as a fiduciary act, and therefore should not require a “carve-out.”
Platforms are created without a particular plan in mind and are not individualized. Therefore,
they should not be viewed as involving any sort of “recommendation.”

Proposed Change to Utilize Platform Safe-Harbor:

° Id at 21957-8.

11


One concern about the Proposal is that John Hancock, in its wholesaler role, may not
know, in any given interaction, whether a distributor, such as a plan recordkeeper or investment
advisor, is acting in a fiduciary capacity. Yet under the Proposal, any person providing covered
advice that is specifically directed to a fiduciary for consideration in making investment or
management decisions is themselves an advice fiduciary. This “cascade” effect is unworkable.
It will simply be impossible for John Hancock wholesalers to know the extent to which they are
communicating with persons who may (or may not) be themselves acting in a fiduciary activity.
The problem is amplified by the fact that under the Proposal instances of “unintentional”
fiduciaries are likely to be common. For example, if a recordkeeper unaffiliated with John
Hancock fails to meet the requirements of a platform exemption, and therefore becomes a
fiduciary with respect to all of its recordkeeping clients, and John Hancock has marketed John
Hancock mutual funds to the unaffiliated recordkeeper, John Hancock could itself be a fiduciary
under the Proposal. We do not think that the Department intended this result.

Proposed Change to Address Wholesale Distribution:

We request that the Department address this problem by narrowing the fiduciary
definition so that it does not capture information provided to distribution partners (who may or
may not choose to act as non-discretionary advice fiduciaries). This could be done by specifying
that statements directed to non-discretionary investment advice fiduciaries are not considered
investment advice. The Department’s expressed concerns regarding consumer protection should
not apply to communications with professionals who are fiduciaries solely by reason of
providing investment advice for a fee. This is a logical break in the unintended “cascade” of
fiduciary status that would otherwise flow from the Proposal.

Educational Materials Are Often “Specifically Directed To”:

In addition to not knowing whether its distribution partners are acting as fiduciaries, John
Hancock is concerned that under the Proposal it may be difficult to know whether information
could be viewed as “specifically directed” to a Retirement Investor, and therefore that such
persons will simply receive less information — including information that may be very helpful.
As an example, plan recordkeepers may send out mailers that discuss the functions of a target
date fund to investors who may have overlapping investments in multiple target date funds
(thinking this constitutes greater diversification), or a mailer may be sent encouraging
diversification or an increase in contribution rate to max-out an employer match. These generic
investment behavior alerts could be considered “specifically directed” to a Retirement Investor
and may not clearly fall within the education carve-out. Rather than rely on the burdensome
Best Interest Contract Exemption, most recordkeepers will simply stop sending out this
information. This sort of harm to participants cannot have been intended by the Proposal. We
also note that it is not always possible to prevent a recipient from using advice given in the
context of a non-retirement account in connection with a retirement account. As a result, the
uncertainty introduced by the “specifically directed to” requirement could impact even non-
retirement conversations.

Proposed Change to Facilitate Targeted Education:

Requiring the advice to be individualized to the Retirement Investor rather than simply
specifically directed to such an investor would reduce the likelihood that participants would be
deprived of helpful and unconflicted communications.



© Clarify that a distributor marketing a platform of an unaffiliated service provider
is covered by the platform carve-out (as an affiliate would be).

“+ Expand the Education Carve-Out. Investment education without the identification of
investment options that match asset allocation recommendations is simply not helpful to
Retirement Investors. Interpretive Bulletin 96-1 has been in place for almost 20 years
and Retirement Investors have come to rely on investment education provided under the
bulletin. Pulling back the information available will not contribute to better decision
making, but in fact will have the opposite effect. A related concern is that the education
carve-out, as currently proposed, serves to bolster the implication already contained in the
Proposal’s fiduciary definition that any discussion of a specific product or service will
involve a “recommendation.” Service providers need the ability to enhance Retirement
Investors’ overall financial literacy and comprehension of the consequences of their
decisions without such conduct being construed as fiduciary advice.

** Focus on Fighting Leakage, not Fighting Rollovers or Roll-ins. A more workable
solution for the movement of retirement assets from an employer sponsored plan to an
IRA (a “rollover”) and for the movement of retirement assets from one employer
sponsored plan to another (a “roll-in”) is needed in order to prevent increased retirement
asset leakage due to lack of financial support by call in centers. This solution should
recognize that plan participants are frequently motivated to sever all ties with their
employer on separation from employment, and many are looking to exercise control over
their plan account balance, often by taking a distribution. Under these very real
circumstances, it is false to assume a rollover to an IRA is always detrimental to the
participant, particularly when the likely alternative is a taxable cash-out. It can also often
be important for participants to receive specific product or service information relevant to
their distribution choices. For example, John Hancock offers retirement plan clients a
guaranteed income for life investment option that is portable for participant IRA
rollovers, thus extending the accumulated benefit guarantee following separation from
the employer’s plan. Similarly, roll-in transactions may provide a valuable opportunity
for participants to consolidate retirement accounts that might otherwise be lost or
neglected by the participant, and for plan sponsors to lower overall plan costs, benefitting
each participant.


and contributes $1,000 per year until age 65 could (conservatively) have as many as three years
more of retirement income than a similar individual who takes a cash distribution of $3,000 at
age 35 but then subsequently starts saving $1,000 per year in a tax deferred account until age 65
(assuming annual market growth of 8% and $20,000 annual income beginning at age 65 and
adjusted for 3% inflation thereafter).

John Hancock submits that the consequences of the remaining three distribution options
can vary widely among participants, and that participants may well be better off with a rollover
or a roll-in. It is not always true that the average cost to a participant of investing through a
401(k) plan is less than the cost of investing in substantially similar underlying investments
through an IRA.

It is also our experience that, rightly or wrongly, cost is just one factor that is important to
plan participants faced with the options outlined above. In fact, many employees separating
from service are highly motivated to completely disengage from their former employer,
including removing their retirement assets from that employer’s plan, and many are committed to
cashing out and spending their balances. Statistics from the John Hancock rollover call center,
which typically accepts in-bound calls only and makes no outbound calls soliciting IRA
rollovers, illustrate this point. The majority (59%) of rollover eligible distributions from John
Hancock’s small market 401(k) plans are from terminating participants who took a cash
distribution of their entire balance.

One of the key functions the John Hancock rollover education call center provides is
educating participants about the tax consequences of taking cash, and how taking a full cash
distribution can be detrimental to their long-term retirement goals. The preceding statistic
corroborates the everyday experience in our rollover education center, whereby many
participants call us with the intention of taking a full cash distribution because they need money
to tide them over during a job transition or job loss and think that taking cash is their only choice.
As such, we are concerned that the Proposal will make it even harder for us to help Retirement
Investors. Having this educational discussion with participants without being able to explain
how an IRA can help them better accomplish their long term goals will not help reduce leakage.
In addition, in some cases it is necessary to provide additional information that may be unique to
a participant or plan. For instance, some plans serviced by John Hancock offer guaranteed
lifetime income features that are lost if the retirement investor cashes out of the plan or rolls into
an IRA or new employer plan. John Hancock offers an IRA product for Retirement Investors in
these plans to continue the guaranteed lifetime income option. Being able to identify this feature
in a proprietary IRA product would be of benefit to the Retirement Investors who have
previously indicated their desire for a guaranteed lifetime income option.

John Hancock also offers a service that assists participants in consolidating their existing
retirement accounts within the current employer’s plan. These consolidation or “roll-in” services
can allow participants to better track and manage retirement assets accumulated at numerous
different jobs, or that have been forced out of the plan and into an IRA. Plan sponsors may elect
to utilize this service for their participants for a number of reasons, including that roll-ins can
help increase the total assets in the plan, which may result in helping the plan achieve fee break
thresholds. Many participants are unaware that they have retirement accounts that they have not

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very Retirement Investors whom the Proposal is designed to protect would likely no longer have
access to these valuable services.

Proposed Change To Create Rollover & Roll-In Carve-out:

The Department should draft a limited carve-out that allows persons who do not receive
differential compensation based upon rollovers to identify IRA product options (including
Proprietary options) without being considered to have made a fiduciary recommendation.
Permissible discussion topics should include the benefits of not taking an early distribution, and
the identity of proprietary IRA options. Persons providing such information could be required to
inform the caller that rolling over into a new employer plan may be an option and that leaving
the assets in the current plan may also be an option but could not make any statements about
which of these options may be “better” than another.

Similarly, individuals, such as call center employees, who do not receive differential
compensation, should be permitted to assist participants in identifying retirement accounts
eligible to be consolidated or rolled-in to the participant’s current plan without being considered
to have made a fiduciary recommendation.

IV. Conclusion

John Hancock fully supports the Department’s desire to hold true investment advice
fiduciaries to a high fiduciary standard of care, but the overall breadth of the Proposal’s fiduciary
definition has pulled in too many activities that should not be considered advice in nature. The
Proposal has the potential to greatly disrupt the sales, distribution, and service models prevalent
in the retirement space in a manner that will not be to the benefit of Retirement Investors. With
the modifications we have suggested above we believe that Retirement Investors will be afforded
the opportunity to receive needed services and information without significantly increased costs.
Without the suggested modifications many services will be unavailable, leaving Retirement
Investors without needed information and help in an increasingly complex environment,

* * *

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conversations intended to make Retirement Investors aware of the existence of
certain products or services.

0 The definition of fiduciary in the Proposal is too broad and does not contemplate
the education-based services offered by some recordkeepers (such as John
Hancock). Many of today’s Retirement Investors rely on these types of “non-
advisory” services to make an informed decision about what to do with their
401(k) balance, including IRA rollovers. Under the Proposal, these types of
educational services would become fiduciary activities and thus would be subject
to significantly expanded cost, effort and resource allocations. As a result of the
Proposal, providing distribution and rollover education would become so difficult
for recordkeepers that these valuable resources would be eliminated, especially
for Retirement Investors with smaller account balances.

** Expand the Seller’s Carve-out. Sales activity is fundamentally different from fiduciary
investment advice, and the carve-outs available for sales should permit the marketing of
services and provision of investment information to the full spectrum of Retirement
Investors, including small plan fiduciaries, participants in 401(k) plans, and IRAs in
addition to the large plan fiduciaries already covered.

© Without access to sales and marketing information:

* Individuals may not know or appreciate the adverse tax consequences, or
the impact on their future retirement income stream, of cashing out and
may not know about available products and services, increasing the
likelihood of “leakage” (i.e., the use of retirement funds for purposes other
than retirement income) of assets out of the retirement system;

* Plan sponsors will miss opportunities to benchmark current service
providers and products against others available in the marketplace.

o Reasonable disclosure requirements to ensure the sales relationship and
expectations are clearly established can address any concerns the Department may
have about confusion on the part of small and individual Retirement Investors.

** Clarify and Expand the Platform Carve-Out. The Department should clarify that any
platform “carve-out” is a safe harbor, and should apply this safe harbor equally to
platforms available to plans and to IRAs. In addition, to avoid raising costs for small
plans by ensuring that the Platform carve-out is applicable to all platform offerings
typical in the small plan market, the Department should:

o Specify that a platform includes a group annuity contract through which plan
sponsors and their advisors may select plan investment options. A group annuity
contract is the functional equivalent of other platforms and should not be treated
differently merely because it involves a different type of contract; and


I. Executive Summary

John Hancock shares the Department’s focus on and concern regarding Americans’
retirement readiness and financial literacy. We applaud the Department’s effort to craft the
Proposal and its willingness to continue to improve the Proposal through the comment process.
The Department’s willingness to adopt meaningful changes to the Proposal was recently
articulated by Secretary of Labor Thomas Perez, as follows: “I want to assure all stakeholders,
including Congress, that the Department is very open to input to further refine, clarify, and
improve this rule”? In our view, certain changes are necessary to the Proposal in order to
maximize the benefits of the rule to Retirement Investors and to avoid unintended consequences
that could harm plans, participants, beneficiaries, IRA owners, and plan sponsor fiduciaries
(collectively referred to herein as “Retirement Investors”).

Below, we outline our major comments and concerns, each of which is discussed in more
depth, in section III.

A. Summary of Key Recommendations:

“> Narrow the Fiduciary Definition. The definition contained in the Proposal is too broad
and covers almost all sales, informational, and educational activity throughout every level
of the financial services distribution chain.

© Because the Proposal captures information provided to an investment advice
fiduciary, fiduciary status would cascade outward such that any person providing
information to an investment advice fiduciary would themselves be an investment
advice fiduciary. This cascade effect amplifies the already broad definition in a
way that would result in numerous providers of products and services, far
removed from any Retirement Investor, being swept into fiduciary status.

o Under the Proposal, Retirement Investors will likely receive less information than
they currently do regarding investing concepts and plan features, including
information that is intended to help them avoid common investing mistakes, such
as investing in multiple target date funds. This lack of information will result in
more confusion and uncertainty for Retirement Investors, who will receive less
help, from less well-informed advisors, even though there is a widely recognized
need for support and assistance, especially to small plans and individuals.
Moreover, the broad definition would sweep in numerous activities that the
Department has not identified particular concerns with regarding potential
unfairness to Retirement Investors.

o The definition of fiduciary in the Proposal should also be meaningfully narrowed
to allow sales conversations to take place, including responses to RFPs and other

? Statement of Thomas E. Perez, Secretary, U.S. Department of Labor before the Health, Employment,
Labor and Pensions Subcommittee, Committee on Education and the Workforce, U.S. House of Representatives,
June 17, 2015.


The Department should consider expanding the platform carve-out to apply to
communications to all Retirement Investors,

Generic Fund Line-ups Assist Sponsors:

In connection with the selection and monitoring elements within the platform carve-out,
the Department should consider specifically allowing generic sample line-ups in an RFP process.
We believe that this would be especially helpful in the context of marketing an open architecture
platform. John Hancock appreciates the Department’s recognition of the assistance that a
platform provider can give in creating a line-up from a platform. However, we believe that this
assistance should also be able to be provided by distributors, not just the platform sponsor.

Proposed Change To Permit Generic Line-ups:

We request the selection and monitoring portion of the platform carve-out be expanded to
distributors, and that sample line-ups be permitted in the marketing process so long as they are
generic in nature or respond to a specific request by the Retirement Investor. Again, we see no
reason that the individual account owners who contribute to IRAs should not be covered by this
carve-out as well and ask for this expansion.

3. Education Carve-out

Section (b)(6) of the Proposal includes a carve-out to exclude from the definition of
fiduciary advice the provision of investment education (“Investment Education”). This carve-out
would supersede and replace commonly used Investment Bulletin 96-1, 29 CFR 2509.96-1 (IB
96-1). IB 96-1 generally permits the furnishing of (1) plan information, (2) general financial,
investment and retirement information, (3) asset allocation models, and (4) interactive
investment material by a plan sponsor to its participants (but has been widely understood to
apply more broadly to other persons). While the Investment Education carve-out largely mirrors
the provisions of IB 96-1, the Proposal also specifically permits certain information to be
provided to Retirement Investors to help them assess their needs past retirement and certain risks
that may affect retirement readiness. While John Hancock applauds these changes, we think the
Department should allow asset allocation models to identify specific investment products.

Identification of Specific Investments Is Beneficial Ti ‘0 Retirement Investors:

Retirement Investors need basic information about how to construct a diversified
portfolio. Investment education without help in identifying investment funds and options that
meet a Retirement Investor’s needs is simply not helpful and will result in poor decisions by
Retirement Investors (or, just as likely, the avoidance of any decision-making at all). Financial
literacy is not a skill many individuals feel that they have.® Many Retirement Investors have
come to rely on asset allocation models and accompanying information identifying available
investment options that meet certain criteria.

Proposed Change Allowing Identification Of Investment Options:

eee

°A2014 study found that 41% of Americans would give themselves a grade of C, D, or F in terms of their
knowledge about personal finance, while 73% agree that they would benefit from advice from a professional. "The
2014 Consumer Financial Literacy Survey", prepared by the National Foundation for Credit Counseling.

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been monitoring or tracking. Others are aware of such accounts, but do not understand the
features of those plans and do not have any idea how to best consider those assets in retirement
planning. Bringing those disparate assets together into a single plan makes it easier for plan
participants to take advantage of tools that help them understand how much they need to save to
prepare for retirement. Having their assets in a single plan also makes it easier for them to
effectively respond to changing circumstances by making changes in their investment selections.
In 2014, John Hancock’s call center helped 19,550 individuals move approximately $740 million
from other plans and IRAs into their current employers’ plans, with an average transferrable
balance from all sources of $37,859. Of those roll-ins, 28% were from a source with a balance
under $5,000 (with an average balance of $2,205).

We are concerned that the Proposal does not offer sufficient flexibility to conduct
rollover and roll-in activities in a manner that is not off-putting to the consumer. The Proposal
would make it economically not viable for financial institutions to help the small balance
individual Retirement Investors because of the increased compliance cost and risk associated
with becoming a fiduciary. The Department should be strongly supportive of such educational
services that reduce retirement asset leakage, rather than creating new procedural and liability
risk hurdles.

As currently proposed, there is no clear channel for an IRA provider to inform a
Retirement Investor about the existence of IRA products. This applies equally to all IRAs
including those designed to invest in proprietary funds and lifetime income products plus those
that are self-directed or advised. Given the breadth of the definition of “recommendation,” once a
specific product has been identified it is not clear that the education carve-out would apply, nor
that the counterparty carve-out would apply.

Should the conversation be considered a recommendation, compliance with the BIC
Exemption is ill-suited to rollover conversations. The service provider, usually a call center
representative of the recordkeeper, is unlikely to have access to sufficient information about the
plan from which the Retirement Investor is leaving nor about the full financial situation of the
Retirement Investor to conclude that a rollover is in the best interest of the Retirement Investor
rather than leaving the assets in the retirement plan. It is much more likely that the representative
could conclude that cashing the assets out of the retirement savings system is not in the best
interest of the Retirement Investor and that retention of those assets within the system by any
means (IRA or employer plan) is better for the consumer, Attempting to perform a full
investment analysis, as required under the BIC Exemption, between the employer plan and
potential IRA is beyond the capabilities of an in-bound call center. Likewise, the call center
representative is unlikely to be able to comply with the disclosure and contract conditions of the
BIC Exemption as he or she will not know anything about the investment of the Retirement
Investor’s assets within the IRA and cannot execute a contract over the phone. In a majority of
cases, John Hancock call center employees facilitate rollovers into a self-directed IRA, meaning
that no John Hancock entity is providing investment advice regarding the investment allocation
within the IRA. A dramatic change would need to occur if call center employees were expected
to perform an economic analysis or enter into a fiduciary relationship with callers. This dramatic
change would come at a cost that would make provision of this service unreasonable. Thus, the

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