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Allianz Life Insurance Company of North America

Gretchen Cepek

Senior Vice President and General Counsel

5701 Golden Hills Drive

Minneapolis, MN 55416-1297

Telephone: 763.765.5311

gretchen.cepek@allianzlife.com

www.allianzlife.com

July 21, 2015

Addressed to: e-ORI@dol.gov

Re: Comments Regarding Department of Labor (DOL) Fiduciary Standard Proposal

RIN 1210-AB32; Best Interest Contract Exemption, PTE 84-24, ZRIN:1210-ZA25

Dear Sir or Madam: 

This letter is being provided to you on behalf of Allianz Life Insurance Company of North America (AZL) 

and its wholly owned subsidiaries (together, the AZL Group).1 The purpose of this letter is to comment 

on: 

• recently proposed DOL regulations on the definition of the term fiduciary (the Fiduciary

Proposal),

• a new proposed “best interest contract exemption” (the BIC Exemption), and

• proposed amendments to Prohibited Transaction Exemption (PTE) 84-24

(together, the Proposal).

We appreciate this opportunity to provide you with comments on the Proposal.

Very truly yours,

Gretchen Cepek, 

Senior Vice President and General Counsel

1 The companies in the AZL Group are subsidiaries of Allianz SE, a holding company based in Munich, Germany.
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Comments of

Allianz Life Insurance Company of North America and Subsidiaries

On the Fiduciary Proposal of the Department of Labor

RIN 1210-AB32

July 21, 2015
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Table of Contents 

I. BACKGROUND ON THE AZL GROUP ...........................................................................................................5

II. SUMMARY/OVERVIEW OF THE AZL GROUP’S COMMENTS ON THE DOL PROPOSAL ..................................6

III. AZL GROUP ANALYSIS OF THE DOL FIDUCIARY PROPOSAL.........................................................................9

A. Challenges In Modern Retirement Planning...............................................................................................9

1. Troubling statistics from the retirement market........................................................................................9

2. To be effective, retirement plans must address market risks, longevity risks, and payout risks.

Annuities are one way of addressing these risks.....................................................................................10

B. Insurance Agents Acting in a Selling Capacity Should Not Be Treated as Fiduciaries................................ 10

C. The Proposal Should Include a Series of “Safe Harbors” .......................................................................... 12

D. The Proposal Should Be Revised to Encourage “Merit” Protections Similar to Protections Found in 

State Insurance Laws............................................................................................................................... 12

E. The Proposal Should Be Submitted for Additional Regulatory Review Outside the DOL .......................... 13

F. The Proposal Will Lead to Expensive, Unnecessary Litigation. There Are Better Ways to Meet 

Regulatory Objectives.............................................................................................................................. 14

G. The Proposal Does Not Adequately Consider All of the Various Federal and State Laws that Already 

Provide Substantial Protections to Plan Participants ............................................................................... 15

H. Federal Law Recognizes the Primacy of State Insurance Law in the Regulation of the Business of 

Insurance. The Proposal Does Not Show Appropriate Deference to this Congressional Intent ................ 15

I. Purchasers of Annuities Are Already Provided Extensive Consumer Protections Pursuant to 

State Insurance Laws............................................................................................................................... 17

J. All Annuity Products Should Be Subject to a Single Exemption and Conduct Standard ............................ 17

1. Products such as annuities, which involve significant “issuer risk”, are fundamentally different from 

traditional investment products such as mutual fund shares, and should be subject to a 

different fiduciary analysis.......................................................................................................................18

2. Annuity products contain numerous “insurance” features, and cannot be analyzed simply as 

“investments”...........................................................................................................................................19

3. Annuity commission, fee, and expense structures are fundamentally different from those for 

traditional investment products, and this must be considered in any analysis of annuities....................20

4. Product design and distribution are converging for certain types of annuity products, with the result 

that diverse types of annuities are more similar to other types of annuities than to traditional 

investments..............................................................................................................................................21

K. The Proposal Is Overly Complex............................................................................................................... 22

L. The BIC Exemption in Its Current Form Will Lead to Inconsistent and Inaccurate Product Disclosures..... 23

M. “Reasonableness” of Compensation ........................................................................................................ 25

N. The DOL Should Not Become Enmeshed in Determining What Sorts of Compensation Are Permissible, 

or What Sorts of Investments Are “Permitted Investments” for Plans or IRAs......................................... 25

O. The Proposal Should Clarify that “Principal Underwriters” that Are Non-Retail “Wholesalers” 

Are Not Fiduciaries .................................................................................................................................. 26

P. The Proposal Should Clarify that Salaried Back-Office Clerical Employees Such as Telephone Center 

Employees Who Are Employed by “Wholesalers” Are Not Fiduciaries..................................................... 27

Q. The BIC Exemption Should Clarify Responsibilities in Multi-Party Transactions....................................... 27

R. The Proposal Should Be Clarified as to the Definition of “Direct or Indirect Compensation”.................... 28

S. The Proposal Should Include Clarification and Guidance In the Form of Safe Harbor Protections............ 29
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1. Procedural prudence safe harbor.............................................................................................................29

2. Reasonable compensation safe harbor....................................................................................................30

3. Safe harbor for certain limitations on the range of investment options..................................................31

4. PTE 84-24 should include procedural prudence safe harbors based upon current insurance 

regulatory requirements..........................................................................................................................32

IV. CONCLUSION ........................................................................................................................................... 33
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I. BACKGROUND ON THE AZL GROUP

AZL is a Minnesota domiciled stock life insurance company. It has been in business since 1896. AZL 

currently issues fixed (non-SEC registered) annuities, fixed (non-SEC registered) index annuities, SEC 

registered variable annuities, SEC-registered index variable annuities, and fixed (non-SEC registered) 

index life insurance.

AZL is very familiar with both the life insurance industry and the securities industry. AZL (together with 

its subsidiaries) issues annuities on a 50-state basis. At December 31, 2014, it was the top writer of fixed 

index annuities in the United States, and the 15th largest writer of variable annuities, with a total of 

$12.4 billion in annuity premiums received in 2014. AZL was one of the earliest entrants to the fixed 

index annuity industry, where it began issuing contracts in the mid-1990s, and was also one of the 

earliest entrants to the variable annuity industry, where it began issuing contracts in the late 1980s.

In addition to its insurance business, AZL is the parent company of a series of securities-related 

businesses, including two registered broker-dealers and two registered investment advisers. One of the 

investment advisory subsidiaries acts as investment adviser to a group of mutual funds that are offered 

as investments through AZL Group variable annuities (the AZL Funds).

AZL is also very familiar with the retirement planning market, as an issuer of both individual retirement 

annuities (IRAs) and non-qualified retirement annuities.2 As of December 31, 2014, AZL held and 

administered $68 Billion in IRA assets for consumers.

AZL believes it has made a significant contribution to the retirement security of many thousands of 

consumers. In the five years from January 1, 2010 through December 31, 2014, AZL paid out $22 billion 

in benefits to IRA owners and beneficiaries.

AZL is keenly aware of its obligations to consumers in the retirement market, and places a high priority 

on maintaining financial strength, meeting its financial commitments, and providing products and 

services that help its customers achieve their retirement goals. As of December 31, 2014, AZL had total 

assets of $140 Billion and capital of $7.77 Billion.

 2 The AZL Group is not currently active in the 401(k) market.
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II. SUMMARY/OVERVIEW OF THE AZL GROUP’S COMMENTS ON THE DOL PROPOSAL

The AZL Group recognizes the importance of the goals intended to be addressed by the Proposal. We 

believe, however that promulgation of the Proposal in its current form would lead to substantial market 

disruption, increased costs both to advisers and consumers, and reduced consumer choice. The Proposal 

would ultimately result in harm to the very persons it is intended to help. The following is a brief list of 

items that we believe must be reviewed and addressed as part of revising the Proposal.

• It is generally acknowledged that there is a rapidly approaching retirement crisis in the United 

States. The Proposal does not directly address this problem, and in fact may distract attention 

from a number of the critical steps that need to be taken in the near future to avert this 

problem.

• It is also generally acknowledged that there is a significant need to make lifetime income options 

available to plan participants and IRA owners. The United States Government Accountability 

Office (the GAO) has gone so far as to encourage the purchase of annuities for retirement 

planning. Significantly, as recently as last week, President Obama highlighted this issue, and 

encouraged the use of lifetime income options.3 The Proposal does not address this issue. 

Further, the Proposal may even interfere with and delay necessary reforms.

• The Proposal’s emphasis on disclosure and punitive litigation will prove inappropriate and 

inadequate to address the retirement crisis. Substantial consideration needs to be given to 

additional “merit” protections for plan participants and IRA owners in the form of principal value 

guarantees and lifetime income guarantees.

• The Proposal revises the term “fiduciary” to be largely synonymous with the term “sales 

person.” We believe that this revised definition is contrary to the Congressional intent 

expressed in ERISA, and that the definition, when applied to insurance agents and insurance 

companies, is contrary to interpretations of ERISA found in Federal case law. The revised 

definition of fiduciary in the Proposal, when applied to insurance agents and insurance 

companies, would appear to exceed the DOL’s authority.

• The Proposal does not adequately consider the already existing, substantial protections for 

annuity purchasers provided by state insurance law.

 3 President Obama, in “Fact Sheet: The White House Conference on Aging (July 13, 2015)” stated:

“Retirement Security requires more than just accumulating savings—people also need protection against outliving assets. 

Lifetime income options like annuities provide a regular stream of income regardless of lifespan. Yet fewer than one in five 

defined contribution plans offer annuities, with the share falling sharply over time. The Treasury and Labor Departments have

previously issued a series of guidance documents encouraging plan sponsors to offer responsible annuity options to help 

protect retirees from outliving their savings. However, some plan sponsors remain concerned that they could be held liable if

the annuity provider fails.”

Similarly, in Field Assistance Bulletin No. 2015-02 (July 13, 2015), the DOL has stated:

“[A] recurring comment...is that employers remain unclear about the scope of their fiduciary obligations with respect to annuity 

selection under defined contribution plans....

Confusion or lack of clarity regarding the nature and scope of fiduciary responsibilities...could create or reinforce disincentives 

for plan sponsors to offer their employees an annuity as a lifetime income distribution.”
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• The Proposal does not show appropriate deference to clear and repeated Congressional intent 

regarding the primary role of state insurance laws in the regulation of the business of insurance.

• The Proposal is highly complex. As a result, the Proposal will be very difficult for companies and 

advisors to administer, and extremely expensive. This will lead to significantly increased costs to 

industry and consumers, confusion, inadvertent errors, and disputes between advisors and their 

customers.

• Regulatory complexity, coupled with potentially punitive sanctions for inadvertent violations, is 

a significant concern for employers and other fiduciaries.4 Historically, complexity and unclear 

legal exposure have led to hesitancy on the part of plan sponsors in offering new plan designs, 

and an unwillingness to offer clearly beneficial products (e.g., lifetime income options). We 

believe that this harms consumers. As noted above, last week both the DOL and President 

Obama acknowledged this problem, and spoke in favor of clarifying guidance pertaining to 

lifetime income options. President Obama also mentioned the critical need for guidance to plan 

sponsors to allay their concerns about personal liability.

5

• As noted above, we believe the revised definition of “fiduciary” in the Proposal is beyond the 

authority of the DOL to adopt. However, assuming this definition is found valid, to address 

concerns about regulatory complexity and unclear liability, the Proposal should be supported by 

clear, succinct safe harbor protections. It is generally acknowledged that the lack of this sort of 

guidance has impeded retirement plan design in a number of areas, including specifically in the 

highly important area of retirement income solutions.6 Safe harbor guidance would be

particularly important in the IRA area, since the Proposal would in effect subject IRA accounts to 

new ERISA requirements, and sales persons currently working with IRA accounts would have to 

become conversant with these ERISA concepts virtually overnight.

• Safe harbor protections should be based substantially upon compliance with state insurance 

law. There is significant, recent authority for interpreting Federal law by reference to state 

insurance laws.

• The Proposal should be submitted for additional legislative and regulatory review outside the 

DOL. We believe that the subject matter of the Proposal is too important to be rushed. Initially, 

a proposal of this magnitude, which in effect substantially overhauls ERISA, should be subject to 

significant Congressional input. Further, we believe that the SEC, FINRA, and the NAIC are 

pivotal parties in this broad initiative. Among other things, we are concerned that, if the DOL 

 4 See Vernon, Stanford Center on Longevity, The Next Evolution in Defined Contribution Retirement Plan Design, A Guide for DC 

Plan Sponsors To Implementing Retirement Income Programs at 8 (September 2013) (“Employers and plan sponsors may have a 

number of goals regarding implementation of a retirement income program, including minimizing fiduciary exposure and 

administrative complexities.”)

5 See footnote 3, supra. 6 One author has stated: “[There is] a significant barrier for employers and plan sponsors to implement retirement income 

solutions in their defined contribution (DC) retirement plans—the lack of comprehensive safe harbor guidance from the [DOL] 

and/or [IRS] on the design and implementation of retirement income solutions in tax-qualified retirement plans. This creates 

uncertainty and confusion for plan sponsors...Safe harbor guidance could be structured to reduce uncertainty and confusion.” 

Vernon, Stanford Center on Longevity, Foundations in Research for Regulatory Guidelines on the Design & Operation of 

Retirement Income Solutions in DC Plans at 3 (September 2014).
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and the SEC adopt fiduciary regulations independently, product issuers may be subject to 

multiple, significantly different, and potentially conflicting regulatory standards.

• The effect of the Proposal, if adopted in its current form, will be to encourage litigation between 

plan participants and providers. We believe litigation is almost never in the best interest of 

consumers, because of cost, delay, and uncertainty—and that there are substantially better 

ways to achieve regulatory objectives. Further, improper sales of insurance products are already 

subject to private rights of action and regulatory sanction at both the Federal and the state 

level.

• From the perspective of the life insurance and annuity industry, the Proposal raises a number of 

interpretational questions. While certain insurance products are clearly intended to be covered 

by the Proposal, the Proposal does not attempt to address the unique product features and 

distribution structures found in the insurance industry. Insurance products are priced differently

and sold differently than products in the traditional securities industry. In addition, they involve 

significant issuer risks that do not exist in other financial services industries. These differences 

must be addressed in any analysis of products.

• The Proposal specifically requests comment on which exemption, the BIC Exemption or a revised 

PTE 84-24, should apply to different types of annuity products. For the reasons set forth in this 

letter, we believe that annuities should be treated as a separate class of product subject to a 

single regulatory standard, the standard found in the “annuity exemption” of PTE 84-24.

• The Proposal appears to underestimate the disruptive effect it will have on sales persons who 

are not currently operating in an ERISA environment. We strongly believe that additional 

consideration should be given to these sales agents, and the enormous change that the Proposal 

would make to their business model. Either the Proposal should exclude IRAs until there has 

been substantially more review of this issue, or a clear, simple safe harbor should be generated 

for persons marketing to IRAs, to assist these sales persons in assuring their businesses remain 

compliant.
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III. AZL GROUP ANALYSIS OF THE DOL FIDUCIARY PROPOSAL

Once again, the AZL Group appreciates the opportunity to comment on the Fiduciary Proposal. While we 

expect that the DOL will receive a number of insurance industry trade group comment letters, these 

letters by necessity address general industry concerns and cannot present every issue or position 

important to individual companies. The following comments reflect the AZL Group’s unique role as a 

leader in innovative index annuity and variable annuity solutions for the defined contribution retirement 

market.

We have also participated in discussing and drafting comment letters submitted by the American 

Council of Life Insurers; Committee of Annuity Insurers; Insured Retirement Institute; and several other 

trade groups, and we generally support the positions taken in those letters.

A. Challenges In Modern Retirement Planning

It is generally acknowledged that there is a rapidly approaching retirement crisis in the United 

States. This problem has been caused by consumer losses in the stock market, the financial fallout of 

the Great Recession, the substantial decrease in the number of defined benefit plans over the last 

several decades, increased longevity, and the risks associated with retirement plan payouts that may 

occur over 20 to 30 years.7

1. Troubling statistics from the retirement market

Increasingly, consumers are being asked to manage their own retirement. Companies that 

offer retirement plans to these consumers are increasingly shifting from defined benefit plans 

to defined contribution plans, such as 401(k)s. In 401(k) plans (and IRAs), consumers typically 

do not have the benefit of the principal protection and lifetime income that are provided by 

defined benefit plans. As a result, consumers increasingly have smaller retirement accounts 

and more risk and uncertainty. The following is a brief snapshot of the important trends:

• According to the LIMRA Secure Retirement Institute, “[t]the biggest risk to Americans’ 

retirement security is the lack of savings. Half of Baby Boomers have less than $100,000 

saved for retirement, and more than a third have less than $25,000.”

Source: Consumer Survey, LIMRA Secure Retirement Institute, 2014

• From 1990 to 2008, the number of active participants in private sector defined benefit 

plans fell by 27.6% from about 26 million to about 19 million.

Source: GAO, Report to the Chairman, Special Committee on Aging, U.S. Senate, RETIREMENT 

INCOME Ensuring Income throughout Retirement Requires Difficult Choices, June 2011

• “Almost two thirds of pre-retirees do not expect to receive enough income from Social 

Security and employer pensions to cover their basic living expenses in retirement.”

Source: LIMRA, The Facts of Life and Annuities, September 2014 Update

 7 These problems are exacerbated by a significant decrease in purchases of individual life insurance, which can be expected to 

further weaken consumer finances. Over the last 50 years, individual life insurance ownership has decreased from 60% to 35% 

of the population. Group Life Insurance coverage has increased somewhat, from 25% to 35%. Source: LIMRA, The Facts of Life 

and Annuities, September 2014 Update.
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• “Almost 75 percent of pre-retirees expect to work in retirement, but 75 percent of 

retirees do not work.” 

Source: Quarterly Retirement Perspectives, LIMRA Secure Retirement Institute, Fourth 

Quarter 2013

2. To be effective, retirement plans must address market risks, longevity risks, and payout 

risks. Annuities are one way of addressing these risks

The GAO has recognized the important role of annuities for Americans’ retirement needs. In 

its June 2011 report on Retirement Income, submitted to the Chair of the U.S. Senate Special 

Committee on Aging, the GAO warned that “holding stocks and bonds leaves households 

exposed to the financial uncertainty in financial markets over an unknown number of 

retirement years” and noted the adverse impact for retirees if they need to begin taking 

income after the value of their investments has declined. The report further noted that 

experts recommended that retirees draw down their reserves at a systematic rate and that 

this process “should be a part of a larger strategy that includes a certain amount of lifetime 

retirement income (such as Social Security, defined benefit, and annuity income).” The report 

went on to say that experts generally recommended “income annuities, in conjunction with 

systematic drawdown of other savings, to provide a greater level of retirement income 

security.”

As discussed elsewhere in this letter, we believe that the Proposal, because of its complexity 

and considerable cost to implement, may raise a series of logistical roadblocks, and interfere 

with the adoption of the necessary types of reforms outlined in the GAO report.

B. Insurance Agents Acting in a Selling Capacity Should Not Be Treated as Fiduciaries

As noted above, the proposed re-definition of the term fiduciary would, in effect, turn the process of 

describing a product that is being sold into a “fiduciary recommendation,” and make the term “sales 

person” largely synonymous with the term “fiduciary.” We believe that this interpretation is well 

outside the historical understanding of the meaning of the term “fiduciary”, and that the 

interpretation is not in accordance with the language of ERISA.

ERISA defines an investment advisory fiduciary as a person who “renders investment advice for a fee 

or other compensation direct or indirect....” DOL regulations promulgated subsequent to the 

enactment of ERISA further define investment advisory fiduciary as a person who renders advice “on 

a regular basis pursuant to an agreement...that such advice will form the primary basis for

investment decision making.” In other words, an advisory fiduciary is distinguishable from an 

insurance sales agent by the fact that the fiduciary provides advice on a “regular basis” and this 

advice is the basis for the investment decision, unlike the sales agent, who effects individual sales 

transactions, rather than providing overarching investment advice for multiple assets, and the 

fiduciary’s advice is the basis for the investment decision.

We believe that the proposed revised definition of fiduciary is not supported by the provisions of 

ERISA. A number of courts have rejected broad assertions that insurance agents are fiduciaries.
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Most notably, in Flacce v. Sun Life of Canada, the Sixth Circuit, relying solely on statutory 

construction of ERISA without appearing to even consider the need to analyze the application of the 

five-part regulatory definition, concluded that:

“[S]elling...an annuity contract does not constitute investment advice.”8

Similarly, the 5th Circuit has stated: 

“Simply urging the purchase of its products does not make an insurance company an ERISA 

fiduciary with respect to those products.” 9

Similarly:

“To satisfy the authority or control element....the Plaintiffs must demonstrate” that the 

insurance agent caused the plan trustee to “relinquish his independent discretion....”10

Based upon the language of these cases, we believe the revised definition of fiduciary in the 

Proposal is invalid as applied to insurance agents and insurers. While a governmental department or 

agency has authority to promulgate rules interpreting a statute, it does not have authority to 

promulgate rules contrary to the meaning of that statute, as interpreted by courts with appropriate 

jurisdiction.11

However, if the DOL insists on applying this regulation to insurance agents and insurance products, 

the DOL should adopt safe harbor guidance or carve-outs to the proposed regulation outlining the 

types of sales activities that will not result in an insurance agent becoming a fiduciary. This safe 

harbor guidance should be based primarily on the provisions of state insurance law. As also outlined 

in this letter, we believe that there is substantial authority for using state insurance law to define 

the requirements of Federal law. For example, a safe harbor might provide that an insurance agent 

meeting the requirements of state disclosure, advertising, and suitability requirements is not a 

fiduciary unless he specifically acknowledges that he is acting as a fiduciary or otherwise engages in 

conduct that can reasonably be construed as the provision of fiduciary advice.

In the alternative, if the DOL determines that an insurance agent giving a product presentation is a 

fiduciary, the DOL should clarify by safe harbor when the agent is acting in accordance with 

applicable prohibited transaction exemptions. Again, compliance with the safe harbor would be 

based substantially on compliance with state insurance laws.

 8 958 F.2d730, 734 (6th Cir. 1992) 9 American Federation of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance, 841 F.2d 658 (5h Cir 1988) 10 Schloegel v. Boswell, 994F.2d 266 (5th Cir. 1993) cert. denied, 510 U.S. 964 (1993). 11 See e.g., United States v. Home Concrete and Supply, LLC, 132 S. Ct. 1836, 1843 (2012) (holding that an agency is due no 

deference when it amends a regulation that a court previously found to be a reasonable interpretation of an unambiguous 

rule).
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C. The Proposal Should Include a Series of “Safe Harbors”

The Proposal is voluminous and highly complex, and has required, and will continue to require, 

specialized legal, compliance and business experts to help understand and assure compliance. Many 

of the standards, such as that of “reasonable compensation” may be familiar to ERISA lawyers and 

regulators but would be foreign and unclear to individual advisers such as small independent 

broker-dealers and insurance agents. The challenge of the Proposal is in its premise: it seeks to apply 

common law trust principles, developed for trustees with discretionary asset management 

responsibility, to non-discretionary sales activities. While this may have theoretical appeal, in reality 

it amounts to a novel application of common law trust principles and therefore would create 

enormous compliance uncertainties and costs. This inevitably will lead to unintended consequences 

in the form of increased costs to individual investors and/or the exit of small independent brokers 

and agents from the market.

To the extent the Department determines to go forward with the Proposal in substantially the form 

presented, safe harbors should be provided to make it feasible for sales persons to determine that 

they are in compliance. Compliance certainty not only benefits the adviser but also benefits the 

retirement investor by ensuring consistent protective practices throughout the industry, without the 

need for the investor to initiate a lawsuit to determine whether conduct standards have been met. 

It could also be expected that compliance certainty would result in a more diverse plan choice and a 

higher level product innovation.

In addition to the safe harbor guidelines discussed in the preceding Section III.B, the DOL should 

consider the additional safe harbor protections set out in Section III.S.

D. The Proposal Should Be Revised to Encourage “Merit” Protections Similar to Protections Found in 

State Insurance Laws

The Proposal is not sufficiently forward looking. It propagates and expands the deficiencies in the 

current regulation of modern retirement plans. For example, the Proposal is, in significant part, 

premised on a form of “full disclosure.” While “disclosure regulation” does provide a significant 

consumer benefit, disclosure regulation by itself will ultimately prove inadequate when used with 

unsophisticated consumers. Many of the consumers in the qualified plan market are 

unsophisticated. 12 Other, supplementary forms of regulation should be adopted. Specifically, the 

sort of “merit regulation” found in state insurance laws may be better suited to protecting these 

 12 We believe that the regulatory issues that exist in a disclosure regime are compounded when a plan or IRA account only 

offers traditional securities products. As the DOL is aware, the availability of annuity products in defined contribution plans is 

highly restricted, in part because of regulatory uncertainty. Securities products, which generally do not provide principal 

guarantees, involve significant risks to principal. We believe there is some question whether a plan or IRA that only offers 

securities products, with their inherent risk to principal, could ever be “suitable” or “in the best interest” of consumers. As 

noted above, the insurance industry addresses this issue by applying a form of merit regulation to many insurance products, 

(e.g., through state “standard minimum nonforfeiture laws”, which assure that purchasers of fixed annuities receive a minimum 

principal value on surrender of their contract). We believe that the Proposal at a minimum should not discourage, and optimally 

should encourage, plans to offer at least some plan options that provide a principal guarantee. We similarly believe that, to 

further reduce participant risk, plans should be encouraged to offer 2-3 lifetime income options. Only through guaranteed 

features and lifetime income options can participants be assured they will not outlive their retirement savings.
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unsophisticated consumers. To the extent that the Proposal usurps state merit regulation in favor of 

disclosure regulation, it may be conflicting with the goals it is attempting to achieve.

In analyzing annuities, many people focus almost exclusively on the “annuitization” feature of 

annuities. In effect, they think of annuities in terms of immediate payout streams. This approach is 

somewhat short-sighted, and understates substantially the benefits and protections of “merit 

review” products such as annuities in a retirement plan, both during accumulation and during 

payout. During the accumulation period, the participant and his/her spouse and heirs receive 

substantial protection in the form of an annuitization feature and a minimum death benefit. 

Depending on the contract, they may also receive principal protections, payout protections, target 

value protections, and increasing income protections. These benefits are described in more detail at 

page 19 of this letter. All of these benefits provide valuable account protections to annuity owners. 

Once the payout phase commences, these various benefits provide a variety of protected payout 

guarantees that substantially reduce the contract owner’s risk in payout.

As noted above, we agree with the DOL’s consumer protection goals. However, we believe that 

there are other, substantially larger threats to plan participant accounts that should be addressed. 

For example, as the DOL is aware, in the years 2008-2009, plan participants suffered massive losses 

in their retirement accounts as a result of market declines. Estimates put these losses at $3.4 

Trillion, or 40% % of total value.13 The Proposal, even if adopted, would not have prevented these 

losses. In contrast, fixed and fixed index annuities, which are subject to state “merit” regulation in 

the form of standard minimum nonforfeiture laws, did not incur any market-related losses. We 

believe that plan investments should receive the benefit of various forms of “merit regulation”, such 

as exist in state insurance laws. For example, the Proposal could be drafted so as not to discourage 

the availability of investment options with minimum principal guarantee features. Or, the Proposal 

could be drafted so as not to discourage the availability of minimum lifetime income features.

In sum, we believe that to address the critical shortcomings in the current retirement plan market, 

the Proposal should be revised so as not to undermine the objectives of “merit protection” and to 

ensure the availability of a variety of products with guaranteed, insured values and guaranteed 

payout options.

E. The Proposal Should Be Submitted for Additional Regulatory Review Outside the DOL

The Proposal should be submitted for additional regulatory review outside the DOL. Specifically, it 

appears that input from other Federal financial services regulators, and the 50 state insurance 

departments, has been limited. These regulators should provide detailed input on the Proposal. 

Among others, the United States Securities and Exchange Commission (SEC), the principal Federal 

regulator for investment securities, should be actively involved in vetting the Proposal.14 Similarly, 

input from FINRA, the most significant broker-dealer self-regulatory authority in the United States, 

 13 Mauricio Soto, Urban Institute, “How is the Financial Crisis Affecting Retirement Savings?” (March 10, 2009) 14 We note that senior SEC officials have raised concerns publicly about the process for the Proposal. Investment News, SEC's 

White: Fiduciary battle far from over (March 24, 2015).
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should also be considered critically important.15 As noted above, comments should also be solicited 

from the NAIC.

One Federal regulator, FINRA, has raised specific concerns about the Proposal. These concerns 

include: (i) it is premature for the DOL to move forward on its Proposal until the SEC has completed 

its review of the fiduciary advisor issue, as instructed by Congress in the Dodd Frank Act; (ii) the 

Proposal is unnecessarily derogatory of financial services sales persons; and (iii) the Proposal may 

have the effect of seriously damaging the IRA industry, to the detriment of consumers.16 We agree 

with all of these concerns.

Among other things, we are concerned that, if the DOL and the SEC adopt fiduciary regulations 

independently, insurers may be subject to multiple, significantly different and conflicting regulatory 

standards.

F. The Proposal Will Lead to Expensive, Unnecessary Litigation. There Are Better Ways to Meet 

Regulatory Objectives

The effect of the Proposal if adopted in its current form, particularly the BIC Exemption, will be to 

encourage litigation between plan participants and providers. We believe litigation is almost never 

in the best interest of consumers, because of cost, delay, and uncertainty--and that there are 

substantially better ways to achieve regulatory objectives.

Litigation is also counterproductive from the perspective of the adviser. Not only would the adviser 

be subjected to significant costs, interference with the conduct of his/her business, and potential 

reputational damage, the adviser may have to defend him/herself from what at bottom may have 

been customer dissatisfaction that a recommendation “didn’t work out.” We believe the Proposal, 

rather than relying almost entirely on an adversarial process, should contain a series of “safe 

harbors” so that legitimate insurance and annuity sales persons can be assured as to how they can 

conduct their businesses in a compliant manner.

 15 We note that senior FINRA officials have raised concerns publicly about the process for the Proposal. See Think Advisor,

FINRA's Ketchum Criticizes DOL Fiduciary Plan (May 1, 2015); Ketchum, Remarks from the 2015 FINRA Annual Conference (May 

27, 2015); and Investment News, FINRA's Ketchum criticizes DOL fiduciary rule (May 27, 2015), 16 As reported in Investment News (May 27, 2015), Mr. Richard Ketchum, the CEO of FINRA, raised a series of concerns about 

the Proposal:

“Mr. Ketchum...criticized rhetoric surrounding the DOL proposal that portrays brokers preying on clients....

‘Depictions of the present environment as providing ‘caveat emptor’ freedom to broker-dealers to place investors in any 

investment that benefits the firm financially with no disclosure of their financial incentives or the risks of the product are simply 

not true....Nor are they an accurate starting point to justify a new standard of care.’ 

He warned that the primary mechanism in the DOL rule that would allow brokers flexibility in charging clients for their services 

– a legally binding contract requiring them to act in the clients’ best interest – would send disputes over fiduciary duty into legal 

and arbitration forums without instruction on how to rule on compensation practices.

‘I fear that the uncertainties stemming from contractual analysis and the shortage of useful guidance will lead many firms to

close their IRA business entirely or substantially constrain the clients that they will serve....’”

See also Ignites, FINRA Calls on DOL to Scrap “Fractured” Fiduciary Standard (July 20, 2015).
15 | Page

It is important to note that improper sales of insurance products are already subject to private rights 

of action and regulatory sanction at both the Federal and state level. The effect of the Proposal 

would be to add one more layer of vague potential liability.

G. The Proposal Does Not Adequately Consider All of the Various Federal and State Laws that Already 

Provide Substantial Protections to Plan Participants

The Proposal does not adequately consider all of the existing, overlapping, and potentially 

conflicting insurance and securities laws that already exist to protect plan participants. The Proposal 

should be revised to more fully address these statutory and regulatory provisions that provide 

protections to qualified plans and IRAs. To be effective, the Proposal should be harmonized with 

these requirements.

Specifically, The Proposal makes several broad statements about the benefits of a fiduciary duty 

standard. However, as the DOL is aware, a “suitability” standard has existed in the securities laws for 

80 years, and now also exists in the insurance laws of substantially all states.17 The Proposal does 

not adequately discuss these suitability protections, or explain what sorts of improper conduct, if 

any, are permissible under current suitability standards but would be prohibited under a new 

fiduciary standard. In other words, we question whether the Proposal in its current form makes the 

case for a new, overlapping consumer protection standard.

H. Federal Law Recognizes the Primacy of State Insurance Law in the Regulation of the Business of 

Insurance. The Proposal Does Not Show Appropriate Deference to this Congressional Intent

In a number of situations, Federal law has been drafted in a manner that defers to the 

comprehensive regulation of insurance found in state insurance laws. Further, Congress has also 

relied upon state insurance laws in tailoring the requirements of Federal law to insurance matters.

Initially, as the DOL is aware, Congress has specifically exempted state insurance laws from ERISA 

pre-emption. See 29 U.S.C. 1144(b)(2)(A). In doing so, Congress explicitly recognized the 

comprehensive regulation of insurance that exists at the state level, and evidenced an intent that 

insurance should be regulated primarily/exclusively by the states. The Proposal does not pay 

adequate deference to this Congressional intent. In fact, the Proposal, as currently drafted, could be 

viewed as attempting to regulate various aspects of the business of insurance.18

More recently, there is significant authority for using state insurance law to interpret the 

requirements of Federal law. In the so-called “Harkin Amendment” to the Dodd Frank Act (Section 

989 J), Congress provided that a fixed index annuity meeting certain requirements is not a security 

pursuant to Federal law, and is subject to regulation exclusively pursuant to state insurance laws. 

The principal requirement of the Harkin Amendment is that the annuity must meet the 

 17 49 states have adopted annuity suitability protections. 18 The DOL, in consultation with the National Association of Insurance Commissioners (NAIC), should review the Proposal to 

remove provisions that pertain to the business of insurance. Further, we believe that the “safe harbor” recommendations set 

out elsewhere in this letter should be based substantially upon compliance with state insurance law.
16 | Page

requirements of state insurance standard minimum nonforfeiture laws. The legislative history to this 

provision indicates that Congress’ purpose was to “[f]urther promot[e] the adoption of the NAIC 

model regulations that enhance protection of seniors and other consumers.” Nonforfeiture laws are

discussed elsewhere in this letter.

As an historical matter, we believe it is important to point out that Federal law has for nearly a 

century shown a substantial deference to state insurance regulation. When Congress began 

enacting regulation of the financial services industry in the 1930s, it enacted sweeping regulation of 

the securities industry, but did not enact laws to regulate the business of insurance. Further, to the 

extent that certain insurance products might potentially be subject to Federal regulation as 

“securities”, Congress enacted a series of “carve outs” for the insurance industry.

• Pursuant to Section 3(a)(8) of the Securities Act of 1933, a fixed “annuity” is expressly excluded 

from the definition of the term “security.”

• Pursuant to Section 3(a)(2) of the Securities Act, a group variable annuity contract sold to a 

qualified plan is expressly exempted.

• Pursuant to Section 3(c)(3) of the Investment Company Act of 1940, an insurance company is 

expressly excluded from the definition of the term “investment company.”

• More recently, the SEC has adopted a rule, based in large part upon the extensive protections 

contained in state insurance laws, that broadly exempts insurance company issuers from the 

status of “public company.” Rule 12h-7 pursuant to the Securities Exchange Act of 1934 

provides that an insurance company issuing an insurance product that is a registered security 

is not required to file periodic reports on Forms 10-K, 10-Q, or 8-K unless it also issues other, 

non-insurance registered securities.

Put simply, for a variety of historical reasons, Federal law has for many years and in many contexts 

shown substantial deference to state law as the primary regulator of insurance.

This Federal deference to state insurance laws has extended to ERISA. As noted above, state 

insurance laws have been specifically exempted from ERISA pre-emption of state law. 

As is evident from the foregoing points, annuities are subject to comprehensive regulation at the 

state level, and the primacy of state insurance regulation has been repeatedly sanctioned by 

Congress. As such, there is a significant question as to whether other, additional regulatory regimes 

should be applied to these products. This is particularly the case where the additional regulatory 

regimes are very dissimilar from insurance regulation. In the context of the Proposal, insurers could 

become subject to uncoordinated and highly dissimilar laws in the form of insurance laws, securities 

laws, and ERISA/tax laws. This would be highly burdensome, and could result in significant additional 

costs to consumers.
17 | Page

I. Purchasers of Annuities Are Already Provided Extensive Consumer Protections Pursuant to State 

Insurance Laws

In analyzing whether the Proposal should be applied to annuity products, and if so how, it is 

important to recognize that annuities are already subject to comprehensive consumer-protection 

laws at the state level. Among other things, state insurance laws require:

• Insurers must be licensed in, and are subject to examination by, each state in which they 

operate.

• Insurers must file all contracts in all applicable states.

• Annuity contracts typically cannot be changed without the consent of the contract owner. 

• Annuity guarantees are not simply a promise to pay. Rather, guarantees are supported by 

extensive and rigorous regulation by state insurance departments. In a number of respects, 

state insurance regulation resembles bank “safety and soundness” regulation. For example, to 

assure that an insurer is capable of meeting all of its financial obligations, it must maintain 

substantial excess net capital, typically 5-7% of assets or more.

• Investment risk in the insurer’s general account is controlled by requirements that insurers can 

invest only in specific “permitted investments.” Investment in derivative securities is typically 

permitted only for hedging purposes, and not for speculation.

• Advertisements for annuity products are subject to comprehensive state advertising regulations.

• Annuity contracts must meet specific state-law readability requirements.

• Insurers or their delegates must determine that all annuity transactions are “suitable.”

• Annuity purchasers are given a “cooling off period” of 10 or more days, which allows the 

purchaser to review the contract and cancel it if he/she no longer wants it. These cooling off 

periods are called “free looks.”

• In the context of all annuities other than SEC-registered products, state law mandates that 

annuity purchasers must be given minimum contract value guarantees. Pursuant to state 

“standard minimum nonforfeiture” laws, upon a surrender of a contract, after the effect of all 

fees, charges, and surrender charges, the owner must receive at least 87.5% of premiums paid, 

increased by a stated minimum rate of interest annually. Other types of contract value 

guarantees are provided by insurers as a matter of contract, rather than pursuant to law. These 

contract value guarantees are discussed elsewhere in this letter.

J. All Annuity Products Should Be Subject to a Single Exemption and Conduct Standard

The Proposal specifically requests comment on which exemption — PTE 84-24 or the BIC Exemption

— should apply to which types of annuity.

The current draft of the Proposal would bifurcate the regulation of different types of insurance 

products, so that variable annuities and other registered annuities would be subject to a new Best 

Interest Contract Exemption, but fixed annuities and fixed index annuities would be subject to a 

revised PTE 84-24. Sales persons defined as fiduciaries by the Proposal would be fiduciaries 

regardless of which exemption they rely upon.
18 | Page

For the reasons set forth in this letter, we believe that insurance products should be subject to a 

single regulatory standard. Many insurance companies offer both variable annuities and fixed index 

annuities—often to the same—customers—and it would be confusing and counterproductive to 

customers to have these different types of insurance products subject to significantly different 

disclosures and regulatory regimes. We believe that, because insurance products share many 

product features, and differ so substantially from traditional securities products, insurance products 

as a group should be treated as a separate class of products, subject to a single exemption and 

conduct standard. Annuities should be subject to the historical annuity exemption found in PTE 84-

24. Attempting to create a single exemption that would apply to both annuities and general 

securities would be an exercise in combining “apples and oranges.”

In addition, as set out elsewhere in this letter, we believe that insurance products subject to 84-24 

should be provided with “safe harbors” that are based substantially on state insurance law.

1. Products such as annuities, which involve significant “issuer risk”, are fundamentally 

different from traditional investment products such as mutual fund shares, and should be 

subject to a different fiduciary analysis

Annuities are a form of “issuer risk product.” We do not believe that issuer risk products can 

be analyzed alongside traditional investment products such as mutual funds. Insurance 

companies incur significant financial, portfolio management, and longevity risks in issuing 

annuities, and these must be addressed through annuity cost structures. There is no corollary 

to these risks and costs in the traditional securities industry.

A brief summary of annuity issuer risk features, and the types of risks involved, is as follows: 

Product Feature Types of Risk

Annuitization Asset/liability management risk assumed by 

insurer; annuitant longevity risk

Traditional minimum death benefit Mortality risk; market risk in variable annuities; 

utilization risk; investment duration risk

Market-based product guarantees Hedging risks; volatility risks; interest rate risks; 

utilization risk; investment duration risk

Guaranteed minimum income benefit Longevity risk; asset/liability management risk; 

interest rate risks; hedging risks; market risk in 

variable annuities; utilization risk; investment 

duration risk

Guaranteed minimum withdrawal benefit Longevity risk; asset/liability management risk; 

interest rate risks; hedging risks; market risk in 

variable annuities; utilization risk; investment 

duration risk

Guaranteed minimum asset benefit Asset/liability management risk; interest rate 

risks; hedging risks; market risk in variable 

annuities; utilization risk; investment duration risk
19 | Page

Product Feature Types of Risk

Guaranteed target date benefit Asset/liability management risk; interest rate 

risks; volatility risks; hedging risks; market risk in 

variable annuities; utilization risk; investment 

duration risk

Guaranteed Increasing Payout Benefit (e.g. 

inflation-linked increasing income benefits, 

performance-linked increasing income benefits)

Inflation risk; longevity risk; asset/liability 

management risk; interest rate risks; hedging 

risks; market risk in variable annuities; utilization 

risk; investment duration risk

Enhanced liquidity benefits (e.g. Unemployment 

benefits or confinement benefits)

Morbidity risk; health risk; employment risk; 

utilization risk; investment duration risk; 

asset/liability management risk

2. Annuity products contain numerous “insurance” features, and cannot be analyzed simply 

as “investments”

Annuity products offer a wide range of insurance features that do not exist in the context of 

traditional securities products such as mutual funds. Two or more of these features may be 

included in a single product. In some instances, the features and associated fees may be 

“bundled” in a contract, and in some instances features may be selected and paid for 

separately.

The insurance benefits of an annuity contract are not “collateral” or “tangential.” They are 

often the primary reason for buying an annuity.19

Insurance features that may be included in an annuity may include: 

• Annuitization

Substantially all annuities offer multiple annuitization payout options, such as lifetime 

payout, joint lifetime, and lifetime with 10 year period certain.

• Traditional or enhanced death benefit

Annuities offer traditional and enhanced death benefits. The traditional benefit would 

guarantee a minimum death benefit, even in the event of a market decline.

• Guaranteed Minimum Withdrawal Benefit

These benefits provide a level periodic payout (e.g., $1,000 per month) for a specific 

period (e.g., 20 years) regardless of contract performance, even if the accumulation value 

goes to zero. At the end of the payout period, if accumulation value is positive, this value 

can be withdrawn or annuitized.

 19 As one example of this, a 2014 survey by LIMRA indicates that “[s]eventy-seven percent of new variable annuity business is 

sold with a guaranteed living benefit (when available).” Source: Finding the Right Mix, Retirement Income Attitudes and 

Preferences, LIMRA Secure Retirement Institute, 2014. In other words, for the vast majority of variable annuity purchasers, the 

GLB was apparently the primary reason for purchasing a contract.
20 | Page

• Guaranteed Minimum Income Benefit

These benefits provide a guaranteed minimum “rollup” of the premium value (e.g., 

premium compounded at 5% per year) which can be annuitized after some specified 

period (e.g., 7 years) at a relatively low fixed rate of the interest (e.g., 1%). This 

annuitization right will be honored by the issuer regardless of contract (separate account) 

performance.

• Guaranteed Lifetime Withdrawal Benefit

These benefits provide a guaranteed level lifetime payout (e.g., $1,000 per month) 

regardless of the performance, even if accumulation value goes to zero.

• Guaranteed Minimum Accumulation Benefit

These benefits provide a guaranteed withdrawal value at a specific future date. For 

example, a contract might guarantee a withdrawal value in contract year ten that is equal 

to the higher of premium paid or the highest contract anniversary accumulation value.

• Guaranteed Target Date Benefit

These benefits are designed to provide a guaranteed account value at a date in the future. 

Unlike mutual fund target date funds, annuity target date benefits guarantee and 

minimum account value, and do not simply have a “goal” of reaching some value. 

• Guaranteed Increasing Payout Benefit

These benefits provide income that can increase over time which may be based on a fixed 

amount, or a variable amount tied to increases in inflation, index values, or contract 

investment performance.

• Enhanced Liquidity Benefits

Annuities offer benefits which may increase liquidity based on specific life events 

including unemployment, entering nursing home facilities, or disability.

• Product Diversification and Volatility Management

Because insurance is a form of risk management product, many variable annuity contracts 

have embedded in them multiple layers of risk management that protects contract 

purchasers. For example, many variable annuities offer “funds of funds”, which provide

professional diversification and comprehensive asset allocation, thereby reducing risk. 

Some contracts also offer funds with “volatility risk management”, which reduces contract 

volatility and risk.

3. Annuity commission, fee, and expense structures are fundamentally different from those for 

traditional investment products, and this must be considered in any analysis of annuities

Commissions and fees for annuity products work in a substantially different manner than 

commissions and fees for traditional investment products. As a result, any analysis of

annuities, including an analysis of the “reasonableness” of annuity commissions and fees,

must consider the unique design features of annuities. These include:

• Insurance product commissions are typically paid up front by the insurance company, and 

then earned back by the insurance company over the expected lifetime of the product 
21 | Page

through the spread on its investments. The insurance company is “at risk” as to when, and 

whether, it will be able to earn back the commission.20 This commission structure benefits 

contract purchasers, since they receive an account value equal to premium paid, without 

any deduction for commissions, and this entire value begins earning on day 1. This is in 

contrast to traditional securities products, where the commission is typically paid up-front 

by the consumer, and the consumer’s account value is immediately reduced by the 

amount of the commission.21

• Insurance sales charges are typically “deferred” and “contingent.” This is in contrast to 

traditional securities products such as the commonly offered A Class mutual fund shares, 

where the charge is typically immediate and is not subject to contingency. With an 

insurance product, the sales charge typically is not assessed unless the purchaser 

surrenders his/her contract early.

• In determining the “value” of a product or the “reasonableness” of commissions, we 

believe that many consumers would prefer a sales commission paid by the insurer and 

that those consumers would also prefer a “contingent deferred” charge to an up-front 

charge taken “off the top.”

4. Product design and distribution are converging for certain types of annuity products, with 

the result that diverse types of annuities are more similar to other types of annuities than to 

traditional investments

Product design and distribution for different types of annuities are converging in many 

respects, so that, increasingly, different types of annuities look more similar to other types of 

annuities than to traditional investment products. In analyzing annuities for purposes of the 

Proposal, we believe that the relevant consideration is whether the product is an “insurance 

product” or a “non-insurance product.”

For example, the AZL Group has for many years issued unregistered fixed index annuities. 

These annuities offer multiple index crediting options, and regulate income crediting primarily 

by means of a performance “cap.” These annuities offer a minimum death benefit and various 

annuitization options. Recently, the AZL Group has commenced offering registered index 

products. These products offer multiple index investing and crediting options, regulate income 

crediting by means of a performance “cap”, and offer a minimum death benefit and various 

annuitization options. The principal difference between the registered product and the 

unregistered product is that the registered product has a higher level of risk and offers higher 

return potential. (The registered product is not required to comply with standard minimum 

nonforfeiture laws, but is subject to review and regulation by state insurance departments.)

 20 While the insurer expects to earn back commission costs through a combination of investment spread and surrender charges, 

total acquisition costs may exceed spread plus surrender charge and the insurer may incur a loss as a result of the commission. 21 We note that the DOL is aware of this issue, and in the Proposal it appears to express some ambivalence about traditional 

investment commissions that are “taken off the top fee” Fiduciary proposal at 9.
22 | Page

This registered AZL Group product blends annuity types in other ways. The annuity offers 

mutual fund investment options in addition to index investment options, and so it is referred 

to as “a variable annuity with index investment options.”

The AZL Group has also offered variable annuities with a fixed (unregistered) investment 

option. The fixed (unregistered) investment option provides benefits which comply with 

standard minimum nonforfeiture laws required by state insurance regulations.

Other companies are also blending multiple different types of annuity product. One issuer 

offers a variable annuity with a fixed index (unregistered) investment option. Other companies 

offer other combinations of registered/unregistered and fixed/index/variable products.

The distribution of different types of annuity products is also converging. As one example, 

over the last 5 years, many broker-dealers have begun offering unregistered fixed index 

annuities based on the annuities’ “low risk profile.” From 2010 to 2014, sales of FIAs through 

regional and wirehouse broker-dealers increased from 2% to 13% of total FIA production. The 

Allianz Group saw an increase in FIA sales through broker-dealers from $1.49 Billion to $5.62 

Billion. More recently, broker-dealer firms have also begun offering unregistered fixed index 

life insurance products.

Based on the foregoing factors, we believe that annuities should be regarded as a separate 

asset class. 

K. The Proposal Is Overly Complex

The Proposal is highly complex. As a result, the Proposal will be difficult for insurers, marketers, and 

advisors to administer, which will lead to significant costs and confusion, and inadvertent errors. 

Many well-intentioned, experienced sales persons could find themselves unintentionally violating 

various provisions of the Proposal. This sort of regulatory complexity, coupled with potentially 

punitive sanctions for inadvertent violations, is a significant concern for employers and other 

fiduciaries. 22 Historically, complexity and unclear legal exposure have led to hesitancy on the part of 

plan sponsors in offering new plan designs, and an unwillingness to offer clearly beneficial products 

(e.g., lifetime income options). We believe that this harms consumers. Put simply, while the 

Proposal is designed to “cast a wide net”, it should not be drafted so broadly as to constitute a “trap 

for the unwary.” The Proposal should be made as simple, clear, and easy to implement as possible, 

so as to reduce unnecessary disputes and facilitate innovation in the retirement plan market.

To address concerns about regulatory complexity and unclear liability, the Proposal should be 

supported by clear, succinct safe harbor protections. Sales persons who are diligently structuring 

their businesses to meet regulatory requirements should have the benefit of implementable safe 

harbor guidance. It is generally acknowledged that the lack of this sort of guidance has impeded 

 22 See notes 3 and 5 of this letter.
23 | Page

retirement plan design in a number of areas, including specifically in the highly important area of 

retirement income solutions.23

We believe that safe harbor guidance would be particularly important in the IRA area, since the 

Proposal would now in effect subject IRA accounts to ERISA’s fiduciary conflict of interest

prohibitions, and sales persons currently working with IRA accounts have little background in these 

ERISA requirements.

L. The BIC Exemption in Its Current Form Will Lead to Inconsistent and Inaccurate Product Disclosures

The BIC Exemption as currently drafted appears to contemplate that in many instances product and 

commission disclosures will be prepared and communicated by the adviser, rather than the issuer. 

This is contrary to current practice in the insurance industry, and we believe it would lead to

substantial inconsistent and incorrect information being provided to consumers.

Put simply, we believe that having thousands of sales persons generating “one-off” disclosure

materials would be highly counterproductive.

In the insurance industry, product disclosures are typically controlled by the product issuer, and not 

the individual adviser. This has the benefit of increased uniformity of disclosure, in that hundreds of 

sales persons selling for an issuer can use the same consistent, carefully reviewed sales materials. 

Further, if the issuer prepares all sales materials, it can be assumed that the materials will be 

accurately prepared and thoroughly reviewed by internal compliance departments, and as a result 

could be expected to be clearer and more accurate than materials prepared by a sales person. If

disclosure materials are prepared by a sales person in the form of individualized disclosures, it could 

be expected that the disclosures would be inconsistent among sales persons, even when the 

materials describe the same product, and may occasionally be inaccurate.

 23 See note 7, supra.
24 | Page

In the AZL Group, sales persons are flatly prohibited from independently generating sales 

materials.24

In the context of SEC-registered investment products, the SEC views consistency and comparability 

of disclosure to be critical. All issuers must use a standard prospectus disclosure format. SEC 

requirements even go so far as to require that certain disclosures are subject to “ordering 

requirements”, so that disclosure A must come before disclosure B, and disclosure B must come 

before disclosure C.

It should be noted that any disclosure for an insurance product created by a sales person or 

marketing organization would not exist in a vacuum. That disclosure would likely constitute an 

“advertisement” for purposes of state insurance laws, and would have to comply with state 

insurance model advertising regulations. In the context of variable annuities, the materials also 

would likely constitute a “prospectus” for purposes of Federal securities laws. Any materials 

constituting a prospectus would have to be reviewed by a Series 24 or 26 “registered securities 

principal.” Most sales persons are not “registered principals.” The sales materials would also have to 

be filed with FINRA pursuant to Rule 482. Overall, the preparation and review of the sales materials 

would be subject to highly detailed laws and regulations. Sales agents may not have the experience 

or training to deal with these complex requirements.

We believe that the creation of individualized disclosures by sales persons would lead to disruptions 

of product distribution and numerous errors. Rather than permitting sales person disclosures, the 

Proposal should facilitate template disclosures by the issuer.

The National Association of Insurance Commissioners (NAIC), following three years of study and 

debate, has recently promulgated a comprehensive Model Regulation addressing annuity disclosure. 

We believe that any provision of the Proposal pertaining to fee disclosure should be implemented 

 24 The AZL Insurance Compliance Guide states that

“[A]ll materials promoting an Allianz product must be pre-approved by Allianz. You must first obtain 

written approval from the Allianz Review department if you wish to promote an Allianz product or service 

using materials that were not created by Allianz.”

• Similarly, the AZL Advertising Manual, which is used for both fixed and variable business by the AZL Advertising 

Compliance group, states that

“Each individual developing or submitting materials for review and approval is responsible for...ensuring 

that the material is not used, distributed, mailed, or shown in any form until the required reviews have 

been conducted and the piece has Supervisory or [Registered Principal] approval prior to use.”

• Similarly, the standard form “selling agreement” entered into between the AZL Group and third-party broker-dealer 

firms selling AZL annuities states that

“[the selling firm] and all persons associated with [the selling firm] shall use only those sales, advertising 

and promotional materials which have been approved in writing by Allianz. Any sales materials created by 

[the selling firm] or its associated persons that refer to [AZL]...or [AZL] products must be submitted to the 

AZL Group for prior review and approval. This applies to sales material in paper, electronic, or any other 

form.”
25 | Page

through the NAIC Model Regulation or, for securities products, through the statutory prospectus, 

following consultation by the DOL with the SEC and FINRA.

M. “Reasonableness” of Compensation

The Proposal requires, basically, that advisers and financial institutions must determine that 

compensation received by the adviser is “reasonable.” However, in the context of insurance 

products, the analysis of “reasonableness” is often substantially different from, and more complex 

than, the analysis for traditional securities products. Additional guidance should be given on the 

determination of “reasonableness” of compensation in the context of annuity products.

• A single annuity may offer dozens of “investment” and “insurance” features, and not just a 

single “investment.” The sales person must be able to advise the investor on all of these 

features. For example, a modern variable annuity typically offers 50 or more variable investment 

options, managed by 10-20 different portfolio managers and/or sub-advisers. Similarly, index 

annuities may offer 3-5 different equity and/or fixed income index crediting options. In addition, 

an annuity typically will offer various “insurance features.” A variable annuity may offer a 

traditional death benefit, a guaranteed minimum income benefit, and/or a guaranteed 

minimum asset benefit.

• In addition to advising on annuity “investment” and “insurance” features a sales person must 

also be cognizant of all of the laws that affect annuity products, including tax laws.

• Further, as noted above, commission and fee structures work differently for annuities than for 

traditional investment products, in that the issuer, and not the consumer, is paying the sales 

commission. Some consumers may find a product benefit in this structure. Guidance should be 

given as to the situations in which beneficial commission payment structures may result in a 

higher level of fee being “reasonable.” Put another way, in what situations would a 5% sales 

commission be unreasonable if paid by the consumer, but reasonable if paid by the insurer?

In sum, we believe that in assessing the reasonableness of annuity compensation, the value of all of 

the various embedded and separate annuity features and benefits must be carefully reviewed. An 

annuity cannot simply be analyzed as a traditional “investment.”

N. The DOL Should Not Become Enmeshed in Determining What Sorts of Compensation Are 

Permissible, or What Sorts of Investments Are “Permitted Investments” for Plans or IRAs

The Proposal attempts to both restrict the sorts of compensation that are permissible, and to 

restrict the sorts of investments that are “permitted investments” for qualified plans. Both of these 

actions appear to exceed the DOL’s authority. We do not believe that the DOL should become 

involved in what resembles a rate setting activity.

In the proposed exemptions, the DOL attempts to manage compensation practices by prohibiting, 

certain types of compensation — in an unprecedented level of detail — when products are sold 

pursuant to the exemptions. For example, any company relying on Exemption 84-24 would 

apparently be prohibited from paying “marketing support payments.” The proposal also seeks to 

make distinctions between “permitted” and “non-permitted” investments for plans and IRAs. For 
26 | Page

example, interests in publicly traded REITs would be considered permitted “assets”, whereas 

interests in non-publicly traded REITs would not. We believe this sort of involvement in the 

regulation of commissions and permitted investments is well outside the DOL’s mission and 

function.

In analyzing this issue, it is important to again review historical Congressional intent. Prior to 1996, 

the SEC was permitted to approve fees and charges for variable annuity products through the 

exemptive order process. However, in 1996, Congress enacted the National Securities Market 

Improvement Act of 1996 (NSMIA). Pursuant to NSMIA, the SEC was taken out of this “rate setting” 

function, and responsibility for determining “reasonableness of fees and charges” was allocated to 

the product issuer. See Investment Company Act Section 26(f). The issuer met its obligations 

primarily pursuant to an actuarial “reasonableness” memorandum. While NSMIA deals with all 

contract fees and charges, and not simply sales compensation, we believe that the Act indicates a 

Congressional intent that commissions, fees, charges, rates, and “permitted investments” should 

not be set by Federal Departments or Agencies. The DOL should not take on the role of a sort of 

“rate setting agency.”

O. The Proposal Should Clarify that “Principal Underwriters” that Are Non-Retail “Wholesalers” Are Not 

Fiduciaries

The Proposal should clarify that principal underwriters that act as a “wholesale” broker-dealer are 

not fiduciaries. In the insurance industry, products are frequently sold on a “wholesaling” basis. In a 

wholesaling structure, the insurer establishes a subsidiary broker-dealer to meet regulatory 

requirements. The broker-dealer does not, however, function on a retail basis or make 

recommendations. Rather, the wholesaling broker-dealer enters into selling agreements with thirdparty, largely unaffiliated broker-dealers, and these third party firms conduct all product sales, make 

all recommendations, and determine suitability. The wholesale broker-dealer does not make 

recommendations, determine suitability, or receive sales commissions. The wholesale broker-dealer 

is operated on a breakeven basis, and all sales commissions are paid to the third-party selling firm.

For example, Allianz Life Financial Services, LLC (ALFS), a wholly owned subsidiary of AZL, is the 

wholesaling broker-dealer for the AZL Group. While ALFS acts as principal underwriter and 

distributor for the AZL Group, it does not provide individualized investment advice, make 

recommendations, determine suitability, or receive sales commissions. ALFS’ Written Policies and 

Procedures, Section 9.1, expressly prohibit ALFS personnel from engaging in retail selling activity:

“ALFS [registered representatives] are prohibited from engaging in any retail securities 

activities, as its business is limited to wholesaling variable annuities to other [registered 

representatives] and [broker-dealers].”

Regulatory filings by AZL clearly disclose how ALFS operates, and that all commissions are paid out 

to retail firms, and that ALFS does not receive transaction-based compensation. See Post-effective 

Amendment to SEC Registration Statement No. 333-182987; 811-05618; Statement of Additional 

Information at pages 2-3.
27 | Page

We believe that it should be clarified that principal underwriters that are wholesalers and that do 

not make specific recommendations and/or receive transactional compensation are not fiduciaries.

P. The Proposal Should Clarify that Salaried Back-Office Clerical Employees Such as Telephone Center 

Employees Who Are Employed by “Wholesalers” Are Not Fiduciaries

As discussed above, many insurance companies and their affiliated principal distributers operate on 

a wholesale basis, and do not make specific product recommendations to consumers. Further, they 

do not receive transaction-based compensation. These companies do, however, maintain internal 

customer service and phone center personnel, who may assist prospective and current contract 

owners with product information. These people are not paid transaction-based compensation.

The Proposal should clarify that these telephone center employees are not fiduciaries. Initially, 

internal personnel of wholesalers are compensated by salary, and not transaction-based 

compensation, and so do not receive “variable compensation” within the meaning of the Proposal. 

Further, because these internal personnel work for wholesale broker-dealers that do not provide 

personalized advice and do not receive transaction-based compensation, we believe it is clear that 

they are not receiving “direct or indirect” compensation and therefore are not fiduciaries. However, 

we are concerned that the proposed regulation, and the preamble thereto, could be read otherwise.

Q. The BIC Exemption Should Clarify Responsibilities in Multi-Party Transactions

The Proposal “casts a very wide net”, in an attempt to identify all persons who may have a 

responsibility for a product recommendation. We believe that this may lead to a lack of clarity as to 

which party is responsible for a transaction, particularly in multi-party transactions where the 

transaction involves multiple affiliated and unaffiliated providers. We believe it should be clearer 

who responsibility attaches to in a particular transaction, and in what situations and when the 

responsibility attaches.

Currently, the BIC Exemption provides for the concept of a “financial institution”, and assumes that 

the advisor is employed by, or is a sales agent or registered representative of, that financial 

institution. The financial institution must sign the contract with the consumer that is required by the 

BIC Exemption. This responsibility will be very difficult to administer in the context of a multi-party 

transaction.

Initially, it is important to identify the various parties that may be involved in an insurance 

transaction.

• An insurance product must be issued by a licensed insurance company.

• The sales person must be a licensed insurance agent, who is “appointed by” the insurance 

company. The insurance agent is permitted by applicable law to be appointed to multiple 

affiliated and unaffiliated insurance companies. To offer a broad product mix, the sales person is 

often licensed to sell multiple types of insurance and non-insurance products, and is appointed 

to 5-6 insurance companies. Suitability review for a traditional (non-securities) insurance 

product is typically performed by the insurer.
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• If the product being sold is a security, such as a variable annuity, the product must be sold by an 

appointed agent through a registered broker-dealer, the sales person must be “licensed to” the 

registered broker-dealer, and the sales person must be a “registered representative” with a 

Series 6 or Series 7 securities license. The broker-dealer is often unaffiliated with the insurer. 

Unlike in the traditional insurance industry, where an agent can be “appointed to” multiple 

insurance companies, a registered representative can only be “licensed to” one broker-dealer. If 

the product being sold is a security, the suitability review is performed by the broker-dealer.

• The sales person may also be an “investment advisory representative” (IAR) who is licensed to 

provide investment advice regarding securities for a fee. As an IAR, he/she must have a Series 65 

securities license. The sales person may either be an individual investment adviser, or may be 

“licensed to” an investment advisory firm. The IAR typically does not perform a classic 

“suitability” review, but is subject to an investment advisory fiduciary duty standard. The IAR 

and investment adviser may be unaffiliated with the insurer.

Initially, this sort of structure would raise a question, in the context of the sale of a variable annuity, 

as to whether the “financial institution” is the insurer, the unaffiliated broker-dealer, or both. This 

issue is largely resolved in the securities industry, where it is assumed that the broker-dealer, and 

not the insurer, is responsible for selling activities involving securities. However, the Proposal should 

give guidance on this point.

A second question would come up as to which party is responsible if the product being sold is a fixed 

annuity. The answer to this question is less clear in the securities industry. With a variable annuity, 

the broker-dealer is clearly subject to FINRA suitability requirements. With a fixed annuity, however, 

responsibility is less clear, and as a practical matter, responsibility for sales practice review is 

typically negotiated between the parties.

A third type of question might arise where multiple product presentations are involved, and the 

products are offered by different insurers, are of different types, and are sold through different 

parties. For example, a sales person may present 2-3 different variable annuities, two types of 

mutual fund shares, and a fixed index annuity. Certain of these products may be “sold through” a 

broker-dealer, whereas others are not. One of the products may be a no-charge/no-commission 

“investment adviser variable annuity”, which is offered by the sales person in his capacity as an 

investment advisory representative who is licensed to an independent registered investment 

adviser. The type of product being recommended may change repeatedly during the presentation.

In this scenario, the financial institution would change repeatedly over the course of the product 

presentation.

Substantial guidance should be given as to the allocation of responsibility in this sort of transaction.

R. The Proposal Should Be Clarified as to the Definition of “Direct or Indirect Compensation”

As discussed in Section III.B above, the Proposal in various places uses the term “direct or indirect 

compensation.” This terminology is very broad, is of unclear applicability, and could lead to a wide 
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range of disputes. We believe this terminology should be focused considerably. We recommend 

that:

• The term “direct or indirect compensation” should be clarified to refer to “direct or indirect 

transaction-based compensation.”

• “Indirect compensation” should exclude salaries, which are not “variable compensation” within 

the meaning of the Proposal. It should be clarified that “indirect compensation” only applies to 

variable compensation and not salaries, and then only if the compensation relates to specific 

investment advice.

S. The Proposal Should Include Clarification and Guidance In the Form of Safe Harbor Protections

To the extent the Department determines to go forward with the Proposal in substantially the form 

presented, safe harbors should be provided to make it easier for advisers to determine that they are 

in compliance. Compliance certainty not only benefits the adviser but also benefits the retirement 

investor by ensuring consistent protective practices throughout the industry, without the need for 

the investor to initiate a lawsuit to determine whether conduct standards have been met. It could 

also be expected that compliance certainty would also result in a more diverse plan choice and a 

higher level product innovation.

1. Procedural prudence safe harbor

For a variety of reasons, advisers, particularly insurance agents and independent broker 

dealers, may have difficulty understanding and ensuring that “Best Interest Standards,” as 

they have been articulated in the BIC Exemption have been met. As recognized in the 

preamble to the proposed BIC Exemption, a proper analysis of fiduciary behavior focuses on 

the process that a fiduciary uses to investigate the merits of an investment. The Proposal, 

however, particularly the BIC Exemption, is not process-driven but instead takes a punitive 

stance. The BIC Exemption, with its emphasis on enforcement through a private right of 

action, would require the IRA owner or participant, the very individual the regulation is 

designed to protect, to have the resources and wherewithal to take it upon himself to enforce 

the law.25 While the Department seems to contemplate enforcement through class action 

lawsuits, these are expensive and can drag on for years before plaintiffs receive recovery, if 

any. There could also be a significant question as to whether individual IRA claims would ever 

meet the class action requirements for commonality.

The Proposal could more efficiently and effectively meet its consumer protection goals by 

setting forth procedural exemption conditions designed to safeguard participants and IRA 

owners. This would both provide immediate benefits to the advice recipients and provide 

certainty to advisers trying to comply with the new standards. Rule-making through litigation 

 25 It is unclear that the Department has the authority to create a private right of action to enforce ERISA and/or the Internal 

Revenue Code. See Alexander v. Sandoval 532 U.S. 275, 286 (2001) (“[P]rivate rights of action to enforce Federal law must be 

created by Congress.”) See also Massachusetts Mutual Insurance Co. v. Russell, 473 U.S. 134, 147 (1985) (“We are reluctant to 

tamper with an enforcement scheme crafted with such evident care as the one in ERISA.”) 
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is fraught with unnecessary costs and uncertainties. This result can be mitigated by welldesigned safe harbors that would establish, absent evidence to the contrary, that the parties 

have followed prudent procedures with regard to investment recommendations and thus 

have satisfied the requirement that the investment recommendation be in the best interest of 

the retirement investor. 

Safeguards that could be considered in developing procedural prudence safe harbors include 

the following:

• Adherence to state and, if applicable, Federal suitability standards;

• Sales in accordance with state standard minimum nonforfeiture laws, which both protect 

principal values and act as a “cap” on sales charges; 

• For annuity contracts, disclosure of general considerations for the purchase of annuities 

(based on the Department’s existing safe harbor guidance for selection of annuity 

provider);

• Demonstrated compliance with relevant policies and procedures the Financial Institution 

is required to develop;

• For insurance products, demonstrated compliance with state insurance law consumer 

protection and merit regulations described in Section III.I above.

• A clear (perhaps written) indication to the consumer that the agent is describing the 

features and benefits of the product he/she is selling, not acting as an independent 

fiduciary.

As an alternative to a safe harbor, the preamble to the final exemption could provide 

examples that illustrate typical scenarios that involve a prudent process by the adviser and 

therefore would not generally violate best interest standards.

2. Reasonable compensation safe harbor

Advisers and financial institutions do not have the ability to engage in the sort of evaluative 

processes that plan-level fiduciaries follow when analyzing and selecting investment 

providers. Unlike plan-level fiduciaries, advisers are constrained from being able to, e.g., 

embark on an RFP process or compare pricing of a variety of available annuity products with 

different benefits, rights and features. In fact, antitrust laws may restrict them from even 

attempting to do so. The Department has not indicated that it has consulted with the Federal 

Trade Commission regarding the extent to which attempts to comply with this requirement 

might be construed as illegal price-fixing, or that it has even considered antitrust laws in 

developing a rule that would require advisers and financial institutions to warrant that their 

total compensation is reasonable.

This problem is exacerbated in the context of determining reasonable compensation for 

effecting the sale of multi-faceted annuity contracts. As described in more detail above, 

insurance contract costs, including sales compensation, may vary substantially depending on 

the number and type of optional riders selected. Optional benefits can vary widely among 

products. Further, the cost of product features is often built into the contract or rider, and is 

not a separate cost. Perhaps most problematic, there are many features included in annuity 
31 | Page

contracts that require substantial actuarial and financial expertise to value. A comparison of 

annuity products involves more than simply comparing dollar amounts. Insurance companies 

typically employ staffs of actuaries, accountants, and investment experts to determine pricing. 

These pricing processes are often considered proprietary in nature.

For these reasons, among many others, AZL does not believe that insurance sales agents, 

whether or not they become advisers, or even most financial institutions, are able to properly 

evaluate, ensure and warrant that reasonable compensation standards are met. In the event 

that the Department moves forward with shifting the reasonable compensation 

determination responsibility from the plan-level fiduciaries to the adviser and financial 

institution, it should be done through process-driven compliance standards that take into 

account the realities of legal and marketplace constraints. These standards could take the 

form of reasonable compensation safe harbors, which could be incorporated as part of the 

conditions for exemptive relief.

For annuities and other insurance products, this safe harbor could include the following 

conditions:

• The product complies with state standard minimum nonforfeiture laws (if applicable), and 

with all other Federal and state laws addressing insurance pricing;

• The adviser provides disclosure similar to that required under current PTE 84-24, plus 

additional explanations for annuity sales. The additional disclosure would be in the nature 

of a general explanation of the factors that should be considered in selecting an annuity 

product and could be based on the Department’s existing safe harbor guidance for 

selection of annuity providers.

• Any recommendation meets the suitability requirements of state insurance law.

As an alternative to a safe harbor, the preambles to the final exemptions could provide 

examples illustrating situations where reasonable compensation standards have been met. 

These examples would expressly reference the various considerations in pricing an annuity 

contract, including number and type of investment options available; value of embedded and 

optional insurance features; whether the commission is paid by the customer or the insurer; 

and whether the sales charge is automatic or is deferred and contingent upon holding the 

annuity for the period specified in the contract.

3. Safe harbor for certain limitations on the range of investment options

The BIC Exemption imposes conditions related to limitations on adviser recommendations

which appear to be based on a misperception that it is the financial institution that places

limitations on the range of products that advisers may recommend. In reality, there are a 

number of other reasons why an adviser may be limited in what he/she can recommend. As 

the Department is aware, advisers must be licensed to sell either securities or insurance 

products, and the particular products that the adviser may sell will be limited by the type of 

licenses that the adviser holds. An insurance agent, if licensed solely under state insurance 
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law, would not be able to recommend securities, including a variable annuity, because he or 

she does not have a series 6 or 7 securities license. Similarly, a securities broker-dealer or 

registered representative would not be able to recommend annuities unless they also hold an 

insurance license.

In addition, AZL objects to, as unworkable, the BIC Exemption requirement that a financial 

institution conduct a specific written finding that any limitations on recommendations will not 

prevent an adviser from providing best interest advice. AZL’s products are distributed through 

over 129,904 independent agents, and it would be impossible for AZL to continually update its 

analysis in this regard. Moreover, if the subject of this regulation is truly individual investment 

advice, this sort of finding would need to be specific to each individual and thus, in addition to 

being enormously impracticable and costly, would be impossible to accomplish because the 

BIC Exemption requires that the contract be entered into before the sales recommendation 

process begins.

AZL agrees that it is important for an investment advice recipient to be aware of any 

limitations on the range of investments that the adviser may recommend. AZL proposes that 

the range of investment options condition be condensed to a requirement of a written 

disclosure describing any limitations and the reason for the limitation (e.g., license 

restrictions, employment restrictions, excessive risks of certain types of products). At a 

minimum, providing this disclosure should serve as a safe harbor where the adviser’s 

limitations on the range of investments is driven by factors other than his own potential for 

personal gain.

In the alternative, AZL requests that the Department create a safe harbor to clarify that in 

connection with the sale of an insurance product, Section IV (b)(2) of the BIC Exemption 

requiring that compensation be reasonable in relation to the value of specific services, will be 

deemed to have been met in cases where the insurance contract has been approved by 

applicable state insurance departments and the product is in compliance with Federal and 

state requirements as to commissions and suitability.

4. PTE 84-24 should include procedural prudence safe harbors based upon current insurance 

regulatory requirements

When ERISA was enacted, Congress made clear its intention that state insurance law should 

continue to govern the business of insurance by saving those laws from ERISA preemption. 

The current version of PTE 84-24 is a disclosure-based exemption and therefore might not be 

considered to directly impose upon state insurance regulations. The proposed addition of the 

impartial conduct standards to 84-24, however, goes further because it potentially usurps 

state insurance regulations governing the sale and pricing of insurance products. This would

subject insurance agents and companies to two sets of conflicting regulatory structures, one 

at the state level and another at the federal level. This is precisely what Congress sought to 

prevent through ERISA’s preemption and insurance savings clauses.
33 | Page

If impartial conduct standards are added as a condition to PTE 84-24, the exemption needs to 

also include safe harbors for reasonable compensation and procedural prudence in the 

context of the sale of insurance contracts. As noted above in the discussion on safe harbors 

for the BIC Exemption, these safe harbors should make clear that compliance with applicable 

state insurance laws will be deemed to constitute compliance with the impartial conduct 

standards for purposes of the exemption.

IV. CONCLUSION

The Allianz Group appreciates the opportunity to comment on this important proposal.

As outlined in this letter, we do not believe that ERISA and relevant case law authorize the promulgation 

of the Proposal in its current form. Specifically, ERISA does not support the treatment of insurance sales 

agents as “fiduciaries.”

To the extent the Proposal is adopted, the analysis in the Proposal should place substantially more focus 

on the unique aspects of annuity products, including principal protection, product guarantees, lifetime 

income options, and the protections of merit regulation.

To the maximum extent possible, any revised Proposal should attempt to significantly reduce the 

complexity of the Proposal, and provide a series of safe harbor protections, to assure that sales persons 

have clear, implementable guidance on how to assure their businesses remain compliant. We believe 

this is in the best interest of both consumers and sales agents.