the satisfaction of substantially similar “Impartial Conduct Standards” requiring, among
other things, that a recommended annuity product be in the advice recipient's “Best
Interest’ (i.e., advice that reflects the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person would exercise based on the
investment objectives, risk tolerance, financial circumstances and needs of the advice
recipient.)

The Department has noted that the Impartial Conduct Standards are based on
longstanding concepts derived from ERISA, specifically the duties of prudence and
loyalty under section 404 of ERISA, and from the law of trusts.°° In this regard, New
York Life notes that the Department has provided its guidance, including safe harbor
guidance, concerning the satisfaction of section 404(a)(1)(B) of ERISA by plan
fiduciaries in connection with the selection of an annuity product for defined benefit
plans and defined contribution plans.** As the Department is well aware, the
development of the annuity selection safe harbor was initially focused on the selection
of termination annuities for defined benefit plans and resulted in the issuance of
Interpretive Bulletin (“IB”) 95-1 in 1995. IB 95-1 was amended in 2007 and 2008 to
clarify that the Bulletin (and its “safest available” standard) only applied to defined
benefit plan annuity purchases. In 2007, the Department proposed a new safe harbor
under Regulation §2550.404a-4, applicable to individual account plans. That regulation
was finalized in 2008. As particularly relevant to the sale of guaranteed income
annuities to defined contribution plans and IRAs, we believe that compliance with the
terms of the safe harbor ought to sufficiently demonstrate compliance with the Best
Interest standard under PTE 84-24 and the BIC PTE.

We therefore propose that, in the case of a sale of an annuity product to a
defined contribution plan or IRA, the Department modify PTE 84-24 and the BIC PTE to
extend to PTE 84-24 and the BIC PTE, respectively, the Department's safe harbor
regulation for the selection of annuity providers for the purpose of benefit distributions
from individual account plans. Under our proposal, the Impartial Conduct Standards
under PTE 84-24 and the BIC PTE would be deemed to have been met where the
purchase of the annuity contract by a defined contribution plan or an IRA satisfies the
requirements of this safe harbor. Specifically, the safe harbor for individual account
plans provides that in the selection of the annuity contract the following conditions or
requirements must be satisfied: (1) engage in an objective, thorough and analytical
search for the purpose of identifying and selecting providers from which to purchase
annuities; (2) appropriately consider information sufficient to assess the ability of the
annuity provider to make all future payments under the annuity contract;

(3) appropriately consider the cost (including fees and commissions) of the annuity
contract in relation to the benefits and administrative services to be provided under such
contract; (4) appropriately conclude that, at the time of the selection, the annuity
provider is financially able to make all future payments under the annuity contract and
the cost of the annuity contract is reasonable in relation to the benefits and services to
be provided under the contract; and (5) if necessary, consult with an appropriate expert

33 75 Fed. Reg. 21970, 22014 (Apr. 20, 2015).
*4 See, respectively, 29 CFR § 2509.95-1 and 29 CFR § 2550.404a-4.

20


We share the Department's desire to assure a secure retirement for all
Americans. Our mutual company model and career agency system is ideally suited for
this challenge. We build products that offer iron-clad guarantees, we operate our
company so that we can meet those guarantees in any economic climate, and we train
and deploy agents whose mission is to help Americans prepare for the risks and
opportunities that life brings.

However, as set forth above, we are concerned that the Proposal, without our
recommended changes, will make retirement less secure for many Americans by
increasing costs and reducing access to guidance and guaranteed income.

Thank you for reviewing our suggested modifications to the Proposal, and for the
opportunity to provide our feedback. If you have any questions or need additional
information regarding this submission, please feel to contact me at (212) 576-5353.

Sincerely,

Sheila K. Davidson
Executive Vice President, Chief Legal Offer & General Counsel
New York Life Insurance Company

37


condition of selling only Proprietary Products does not incent them to act in a manner
that is not in the Best Interest of the investor or otherwise not comply with the Impartial
Conduct Standards. However, no such justification is required by insurance companies
that use an independent agent delivery model or their agents. This distinction appears
to put New York Life and its agents at a disadvantage even though, as explained above,
the use of a career agent sales force in our view is beneficial to investors.

Without rules that clearly define the methodology and processes that firms need
to implement in order to recommend proprietary products to plans and IRAs, the
likelihood looms large that even a strong process ensuring compliance with applicable
standards will be second guessed by private plaintiffs in costly and protracted class
action litigation, or challenged by the Department in enforcement actions. This risk will
potentially only increase the “guaranteed retirement income gap,” increase costs, make
needed retirement advice less available to the Americans that need them the most, and
pose a serious challenge to ensuring that individuals can retire “with dignity after a
lifetime of hard work.”

c. “Best Interest” Standard Effectively Limits the Payment of
Compensation that is not “Levelized”

Under the Proposal, the language “without regard to the financial or other
interests of the Adviser, Financial Institution, any Affiliate, Related Entity, or other party”
discussed above directly calls into question the ability of an agent to recommend a
product that pays compensation that is not levelized. We understand that when the
Department refers to “levelized” compensation, it means that compensation does not
vary by product type. One of the examples that the Department provides in its Proposal
also seems to suggest that any variation in compensation across product categories
must reflect an analysis of the time and expense involved in providing advice about the
product.” We also believe that “levelized” compensation could be interpreted to require
that commissions be paid in equal amounts over the life of the investment.

In addition, an advisor wishing to use the BIC PTE must “affirmatively warrant”
that neither the Financial Institution nor an Affiliate or Related Entity “uses quotas,
appraisals, performance or personnel actions, bonuses, contests, special awards,
differential compensation or other actions or incentives to the extent they would tend to
encourage individual Advisers to make recommendations that are not in the Best
Interest of the Retirement Investor.”** The Department has stated that the BIC PTE is
designed to preserve “common fee practices” (subject to compliance with “basic
standards”) as the definition of fiduciary advice is expanded. Although the Department

22 Fact Sheet, Department of Labor Proposes Rule to Address Conflicts of Interest in Retirement Advice,
Saving Middle-Class Families Billions of Dollars Every Year (Feb. 23, 2015), available at
http://www.dol.gov/ebsa/newsroom/fsconflictsofinterest.htm|

° 80 FR 21971.

4 Prop. Reg. Il (d)(4) (“Material Conflicts Rule”), 80 FR 21984.

14


Il. ADDITIONAL CONCERNS

In addition to the concerns discussed above, which would fundamentally affect
the ability of American savers to continue receiving the benefits of expert advice from
trained and well-supervised career agents and guaranteed lifetime income products
from financially secure insurance companies, New York Life has several additional
concerns related to the Proposal that are discussed in detail below.

A. THE PROPOSED DEFINITION OF “FIDUCIARY”

New York Life is concerned that the proposed changes to the fiduciary definition
are so broad that agents, insurance companies, Affiliates and Related Entities will
almost always become fiduciaries for purposes of ERISA and the Code when they
engage in routine sales to plans and IRAs. They could even become fiduciaries when
they engage in activities incidental to the sales process and in circumstances where no
plan fiduciary, plan participant, or IRA owner would reasonably expect that an agent or
insurance company is acting pursuant to a fiduciary standard.

1. Concerns

The Department is proposing to eliminate the current five-part test and replace it
with a two-part test that requires an Adviser and Financial Institution to determine (i) if
recommendations of certain types (“Covered Advice”) will be made for compensation,
and (ii) if so, whether the advice is rendered pursuant to a written or verbal agreement,
arrangement or understanding that the advice is individualized to, or that such advice is
specifically directed to, the advice recipient for consideration in making investment or
management decisions with respect to securities or other property of the plan or IRA.”
A “recommendation” is defined in the Proposal as “a communication that, based on its
content, context, and presentation, would reasonably be viewed as a suggestion that
the advice recipient engage in or refrain from taking a particular course of action.”*© In
the Preamble, the Department states that the parties must have a “meeting of the
minds’ (i.e., agreement or understanding) that the advice is individualized or specifically
directed to the plan or IRA, but no such “meeting of the minds’ is required with regard to
“the extent to which the advice recipient will actually rely on the advice.”*

The proposed changes to the fiduciary definition are so broad that agents,
insurance companies, Affiliates and Related Entities are at risk of being considered
fiduciaries for purposes of ERISA and the Code when they engage in common, every
day interactions with individuals in their communities. For example, if an agent and a
friend in the community spark up a conversation waiting in line in the grocery store, and
the friend asks the agent questions about New York Life’s annuities — the agent would
have to decline to respond or be considered a fiduciary (and pull out a contract for the
friend to sign). Or, to use a modern example, if the same friend posted on Facebook a
question about whether the friend should rollover her assets from a 401(k) plan or take

8 80 FR 21960.
°° 80 FR 21940.

24


household incomes of less than $100,000 a year. Additionally, half of the annuities sold
by New York Life agents have premiums of $50,000 or less.

ll. THE VALUE OF GUARANTEED INCOME, TRAINED AND WELL-SUPERVISED
AGENTS, AND FINANCIAL STRENGTH

Before detailing our specific concerns with the Proposal, we believe it is
important to emphasize that the Department's proposal fails to recognize the value of:
(1) guaranteed lifetime income products; (2) guidance provided by trained, well-
supervised professionals; and (3) the financial strength of the life insurers providing
long-term guarantees.

A. Guaranteed Lifetime Income Products

In recent years, we have been pleased by the Administration’s recognition that
guaranteed lifetime income products are a tool that allows American retirees to
effectively create their own “pension.”* For this reason, it is both surprising and
concerning to us that the Department's Proposal would restrict Americans’ access to
such guarantees by impeding the sale of proprietary products and the use of
commission-based compensation models.

In its February 2012 report, the Council of Economic Advisers (“CEA”)
recognized the increasingly important role of guaranteed lifetime income products
offered by life insurers:

The shift in the retirement saving landscape away from lifetime
income products has raised particular concern over longevity risk — the
risk that retired workers will outlive their assets. The continued movement
away from traditional DB plans toward 401(k) and hybrid DB plans means
that fewer people can count on a guaranteed stream of pension income in
retirement. Given declining but uncertain mortality, retirees are faced with
the difficult task of choosing how much of their DC plan assets and other
savings to spend in any given year. Retirees who live longer than
expected may find themselves without sufficient assets at the point in their
life when they are most vulnerable. This risk is particularly salient for

> Fact Sheet: The White House Conference on Aging, Section on “Facilitating the Availability of Lifetime
Income Options,” (July 13, 2015); Use of Lump Sum Payments to Replace Lifetime Income Being
Received By Retirees Under Defined Benefit Pension Plans, IRS Notice 2015-49 (July 9, 2015); Lifetime
Income Provided Through Target Date Funds in Section 401(k) Plans and Other Qualified Defined
Contribution Plans, IRS Notice 2014-66 (Oct. 24, 2014); DOL Info Letter to J. Mark Iwry (Oct. 23, 2014);
Internal Revenue Bulletin Regulations on the Treatment of Qualified Longevity Annuity Contracts under
the Required Minimum Distribution Rules, Internal Revenue Bulletin: 2014-30 - July 21, 2014 - TD 9673;
Advanced Notice of Proposed Rulemaking Regarding Lifetime Income Illustrations, 29 CFR Part 2520
(May 13, 2013); Request for Information Regarding Lifetime Income Options for Participants and
Beneficiaries in Retirement Plans, 75 FR 5253, 5254 (Feb. 2, 2010).

5


fiduciary standards, we request that the BIC PTE be revised to provide relief for this
type of “advice.”

To address these three points, we propose the following revision to Section
VIIN(c):

(c) An “Asset,” for purposes of this exemption, includes only the following
investment products: IRAs, investment management or advisory agreements,
bank deposits, certificates of deposit (CDs), shares or interests in registered
investment companies, bank collective funds, insurance company separate
accounts, exchange-traded REITs, exchange-traded funds, corporate bonds
offered pursuant to a registration statement under the Securities Act of 1933,
agency debt securities as defined in FINRA Rule 6710(|) or its successor, U.S.
Treasury securities as defined in FINRA Rule 6710(p) or its successor, insurance
and annuity contracts, guaranteed investment contracts, and equity securities
within the meaning of 17 CFR 230.405 that are exchange-traded securities within
the meaning of 17 CFR 242.600. Excluded from this definition is any equity
security that is a security future or a put, call, straddle, or other option or privilege
of buying an equity security from or selling an equity security to another without
being bound to do so. An “Asset” also includes an interest in a private fund
where either (i) the Retirement Investor is an “accredited investor” under SEC
Rule 501 of SEC Regulation D®* promulgated under section 4(a)(2) of the
Securities Act of 1933, as amended or (ii) the Retirement Investor has received
advice from a U.S. bank, trust company, insurance company or registered
investment adviser.

c. Modify the Disclosure Requirement

New York Life urges the Department to remove the various disclosure
requirements from the BIC PTE (e.g., Compensation Disclosure — Point of Sale &
Annual, Website Disclosure, etc.). We contend that Section 408(b)(2) of ERISA already
provides for the appropriate disclosures. Financial Institutions have devoted significant
financial and compliance resources to complying with the Department's 408(b)(2)
disclosure regulation. Therefore, for purposes of IRAs and ERISA plans covered by the
BIC PTE, the Department should require that financial institutions provide disclosures
similar to those already required under the Department's own 408(b)(2) regulation.

d. Provide for Grandfathering of Prior Agreements rather than an
Exemption for Prior Conditions

New York Life urges the Department to carefully consider the legal uncertainties
and administrative burdens imposed by the proposed BIC PTE when it considers a final
tule. We propose that all arrangements or agreements between an Adviser and a
Retirement Investor entered into before the effective date of the exemption be excepted

48 47 C.F.R § 230.500, et. seq.
35


or insurance agent for purposes of compliance with the provisions of the safe harbor.
Of course, under the Proposal, a New York Life agent would qualify as an expert and be
in a position to consult with the Retirement Investor as appropriate.

In the case of a sale of an annuity product to a defined benefit plan, we would
propose that the Department modify PTE 84-24 and the BIC PTE to extend to PTE 84-
24 and the BIC PTE, respectively, the Department's “safest available annuity” criteria for
the selection of annuity providers for the purpose of benefit distributions from defined
benefit plans. Under our proposal, the Impartial Conduct Standards of the proposed
exemptions would be deemed to have been met where the purchase of the annuity
contract by a defined benefit plan satisfies the “safest available annuity’ criteria under IB
95-1. Specifically, the following requirements or conditions must be satisfied:

(1) conduct an objective, thorough and analytical search for the purpose of identifying
and selecting providers from which to purchase annuities; (2) consider the quality and
diversification of the annuity provider's investment portfolio; (3) consider the size of the
insurer relative to the proposed contract; (4) consider the level of the insurer's capital
and surplus; (5) consider the lines of business of the annuity provider and other
indications of an insurer's exposure to liability; (6) consider the structure of the annuity
contract and guarantees supporting the annuities, such as the use of separate
accounts; and (7) consider the availability of additional protection through state guaranty
associations and the extent of their guarantees.

To enable the existing regulatory safe harbors for individual account plans and
defined benefit plans to be available for annuity purchases by plans and IRAs under the
BIC PTE and PTE 84-24, New York Life urges the Department to make the following
modifications to the Proposal:

« Section !I(c) of the BIC PTE should be modified by the addition of the following
language, flush to the margin of that section, following subsection (3) thereof:

The Adviser and the Financial Institution shall be deemed to have satisfied
subsection (1) of this Section II(c) with respect to the recommendation of
an annuity contract to a Retirement Investor where (i) with respect to the
recommendation of an annuity contract to an individual account plan, plan
participant or beneficiary or to an IRA, the purchase of the annuity contract
satisfied the provisions of 29 CFR § 2550.404a-4, or (ii) with respect to the
recommendation of an annuity contract to a defined benefit plan fiduciary,
that the purchase of the annuity contract satisfied the provisions of 29
CFR § 2509.95-1.

* Section Il of PTE 84-24, as it is proposed to be amended, should be modified by
the addition of the following language, flush to the margin of that section,
following subsection (b) thereof:

The Adviser and the Financial Institution shall be deemed to have satisfied
subsection (a) of this Section II with respect to the recommendation of an

21


b. Revise the “individualized” prong

New York Life strongly believes that the “individualized to the advice recipient’
element of paragraph (a)(2)(ii) should be modified to describe the nature of
individualization that is needed to give rise to fiduciary status on the part of the advice
provider. In our view, it is only where a communication to a retirement investor is
sufficiently tailored, within the context of a particular relationship or a particular
investor's needs, to provide a basis for the investor's reliance on an advice
recommendation, that a fiduciary relationship should arise.

The objective of a revised fiduciary definition should be to impose fiduciary
standards on those who undertake to, or create the expectation that they will be acting
in a position of trust with respect to the advice recipient. The DOL has stated
throughout the preamble that it views as “fiduciary” in nature those investment
recommendations where there is an expectation that the advice provider will provide
unbiased and impartial advice that is in the recipient's best interest.*'

New York Life supports assigning fiduciary status and standards of conduct in
the context of a relationship where there is a reasonable expectation that the adviser
has assumed a duty to act impartially and provide advice solely in the interest of the
advice recipient as such standard has been interpreted under section 404 of ERISA, but
we do not agree that all investment recommendations should be held to such a high
standard when there is no reasonable expectation by either party that the adviser will
act in this capacity.

We understand the Department's reasoning in wishing to eliminate the
requirement of a “mutual agreement” regarding how the advice will be utilized by the
recipient. Nonetheless, we believe that there should be some arrangement, agreement,
or understanding that the advice is sufficiently individualized and provided under
circumstances in which it is reasonable for the advice recipient to rely on that advice.

We recommend that the Department implement the following revision —

(2) Such person, either directly or indirectly (e.g., through or together with any
affiliate), —

(ii) Renders the advice (A) pursuant to a written or verbal agreement, arrangement
or mutual understanding that the advice is individualized to orthat-such-adviceis

specifically-directed-to, the advice recipient for consideration in making investment
or management decisions with respect to securities or other property of the plan or
IRA, and (B) under circumstances creating a reasonable expectation on the part of

*" See, e.g., 80 FR 21938 (the proposal “avoids burdening activities that do not implicate relationships of
trust and expectations of impartiality.”); 80 FR 21941 (“In each instance, the proposed carve-outs are for
communications that the Department believes Congress did not intend to cover as fiduciary ‘investment
advice’ and that parties would not ordinarily view as communications characterized by a relationship of
trust or impartiality”).

27


Finally, the Department has seemed to suggest that the streamlined exemption
for “certain high-quality low-fee investments” would favor passive investment vehicles
(e.g., index funds) over actively managed funds. However, index funds are not
necessarily the most appropriate investments for all investors. While some investors
may not wish to pay for active management, many believe that active management can
add value.

2. Impact

The adoption of a “low cost” exemption may dissuade agents from selling and
insurers from creating products that offer guaranteed lifetime income -- in opposition to
the Administration’s stated goal of supporting lifetime income. These products are more
expensive because of the lifetime guarantees they provide. Guarantees are backed by
an insurer’s general account, which must be adequately funded so the insurer can
satisfy the guarantees for many years into the future and remain solvent.

Additionally, if the Department were to identify certain investments as meeting
the proposed “low cost” exemption, it would create the perception that such products
have the tacit approval of the Department. However, plan fiduciaries and IRA owners,
with the help of their advisers, should be the ones to make determinations as to what
investments are prudent and appropriate — rather than the Department.

3. Solutions

a. Extend Existing Regulatory Safe Harbors to Guaranteed Lifetime
Income

As discussed in part IV.A.3.d. above, the proposed BIC PTE and PTE 84-24
should each be modified to allow the Best Interest standard to be satisfied with respect
to the recommendation of an annuity product where the provisions of 29 CFR
§ 2550.404a-4, in the case of an individual account plan or IRA recommendation, or the
provisions of 29 CFR § 2509.95-1, in the case of a defined benefit plan
recommendation, have been satisfied.

As discussed in more detail above, this proposal would not only promote
guaranteed lifetime income, but would also ensure that participants and IRA holders
would be able to avail themselves of products guaranteed by highly rated and financially
strong companies like New York Life.

b. Eliminate Low Cost Exemption

We believe that the Department should not pursue an exemption that focuses
solely on a product's cost. An exemption based solely on cost is at odds not only with
the Government's own initiatives regarding guaranteed lifetime income, but has the
potential to put at risk, rather than promote and encourage, retirement savings for
American workers.

23


from the requirements of the BIC PTE, provided that when entered into they were in
compliance with then current law. This would ensure all existing sales and new
transactions under those agreements (e.g., additional deposits, re-allocation, follow-up
communication, etc.) are covered by prior law.

D. HEALTH AND WELFARE PLANS

It appears that “investment advice” could include a recommendation of a life,
health, disability or other insurance policy to a plan fiduciary or participant. An
insurance policy providing plan benefits might reasonably be characterized as “other
property” within the meaning of the advice definition.*° In addition, a footnote to the
proposed BIC PTE states that such exemption may be used to exempt transactions
involving health and welfare plans.°°

Yet, the Department's entire analysis and the focus of the proposed regulation
and the exemptions are clearly the investment of plan assets and the marketing of
investment products and services to retirement plans and IRAs. Before those marketing
insurance policies to welfare plans are subjected to fiduciary standards and specifically
the onerous conditions of the BIC PTE, we request that the Department specifically
consider whether there is sufficient evidence to support the extension of fiduciary
standards to the sale of insurance to welfare plans and participants.

E. EFFECTIVE DATE

In order to accommodate the immense burden of operational compliance, we
request an extension of the effective date to two years after the date the final regulation
and exemptions are published in the Federal Register. In addition, we would urge the
Department to publish an interim rule or otherwise publicize the changes it intends to
make to the Proposal, so as to allow the Department the opportunity to receive public
feedback on such changes before issuing a final rule.

Ill. CONCLUSION

Tremendous changes in how Americans pay for retirement over the last 40 years
have created significant challenges for millions of people who lack the funds,
knowledge, or wherewithal to go it alone or hire a fee-based adviser. At the same time,
market forces have created a variety of models for people seeking advice on how to
replicate the guaranteed lifetime income that traditional pensions used to provide.

“ Proposed Exemption, PTE 77-9 41 FR 56760, 56762 (Dec. 29, 1976) (stating an insurance agent
could provide fiduciary investment advice by recommending an insurance contract or annuity); Ehlen
Floor Covering, Inc. v. Lamb, 859 F. Supp. 2d 1285, 1296 (IM.D. Fla, 2012). (holding that life insurance
contracts could constitute a security or other property.)

® 80 FR 21966 n. 18.

36


standard. Particularly in the event the Department retains the final clause of the
proposed Best Interest standard (i.e. the “without regard to” provision), it is absolutely
critical that this clarification be made. Equally importantly, we urge the Department to
make clear that the payment of “differential compensation,” in and of itself, is a
permissible practice, consistent with the Best Interest standard.

b. Align the Best Interest standard with the existing ERISA fiduciary
standard

Rather than create yet another fiduciary standard that would create confusion
and have to be interpreted anew by federal and state courts, we urge the Department to
provide much needed certainty to advisors and their clients by explicitly incorporating
into the Best Interest standard the existing, well-developed fiduciary standard under
section 404 of ERISA. This would ensure that, as intended by the Department, that the
standard would be “interpreted in light of forty years of judicial experience with ERISA’s
fiduciary standards and hundreds more with the duties imposed on trustees under the
common law of trusts.”*°

Specifically, we urge the Department to modify the Best Interest standard in
PTE 84-24 and the BIC PTE to require that the fiduciary act:

“with the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent person would exercise based on the investment
objectives, risk tolerance, financial circumstances, and needs of the Retirement
Investor 4 H i i sere: i
Jnstitution_any_Affiliate-or other party and (ii) solely in the interest of the
Retirement Investor, in each case as such standards have been interpreted
under Section 404 of ERISA”.

c. Clarify the conflict mitigation requirements in the BIC PTE

We also urge the Department to consider a clearer, more direct approach to conflict
mitigation, substituting the following for section II(d)(4) of proposed BIC PTE:

“(d) Warranties. The Adviser and Financial Institution affirmatively warrant the
following:

4) The use, by Neither the Financial Institution, or (to the best of its
knowledge) any Affiliate or Related Entity of uses quotas, appraisals,
performance or personnel actions, bonuses, contests, special awards,
differential compensation or other actions or incentives tethe-extentthey
would-tendte-encourage has not caused, or will not cause, the individual
Advisers to make recommendations that are not in the Best Interest of the

% 80 FR 21970.

18


lifetime income to American savers.'® Therefore, as described below in greater detail,
we recommend that the Department make the following changes to the Proposal:

1.

Affirmatively clarify that the sale of proprietary products and receipt of
transaction-based compensation (e.g., commissions) is consistent with the
Impartial Conduct Standards, which include the Best Interest standard.

Conform the Best Interest standard to the duty of loyalty under ERISA section
404(a).

Modify the warranty conditions and the Range of Investment Option conditions in
the BIC PTE.

Extend existing regulatory safe harbors to the BIC PTE and PTE 84-24 so that
an agent and insurance company will be deemed to satisfy the Impartial Conduct
Standards under the BIC PTE and PTE 84-24 with regard to: (i) the
recommendation for a defined contribution plan or IRA to purchase an annuity so
long as the requirements under the Department's regulation for selection of
annuity providers under defined contribution plans are met, and (ii) the
recommendation to a defined benefit plan to purchase an annuity so long as the
requirements of the Department's “safest available annuity” Interpretive Bulletin
are met.

. Modify the definition of fiduciary so that New York Life and its agents can engage

in routine sales and marketing activities without triggering fiduciary requirements.

Narrow the definition of fiduciary and expand the education carve-out so that
New York Life and its agents may provide information about investment
alternatives to investors without triggering fiduciary requirements.

Clarify the requirements of the BIC PTE to ensure that it does not prevent
insurers from providing health, welfare and retirement benefits to career
insurance agents pursuant to the Internal Revenue Code (“Code”).

New York Life believes that each of these changes is necessary to promote the

sale of competitively priced products that provide guaranteed lifetime income to plan
participants and IRA owners by career agents, who have the expertise and experience
to explain which product is the right one for each client based upon his or her individual

needs.

*8 See Administration initiatives supporting lifetime income, supra note 3.

10


of future investment performance, and advertising rulings under the Advisers Act
prohibit projections of investment returns.

d. The Exemption for Agreements in Existence Prior to the Effective
Date of the BIC PTE Is Inadequate

The Department proposes under the BIC PTE an Exemption for Pre- Existing
Transactions pursuant to which an agent, insurance company, Affiliates, and Related
Entities will not be held liable for transactions that occurred prior to the effective date of
the BIC PTE as long as certain conditions are met. New York Life believes that this
relief is inappropriate and unhelpful. First, by providing for an exemption, the
Department implies that an exemption was needed because the agent and insurance
company were fiduciaries. However, we do not believe this to be the case. The
Department's provision of the exemption implies that a fiduciary relationship existed and
thus exposes New York Life and its agents to such claims. Second, the application of
such an exemption is impractical. A financial institution like New York Life has
hundreds of thousands of agreements already in place. We simply could not review all
of those agreements for purposes of determining whether a fiduciary relationship exists
and update for the BIC PTE within any reasonable time frame.

2. Impact

The limits of the BIC PTE and the burdensome disclosure requirements of the
BIC PTE raise serious questions regarding whether agents and insurance companies
can meet the requirements of the BIC PTE, while still meeting the needs of their clients.
In addition, the BIC PTE may result in additional compliance costs associated with
registration under the Advisers Act (e.g., all advisers would need to be licensed as
Registered Investment Advisers). In the face of significant compliance and litigation
risks, the agents and insurance companies may be less willing to make
recommendations that Retail Investors need in order to minimize this risk.

3. Solutions
a. Modify the Written Agreement Requirement

To address each of the first three concerns involving the BIC PTE’s agreement
requirements, we propose that Section II(a) of the BIC PTE be amended as follows:

Contract. Priorto-recommending that the-Plan,participantorbeneficiary
7 7 Prior to the execution of the
recommended purchase or sale subject to relief under Section |, the Adviserand
Financial Institution enters into a written contract with the Retirement Investor
that incorporates the terms required by Section II(b) — (e). An agreement shall

not fail to satisfy this provision solely because the agreement of the Retirement

Investor was obtained by negative consent.

33


investment alternatives under the plan with similar risk and return
characteristics must be similarly identified or matched.”*°

If this approach is adopted, the Department should be practical. For example,
where the number of available investment alternatives within an asset class is
so large that describing them all is likely to confuse, rather than enlighten, the
education recipient, the Final Rule should permit asset allocation models to
identify a representative subset of alternatives, as long as the subset is
selected based on neutral factors and does not disproportionately identify
alternatives which result in the most compensation being paid to the adviser
or financial institution.

« Any potential for abuse on the part of the model provider would be eliminated
if the plan sponsor or independent plan fiduciary were permitted to select the
specific investment options included for each asset class in the portfolio.

C. ADDITIONAL COMMENTS ON THE BEST INTEREST CONTRACT
EXEMPTION

If the Department's regulation is adopted as proposed, we believe that most
sales presentations to plan fiduciaries and IRA holders will be characterized as involving
fiduciary advice or, at the least, a meaningful risk that such advice will be found to have
been provided, whether a fiduciary relationship is intended by the parties or not. In that
case, the BIC PTE will become an essential part of insurance company’s compliance
strategy in its dealings with covered ERISA plans, participants and IRA holders.
However, New York Life is concerned about several aspects of the BIC PTE which, if
finalized as proposed, will make compliance with the BIC PTE extremely difficult, if not
impossible.

1. Concerns
a. The Written Agreement Requirement is Impractical

The BIC PTE requires that the Retirement Investor enter into a tri-party
agreement with the Financial Institution and the Adviser before any investment advice is
provided to the Retirement Investor. We have three concerns with this requirement.

First, requiring a contract this early in the process is simply untenable in the
normal course of business dealings between a prospective client and the Adviser and
Financial Institution. Because the Proposal creates a fine, and faint, line between
identifying the products or services that New York Life is offering and “suggesting” as a
fiduciary that the Retirement Investor choose one of those products, New York Life
agents must assume that every conversation is a fiduciary one. It will be impractical,
and we believe unacceptable to New York Life’s prospective client, to require him to

“© 1B 96-1, 61 FR 29586, 29587 (June 11, 1996) (exposure draft).
30


As stated in the CEA report, some of the reasons why more Americans do not
elect to purchase guaranteed lifetime income products include “concerns over the
irrevocability of the choice to purchase an annuity; the desire to retain liquid assets in
case of unexpected medical costs or a bequest to heirs; concerns over the complexity
of annuities, their lack of transparency, or the long-term financial soundness of annuity
providers; a lack of understanding of longevity risk and how lifetime income products
can help manage it; or a lack of familiarity with annuity products, among other factors.”°

These factors are among those that make the role of a well-trained insurance
agent so essential. Agents can explain and answer the saver’s questions about annuity
products, whether the product is appropriate given the saver’s other assets and sources
of lifetime income, and discuss the optional features of the annuity that may address
any concerns the saver may have about liquidity or a bequest. This interaction is just
one component of the support that clients need.

Moreover, a full-time New York Life agent is much better equipped to provide
clients with assistance regarding the products that New York Life offers, as compared to
an intermediary who is significantly less knowledgeable about our specific products and
who is not subject to the operational and compliance framework provided by New York
Life.

More broadly, because New York Life agents have the compliance and
operational support of a major financial institution behind them, they are especially well
prepared to assist individuals in: (1) determining how much they need to save to
achieve financial security in retirement; (2) helping them increase their savings by
examining their spending and savings habits and creating accountability through a
sentinel effect; and (3) deploying those savings in the most effective manner in light of
the individuals’ circumstances, which could include the purchase of lifetime income
products as well as other financial products.

The value of financial guidance is validated by research. One study in Canada,
published in May 2015, concluded that clients who had a financial advisor for 15 or
more years had on average 173 percent more assets than clients who did not get
financial advice.° The study found that a higher savings rate by these clients and less
money left in cash explained this differential, and it cites a number of earlier studies that
reached similar conclusions. Similarly, a recent Vanguard study of actual client
behavior found that the "discipline and guidance that an. advisor might provide through
behavioral coaching...can add 1% to 2% in net return."

Unfortunately, as described below, the Department's Proposal makes it much
less likely that a trained and well-supervised insurance agent will be able to provide

5 CEA report, supra note 6, at 7.

® Claude Montmarquette and Nathalie Viennot-Briot, “The Value Of Financial Advice.” Annals Of
Economics And Finance 16-1, 69 (2015). Available at:
http://aeconf.com/Articles/May2015/aef160104. pdf.
'° Vanguard, “Putting a value on your value: Quantifying Vanguard Advisor's Alpha,” March 2014, at 16.

7


women, who have longer expected lifespans than men and therefore are
more susceptible to longevity risk.... 4

Annuities can help to mitigate some of the risk faced by retirees. In
particular, annuities protect retirees against the risk of outliving assets ....
For those individuals with the good fortune to live long lives, annuities ;
augment the longevity insurance provided by Social Security benefi its.°

As described by the Government Accountability Office (GAO), guaranteed
lifetime income products offer several unique benefits:

Researchers have concluded that annuities have important
benefits. For example ... it is more efficient to pool the risk of outliving
one’s assets [by purchasing an annuity] than to self-insure by
accumulating enough assets to provide enough income in case one lives
to a very old age. Annuities provide income at a rate that can help retirees
avoid overspending their assets and provide a floor of guaranteed income
to prevent unnecessarily spending too little for fear of outliving assets ....
Annuities can also relieve retirees of some of the burden of managing their
investments at older ages when their capacity to do so may diminish .... ©

The CEA report also takes note of the “Annuity Puzzle,” which is the disconnect
between the benefit that guaranteed lifetime income products provide i in mitigating risk
and the fact that very few savers elect to purchase such products.’ As noted, several of
the Administration's initiatives have been aimed at helping to overcome this “Annuity
Puzzle” and promote greater understanding and use of guaranteed lifetime income
products.

B. Guidance Provided by Trained, Well-Supervised Professionals

Despite the recognized benefits of guaranteed lifetime income annuities, those
planning for retirement are unlikely to feel comfortable purchasing such a product
without the assistance of an insurance agent. “Robo-advice” is generally not well suited
for the decumulation phase of retirement, for many of the same reasons that “auto-
annuitization” of a worker's savings generally is not appropriate. How much to
annuitize, when to begin receiving payments, and what liquidity and other features
would be helpful, are all difficult, if not impossible, questions to address through a
computer-based questionnaire. Such programs do not allow for a two-way conversation
about an individual's risk appetite, health, sources of other guaranteed income, liquidity
needs, and other unique business and family needs that should be considered when
evaluating the purchase of guaranteed lifetime income products.

* Executive Office of the President, Council of Economic Advisers, “Supporting Retirement for American
Families,” Feb. 2, 2012, at 3.
Sid atS.
° U.S. Government Accountability Office, “Retirement Income: Ensuring Income Throughout Retirement
Requires Difficult Choices,” June 2011, at 8.

" CEA report, supra note 4, at 7.


Retirement Investor. Notwithstanding the foregoing, the—contractual

d. Modify PTE 84-24 and the BIC PTE to allow guaranteed lifetime
income products to rely on existing regulatory safe harbors

Finally, we also believe that the proposed BIC PTE and PTE 84-24, as proposed,
should be amended so that each exemption allows the Impartial Conduct Standards to
be satisfied with respect to an agent’s recommendation of an annuity product where the
plan or IRA fiduciary has satisfied the provisions of 29 CFR § 2550.404a-4, in the
purchase of the recommended annuity, with respect to an individual account plan or IRA
recommendation, or the provisions of 29 CFR § 2509.95-1, with respect to a defined
benefit plan recommendation.

As the Department notes in its Proposal, the market for retirement advice has
changed dramatically since ERISA was implemented in 1975. Specifically, as the
number of defined benefit plans has declined, individuals, rather than large employers
and money managers, have increasingly become responsible for managing their
retirement assets in IRAs and participant-directed plans.*" A corollary to that
phenomenon is that individuals have also become increasingly responsible for taking
the necessary steps to provide for the conversion of amounts accumulated in IRAs and
participant-directed plans into a lifetime stream of income. Participants interested in the
security and peace of mind that lifetime income products provide generally acquire
those products in the IRA rollover market, both because most 401(k) plans do not offer
guaranteed lifetime income distributions options and because individuals often desire
individualized advice from an agent when faced with the decision of whether to
exchange a lump sum of money for a stream of future payments. 2

Under the Department’s Proposal, New York Life agents who recommend
annuity products to client plans, participants, beneficiaries and IRA holders would be
characterized as advice fiduciaries and would require exemptive relief for the receipt of
compensation in connection with the sale of those products. For recommendations of
variable annuity products to Retail Investors, the exclusive exemption available would
be the BIC PTE. For recommendations of fixed annuity products to retail investors, and
for recommendations of fixed and variable products to institutional investors, PTE 84-24
is available as a source of exemptive relief. Both such exemptions condition relief on

31 75 FR 21932 (Apr. 20, 2015).
%2 See CEA Report discussion of the Annuity Puzzle, supra note 4 at 7.

19


Unfortunately, we believe that the Department's Proposal will be highly disruptive
to this process and will disadvantage small plan sponsors, plan participants, and IRA
owners for the following reasons:

41. The BIC PTE and the proposed changes to PTE 84-24 establish a Best Interest
standard that, as currently worded, would expose New York Life and its agents to
claims that they make recommendations in their own financial interest if they sell
proprietary products or receive transaction-based compensation (which is
customary, appropriate and more cost effective for sales of insurance products).
This would be the case even if the recommendation to purchase an annuity and
to engage in a coincident rollover transaction is in the “best interest” of the
investor, and any financial benefit to New York Life or the agent is merely
incidental.

2. Similarly, the warranty provisions under the BIC PTE and the Range of
Investment Options condition of the BIC PTE call into question the viability of the
career agent model because an agent may not be able to exclusively sell
proprietary products, receive transaction-based compensation, or qualify for
health, welfare and retirement benefits provided by New York Life.

3. The Best Interest standard, the conditions of the BIC PTE, and the suggestion of
a streamlined exemption overemphasize cost as the determinative factor in
providing “investment advice,” without consideration of the importance of the
financial strength of the life insurer offering guaranteed lifetime income products.

4. The proposed definition of ‘investment advice” is so broad that practically all
sales activities will be “investment advice” even in situations where no
reasonable person would expect New York Life and its agents to act pursuant to
a fiduciary standard.

5. The proposed carve-out from the fiduciary definition for the provision of
investment education is too narrow to impart the information needed by
participants to implement their investment decisions.

6. Other aspects of the BIC PTE, as proposed, would make compliance impossible.
Among other things, these include the fact that a contract akin to an advisory
agreement be entered into prior to the delivery of investment advice. In addition,
the BIC PTE, on its face, does not appear to exempt compensation paid in
connection with rollover transactions.

All of these issues raise serious questions about whether New York Life and its
agents will be able to sell New York Life’s proprietary products to American savers who
participate in 401(k) plans and IRAs. We believe that this is not the intended result of
the Department, which has expressed its support for making available guaranteed


a distribution, the agent could not provide assistance respecting a possible rollover from
her 401(k) plan without first sending her friend a contract to sign . Finally, suppose an
insurance company sends a flyer to several pension plan fiduciaries announcing a new
investment management service and recommending that the fiduciaries consider using
the new service. If any of the plans follow up on the offer, would the insurer become a
fiduciary when the flyer was sent out?

Moreover, the proposed fiduciary definition is so broad that agents, Insurance
companies, Affiliates and Related Entities will almost always become fiduciaries for
purposes of ERISA and the Code when they engage in routine sales to plans and IRAs.
They could even become fiduciaries when they engage in activities incidental to the
sales process. For example, mere conversations about available products and services
(e.g., sales presentations) could be construed as fiduciary advice. In addition, the
submission of an RFP response could be considered advice to the extent the RFP
includes a sample fund line up or discusses certain products and services.

The Proposal’s underlying premise that virtually every sales interaction involves
fiduciary advice is inconsistent with normal business practices in which a buyer ofa
product or service would not reasonably expect that the seller will act as a fiduciary
during the sales process.*° Unfortunately, while the Proposal includes a few “carve-
outs” from the definition, the only carve-out that addresses sales activities does not
apply to IRAs and small participant-directed defined contribution plans, which make up
a substantial majority of the retirement marketplace. Further, unlike the current
regulation under which all five elements of the five-part test must be met before fiduciary
status is imposed, the Proposal essentially shifts the burden to the Adviser and
Financial Institution to prove that it should not be treated as a fiduciary under the
Proposal by demonstrating compliance with a carve-out.

2. Impact

The breadth of the definition of fiduciary investment advice, the limited nature of
the carve-outs and the shift of the burden of proof will effectively require agents,
insurance companies, Affiliates, and Related Entities to assume fiduciary status even in
situations in which no plan fiduciary plan participant or IRA holder could reasonably
expect that the Adviser or Financial Institution to be acting in a fiduciary capacity. As a
result, they will be required to assume the costs associated with complying with (or
failing to comply with) the BIC PTE or other potentially available exemptions, even when
there is no expectation on the part of the plan or IRA that the Adviser or Financial
Institution is acting other than in its own interest as a product distributor. The result may
be that that insurance companies and agents are not willing to sell their products,

4 See e.g., Renfro v. Unisys Corp., 671 F.3d 314, 324 ( 3rd Cir. 2011) (“When a person who has no
relationship to an ERISA plan is negotiating a contract with that plan, he has no authority over or
responsibility to the plan and presumably is unable to exercise any control over the trustees' decision
whether or not, and on what terms, to enter into an agreement with him. Such a person is not an ERISA
fiduciary with respect to the terms of the agreement for his compensation.”, citing F.H. Krear & Co. v.
Nineteen Named Trs., 810 F.2d 1250, 1259 ( 3" Cir. 2011).

25


Ne New York Life Insurance Company

51 Madison Avenue

New York, NY 10010

Tel. 212 576 5353 Fax 212 576 6886
skdavids@nyi.com

Sheila Kearney Davidson
Executive Vice President,
Chief Legal Officer & General Counsel

The Company You Keep*

July 21, 2015

Submitted via email: e-ORI@dol.gov, e-OED@dol.gov
Subject: RIN 1210-AB32, ZRIN 1210-ZA25

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

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW
Washington, DC 20210

Office of Exemption Determinations
Employee Benefits Security Administration
(Attention: D-11712)

U.S. Department of Labor

200 Constitution Avenue NW, Suite 400
Washington DC 20210.

Re: Definition of the Term “Fiduciary;” Conflict of Interest Rule — Retirement
Investment Advice RIN 1210-AB32, ZRIN 1210-ZA25

Ladies and Gentlemen:

New York Life Insurance Company (“New York Life”) appreciates the opportunity
to comment on the Department of Labor’s (“Department”) notice of proposed rulemaking
comprising an amendment to the regulation defining “fiduciary” advice under section
3(21) of the Employee Retirement Income Security Act (“ERISA”), as well as several
proposed amendments to existing prohibited transaction class exemptions (‘PTEs’),
and the proposed new “Best Interest Contract” PTE (“BIC PTE”) (collectively, the
“Proposal’).


a. “Best Interest” Standard is Inconsistent with the Existing ERISA
Standard

As a condition of receiving prohibited transaction relief under the proposed BIC
PTE and PTE 84-24, a fiduciary agent must comply with the Impartial Conduct
Standards, which include the Best Interest standard. In order to comply with the Best
Interest standard, an agent and insurance company must act “... with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent person
would exercise based on the investment objectives, risk tolerance, financial
circumstances, and needs of the Retirement Investor, without regard to the financial or
other interests of the Adviser, Financial Institution, any Affiliate, Related Entity, or other
party...”"4 (emphasis added).

According to the Department,‘[t]he best interest standard is defined to effectively
mirror the ERISA section 404 duties of prudence and loyalty, as applied in the context
of fiduciary investment advice.”"® It appears the Department added this condition, not to
create new duties for plan fiduciaries, but to extend ERISA-type duties to IRA advisors,
who are not subject to section 404."

However, the operative language rephrases, rather than expressly
incorporates, the section 404 duties. As a result, the Department risks creating for
plans and IRAs a new and independent standard. At the least, this new standard will
result in uncertainty for years to come. Beyond that, however, it establishes an even
broader and potentially unachievable standard, particularly for those making
recommendations with respect to proprietary products and services.

In particular, the Proposal’s language “without regard to the financial or other
interests of the Adviser, Financial Institution, any Affiliate, Related Entity, or other party”
could call into question one of the longstanding tenets of ERISA’s duty of loyalty — the
concept of permissible incidental benefits. The duty of loyalty has been consistently
interpreted to permit a fiduciary to benefit from a plan transaction so long as that benefit
is incidental to a decision that is in the best interests of the plan participants. The U.S.
Supreme Court has held that a fiduciary does not violate ERISA by taking action
otherwise consistent with ERISA’s duty of loyalty but that incidentally benefits the
fiduciary.'7 Moreover, the Department has acknowledged and accepted this
interpretation of ERISA’s fiduciary duty in several of its own Advisory Opinions.'®

“ Prop. BIC PTE §VIII(d), 80 FR 21987 (emphasis added); see also Prop. PTE 84-24 §Vi(b), 80 FR
22020;.

* 80 FR 21970.

"id.

7 See Hughes Aircraft v. Jacobson, 525 U.S. 432, 445-46 (1999); Lockheed Corp. v. Spink, 517 U.S.
882, 893-94 (1996).

"8 See, e.g., AO. 2011-05A (Feb. 3, 2011); 2001-01A (Jan. 18, 2001), and 2003-04A (Mar. 26, 2003).

12


IV. THE PROPOSAL WILL LIMIT ACCESS TO QUALITY GUIDANCE AND
GUARANTEED LIFETIME INCOME PRODUCTS

The following is a discussion of the most fundamental concerns that New York
Life has identified in the Proposal, with a particular focus on those aspects of the
Proposal that would impede the ability of New York Life and its agents to provide expert
advice and guaranteed lifetime income products to middle income Americans.
Following a discussion of each of the problematic provisions in the Proposal, we provide
a summary of the provision’s impact, as well as recommendations for specific changes
to the Proposal that would help address our concern.

A. THE BEST INTEREST STANDARD

New York Life is very concerned that the Best Interest standard described in the
Proposal would limit middle-income savers’ ability to access guidance and guaranteed
lifetime income products from financially strong institutions. First, the Proposal lacks
clarity and fails to explicitly recognize that the offering of proprietary products that are
backed by the financial strength and reputation of a company, and offered by career
agents who are extensively trained and supervised, is in the best interests of investors.
Second, while the Proposal does not explicitly ban the sale of proprietary products and
the payment of differential compensation (e.g., commissions and benefits), the lack of
clarity around the Best Interest standard will make it costly and very difficult, if not
impossible, to comply with the standard.

1. Concerns

The Proposal ignores the demonstrable advantages to America’s middle class of
products backed by financially sound insurers and sold by a dedicated commissioned
sales force and instead creates great uncertainty regarding the sale of proprietary retail
and institutional products and the payment of differential compensation. The “best
interest” standard and the principles-based approach articulated throughout the
Proposal are very broad and vague. The Proposal does not provide any clear guidance
or examples regarding compliant sales practices for companies that operate a career
agency model.

As a mutual company focused on the long-term needs of our policyholders, New
York Life’s ability to sell proprietary products backed by our financial strength and
through our 12,000 career agents who receive differential compensation is critical to
serving the best interests of our policyholders. We train our agents to be experts and
fully conversant in the advantages and value of New York Life’s products. In addition, as
a product manufacturer, we provide high levels of customer support to our
policyholders, and we establish supervisory and oversight regimes that are designed to
ensure compliance with applicable law. All of this ensures that the public will continue
to have access to financial professionals and quality products to facilitate meeting their
life insurance and lifetime income needs.


b. The Scope of the Exemption is not Broad Enough

As we previously noted, the BIC PTE is potentially an important exemption on
which New York Life and its agents will be required to rely. In our view, while the BIC
PTE suffers from over-breadth in a number of respects, as discussed above, its reach—
and potential benefit—is severely limited by under-inclusiveness.

First, as currently proposed, the BIC PTE is available only to Retirement
Investors, defined as participants with authority to direct plan investments or take a
distribution, IRA owners, and the sponsor of a non-participant-directed plan with fewer
than 100 participants when acting as an investment fiduciary for the plan.

The BIC PTE is the most protective of any exemption the Department has issued
and we understand that the Department believes that “retail investors” are the most
vulnerable to dishonest practices. However, given the proposed modifications
significantly narrowing the exemptive relief available under existing class exemptions
(PTE 84-24, 75-1 and 86-128), there has resulted a gap in exemptive relief available to
less vulnerable investors. For example, as the exemptions are currently proposed,
there would be no relief for a recommendation of a non-proprietary mutual fund to a
plan fiduciary of a participant-directed plan if the adviser is compensated through
revenue sharing.

Second, as currently proposed, the BIC PTE is only available for advice provided
in connection with Assets. However, this limitation is unnecessarily limiting. The
definition of Asset precludes the sale of unregistered securities to Retirement Investors
even though under securities laws those investors can purchase such securities. In
addition, the definition of Asset may be interpreted to not include advice regarding a
rollover into an IRA that subsequently is invested in an Asset.

c. The Disclosure Conditions of the BIC PTE are Overly Burdensome
and Unnecessary

The Department proposes to condition the BIC PTE on an agent's and insurance
company’s compliance with substantial point of sale, website, and annual disclosure
requirements. New York Life believes that these disclosure requirements will require
significant financial and human capital investments. Yet, it is not clear to New York Life
that these disclosure requirements will help Retirement Investors understand the fees
that apply to their plans and IRAs and help them make better investment decisions in
conjunction with the advice provided by our agents. In addition, we contend that
Section 408(b)(2) of ERISA already provides for the appropriate disclosures. Financial
Institutions have devoted significant financial and compliance resources to complying
with the Department's 408(b)(2) disclosure regulation.

Moreover, the disclosure requirements included in the BIC PTE would require

forward looking projections regarding future investment performance over 1, 5 and 10
year periods. FINRA rules regarding communication with the public prohibit projection

32


enter into an agreement before he can receive any meaningful information about what
services and products New York Life may be able to offer.

Initial conversations between an agent and a potential client are focused on
getting to know each other and allowing the potential client an opportunity to evaluate
the credibility and likeability of the agent. Many conversations do not proceed beyond
this first stage, often because individuals are often reluctant to take time out of their
busy lives to discuss difficult and sensitive issues like financial security and retirement
planning. Requiring potential clients to sign a lengthy contract during this stage of the
process will make it only less likely that the individuals will overcome their natural
reluctance to engage in a conversation about how to improve their financial security.

Second, the fact that an agreement is required for only one type of investment
(e.g., retirement plans and IRAs) will distort individuals’ financial decision making. For
example, during the sales process, a New York Life agent will gather a significant
amount of information about a prospective client so that the Adviser may make a
determination as to the likely insurance and financial needs of the prospective client.
The client typically directs the agent as to the type of products or services in which he or
she is interested. However, as discussions progress, the prospective client may ask
about investing IRA assets or rolling over retirement plan assets to an IRA. Based upon
the Proposal, the agent will be required to stop all discussions about the IRA or rollover
until the prospective client signs an agreement. This result will be unpalatable to the
prospective investor; we believe that individuals will be concerned that the written
agreement imposes obligations on them, and they will abandon, or unnecessarily delay,
discussions regarding retirement plan assets or IRAs.

Third, it is unnecessary to require individual Advisers to sign the written
agreement. The provisions required to be included in the written agreement largely
address the Financial Institution’s oversight of the Adviser. It adds no protection for the
Retirement Investor to require the Adviser to individually be party to this type of
agreement and simply adds to the administrative burden of the written agreement
condition.

Fourth, if the purpose of the written agreement is to ensure that the Financial
Institution provides the required disclosures and is contractually bound by the Impartial
Conduct Standards and Warranties described in Part !I(A), an affirmative consent
(signature) by the Retirement Investor is not necessary.

Lastly, the Investment Advisers Act of 1940 exempts from registration those
registered insurance representatives who provide advice that is “incidental” to their
sales activities. Advice is not considered incidental if it is provided for an asset-based
fee (rather than a commission) and/or pursuant to a written advisory agreement. New
York Life is concerned that compliance with the BIC PTE’s written agreement
requirement would necessarily subject our agents to the registration requirement under
the Advisers Act.

31


guidance to middle-income savers. Without access to this support and coaching, a
secure retirement may remain only an aspiration for many Americans.

C. Financial Strength to Back Long-Term Guarantees

The Department's Proposal fails to recognize the need for investors to consider a
variety of factors in addition to cost when choosing an investment — and especially when
purchasing guaranteed lifetime income products, an area where the lowest cost product
may in fact be the most risky. Whether an insurer will be around to make the payments
promised to the saver — over the next 10, 20, or even 50 years — is the most important
question when a saver purchases a long-term guaranteed lifetime income product.

The Department has acknowledged the importance of financial strength in the
context of annuity providers for defined benefit plans. The Department's guidance
emphasizes, “The interests of those participants and benefi iciaries who will receive
annuities lies in receiving the safest available annuity.”!

Ill. EXECUTIVE SUMMARY

In our view, the Department's Proposal is unnecessarily broad, presents almost
insurmountable compliance challenges, and — most importantly — will prevent American
savers from receiving expert guidance and the benefits of guaranteed lifetime income
from financially secure insurance companies like New York Life.

Consider the process that individuals typically use to purchase lifetime income:

« According to LIMRA, guaranteed lifetime income is available inside less than one
percent of defined contribution plans.’? That means that many savers can
access lifetime income only by rolling over assets into an IRA, which can be done
with the help of a qualified financial professional, such as a New York Life agent.

¢ Our agent will meet with the saver, thoroughly discuss the saver’s current
finances, anticipated future financial needs and other unique circumstances, and
educate the saver about ways to ensure they do not outlive their income.

« As part of this conversation, the agent may present the option to rollover funds
into an IRA, to purchase a guaranteed lifetime income product inside the IRA,
and help the saver determine whether a New York Life annuity will help meet the
individual's needs.

‘' 29 CFR § 2509.95-1, Interpretive Bulletin relating to the fiduciary standards under ERISA when
selecting an annuity provider for a defined benefit pension plan.
? Quarterly Retirement Perspectives, LIMRA Secure Retirement Institute, Fourth Quarter 2013.

8


annuity contract where (i) with respect to the recommendation of an
annuity contract to an individual account plan, plan participant or
beneficiary or to an IRA, the purchase of the annuity contract satisfied the
provisions of 29 CFR § 2550.404a-4, or (ii) with respect to the
recommendation of an annuity contract to a defined benefit plan fiduciary,
that the purchase of the annuity contract satisfied the provisions of 29
CFR § 2509.95-1.

In the event the Department determines not to include these requested
modifications to the BIC PTE and PTE 84-24, we urge the Department to make clear in
the preamble to the final exemption that where an annuity purchase satisfies one of the
existing regulatory safe harbors, the agent and insurer may rely on the safe harbor as
an indication of satisfying the Best Interest standard.

B. LOWEST COST SHOULD NOT BE SOLE DETERMINATIVE FACTOR

Based on the Administration’s press releases and related fact sheets, the costs
of retirement products appear to be a focal point of the Department’s Proposal. The
Department’s request for comments about a “low-cost exemption” further suggests that
the Department believes cost should be the primary factor that determines which
product is in a client’s best interests. New York Life does not support the concept of a
streamlined exemption for “certain high-quality low-fee investments’, as it erroneously
ignores the quality and strength of the guarantees associated with a product.°®

1. Concern

The implied preference for advice related to “certain high-quality low-fee
investments” is contrary to previous expressions by the Department and the courts that
ERISA does not require (or even permit) a fiduciary to recommend or select
investments based solely on cost. Instead, ERISA requires a review of quality of
services and other factors in addition to cost. Notably, the Proposal’s focus on costs is
at odds with the Department's own guidance with respect to the selection of an annuity
provider for defined benefit plans and defined contribution plans®>, as discussed above
in the context of our request to modify the BIC PTE and PTE 84-24 to authorize reliance
on existing regulatory safe harbors (See part IV.A.3.d. above).°”

35 80 FR 21948. Such an exemption would also seem to undermine the Department's goal of establishing
a single Best Interest standard that would apply to all retirement products.

38 99 CFR § 2509.95-1; 29 CFR § 2550.404a-4.

7 Notably, the costs associated with lifetime income products is not primarily impacted by the
compensation paid to career agents. As noted above, any insurer who does business in New York State,
including New York Life Insurance Company and NYLIAC, is governed by Section 4228 of the New York
Insurance Law, and this statute applies to that insurer nationwide. This law limits both the commissions
and non-cash compensation that can be provided to agents selling annuity products. See N.Y. Ins. Law §
4228 (McKinney 2014). Section 4228 is applied extraterritorially by New York State’s Department of
Financial Services. The DFS has a well-earned reputation for consumer advocacy. If a company
provides payments to an agent that exceed the limits or a company exceeds the aggregate limits set forth
in Section 4228 it must take steps to bring expenses into compliance and recover any excess payments.

22


the advice recipient that advice will be provided in the best interest of the advice
recipient.

c. Interpret “Recommendation” in conformance with intent of ERISA

Under the Proposal, a recommendation is “a communication that, based on its
content, context, and presentation, would reasonably be viewed as a suggestion that
the advice recipient engage in or refrain from taking a particular course of action.”
Though New York Life appreciates that the Department has taken this definition from
FINRA guidance in an effort to coordinate its rulemaking with other regulators, we
nevertheless believe that the articulated definition is over-inclusive.

FINRA guidance focuses not on the existence of a mere suggestion, but on
whether there has been a communication that might reasonably be viewed as a “call to
action” that might reasonably influence an investor to trade a particular security or group
of securities.“* New York Life believes that such FINRA guidance may usefully be
applied to distinguish a zone of information that may be provided about investment
products and services that objectively describes the features of an investment product
or service (including performance and benchmarking information) but that falls well
short of a “recommendation.” The definition of “recommendation” should not preclude a
provider from marketing products and communicating with potential investors and
purchasers about the provider's products without becoming a fiduciary.

That being said, it appears that the Department is seeking to cover any
conversations or communications where the advice provider is in a position of trust with
respect to the advice recipient. New York Life nevertheless believes that the
Department should not construe every interaction by an agent with ERISA plans, ERISA
plan participants and beneficiaries, and IRA holders as undertaking to provide unbiased
investment advice solely in the client's interest. Further, New York Life believes the
Department should interpret “recommendation” to not include sales activities in the
investment space, where sellers attempt to sell products in exchange for compensation
for their sales activities. These are appropriate activities in the ERISA context and
should not be eliminated, which the regulatory scheme proposed by the Department
threatens to do.

d. Clarify the impact of fiduciary status on registration as an
Investment Adviser

Lastly, before the Proposal becomes effective, we request that the Department
ask the SEC to provide guidance that registered representatives of New York Life’s
broker-dealer who are deemed to be giving fiduciary advice under the Department's
expanded definition are not required to also register as investment advisers under the
Investment Advisers Act (the “Advisers Act”). Many agents and their agencies do not
register as advisers under the Advisers Act because they do not provide advice as

*” See NASD Notice to Members 01-23.
28


|. ABOUT NEW YORK LIFE

New York Life, founded in 1845, is the nation’s largest mutual life insurance
company. As a mutual company, New York Life has no stockholders. Our interests
are aligned with those of our policyholders, who are our only constituency. New York
Life is singularly focused on helping Americans of all ages and income levels achieve
financial security. We provide life insurance, annuity and investment products to more
than 6.5 million individuals and families.

New York Life has the highest possible financial strength ratings currently
awarded to any life insurer from all four of the major credit rating agencies.’ Our
goal is to help our clients enjoy a comfortable and financially secure retirement, knowing
that the guaranteed products they purchase from us are backed by our financial
strength and 170-year history of meeting our promises.

New York Life’s proprietary insurance and annuity products are offered
primarily through a network of 12,000 licensed agents located in all 50 states. Our
agents reflect the diversity of America. In 2014, 65 percent of New York Life’s new
agents were women or representatives of cultural markets -- including African-
American, Chinese, Hispanic, Korean, South Asian and Vietnamese markets.

New York Life provides these financial professionals with extensive training,
support and supervision. Their clients benefit from working with an agent who is deeply
knowledgeable about New York Life’s portfolio of products and therefore uniquely
positioned to help identify the best solutions to address their clients’ retirement and
other financial security needs.

New York Life is the leading provider of retail quaranteed lifetime income
products, which enable individuals to use a portion of their retirement assets to
guarantee a stream of income for life. Specifically, New York Life is the industry leader
in sales of both immediate annuities, in which the stream of guaranteed income begins
as soon as the product is purchased, as well as deferred income annuities, in which the
income stream begins at a designated date in the future (e.g., age 70).? In 2014, New
York Life paid out over $1 billion in “paychecks” (annuity benefits) to more than 130,000
payees.

While New York Life serves Americans across the financial spectrum, our focus
is the middle market. Approximately 50 percent of our annuity customers have annual
household incomes of less than $75,000 a year, and about 70 percent have annual

‘A.M. Best (A++), Fitch (AAA), Moody's Investors Service (Aaa), Standard & Poor’s & (AA+). Source:
Individual independent rating agency commentary as of July 1, 2015.

? In 2014, New York Life was leading seller of single premium immediate annuities (SPIAs) with a 22%
market share, and the leading seller of deferred income annuities with a 42% market share. Source:
LIMRA, U.S. Individual Annuity Sales Survey, Participants Report, Fixed Immediates and Deferred
Income Annuities, Fourth Quarter 2014 results. (Fixed Immediates include Fixed Period Annuities.)
Annuities are primarily issued by New York Life Insurance and Annuity Corporation, a wholly-owned
subsidiary of New York Life Insurance Company.

4


asserts that the PTE’s Material Conflicts rule “does not mandate” fee leveling,”° which
is, of course, not a common practice, the Proposal appears to effectively do just that.
The language of the rule is so broad, vague and subjective that it will drive advisers to
change their compensation practices in a way that harms consumers or exit the small
plan and IRA market altogether to avoid class action lawsuits that challenge current fee
practices as violating the “tend to encourage” language.

Requiring commissions to be level among all products within a given category
does not reflect the diversity of product offerings among companies. For example,
companies offer a wide variety of annuities and mutual funds. Requiring the same
commissions to be charged for each annuity and for each mutual fund would be
tantamount to requiring a doctor to earn the same fee for every eye surgery that the
doctor performs, regardless of the complexity and quality of the operation.

Beyond our concern about the Department’s view that commissions may not vary
by the product sold, we are concerned that the Department's Proposal reflects a bias for
fee-based advice or at a minimum, for compensation that is paid in equal installments
throughout the term of a product. As described in detail below, upfront commissions
help to incent agents to advise smaller investors. A policy that encourages the use of
fee-based compensation or that commissions be paid over the duration of a product
would be particularly harmful to such investors.

New York Life’s commissions on annuity products average between 3-4.5% of
the assets invested, which translates to .25-.5% annually when amortized over the
average duration of the product. This commission-based model is therefore much more
economical and appropriate for annuities than an asset-based model, which typically
involves an annual fee of 1% of assets.”° For example, an individual would pay an
upfront commission of $1,625 for a $50,000 guaranteed lifetime income product that
provides a guaranteed annual income of $3,214 for approximately 20 years, as
compared to the same individual paying $10,000 ($500 each year) to a fee-based
investment adviser to manage the $50,000 in assets over that same 20-year period
(and without obtaining the benefit of a guaranteed stream of income).

Importantly, most insurers, including New York Life, frequently pay a larger
portion of a commission in the early years of the annuity contract in order to incent an
agent to advise smaller investors. While the total amount of compensation paid by the
investor does not increase with the use of an upfront commission, the agent is
compensated at the time of the transaction for the time it takes to explain how annuities
work and which annuity is the most suitable for the investor.’ By design, guaranteed
lifetime income products achieve a client's objective for a guaranteed stream of income

2° 80 FR 21971.

po PriceMetrix, State of Retail Wealth Management, March 30, 2015.

27 The reluctance of individuals to act on their own to annuitize some of their savings is one of the
reasons the Administration has supported policies that promote annuities. It also is why agents need to
spend a considerable amount of time educating clients about the benefits of creating a guaranteed
stream of income and discussing clients’ concerns and potential mechanisms to mitigate those concerns.

15


Moreover, the proposed Impartial Conduct Standards could be used by class
action lawyers to challenge as an “impermissible conflicts” the health, welfare and
retirement benefits that New York Life provides to its agents. As discussed, pursuant to
the “Best Interest” standard under the BIC PTE and PTE 84-24, the agent or insurance
company must act “without regard to the financial or other interests of the Adviser,
Financial Institution any Affiliate, Related Entity, or other party.” Further, under the BIC
PTE, the agent and the insurer must warrant that the insurer, Affiliates and Related
Entities do not have incentive programs in place that “tend to encourage individual
Advisers to make recommendations that are not in the Best Interest of the Retirement
Investor.” New York Life is concerned that a plaintiff's attorney would use these
provisions against career agents and insurers, who are required to focus on the sale of
proprietary products in order to receive these important employee benefits.

2. Impact

Without rules that clearly define the methodology and processes that firms need
to implement in order to recommend proprietary products to plans and IRAs under a
“best interest” standard and pay differential compensation, even strong processes are
likely to be second guessed or challenged through litigation. These risks created under
the current Proposal will create additional costs and limit the availability of guidance and
guaranteed products provided to middle-income savers by well-trained agents.

3. Solutions

Because access to retirement investing expertise and to guaranteed lifetime
income products are, for many workers, critical elements to a successful retirement, we
urge the Department to: (a) affirmatively clarify that the sale of proprietary products and
receipt of differential compensation are consistent with a Best Interest standard;

(b) align the Best Interest standard with the existing ERISA fiduciary standard;

(c) provide clear guidance regarding how differing levels of compensation for different
products may be paid to advisers; (d) modify PTE 84-24 and the BIC PTE to allow
guaranteed lifetime income products to rely on existing regulatory safe harbors; and
(e) clarify that the requirements of the BIC PTE do not threaten the provision of health
insurance and other employee benefits to career agents.

a. Affirmatively clarify that the sale of proprietary products and receipt
of differential compensation are consistent with a Best Interest
standard

The Department has suggested that its goal in developing this Proposal is to
preserve current business models and practices. However, for the reasons outlined
above, this proposal could have the opposite effect. If the Department does not intend
to preclude common practices, including the sale of proprietary products or receipt of
differential compensation, the Proposal should explicitly and affirmatively clarify that
such practices are consistent with the Best Interest standard. Specifically, we would
urge the Department to clarify in the preamble to the final prohibited transaction
exemptions that the sale of proprietary products does not violate the Best Interest

17


Table of Contents

I. ABOUTINEW YORK LIFE o....0-. cc. ceseccecceuecreeteeesctecetecceecsend foresees tesnaneseenentseaeeneeasdeansseed 4
ll. THE VALUE OF GUARANTEED INCOME, TRAINED AND WELL-SUPERVISED
AGENTS, AND FINANCIAL STRENGTH ..
A. Guaranteed Lifetime Income Products...
B. Guidance Provided by Trained, Well-Supervised Professionals ..
C. Financial Strength to Back Long-Term Guarantees .
Il. EXECUTIVE SUMMARY
IV. THE PROPOSAL WILL LIMIT ACCESS TO QUALITY GUIDANCE AND
GUARANTEED LIFETIME INCOME PRODUCTS.
A. THE BEST INTEREST STANDARD...
1. Concerns

2. Impact.....

3. SONUIONS ...1.,.j.cc-cdeetteeee ca eendevescbecncesbecsnestionsesuei veteeavee ee nbiiianastint -
B. LOWEST COST SHOULD NOT BE SOLE DETERMINATIVE FACTO 22

1. Concern.. 22

2. Impact..
3. Solutions.
V. ADDITIONAL CONCERNS. ...........:ececceeerereereeeee
A. THE PROPOSED DEFINITION OF “FIDUCIAR
1. Concerns
2. Impact..
3. Solutions.
B. INVESTMENT EDUCATION.....
1. Concern..
2. Impact..
3. Solutions.
C. ADDITIONAL COMMENTS ON THE BEST INTEREST CONTRACT
EXEMPTION... 30
1. Concerns

3. Solutions.

D. HEALTH AND WELFARE PLANS

E. EFFECTIVE DATE
VI. CONCLUSION


including those that provide guaranteed lifetime income, to small plans and IRAs. This
would be an unfortunate result because these markets are already underserved.

Plans of all sizes and IRAs may be impacted in other ways. For example, New
York Life and its affiliates provide investment management and advisory services. It
would appear that, under the Proposal, the marketing of these services could involve
“investment advice.” Such marketing helps plans and investors learn about the services
that are available in the marketplace, with the expectation that further exchanges of
information will follow if the plan or investor is interested in the products and services
described in the marketing material. A consequence of imposing fiduciary status at this
point in the marketing process will be a restriction on the flow of appropriate marketing
information at this initial phase, which will disadvantage plans as they attempt to engage
in initial fact-finding about providers of desired financial services.

3. Solutions

For these reasons, we urge the Department to modify the definition of
“investment advice” under the regulation so that Advisers and Financial Institutions can
engage in a routine sale process without becoming fiduciaries.

a. Delete the “specifically directed” prong

Under the Proposal, fiduciary status arises virtually any time that a
communication is made that is in any way suggestive of a plan investment or
investment management activity and is either individualized for, or is specifically
directed to, an advice recipient for consideration. In our view, whether a
recommendation is “specifically directed to” the recipient is irrelevant to the question of
whether the parties to that communication should be viewed as having a fiduciary
relationship.

Institutions that offer products and services in the retirement plan marketplace
generate targeted communications every day in the course of advertising and marketing
to potential clients. Providers and distributors of annuities and other financial products
require the freedom to utilize targeted marketing communications to identify consumers
with an interest in potentially purchasing those products. Yet, under the Department's
Proposal, a mass mailing or telephone campaign describing the range of New York Life
insurance products and their key features and pricing, could be characterized as
“specifically directed” to the recipients and thus potentially investment advice. It defies
common sense to suggest that these types of generalized, albeit “specifically directed,”
marketing communications should result in the establishment of a fiduciary relationship.
If financial institutions cannot even contact potential clients without assuming fiduciary
status, retirement investors may never learn about products and services that may fit
their needs.

We propose that the “specifically directed to” prong of the definition be deleted so
that Advisers and Financial Institutions can engage in a rcutine sale process without
becoming fiduciaries.

26


We recognize the substantial effort that the Department has put into the
Proposal. However, we believe that in its current form, the Proposal is unworkable and
would actually weaken the ability of middle class Americans to secure a comfortable
retirement. We have three primary concerns with the Proposal as drafted:

« It would effectively prohibit the sale of proprietary products by the very agents
who are most knowledgeable about such products;

e It will encourage the sale of products that are ostensibly cheaper but that provide
less secure financial guarantees; and

It will limit the ability of middle income investors to access guaranteed products
by discouraging commission-based sales.

We also have concerns about several other problematic provisions in the
Proposal. This letter provides a description of our concerns, an analysis of the impact
of the Proposal’s problematic provisions, as well as proposed solutions that we believe
constitute a better way to protect consumers.


b. Expand the Scope of the Exemption

As we previously noted, the BIC PTE is potentially an important exemption on
which New York Life and its agents will be required to rely. In our view, while the BIC
PTE suffers from over-breadth in a number of respects, as discussed above, its reach—
and potential benefit—is severely limited by under-inclusiveness.

(i) Expand the Covered Recipients of Advice

We see no reason why the relief provided by the BIC PTE should not be
extended to any recommendations made to all types of advice recipients so long as the
Adviser can satisfy the exemption’s conditions.

(ii) Expand the Types of “Assets” that May Be Recommended

We also request that the definition of “Asset” be broadened. First, “Assets”
should include an interest in a private fund if the Retirement Investor is an “accredited
investor’ under SEC Rule 501 of SEC Regulation D*’ promulgated under section 4(a)(2)
of the Securities Act of 1933, as amended (“Securities Act’). In addition, “Assets”
should include any asset with respect to which the Retirement Adviser is receiving
advice from a professional, regulated asset manager subject to supervision by a state or
federal agency with examination and enforcement authority.

The owner of an IRA that is accredited investor is permitted to purchase an
interest in an investment fund without subjecting interests in the fund to registration
under the Securities Act. Yet, the BIC PTE perpetuates this notion that small plans and
IRA holders are “vulnerable” and lack financial sophistication. To the contrary, we
believe that plan fiduciaries or IRA owners who are sophisticated investors or who are
advised by regulated advisers can make fully informed, sound investment decisions and
relief for those decisions should be entitled to relief under the BIC PTE.

Second, we request that the Department clarify that the BIC PTE applies to a
recommendation to transfer assets to a specific IRA either from a qualified plan or from
another IRA. Pursuant to the Department's much expanded definition of fiduciary
advice, a typical rollover transaction could potentially involve four separate fiduciary
recommendations: (i) a recommendation to take a distribution “from” the plan; (ii) a
recommendation to hire the Adviser; (iii) the recommendation to roll over to an IRA; and
(iv) the recommendation regarding how to invest the assets of the IRA.

Third, as discussed above, the Department should clarify that the marketing and
sales of “fee only” investment advice and investment management services is not
“investment advice” so long as no compensation is paid to any firm or individual in
connection with the marketing and sales of such services. Alternatively, the Department
should clarify that the BIC PTE would cover the recommendation of oneself or a third-
party for fiduciary services. If the Department insists on subjecting this marketing to

47 47 C.F.R § 230.500, et. seq.
34


defined in the Advisers Act or are otherwise exempt from registration under the Advisers
Act. The agents and their agencies should not be required to register under the
Advisers Act, which may result in significant cost to these agents and agencies even
though they may provide “investment advice” as defined in the Proposal.

B. INVESTMENT EDUCATION

New York Life supports the Department's proposal to recognize that investment
education is not, and should not, be treated as investment advice under ERISA, based
on principles articulated in Interpretive Bulletin 96-1.*7 While not perfect, we believe that
the framework reflected in IB 96-1 has led to greater access to educational information
for countless individuals over the past two decades, thereby improving their chances at
a financially secure retirement.

1. Concern

The Proposal eliminates paragraphs (d)(3)(iii) and (4)(iv) of IB 96-1, which
currently permit the use of asset allocation models that refer to specific investment
products available under the plan or IRA as long as certain disclosure requirements are
met. The Department, based upon its own experience and public comments, believes
that asset allocation models populated with actual investment alternatives available
under the plan or IRA “function as tailored, individualized investment recommendations,
and can effectively steer recipients to particular investments, but without adequate
protections against potential abuse.“

2. Impact

We agree with the Department that modifications to the definition of education
represent “a significant changeTM®. In response to the Department's query, we do not
believe that the change is “appropriate.” We believe it would have the effect of
dramatically reducing the value of participant education initiatives by making it
exceedingly difficult, if not impossible, to impart the information needed by participants
to implement their investment decisions.

3. Solutions

There are two less drastic ways of addressing the potential for abusive “steering”
identified by the Department:

* The incidence of steering could be limited if the Department requires that if “a
model asset allocation identifies or matches any specific investment
alternative available under the plan with a generic asset class, then all

48 99 C.F.R. § 2509.96-1 (“IB 96-1”).
4 80 FR 21945.
4 80 FR 21945.

29


b. New Standard Limits Sales of Proprietary Products

Despite the Department's statements that the Proposal is intended to preserve
current business models, several aspects of the Proposal appear to limit the sale of
proprietary products. As currently proposed, the “without regard to the financial or other
interests” language in the Best Interest standard could be interpreted to preclude the
sale of proprietary products altogether.

The Department's Proposal does not provide any clear guidance or examples
regarding compliant sales practices, particularly with regard to the sale and
recommendation of proprietary products. The outcome is a standard that appears to
favor certain business models at the expense of others — and that would prevent the
very agents who are most knowledgeable about a company’s products from offering
those products."

Additionally, the BIC PTE could be read to suggest that a career agent's sale of
only proprietary products is the exception, rather than the rule, permitted under the PTE.
One of the requirements of the BIC PTE is that:

The Financial Institution offers for purchase, sale or holding, and the Adviser
makes available to the Plan, participant or beneficiary account, or IRA for
purchase, sale or holding, a range of Assets that is broad enough to enable the
Adviser to make recommendations with respect to all of the asset classes
reasonably necessary to serve the Best Interests of the Retirement Investor in
light of its investment objectives, risk tolerance, and specific financial
circumstances.”

In the alternative, rather than complying with this “broadly available” standard,
the “Financial Institution may limit the Assets available for purchase, sale or holding
based on whether the Assets are Proprietary Products, generate Third Party Payments,
or for other reasons, provided that” certain disclosure requirements are met. In addition,
the Financial Institution must make a “specific written finding that the limitations it has
placed on the Assets made available to an Adviser for purchase...do not prevent the
Adviser from providing advice that is in the Best Interest of the Retirement Investor...or
otherwise adhering to the Impartial Conduct Standards.””'

The Department's articulation of the “broadly available” requirement and the
exception thereto can be interpreted as being particularly prejudicial to career agents
and their associated insurance companies. First, New York Life and its agents must
justify why they do not offer one or more other insurance company’s products. Second,
New York Life and its agents must justify why the receipt of employee benefits as a

*® The Department has recognized the need to provide relief for the sale of proprietary products to plans
since the enactment of ERISA. See , e.g., ERISA Section 408(b)(5); PTE 77-3; PTE 84-24; A.O. 2000-
145A (Nov. 15, 2000).

9 Brop. BIC PTE § IV(a), 80 FR 21970.

21 Brop. BIC PTE § IV(b)(1), 80 FR 21985-86.

13


regardless of future financial scenarios and, therefore, do not require substantial
ongoing support from an agent. As such, the rate at which a commission is paid out to
is front-loaded to compensate the agent in the early years of the contract, at the time
when the he or she performs most of the work related to the product.

A requirement that the commissions be paid in a level amount throughout the
terms of the contract — $81.25 each year for the $50,000 lifetime income product
described above — would be very harmful to those savers with small balances. The
immediate compensation provided to an agent would provide such a small incentive that
it would make it unlikely that agents would be willing to devote the time and resources
required to effectively provide guidance regarding guaranteed lifetime income products.

Moreover, the compensation practices of any insurer that does business in New
York State, including New York Life, are governed by Section 4228 of the New York
Insurance Law. Section 4228 limits both the commissions and non-cash compensation
that can be provided to agents selling annuity products, and requires disclosure of all
commission and non-cash compensation (e.g., health benefits) received in conjunction
with the sale of annuity products.

d. Best Interest Standard Raises Questions about Provision of Health
Care, Retirement Benefits and Other Employee Benefits to Career
Agents

Many career life insurance agents are entitled to statutory employee” status
under the Code through their contracts with their career companies. If they are
engaged on a full-time basis in the sale of life insurance and annuities on behalf of their
career companies, they can be treated pursuant to the Code as employees for certain
health, welfare and retirement benefit purposes and for FICA tax purposes.” The
Code requires, among other things, that the agent be a full-time life insurance
salesperson for his or her career company, primarily focused on selling that company’s
life and annuity products. New York Life and many life insurance companies use this
provision to characterize their agents as statutory employees, rather than independent
contractors, and provide them with health, welfare and retirement benefits.

Thus, pursuant to the Code, career agents are required to primarily sell
proprietary products in order to receive certain employee benefits, including
health care coverage and retirement benefits, from New York Life. However, the
terms of the BIC PTE appear to challenge the ultimate viability of career agent status for
tax purposes. It would be unfortunate, and at odds with the Administration’s policy to
encourage health benefits coverage and pension benefits, if the DOL’s proposal
precluded the provision of health, welfare and retirement benefits to thousands of
families.

nee 26 U.S.C.. §§ 3121(d)(3)(B), 7701(a)(20) (2014).
Id.

16