May 08 2015 03:32PM Summers Compton Wells 3149912413 page 4

SUMMERS COMPTON WELLS
Limitep LiaBILITy COMPANY
ATTORNEYS AT Law

PLATFORMS CARVE-OUT FOR LESS THAN FULL PLATFORM

In order to make 401(k) plans available to very small plan sponsors at an affordable price, an
industry trend has been to provide a more turn-key approach where the plans have essentially the
same design and use the same investment options. Under this approach, while 1000 funds may
normally be available from the vendor’s platform, for those sponsors that opt for this turn-key
approach, the menu of funds that will be available under the plan and from which the participants
may choose will be a significantly smaller universe, for example, 7 funds. In some arrangements,
those may be all index funds. So, in this example, a small sponsor that chooses this option has also
effectively chosen the 7 index funds as the investment options.

The sponsor always has the option to instead select from the universe of 1000 funds simply by
forgoing the turn-key approach and opting instead for the standard plan arrangement.

Where the employer does in fact choose the turn-key approach resulting in essentially the employer
or the plan’s fiduciaries selecting the investment options that are a part of this tum-key approach, we
ask that the proposed regulations clarify that such arrangements also qualify for the platform carve-
out, This is because the plan sponsor or other fiduciary, having selected the turn-key approach, has
also selected the investment options that come with that arrangement.

Should you have questions, please do not hesitate to contact me.

Very Truly Yours,

Vu D. Perdue
PDP/no


May 08 2015 03:32PM Summers Compton Wells 3149912413 page 1

SUMMERS COMPTON WELLS

PROFESSIONAL CORPORATION
ATTORNEYS AT Law

MAIN OFFICE: ‘WWW.SUMMERSCOMPTONWELLS.COM *[LLINOIS OFFICE:
8909 LADUE ROAD May 8, 2015 2246 S. STATE ROUTE 157
ST, LOUIS, MISSOURI 63124 SUITE 350
(314)991-4999 GLEN CARBON, ILLINOIS 62034
FAX: (314)991-2413 (618)288-9800

OFFICE HOURS BY APPOINTMENT ONLY

VIA ELECTRONIC MAIL TO ¢-ORI@dol.gov
Office of Regulations and Interpretations
Employee Benefits Security Administration
ATTN: Conflict of Interest Rule

Room N-5655

U.S. Department of Labor

290 Constitution Ave., N.W.

Washington, DC 20210

Pamela D. Perdue, Esq.

Re: Comments on “Proposed Conflicts of Interest Rule”

Gentlemen and/or Ladies:
1am writing to you on behalf of myself, an attorney practicing in the area of employee benefits for
over 25 years, as well as on behalf of several clients who are recordkeepers and/or third-party

administrators of retirement plans.

In that capacity, I write to ask that the proposed regulations be revised or clarified to reflect the

following:
. that an attorney licensed in the state in which he/she practices, recommending to a
pian sponsor or to plan fiduciaries possible investment advisors or professionals is
not making a recommendation of the type to which Prop. Labor Reg. Section 2510.3-
21(a)(1)Gv) applies provided no special or additional compensation is received
attributable to that recommendation;
° further clarifying the definition of “recommendation” in the context of investment

education so that educational advice can be meaningful without crossing the line into
investment advice. Because of the difficulty of getting some employees to actually
make an affirmative selection, those conducting the investment education may
attempt to make it clear that some investment options require less time and attention
than others. For example, is either or both of the following statements considered


May 08 2015 03:32PM Summers Compton Wells 3149912413 page 2

SUMMERS COMPTON WELLS
Limrrep LiasiLity COMPANY
ATTORNEYS AT Law

investment advice when provided in an educational meeting with multiple
participants present:

“those of you who do not wish to actively manage your investment-—the
target date fund is for you”

“those of you who do not wish to actively manage your investment may wish
to consider the target date fund?

clarifying whether the carve-out for platform providers remains available where,
for specified arrangements generally only available to small companies, less than
all of the platform options are available to the plan; that is, when the plan sponsor
or plan fiduciary selects that turn-key design, the plan sponsor or fiduciary is also
deemed to have satisfied the requirement that a plan fiduciary select the
investment options from the available platform within the meaning of Prop. Labor
Reg. Section 2510,3-21(b)(3)

ATTORNEYS RECOMMENDING INVESTMENT PROFESSIONALS

The Proposed Regulations provide that a person will be a fiduciary if he/she makes a
recommendation of persons to provide investment advice to aplan if there is an understanding that
the advice is individualized or specifically directed to the recipient and the person making the
recommendation receives a fee, direct or indirect.

Lawyers are often asked to make recommendations as to competent plan professionals including
investment professionals. While there is of course, no separate fee payable with respect to the
recommendation, the proposed regulations do not require a separate fee. Therefore, an attorney
providing such recommendations during the course of a meeting with the client where a variety of
issues are discussed and who then bills his/her normal rate will be deemed to have provided fiduciary
advice. Such a result runs counter to the primary ultimate goal of serving the best interest of
participants.

Employee benefit attorneys over time learn which investment professionals provide good, competent,
objective investment advice and which ones do not. Often lawyers may know information that they
are prohibited from revealing to clients, either because it was learned in a privileged context, or is
part of a settlement agreement, or otherwise could not be disclosed because it could raise other
issues. So, simply saying that lawyers can avoid making “recommendations” simply by steering
clients away from certain advisors will not be sufficient.

Lawyers are subject to licensing requirements and bar oversight that already successfully govern their
relationships with clients. Lawyers are required to act in the best interest of their clients and do so
under the threat of losing their license. They need no further incentive. Iflawyers fear that they may



May 08 2015 03:32PM Summers Compton Wells 3149912413 page 3

SuMMERS COMPTON WELLS
Limivep LiasiLity COMPANY
ATTORNEYS AT Law

be sued if participants become unhappy with their investment options or cost will, this will hinder
the lawyer/client relationship. Moreover, plan clients and their sponsors unnecessarily lose a reliable
source of guidance. In turn, plan sponsors, particularly of small plans, will be left essentially to the
influences of those who may not be subject to licensing oversight

CLARIFYING THE DEFINITION OF “RECOMMENDATION” IN THE INVESTMENT
EDUCATION CONTEXT

The line between investment education and investment advice has never been entirely clear. While
we applaud the DOL for attempting to clarify, we believe that additional clarification is warranted in
order that investment education can be as meaningful as possible.

The proposed regulation defines the term “recommendation” 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.”

Those who provide investment education struggle with the desire to always remain on the education
side of the line while trying to make the education actually meaningful and helpful. This is
particularly difficult in employee meetings where employees, lacking virtually any investment
background, simply desire to be told something that will help them make their investment decisions.
Simply sticking to a discussion of risk and return, or the effects of compounding is often just not
enough.

In response, the industry has developed such that election forms and those leading employee
meetings often try to match, as one aspect of the employee’s decision making process, an employee’s
desired level of involvement with the investment of their account with various levels of investment
styles, So, for example, in the context of an investment education meeting, the group might be told
that:

“those of you who do not wish to actively manage your investment—the target date
fund is for you” or

“those of you who do not wish to actively manage your investment may wish to
consider the target date fund?

The proposed regulations should be clarified to provide that when such statements are said in the
course of a group educational meeting, they do not constitute investment advice as the advice is not
individualized nor directed to any particular recipient.