July 21, 2015

Office of Regulations and Interpretations

Employee Benefits Security Administration 

Attn: Conflicts of Interest Rule

Room N-5655

US Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Via email e-ORI@dol.gov

Subject: RIN 1210-AB32 – Proposed definition of fiduciary regulation comments

Dear Sir or Madam:

Nova 401(k) Associates1 appreciates the Department of Labor’s efforts to update the definition of 

fiduciary to better protect participants. However, we are concerned that the proposed regulations 

would decrease the number of small employer plans, and thus the number of Americans covered by 

employer workplace retirement plans. 

We request consideration of the following comments in finalizing the regulations.

1. Extend arms-length transaction to small plans. A carve-out is provided in proposed 

2510.3(21)(b)(1)(i)(B) under certain circumstances to plans with more than 100 participants. 

The 100 participant requirement does not serve a valid public policy purpose. Requiring 100 

participants may reduce the number of small 401(k) plans by reducing the number of advisors 

selling small plans due to the additional responsibilities, costs and risks of serving as a fiduciary. 

This would reduce the number of Americans covered by a workplace retirement plan. 

By extending the arms-length transaction to small employers, the DOL would provide small 

employers a choice – demand an advisor who will serve as a fiduciary (potentially for a higher 

fee) or accept a party who will not serve as a fiduciary. This will keep the small plan marketplace 

vibrant and ensure that a sufficient number of advisors continue to serve the small plan 

marketplace. It will also encourage an open and frank discussion about the role of the advisor 

on each plan.

The 100 participant requirement is arbitrary. Small, owner-operated employers deal with a 

wide variety of financial and contractual transactions and do not need this protection. While 

large employers may benefit from more infrastructure, small employers are educated by 

routinely make financial and contractual decisions with no safety net for their income or wealth. 

1 Nova 401(k) Associates is non-producing third party administrator of over 2000 401(k), profit sharing and defined 

benefit plans. 

 

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Employee Benefits Security Administration

July 21, 2015

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The drafters of the proposed regulations greatly underestimate the financial competence of 

small employers by comparing small employers to retail investors.

The requirement of proposed 2510.3(21)(b)(1)(i)(B)(4) is sufficient without an objective, brightline participant count test. Footnote twenty to the preamble states that most plans with less 

than one hundred participants have fewer than ten participants and comments that these plans 

are much more like retail customers. While we do not agree with this assertion, if the concern is 

plans with fewer than ten participants, then the appropriate threshold is ten participants.

Recommendation: Nova recommends that the 100 participant requirement the arms-length 

transaction carve-out be removed or lowered to ten participants.

2. Clarify length of fiduciary status. Proposed 2510.3(21)(c) clarifies that individuals are only 

considered a fiduciary with respect to plan assets on which they provide advice and receive 

compensation. However, it is not clear for what time period an individual remains a fiduciary.

While this issue exists under the current regulatory framework, the issue will be much more 

significant under the proposed regulatory framework because of the increased number of 

fiduciaries. Fiduciaries will need clarity on how long they retain fiduciary status for business and 

insurance purposes.

For example, if an individual becomes a fiduciary due to providing advice on the purchase of an 

investment product, is that individual a fiduciary for a limited time after the purchase, the 

length of time the plan holds the asset or does it depend on the agreement between the plan 

and the individual? 

Recommendation: Nova recommends that the length of fiduciary status be the longer of the 

time specified in the contract between the parties and the period for which the individual 

receives compensation related to the investment advice. 

3. Safe Harbor for Resolving Co-Fiduciary Breaches. Many providers in the small plan retirement 

arena are willing to be held to a fiduciary standard with respect to their own actions, but do not 

have the resources to resolve co-fiduciary breaches efficiently and effectively if they become 

aware of a co-fiduciary breach. Small plan fiduciaries may not have staff attorneys to counsel 

them or the financial resources to institute litigation on behalf of the participants. This is an 

issue under the existing regulations, but given the scope of the proposed regulations, this issue 

is even more important. 

Recommendation: Nova recommends that the DOL provide a safe harbor method for small plan 

fiduciaries to resolve the most common co-fiduciary breaches. For example, with respect to 

failure to deposit 401(k) deferrals, the DOL should prescribe a method of reporting late or 

missing 401(k) deferrals to the DOL which would satisfy a small plan’s co-fiduciary’s 

responsibility to resolve the fiduciary breach.

*****

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July 21, 2015

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Thank you for the opportunity to comment on the proposed fiduciary definition regulations. If we can 

provide additional information, please feel free to contact me at karens@nova401k.com or (713) 881-

9310.

Sincerely,

Karen Smith

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