will not always be true and, to the extent it is, applying standards of prudence will
provide adequate protection to the investor. The “without regard” language is also
problematic as it suggests the advisor can't be paid for his or her services and is not
needed if the duty of loyalty, which requires the advisor to put the interests of the advice
recipient before his or her own interest, is part of the contractual obligation.

3. Recommendations to make the BICE's disclosures more meaningful and build on
prior disclosure guidance

At the point of sale of an asset to an IRA holder, the BICE requires a chart listing the
total costs associated with each recommended asset. The chart would require
projecting the future cost in a dollar amount for the next one-, five- and 10-year periods
and assume reasonable assumptions regarding investment performance. Beyond the
question of whether publishing projections of future earnings for specific investments
might constitute a violation of securities law, how would the Department define
reasonable assumptions? It seems likely that these assumptions could vary from
provider to provider, inserting another layer of complexity and uncertainty in the
decision-making process individuals are faced with when deciding how to manage their
retirement savings.

An annual disclosure would be required 45 days after end of the “applicable year,”
identifying each asset purchased or sold during the year, as well as the total dollar
amount of all fees paid by the account holder and the total dollar amount of any direct or
indirect fees received by the advisor. But no definition is provided regarding what
constitutes an applicable year. Does it mean the 365-day period beginning on the date
the account was opened? Does it mean a calendar year?

Most concerning is the requirement that total dollar amounts be shown for all
investments and all indirect compensation in both the point of sale and annual
disclosure. Current statement accounting and participant recordkeeping systems do not
track investment management fees at this level. Fund NAVs are reported net of any
expense ratios, and calculating this at the IRA level would impose significant and costly
burdens on the account service providers. And, to be clear, this burden would fall solely
on the account service provider, not the fund company. This is not information currently
provided by fund companies and is not required for nonretirement accounts.

Calculating these amounts will be complicated by the fact that the IRA holder may make
investment changes throughout the course of the year, necessitating the calculation of a
dollar amount for an asset that may have been held for a single day. Fund expense
ratios also vary over time, but audited expense ratios are reported on only an annual
basis. These changes are outside of the control of the service provider and further
complicate the calculation process.

14


Routine call center communications —

e Acall center representative provides information that is consistent with FINRA
Notice 13-45 to a participant eligible for a distribution. In responding to participant
questions, the representative simply discusses the relative benefits of avoiding
unnecessary tax penalties by keeping money in the plan or rolling over money
into an IRA. Under the current definition of recommendation, this conversation
may be considered a fiduciary act.

e Aparticipant calls and expresses frustration with the responsibility of making
investment decisions. The call center representative outlines various alternatives
that could simplify the process, such as investing in a target date fund or using
the managed account service that his or her plan offers. If any revenue is
generated for the company from the target date fund or the managed account
service, this conversation would be considered a fiduciary act.

We recognize that the Department has attempted to address some of these concerns
through the carve-out for education, and we support the Department's inclusion of
information relating to distributions and retirement income planning as educational in
nature. However, because any discussion with a plan participant or IRA holder related
to an investment or distribution decision may cross the line from educational to fiduciary
if it includes a recommendation, we believe it will essentially be impossible to manage
the hundreds of call center interactions to remain within the education carve-out and still
provide participants with information they need — and information they are unlikely to
get anywhere else. Even if the Department makes changes to the education carve-out
as suggested later in this letter, absent a change to the core definition, there will still be
many educational conversations that occur today that will not be able to occur in the
future unless recordkeepers make all their call center representatives fiduciaries and
comply with the BICE for each participant they serve (which, in our case, would involve
entering into 7 million individual contracts).

This will particularly harm lower-income employees who do not have the financial
resources to hire help outside the plan to assist them with decisions, and it will increase
the likelihood of leakage of retirement assets due to missing information.

As a recordkeeper, we are primarily concerned with the impact of the definition on the
customer service support we provide, but we are aware that the broad definition impacts
many other communications for which there is currently no expectation of a fiduciary
relationship. Therefore, we believe that the solution is to change the definition. We
propose the following alternative definition:


In discussions with our information technology group, a more realistic estimate of the
cost and time of implementation would be an initial implementation requirement of 5,400
hours and an annual maintenance effort of more than 500 hours. Note that this is only
IT effort and does not include the training of staff on new procedures and developing the
appropriate compliance oversight.

The time to implementation is also understated. We would note that when the
Department finalized the plan fiduciary fee disclosure rules under Section 408(b)(2) of
ERISA in July 2010, the rule initially provided for a one-year implementation period.
This was later extended to April 1, 2012 — for a total final implementation period of just
more than 20 months. Likewise, the participant fee disclosure rules under Section
404(a) of ERISA were finalized in October 2010, and the rule was effective for plan
years beginning on or after November 1, 2011 — a period of more than 12 months. This
time period was also extended to 60 days after the fiduciary disclosure effective date, or
May 31, 2012, for a total final implementation period of more than 19 months. We
suggest that a similar period of time is necessary to implement the proposed rule and
recommend a minimum of 24 months — preferably 36 months.

The cost and time to implementation could be lessened if the more onerous compliance
provisions were eliminated or modified. Time and cost to implementation could also be
reduced if the Department would structure the disclosure process in a manner that
would allow providers to leverage the systems and procedures already developed and
implemented as part of the fee disclosure program under ERISA Section 404(a). The
regulated community incurred significant expense to implement this rule. The disclosure
alternatives we've suggested above were modeled after the participant-level
disclosures.

Once again, we reiterate our commitment to providing all of customers — plan
sponsors, participants and IRA holders — with services and guidance that are solely in
their best interest. We fully share the Department's goal in this area. Our concern,
however, is that the proposed rule, if implemented as drafted, could run counter to other
policy goals that we strongly believe in, namely extending workplace savings access to
all working Americans and enabling all retirement savers to have access to affordable
financial guidance.

At Empower, we believe these goals must also be kept as high priorities when
considering any changes to current fiduciary rules. Having expressed our concerns
about ways the proposed rule might work against these goals, we would be pleased to
work with the Department to ensure that this rule can be drafted in ways that could
increase access to workplace savings and access to advice and guidance based on the
best interests of working Americans. Along with our affiliated organizations, Great West

18


We believe the proposal should clarify that the act of creating products in which a
limited number of investment options are made available is not a fiduciary act. For
example, we and other large platform providers have thousands of investment offerings
that we could make available to plan sponsors, but we narrow that universe based on a
variety of factors specific to a market or a group of plans as the number would otherwise
be overwhelming. Decisions about what investments to offer in which a given situation
is not individualized to any plan should not be considered fiduciary decisions.

This packaging of investment options is a matter of convenience and efficiency on a
given platform to meet general plan archetypes. If a plan fiduciary is uncomfortable with
the platform's offerings, platform providers believe a plan fiduciary is always free to
purchase service offerings through either a different platform offering or one of the many
other service providers and is not held captive to a single platform provider.

For the investment selection process, it would be helpful to clarify that while the plan
sponsor fiduciary must select filtering criteria, the platform provider can supply a list of
possible filters from which the fiduciary can choose. As a matter of convenience, these
filters provide assistance to many plan sponsors, particularly in the small-plan market,
that may not have access to more sophisticated modeling tools available to large plans
or that are not aware of possible filters that may be relevant to them, so supplying them
with a list helps to trigger their thinking.

We also offer sample fund lineups for consideration by plan sponsor fiduciaries or their
advisors in the pricing evaluation. We use a small set of samples for most plans within a
platform product, and they are not intended to serve as the actual final list of DIAs.
Rather, they are intended to be exampies of how various investment platform offerings
can be utilized within a plan that could meet some plan design best practices while
meeting the necessary requirements of a given platform, including costs for the
recordkeeping of the plan. They are typically the starting point for a discussion about
how to choose an investment lineup and cover plan fees and expenses. Plan sponsor
fiduciaries find such examples to be very useful. We recommend that the proposal be
amended to permit the use of these generic samples.

Likewise, the rule has been expanded to cover IRAs, and the platform carve-out should
allow providers to supply a possible list of filters to IRA investors to assist with fund
selection.

We also offer support to plan fiduciaries in terms of monitoring their investments. Using
criteria identified in the Investment Policy Statement for the plan, we track performance
and provide ratings, including a “fail” rating based on consistent criteria disclosed to the
plan sponsor. This selection and monitoring process consists of rating systems that
might otherwise be considered a recommendation. However, we recommend that, as

10


Renders the advice pursuant to a written or verbal agreement, arrangement or
understanding that the advice is individualized 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 where, based on the content, context and presentation
of the communication, there is a reasonable expectation that the advice is intended to
be impartial advice offered in the best interest of the advice recipient.

2. Recommended changes to avoid limiting access to fiduciary services

One of the more troubling aspects of the proposal is the inclusion of any
recommendation to hire anyone else offering fiduciary services as a fiduciary act. At
Empower, we offer access to a variety of fiduciary services, including a managed
account service that provides participants with fiduciary advice in selecting investments
for their account and fiduciary-level help to plan sponsors in selecting and monitoring
investment lineups for their plans or designing custom target date funds. In some cases,
the entity acting as a fiduciary is an affiliate of Empower, and, in other cases, it is an
independent third party. It should also be clarified that if a customer service
representative provides contact information to a participant for a consultant who has
been selected by a plan sponsor fiduciary, the mere passing on of that information
should not be considered a fiduciary act. In all cases, however, the person selling or
making a plan sponsor fiduciary aware of these services would not be, or want to be, a
fiduciary with respect to those services. Merely making a plan sponsor or other fiduciary
aware of services and providers available to them, whether or not of a fiduciary nature,
should not be a fiduciary act in itself. The proposal creates an impossible situation
whereby fiduciary services can’t be sold or referred unless the seller of the fiduciary
service is also the provider of the service. Applying this standard will significantly reduce
access to many fiduciary services that are available today and that foster the success of
both plans and participants.

We believe that adding this extra layer of fiduciary protection is not necessary because

the advice recipient will receive the benefit of ERISA fiduciary protection if and when he
or she elects to use the fiduciary service being recommended, and we recommend the

deletion of the proposed 2510.3(a){iv).

Carve-outs
1. Recommended changes to encourage establishment of small plans

The Department's 2010 proposal contained a seller's exception, available to plans of all
sizes, that was conditioned primarily on use of a disclaimer to ensure that the plan
fiduciary understood that the advice offered was not intended to be impartial. The 2015
proposal does not offer any carve-out for selling to plans with fewer than 100
participants or less than $100 million in assets. The proposal lumps these plans in with

7


Recommendation means a communication that, based on its content, context and
presentation, is reasonably viewed as advocacy to either take or refrain from taking a
particular action.

In addition, Section 2510.3-21(b)(6)(i) of the proposed rule provides a listing of various
plan provisions and distribution options and allows discussion of associated advantages
and disadvantages.’ It would be helpful if the Department would clarify that this is not
meant to be an all-inclusive list. For example, participants may have questions
regarding the ability to roll over balances from prior plans or inactive IRAs into their
current plan or IRA, an option that is not specifically identified in the carve-out. We
would hope that conversations regarding the advantage and disadvantages of roll-ins
would fall under the education carve-out.

Another core concern we have with the definition is the change in the functional test
from covering not only communications “individualized to” but also those “specifically
directed to” the advice recipient. The Department's stated purpose in making this
change is to prevent an advisor from denying responsibility for investment advice
specifically directed to a recipient on the basis that the advisor did not consider the
recipient's individual needs when providing the advice. The effect of this change,
however, is much broader and would cause any communication with a participant sent
via mail or email or triggered by a click on the Web to potentially be a fiduciary
communication.

It has been our mission for many years to improve participant outcomes in retirement,
and creating targeted communications is one of the core strategies in which we’ve
invested to accomplish this mission. For example, within the same plan, a participant
who is 90% invested in employer stock may receive a flier detailing the benefits of
diversification and the risks associated with individual securities, while another
participant who has reached retirement age may receive a flier detailing distribution
strategies. Similarly, participants using our website are prompted with the identification
of a Next Best Step to help them reach their retirement income goals — which may
include a suggestion to change their asset allocation. There is clearly no expectation of
a fiduciary relationship in these communications, but, under the proposal, sending these
materials would potentially create fiduciary status.

As a recordkeeper, we find this problematic with our day-to-day interaction with plans
and their fiduciaries.

Our recommendation is to amend Section 2510.3-21(a)(2)(ii) as follows:

10 Ibid, Page 21,958


Financial® and Putnam Investments, we appreciate this opportunity to share our
thoughts and comments and welcome further discussion.

Erik

Edmund F. Murphy, Ill | President
Empower Retirement

8515 E£. Orchard Road, 372, Greenwood Village, CO 80111
Email: edmund.mi mi r-retil m

19


perplexed, however, at the change prohibiting identification of individual investments in
asset allocation models or in interactive materials unless specified by the participant.
The investments identified in these situations are almost always designated investment
alternatives (DIA) that a plan fiduciary independent of the platform provider has selected
and is monitoring.

The proposal does not identify any harm that has allegedly arisen from helping
participants draw the connection between an asset allocation model with a 40% large-
cap fund allocation and the list of DIAs available in their plan that are large-cap funds.
There is nothing subjective or harmful in helping participants use the information
provided to them in an asset allocation model and pairing it with the specific
investments selected by a plan fiduciary. It seems pointless and negligent to send
participants off looking for another way to connect the dots. We recommend that the
prohibition against identifying individual funds in models or interactive materials be
removed.

We also believe the education carve-out should be expanded to clarify that any
communication with a terminating participant consistent with FINRA Notice 13-45, as
well as any response to a participant's request for a list of products and services that
includes multiple options, be included in the carve-out. We understand the Department's
concern with potential conflicts of interest, but we believe a far greater concern, if the
carve-out is not expanded, would be the inability for participants to make decisions and
act in ways that enhance their future retirement income security due to lack of
information.

Advising participants who are eligible to receive a distribution of the availability of
rollover services without providing any specific advice regarding investments should not
tise to the level of fiduciary advice and should be included in the investment education
carve-out. This should also extend to informing terminated participants of the various
rollover options and vehicles that may be available to them (e.g., mutual fund accounts,
managed account offerings, brokerage accounts, etc.) and the advantages and
disadvantages inherent in these options. Making a participant better informed and
aware of his or her choices is clearly educational.

3. Recommended changes to avoid impairing the ability of plan sponsors to fulfill
their fiduciary responsibilities

As a platform provider, we offer a variety of services designed to help plan sponsors
with selecting DIAs from a large array of options and with monitoring their choices. We
appreciate the carve-outs for platform providers and for selection and monitoring
assistance offered by platform providers, but we believe additional clarification is
needed regarding these carve-outs.


|

July 20, 2015 EM POWER

RETIREMENT

Submitted electronically: e-ORI@dol.gov
e-OED@dol.gov

Employee Benefits Security Administration

Attn: Conflict of Interest Rule and Prohibited Transaction Exemptions
Room N-5655, U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: RIN 1210-AB32 Conflict of Interest Rule
ZRIN 1210-ZA25 Proposed Prohibited Transactions Exemptions

Dear Sir or Madam:

As the second-largest retirement services provider in the U.S., with more than 7.5
million individuals in the plans we serve, and recordkeeping and administration
responsibility for over $440 billion of customer assets, Empower Retirement appreciates
the opportunity to share our comments and concerns regarding the Department of
Labor, Employee Benefits Security Administration's (the Department) recent re-proposal
of regulations governing the Definition of the Term “Fiduciary”; Conflict of Interest Rule -
Retirement Advice; and related proposed Prohibited Transaction Exemptions.

As written, we are concerned that the implementation of the rules will have unforeseen
consequences on the American retirement system. Specifically, we believe that certain
provisions will limit choices for plan sponsors, particularly small-business owners, and
will eliminate many tools that retirement plans have available to them to help ensure
retirement preparedness.

The value of advice and guidance

American workers face a major challenge in accumulating sufficient retirement savings
to supplement Social Security and reliably replace their working life income in
retirement. There are a number of tools and services that can help plan participants and
other individuals saving for retirement meet this challenge. These tools and services
include plan design elements that encourage participation and educational programs
that help participants understand the amount of retirement savings they will need to
meet their savings goal, as well as education and counseling discussing products and
spend-down methods that efficiently ensure that the income that they receive in
retirement remains stable and is adequate through their lifetime. Another key element in

1

Insurance products offered by Great-West Life & Annuity Insurance Company, Corporate Office: Greenwood Village, CO; or in New York, by Great-West Life & Annuity
Insurance Company of New York, Home Office: White Plains, NY.


° Clarify that providing helpful information for participants to act upon that would
enhance their retirement readiness is not a fiduciary activity.

¢ Validate that providing illustrations of alternate scenarios for participants to view
as a means to encourage retirement savings is not a fiduciary act. This includes
tools such as a lifetime income score or tools that compare participants with
others in their peer group

The Best interest Contract Exemption

Under the proposed rule, it appears that the sole vehicle for providing any type of
guidance that could possibly fall under the new definition of advice to individuals
considering taking a distribution of their retirement savings and rolling the distribution
over is the BICE. A number of questions have been raised about how the BICE is
structured and how this would affect current rollover practices.

1. The scope of the BICE should be expanded

The scope of the BICE is limited to the purchase, sale or holding of an asset. An asset
is further defined to only include a narrow list of investments that the Department deems
to be commonly held products. Under this very narrow scope, services do not appear
covered, including any assistance in helping a participant decide whether to take a
distribution and whether that distribution should be rolled over. The decision to purchase
assets within an IRA is only one of the decisions a participant must make during the
rollover process. The proposed rule makes clear that any recommendation to take a
distribution or roll over a distribution is fiduciary advice. The Department needs to clarify
that assisting a participant with the entire rollover process is covered by the BICE.

Similarly, it is unclear how the BICE would apply to any recommendations of managed
account services. Under the proposed rule, a recommendation of a party that will
receive compensation for the management of plan or IRA assets is fiduciary advice.
The BICE’s narrow scope does not appear to provide prohibited transaction relief for
this transaction. As discussed above, we believe that recommendation of a managed
account provider, particularly one that is acknowledging fiduciary status, should not rise
to the level of fiduciary advice. But, as it stands under the proposed rule and the BICE,
there is no mechanism available to provide this type of service if the potential for
differential compensation exists.

As noted above, neither the seller's carve-out nor the BICE includes small participant-
directed plans. The Department requested input on whether the BICE should be
expanded to cover advice to plan sponsors of participant-directed plans with fewer than
100 participants. We do not believe that the BICE is the appropriate place to address
guidance to these plans. This should be addressed through the seller's carve-out as
recommended above.

12


long as the rating criteria are objective and are approved by the plan sponsor fiduciary,
this should be covered under the selection and monitoring carve-out. This information is
available to plan sponsors at all times on the Web and is communicated to them
proactively on a quarterly basis. In our most packaged product that is designed for use
in the small-plan market, we replace funds in the product in accordance with the
process that the Department approved of in Adv. Op. 97-16A. This data provides a
repeatable process that many plan sponsors, particularly small-plan fiduciaries, find
helpful in ensuring that the funds available to participants remain sound choices over
time.

Similar to the discussion above regarding assisting plan sponsors with developing filters
in selecting a fund lineup, it should be made clear that the selection and monitoring
carve-out will allow identification of funds that have similar characteristics to assist in
identifying a process for replacement of an existing investment option. If providers such
as Empower are not able to make this information available, plan sponsors and the
plans themselves will incur additional costs with the increased need to develop and/or
expand toolsets historically maintained by platform providers.

4. Recommendations to ensure participants continue to receive appropriate
education associated with plan offerings

Most service providers make available a set of tools that assist participants in making
decisions related to their retirement account. Proposed regulation would make many of
these tools the act of a fiduciary to the plan. We recommend expanding the education
carve-out to cover many of these tools made available.

In recent years, there has been much discussion and research surrounding this topic
and its impact on the retirement investor, especially in the area of behavioral finance. In
fact, works by researchers, including Shlomo Bernartzi, Richard Thaler and others,
encourage these tools and processes as a method to obtain retirement savings

For example, during the enrollment process and in everyday interactions, it is
commonplace for Web usage and call center interaction to illustrate possible next steps
for plan participants. These steps may include discussion around the selection of
investments, additional services offered by the service provider and appropriate level of
contributions to the plan. We believe that without the ability to offer these tools, service
providers will be dramatically hampered in our ability to help plan participants meet their
optimal retirement income goals. We recommend an expansion of the education
carve-out to:

¢ Stipulate that providing calculators and modeling tools is not a fiduciary activity
and that the selection of these tools does not make the service provider a
fiduciary.

11


individual retail investors and concludes that these investors are unable to identify
conflicts or assess the quality of advice they receive. The Department further concludes
in the preamble to the proposal that disclaimers are ineffective in addressing these
tisks. Treating small-plan fiduciaries the same as individuals ignores the critical
distinction that plan fiduciaries, regardless of plan size, are held to ERISA fiduciary
standards of care, including the duty to educate themselves when making fiduciary
decisions. Individual investors are not held to this standard.

As the Department is well aware, one of the greatest challenges facing our industry is
how to provide access to a retirement plan for employees of smaller employers.

Indeed, closing the access gap and finding ways to extend workplace savings coverage
to all working Americans has been a professed goal of this Administration — and one
that Empower's leadership shares and has repeatedly spoken out on. Regrettably,
though, the proposed rule could make that goal more difficult. The fact is that small
employers generally need to be proactively educated and sold a plan — they do not
usually go looking for plan services. In the small-business market, the plan fiduciary is
typically the company owner who is experienced in both buying and selling services and
is not so naive that he or she can't tell the difference between a sales conversation and
investment or fiduciary advice. We agree with the Department that these plan fiduciaries
may be less familiar with compensation arrangements than fiduciaries to large plans,
but we believe the appropriate solution is to address this lack of familiarity with a third
tier to the counterparty or seller's exception as follows:

e Asection would be added to 2510-3-21(b)(1), creating a carve-out for the
rendering of advice to a plan fiduciary of a plan of any size.

e The carve-out would require conformance with 2510-3(b)(1)(A) and (B).

e Additional requirements for the carve-out as applied to plans with fewer than 100
participants would be a cigarette-style warning that alerts the plan fiduciary of the
potential for conflicts of interest in plan fee arrangements and the need for them
to review 408(b)(2) disclosures and otherwise fully educate themselves regarding
the fee and service arrangement being offered.

The Department specifically asked whether the proposed seller's carve-out should be
available for “advice given directly to plan participants, beneficiaries and IRA owners.”
We answer in the affirmative. As currently structured, the proposed rule does not
appear to allow even advising a participant or potential IRA customer of the existence of
rollover services without becoming a fiduciary.

2. Recommended changes to avoid unnecessarily complicating participant choices

We applaud the Department's expansion of topics considered educational and not
fiduciary, as well as its decision to bring this guidance into the regulation. We are


e The preservation of beneficial business models for the delivery of investment
advice, which enables advisors and their firms to give advice that is in the best
interest of their customers without disrupting common compensation
arrangements.”

e Drawing appropriate distinctions between the sorts of advice relationships that
should be treated as fiduciary in nature and those that should not.®

e Avoiding reliance on technical and legal documents that participants do not read
or understand.°

We also agree that regulatory guidance adopted almost 40 years ago warrants fresh
review and consideration to ensure that it meets the evolving needs of the marketplace.
But any revision to existing rules should also avoid disrupting proven guidance offerings
that have provided much-needed assistance to those saving for retirement. The
unintended consequence of a new regulation should not be to limit access to guidance.

New proposed definition

1. Recommended changes to avoid limiting access to essential guidance and
support

Empower supports the Department's stated goal of drawing appropriate distinctions
between advice relationships that should be treated as fiduciary in nature and those that
should not. We are, however, gravely concerned that the proposal will inhibit routine
communications with plan fiduciaries and plan participants that are essential for
achieving retirement income success.

The core of the new definition is the concept of making a recommendation. The
proposal borrows the definition of the term used by the Financial Industry Regulatory
Authority (FINRA) and thus includes any suggestion that a person either takes or
refrains from taking a particular course of action. FINRA's regulatory purpose and the
activities that it regulates are very different — and much narrower — than the people
and activities that would be affected by the definition under ERISA. The consequences
of unintentionally making a recommendation under ERISA would also be significantly
more damaging than the consequences under FINRA regulations.

Some examples of communications that could create fiduciary status under the
proposal include the following:

Required notices — For example, a QDIA notice may be viewed as a recommendation to
invest in the QDIA, or a 402(f) notice may be viewed as a rollover recommendation.

7 80 Fed. Reg., Page 21,929 (April 20, 2015)
8 Ibid, Page 21,934
9 Ibid


The BICE would also require the maintenance of a publicly accessible Web page listing
all direct and indirect compensation received by the advisor, financial institution and any
affiliate over the preceding 365 days (updated at least quarterly). This covers any
assets that may be acquired by a participant, plan or IRA holder. For an IRA account
service provider, this could require listing tens of thousands of funds. This raises an
important question: What use would any of this be to an individual investor? This level
of information is not required for nonretirement investment accounts and, given the
many other requirements the Department is proposing, is irrelevant to an individual's
decision-making process.

4, Alternative approaches

The various BICE provisions noted above have the net effect of making it unworkable,
particularly in the small-investor market. The increased expenses associated with trying
to comply with these new and onerous burdens will end up limiting the amount of
guidance available to small investors. As noted, not only is this level of information not
required for nonretirement investments, but it's also not required for large plan sponsors
that have fiduciary oversight responsibilities for plans with thousands of participants and
millions in assets.

We do agree that individuals should understand the fees associated with their accounts
and any potential conflicts of interest. This information should be communicated in a
manner that promotes understanding. As the Department duly noted in the preamble to
the proposed rule, individuals become confused and do not read long, technical legal
documents. When it comes to fees, the individual investor is concerned about:

e The fees he or she is paying.
e How these fees translate to a dollar amount.

We believe that the goal and intent of both the point-of-sale disclosure under Section
IIl(a)(1) and the annual disclosure under Section III(b) could be satisfied by providing
individual investors with a clear and succinct disclosure prior to any purchase of assets
and as part of their annual statement. It would include:

e Total expense ratios for the assets being purchased, sold or held at any time
during the year.

e Providing an example translating these expense ratios to a dollar amount on a
$1,000 investment held for one year.

¢ Disclosing the existence of any indirect compensation received by the advisor,
financial institution or affiliate, and also providing an example translating this into
a dollar amount on a $1,000 investment held for one year.

15


example, the act of selling a service for which fee offsetting is used would be a separate
fiduciary act.

The SunAmerica advisory opinion is often used by platform providers that may make
available one or more independent financial experts as part of the platform offering. This
reliance should be preserved by both clarifying its continued viability and making
changes to the platform provider carve-out as recommended previously.

The Department must make it clear that any existing regulation, exemption, advisory
opinion or other guidance not expressly modified by the proposal remains fully valid and
may be relied upon notwithstanding any contrary implication in the proposed regulation.

Implementation timeline and associated costs

The proposed rule and BICE contemplate an effective date of 60 days after publication
and an applicability date of eight months after publication. We believe that an eight-
month period to comply with the final rule is unworkable. The proposal impacts complex
financial institutions such as Empower in a myriad of ways. It affects how we
communicate with and support the plans and the millions of participants we serve; the
products and services we offer and how we are compensated for them; how we
distribute our products and services; how we partner with other vendors to deliver
products and services; our proprietary products; and virtually every facet of our
business. It will take a significant amount of time to understand all the implications, to
develop solutions that will enable us to continue to meet the service expectations of our
clients, and to coordinate with current partners and/or develop new ones in order to
meet those expectations. Eight months is simply too short to develop and implement
these strategies and will likely result in the discontinuation of services that plans and
participants rely on and value today.

In the BICE proposal, the Department estimates that the cost to comply with the
required disclosures, contract requirements, record maintenance and Web page
construction would require 100 hours of IT staff time and approximately eight hours of
maintenance time in subsequent years (the Department's assumed total hours of
commitment in subsequent years of 22,000 hours for 2,800 complying institutions, or
approximately 7.86 hours per institution). Our review of the effort involved suggests that
this seriously underestimates the effort required. In fact, in our estimation, more than
100 hours of IT effort would be required for a large provider to simply determine the
scope of the project, identify impacted systems and procedures, develop an initial
project plan, and test and install the required changes. It should also be noted that IT
resources are allocated far in advance, and reallocation requires shifting resources from
other projects, resulting in lost-opportunity costs.

17


In the preamble to the proposed rule, the Department attempts to quantify the cost of
“conflicted advice” and estimates that the savings to investors would result in gains of
between $40 billion and $44 billion over a 10-year period and between $88 billion and
$100 billion over a 20-year period.® This estimated savings is then compared with the
cost of compliance as justification for implementing the proposed rule. Even if the
estimated savings and implementation costs are accurate, and question can be raised
on both counts, the Department's analysis fails to take into consideration the increased
investment returns experienced by individuals with access to guidance and the
reduction in leakage, a combination that would appear to more than offset any
estimated gains. The analysis, in short, is limited to estimating costs while making no
attempt to quantify benefits received for those costs. The potential increase in leakage
for one year alone would amount to 50-75% of the total of the Department's estimated
savings over a 10-year period. Data from Empower's experience also shows, for
example, an 18% decrease in participants who cash out their distribution when given
the opportunity to speak with a call center representative.

At Empower, we are fully committed to always acting in the best interests of those we
have the privilege of serving. We firmly believe in the full disclosure of costs in a clear
and plain English manner that recipients can easily understand. We believe this can be
accomplished in a manner that minimizes administrative burdens, encourages
innovation, and allows all segments of the retirement market to receive the guidance
that meets their needs and means.

As further discussed below, we have grave concerns that the current regulatory
proposal will have the unintended consequence of limiting access for those individuals
most in need of guidance. The structure of both the rule and the Best Interest Contract
Exemption (BICE) appear to display a bias toward a fee-for-service compensation
arrangement. This will be particularly burdensome for investors with low account
balances. Most of these investors rely on broker-dealers and call centers for guidance.®
While the intent of the BICE is to allow alternative compensation structures, the
requirements make it difficult to implement and may result in a contraction of services to
this market segment.

The remainder of this comment letter will focus on the proposed rule and the BICE.
Background
We agree with many of the goals that were presented in the preamble to the proposed

tule, including:

5 80 Fed. Reg., Page 21,930 (April 20, 2015)
6 Quantria Strategies, LLC, “Access to Call Centers and Broker Dealers and Their Effects on Retirement Savings,”
April 2014


helping retirement savers succeed is access to professional advice and guidance while
saving for retirement and through their retirement years. Our experience and data show
that access to advice makes a decisive — and positive — difference in retirement
savers’ outcomes.

Every year, the Empower Institute’ works with Brightwork Partners to prepare a Lifetime
Income Score (LIS) survey that estimates the percentage of work-life income that
American households are on track to replace in retirement. The LIS survey is
comprehensive; it includes a wide range of assets, including Social Security, workplace
and personal savings, home equity, and even the value of businesses that people own.
The survey clearly shows that access to a professional advisor is a significant
contributor to a higher LIS. People who work with a paid advisor have a nearly 30
percentage-point advantage in LIS compared with those not currently receiving
professional advice.”

A recent study by Oliver Wyman’ indicates that individuals with access to professional
guidance exhibit the behaviors commonly associated with long-term investment
success. Specifically, the report found that when compared with individuals without
access to professional guidance, those with access:

«¢ Own more diversified investment portfolios.

* Stay invested in the market by holding less cash and cash equivalents.

e Take fewer premature cash distributions.

e Rebalance their portfolios with greater frequency to stay in line with their
investment objectives and risk tolerances.

The benefit of professional guidance is not only important during the accumulation
phase, but it is also important when an individual saving for retirement is given the
opportunity to take a distribution of his or her savings. In 2014, Quantria Strategies
studied the impact that access to call centers had on discouraging cash-outs and
leakage of retirement savings. The study finds that retirement savings balances were
33% higher for individuals with access to financial assistance. The study also estimates
that limiting access to financial assistance for terminating employees could increase
annual cash-outs by $20 billion to $32 billion, and the impact would be primarily felt by
individuals with low account balances.*

1 Empower Institute is the research and education arm of Empower Retirement’s parent company, Great-West
Lifeco U.S., Inc.

2 Empower Institute, Lifetime Income Score V, March 2015

3 Oliver Wyman, “The role of financial advisors in the US retirement market,” July 10, 2015

4 Quantria Strategies, LLC, “Access to Call Centers and Broker Dealers and Their Effects on Retirement Savings,”
April 2014


2. Recommendations to improve the contract requirements in the BICE

Under the BICE, prior to making any recommendations to an individual, there must be a
written contract. If an individual were to contact several different potential rollover
providers, each would need to enter into a written contract with the potential customer.
This places a burden not only on the rollover providers but also on the individual
seeking information regarding the options available to him or her. Individuals will be
confused as to why they must enter into a contract with a party prior to deciding whether
they wish to utilize the services being offered. The appropriate time and place for such
an agreement should be at the point of sale.

We urge the Department to modify the proposal to allow service providers to work with
individuals, but not require a contract until an actual business relationship exists. We
understand the Department's goal of having an enforceable agreement between the
advisor and the recipient, but it makes little sense to require such an agreement when
an advisor-advisee relationship is merely being contemplated. Disclosures of the rights
and obligations of the parties once an agreement has been reached could be provided
to potential advice recipients with some form of electronic acknowledgement of receipt.

The contract would also require adherence to certain impartial conduct standards. We
agree that any guidance given must be in the best interest of the recipient. For this very
reason, all call center personnel and all representatives who speak with individual
participants or potential IRA holders are registered representatives in accordance with
the rules and subject to oversight of FINRA. Empower'’s broker-dealer affiliate is subject
to periodic audits and examination by FINRA.

In public comments at the FINRA annual conference May 27, 2015, FINRA Chairman
and CEO Richard Ketchum expressed concern that the proposed rule and BICE would
shift enforcement responsibility for alleged misconduct away from FINRA and place that
burden on individual IRA holders. Concerns were also raised of imposing dual contract
requirements on individuals seeking investment assistance and guidance for both
retirement and nonretirement savings.

In addition to creating confusion on applicable standards between the BICE and FINRA,
the impartial conduct standards create confusion between ERISA §404 and the BICE.
We have concerns with Section !I(c)(1) of the BICE, which not only applies ERISA’s
standards of prudence and loyalty but also requires specific information about the
advice recipient to be taken into account before a recommendation can be given and
requires advice to be provided “without regard” to the financial interests of the advisor or
any affiliate. We recommend that this section of the BICE incorporates ERISA §404
rather than creating a new standard. Certainly, there will be many situations in which
gathering the identified data will be necessary to satisfy the prudence standard, but that

13


e An explanation that a fund's value and any investment performance information
are net of the fees.

The recommended disclosures are modeled after disclosures to plan participants
required under Section 404(a) of ERISA and could be accompanied by the cigarette-
style warning proposed by the Department in the preamble to the BICE."" We suggest
that the same language accompany the annual disclosure.

One caveat is that fees paid are only a single element in determining what investment
might best meet an individual's needs and be in his or her best interest. Other factors
include overall net of fee performance and the individual's unique circumstances, age,
investment timeline, risk tolerance and other assets he or she may own. Focusing solely
on fees runs the risk of giving too much weight to a single element of the investment
decision-making process.

Similarly, we have concerns regarding the Department's request for input on whether a
streamlined prohibited transaction exemption should be provided for high-quality, low-
fee investment products. Providing a streamlined exemption seems to suggest a bias
toward such products and is effectively promoting the sale and distribution of these
offerings over other options — regardless of what might be in the individual investor's
best interest. We also request that any potential prohibited transaction exemption
related to such funds be first issued as a proposal to allow opportunity for public
comment.

The need for clarity regarding reliance on prior guidance

With the exception of the various existing class exemptions that the Department has
proposed to modify, and the references to the advice exemption set out in ERISA
Section 408(b){14)/(g) and its code counterpart (e.g., in connection with so-called
tobo-advice), the Department has provided little guidance on the ability to continue
relying on existing exemptions or arrangements designed to avoid prohibited
transactions, including but not limited to the SunAmerica advisory opinion’, and fee
leveling, including the Frost’? and Aetna’ advisory opinions.

Many products and services used by plans and participants today rely on this authority
in terms of how they are structured, and we recommend that the Department clarify the
ability to continue this reliance. In order for this reliance to have any relevance, the
Department must also address the need for a broader seller's carve-out because, for

11 80 Fed. Reg. 21,794 (April 20, 2015)

12 ERISA Advisory Opinion 2001-09A (December 14, 2001)
13 ERISA Advisory Opinion 97-15A (May 22, 1997)

14 ERISA Advisory Opinion 97-16A (May 22, 1997)

16