July 21, 2015

Submitted through the Federal eRulemaking Portal:

http://www.regulations.gov

Office of Regulations and Interpretations (Room N–5653)

Office of Exemption Determinations (Suite 400)

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, DC 20210

Attention: Conflict of Interest Rule and D–11712

RE: RIN 1210–AB32 (Conflict of Interest Rule)

ZRIN 1210–ZA25 (Proposed Best Interest Contract Exemption)

Ladies and Gentlemen:

The ERISA Industry Committee (“ERIC”) is pleased to submit this response to 

the request of the U.S. Department of Labor (“DOL”) for comments regarding its 

proposed rule and proposed prohibited transaction exemptions and related amendments

concerning conflicts of interest in retirement investment advice (collectively the 

regulation and the exemptions are referred to as the “Conflict of Interest Rule”). The 

proposed Conflict of Interest Rule was published in the Federal Register on April 20, 

2015.

Given the varied issues that our comment addresses, we have included a Table of 

Contents on the next page of this letter.

1400 L Street, N.W.

Suite 350

Washington, DC 20005

T (202) 789-1400

F (202) 789-1120

www.eric.org

The

ERISA

Industry

Committee

Annette Guarisco Fildes

President & CEO
The ERISA Industry Committee July 21, 2015

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Table of Contents

ERIC’s Interest in the Proposed Conflict of Interest Rule ............................................................3

Overview ....................................................................................................................................3

Discussion...................................................................................................................................5

1. The Investment Education Carve Out Should Not Prohibit References to Specific Plan 

Investment Options..........................................................................................................5

2. The Regulation Should Make Clear that Discussions Among Co-Workers Cannot Result 

in Fiduciary Investment Advice. ......................................................................................8

3. The Regulation Should Narrow the Definition of “Recommendation.”...........................12

4. Any Fiduciary Status of a Call Center Employee of a Third-Party Service Provider 

Should Not Cause Liability for Plan Sponsors and Should Be Limited in Scope. ...........13

5. The Regulation Should Make Clear that, as Under Current Guidance, Employers With 

“Limited” Involvement with a Health Savings Account Are Not Fiduciaries..................14

6. The Conflict of Interest Rule Should Treat Employers that are Financial Institutions the 

Same as Other Employers..............................................................................................15

7. The Regulation Should Not Be Retroactive and its Applicability Date Should Take into 

Account the Substantial Undertaking Required for Implementation. ..............................15

8. The DOL Should Make a Formal Proposal Regarding a Low-Fee Exemption so that 

Interested Parties Can Make Meaningful Comments. .....................................................16

9. ERIC Is Not in a Position to Comment on Whether the Seller’s Carve Out Should Include 

Smaller Employers or Smaller Plans. .............................................................................18
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ERIC’S INTEREST IN THE PROPOSED CONFLICT OF INTEREST RULE

ERIC is the only national trade association advocating solely for the employee benefit 

and compensation interests of the country’s largest employers. ERIC supports the ability of its 

large employer members to tailor health, retirement, and compensation benefits for millions of 

employees, retirees, and their families. ERIC’s members provide comprehensive retirement 

benefits to tens of millions of active and retired workers and their families.

ERIC believes that employees, retirees, and their families who wish to receive advice 

with respect to how to invest their retirement accounts or education to help them achieve their 

retirement savings goals should continue to have meaningful opportunities to do so. In 2010, in 

response to the DOL’s earlier proposed regulation, ERIC provided comments that supported

these objectives. ERIC appreciates that the DOL considered its prior comments and addressed, 

in the current proposal, many concerns of large employers that ERIC raised in its comments on 

the DOL’s earlier proposal. 

Specifically, ERIC appreciates the DOL’s position that non-individualized 

communications, such as in newsletters or generalized proxy statements, do not fall within the 

fiduciary definition. In addition, ERIC believes that the carve outs for “Counterparties to the 

Plan” (the “Seller’s Carve Out”), “Employees of the Plan Sponsor” (subject to the clarifications 

discussed below), “Swap and Security Based Swap Transactions,” and “Financial Reports and 

Valuations” will be helpful to large plan sponsors and appropriately address large employer and 

plan activities that do not raise the conflict of interest concerns that are at the core of the Conflict 

of Interest Rule.

ERIC recognizes that the proposed Conflict of Interest Rule will likely result in higher 

costs for service providers, which may be passed on to employer-sponsored plans (and, 

ultimately, to participants in those plans) or be offset by a reduction in the services that the 

service provider makes available to plans and participants. As a result, ERIC believes that the 

increased regulatory burdens that would be created by the Conflict of Interest Rule must be 

carefully tailored so that they do not needlessly increase costs without providing corresponding 

benefits to plan participants.

In addition, ERIC remains concerned that the Conflict of Interest Rule will create 

uncertainty among plan sponsors, plan participants, and service providers. In this comment, 

ERIC seeks to clarify the proposed regulation to make sure the final regulation does not capture, 

as fiduciary investment advice, additional activities by plan sponsors and their employees that do 

not pose a risk of creating a conflict of interest. 

OVERVIEW

1. The Investment Education Carve Out Should Permit Reference to Specific 

Investment Funds. The “Investment Education” carve out’s prohibition on identifying specific 

investment options will prevent well-intentioned employers from providing meaningful 
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investment education to their employees. The “Investment Education” carve out should be 

modified to allow plan sponsors to identify specific plan investment options in connection with 

asset allocation models, consistent with current DOL guidance. Helping employees link asset 

allocation models with specific investment funds offered under a retirement plan is critical to the 

ability of these employees, who have varying levels of investment sophistication, to apply the 

investment education and implement an appropriate investment strategy. In addition, employers 

who are using custom or other “white labelled” investment alternatives in their retirement plans

sponsors may be unable to offer even basic investment education unless the “Investment 

Education” carve out is revised. See Part 1, beginning on page 5.

2. Conversations Among Co-Workers Should Not Constitute Fiduciary 

Investment Advice. The regulation should make clear that comments from employees of a plan 

sponsor to their co-workers do not constitute fiduciary “investment advice,” where the comments 

are not within the scope of the employees’ duties for the plan sponsor and the employees are not 

providing the comments in exchange for a fee or other compensation. Considering such 

comments to be fiduciary investment advice does not further the goals set forth in the proposed 

regulation’s preamble and subjects individual employees needlessly to personal liability risk. 

The regulation can clarify this issue in at least two ways: (a) the “Employees of the Plan 

Sponsor” carve out can make clear that the employee’s normal compensation constitutes a “fee 

or other compensation” for purposes of the carve out because, in that situation, the employee’s 

normal job duties include providing the investment information, but that a plan sponsor’s 

employee’s normal compensation does not constitute a “fee or other compensation” in other 

circumstances, and (b) the definition of “Fee or other compensation, direct or indirect” can be 

clarified to provide the a plan sponsor’s employee’s regular compensation is not a “Fee or other 

compensation, direct or indirect” as long as the employee’s normal job duties do not entail 

providing investment advice under a plan. See Part 2, beginning on page 8.

3. A Mere “Suggestion” Should Not Constitute an Investment 

“Recommendation.” Because the concept of a “recommendation” is central to the Conflict of 

Interest Rule, the definition of “recommendation” must be narrowed so that it does not include 

activities that do not create a potential conflict of interest. A mere “suggestion” should not 

constitute fiduciary investment advice, absent some “endorsement” of or “encouragement” to 

engage in a particular strategy (or strategies). See Part 3, beginning on page 12.

4. A Plan Sponsor Should Not Be Liable for the Actions of a Call Center 

Employee Employed by a Third Party. If, under the final regulation, employees of a plan’s 

call center (and, potentially, the employer of those employees) can provide fiduciary investment 

advice during an interaction with a plan participant, the regulation should clarify that a plan 

sponsor does not incur fiduciary or co-fiduciary liability for any investment advice provided by 

the plan’s call center employees, as long as the plan sponsor is not the employer of the call center 

employees and takes reasonable steps to ensure that they do not provide specific investment 

recommendations. See Part 4, beginning on page 13.

5. The Regulation Should Make Clear that, as Under Existing Guidance, 

Employers with “Limited” Involvement in a Health Savings Account Are Not Fiduciaries. 

Existing DOL guidance provides that health savings accounts (“HSAs”) generally will not 
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constitute ERISA employee welfare benefit plans. To ensure consistency with this guidance, the 

final regulation should state explicitly that employers do not become investment fiduciaries or 

co-fiduciaries as to an HSA merely by virtue of having “limited” involvement with the HSA

within the meaning of the existing guidance. See Part 5, beginning on page 14.

6. Employers that Are Financial Institutions Should be Treated the Same as 

Other Employers. The Best Interest Contract Exemption should not exclude financial 

institutions that provide investment options to employees in their in-house plans. This exclusion 

may harm participants by preventing otherwise willing financial institutions from taking 

fiduciary responsibility for investment advice to their employees. See Part 6, beginning on page 

15.

7. The “Applicability Date” Should Reflect the Extensive Work Required to 

Implement the Regulation. The DOL must consider the compliance challenges imposed on 

service providers in setting the applicability date of the final regulation. Additionally, given the 

extent to which the proposed regulation differs from the current regulation, the final regulation 

should state expressly that it shall not be taken into account with respect to advice provided 

before the applicability date of the final regulation. See Part 7, beginning on page 15.

8. DOL Should Make a Formal Proposal Regarding a “Low Fee” Exemption. 

Plan sponsors need an opportunity to review a more detailed proposal before issuing formal 

comments in response to the DOL’s consideration of a prohibited transaction exemption 

covering “low-fee investments.” Preliminary, a prohibited transaction exemption covering “lowfee investments” may not be feasible in the context of a typical employer defined contribution 

plan, but a more detailed proposal on this issue is necessary before ERIC can make any 

meaningful comments. See Part 8, beginning on page 16.

9. The “Seller’s Carve Out” Is Helpful to Large Employers. ERIC appreciates 

the DOL’s inclusion of the “Seller’s Carve-Out” in the proposed regulation. ERIC agrees that 

larger plans should be able to rely on this carve out, and it is not in a position to opine on the 

precise size threshold sufficient to be included in this carve out, given that ERIC members’ plans 

already exceed the thresholds in the proposed regulation. See Part 9, beginning on page 18.

DISCUSSION

1. The Investment Education Carve Out Should Not Prohibit References to 

Specific Plan Investment Options.

Plan sponsors can play an important role in educating their employees about saving and 

investing for retirement, and, in accordance with the DOL’s long-held position, they need not be 

an investment advice fiduciary to provide employees with this investment education. However, 

unless the regulation differs from the proposal, it will meaningfully change long-standing DOL 

guidance on investment education in a manner that will harm participants.
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Specifically, the proposed regulation’s prohibition on identifying specific investment 

funds in the “Investment Education” carve out will hinder the DOL’s goal of providing effective 

and useful educational materials to plan participants. See 80 Fed. Reg. at 21945. The proposed

regulation should be modified to remove the prohibition on providing information about 

“specific investment products” and “specific investment alternative” included in Sections (b)(6) 

and (b)(6)(iv)(E) of the proposed regulation. See 80 Fed. Reg. at 21958-59. 

For the past two decades, plan sponsors have relied upon Interpretive Bulletin 96-1 (“IB 

96-1”) in developing more effective ways to engage participants in the process of investing for 

their retirement. As recognized by the DOL in the preamble to IB 96-1, prior to the issuance of 

this interpretive bulletin, many plan sponsors were deterred from providing investment education 

due to “uncertainty regarding the extent to which the provision of investment-related information 

may be considered the rendering of [fiduciary investment advice under ERISA].” IB 96-1

addressed this uncertainty by drawing a distinguishing line between education and investment 

recommendations, providing plan sponsors with assurance as to how to provide investment 

education without becoming investment advice fiduciaries.

As illustrated in the following examples, the proposed regulation, as drafted, would upset 

this balance, particularly with respect to education concerning asset allocation models. Under 

the proposed regulation, plan sponsors who are unwilling to become investment advice 

fiduciaries would be prohibited from providing meaningful investment allocation education to 

their employees. Such employees who either will not or cannot pay for an outside financial 

adviser will be effectively cut off from receiving investment allocation advice. 

• Example 1. Plans with Custom Investment Funds. XYZ Company is a large 

employer that sponsors a 401(k) plan with specific investment options that are 

customized for, and available only to, XYZ Company plan participants. By 

providing custom investment fund options, XYZ Company’s investment 

fiduciaries are able to keep expenses at 25% of the average retail cost for 

comparable investments. To reduce participant confusion, each investment fund 

is named descriptively by asset class. For example, the fund investing in largecap stocks is named the “Large Cap Stock Fund,” the fund investing in small-cap 

stocks is named the “Small-Cap Stock Fund,” the fund investing in long-term 

bonds is called “Long-Term Bond Fund,” and so on. XYZ company wishes to 

educate its employees regarding generalized asset allocations that are appropriate 

based on age and risk tolerance. 

Under the proposed regulation, it appears that XYZ Company would be precluded 

from providing asset allocation investment education within the “Investment 

Education” carve out. Any asset allocation recommendations essentially would 

identify the name of specific investment products in apparent violation of the 

“Investment Education” carve out. For example, education that a participant who 

is in her mid-30s and has a moderate risk tolerance should invest 50% in large-cap 

stock funds, 30% in small-cap stock funds, and 20% long-term bond funds would 

appear to identify the name of the specific funds in XYZ’s plan. To comply with

the “Investment Education” carve out, XYZ Company would have to rename its 
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investment options to ones that are not linked to the fund’s asset class—adding 

complexity to participant’s investment choices and resulting in potentially 

significant costs for the plan sponsor—producing a result that cannot possibly be 

the intent of the proposed regulation.

• Example 2. Plans with “White-Labeled” Investment Funds. Same facts as 

Example 1, except that XYZ Company is a smaller employer that sponsors a 

401(k) plan with retail investment options from fund companies that are 

rebranded by their asset class. For example, a proprietary fund generally 

available to employers called, “ABC Fund Institutional Index, Plus Shares,” is

rebranded, “Large Cap Stock Fund,” because this fund invests in large cap stocks

and XYZ believes that such “white-labeled” or generic names will be easier for its 

employees to understand. 

As above, because XYZ Company’s investment options have been branded 

descriptively by asset class, XYZ Company would appear to be barred from 

providing asset allocation education without taking on investment advice

fiduciary responsibility unless it renamed its fund options with less logical names. 

Doing so would result in participant confusion and unnecessary costs for the 

employer. As in Example 1, such a result cannot support the goals of the 

proposed regulation.

• Example 3. Plans with Retail Fund Names. Same facts as Example 1, except 

that XYZ Company’s plan has investment options that have retail names such as

“ABC Fund Institutional Index, Plus Shares” that do not identify the underlying 

asset class.

Unlike Examples 1 and 2, XYZ Company could provide asset allocation 

education to participants within the “Investment Education” carve out. However, 

the proposed regulation’s prohibition on identifying specific investment products 

would greatly reduce the usefulness of this education. XYZ Company could 

educate participants about the proper mix of asset classes based on age and risk 

tolerance. But without identifying which investment options correspond to which 

asset classes, participants would have to conduct their own research to implement 

the recommendations suggested by their asset allocation model. This research 

might be beyond the level of sophistication of many plan participants. 

Acceptance of investment advice fiduciary status based on the provision of asset 

allocation education in the above examples may expose plan sponsors to unacceptable litigation 

risk, as illustrated in the following example:

• Example 4. Litigation Risk. XYZ Company (from Example 1) distributes a 

brochure providing asset allocation education, based on an employee’s age and 

risk tolerance. A participant who is in her mid-30s had invested 100% of her 

account in stable value funds. After reviewing XYZ Company’s brochure, the 

participant changes her asset allocation to what seems more appropriate based on 
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her age and risk tolerance: 50% in large-cap stock funds, 30% in small-cap stock 

funds, and 20% in bond funds. The economy goes into recession, and the 

participant experiences severe losses—losses that in the short term are

substantially greater than had she remained in the stable value fund.

If XYZ Company is an investment advice fiduciary as to the asset allocation 

education (by identifying the plan’s funds and forgoing the proposed carve out), 

XYZ Company may reasonably fear lawsuits by the participant and others like her 

who may claim that the company breached its fiduciary duties by providing 

imprudent investment advice (despite having provided information reflected in 

widely accepted asset allocation models). Because such claims would be based 

on the company’s generalized and broadly disseminated investment education, 

such suits could be class actions—thereby increasing the cost of defense and 

potential liability.

As reflected in these examples, the risk of liability might cause well-intentioned plan 

sponsors to refrain from providing meaningful asset allocation education. For many plan 

participants—especially middle-class or lower-income employees—plan sponsors may be the 

only available source of their investment education. It would be a disservice to these participants 

to preclude plan sponsors from identifying plan investment options within the “Investment 

Education” carve out. As drafted, the proposed regulation would make asset allocation 

education meaningless and deprive participants who either will not or cannot retain an outside 

investment adviser from receiving important investment education. The final regulation should 

modify the “Investment Education” carve out to allow plan sponsors to identify specific 

investment options as part of asset allocation education, in the manner described above.

2. The Regulation Should Make Clear that Discussions Among Co-Workers

Cannot Result in Fiduciary Investment Advice.

ERIC appreciates that the DOL has provided a carve out for employees of the plan 

sponsor who provide advice to a plan fiduciary. However, this carve out is ambiguous and 

should be clarified.

First, the carve out, as drafted in the proposed regulation, appears to apply only to the 

“person” who provides advice to a plan fiduciary. The final regulation should modify the carve 

out so that it clearly includes employees reporting to the “person” who provides the advice to the 

fiduciary. For example, the carve out should apply not only to the plan sponsor’s chief financial 

officer if he or she provided financial information to the plan’s investment committee, but it 

should also apply to the staff of the chief financial officer if they provide information to the chief 

financial officer to provide to the plan fiduciary. This could be accomplished by including the 

underlined language in the following clause: “. . . the person, either directly or indirectly,

provides the advice to a plan fiduciary, . . . .” It is likely that the DOL intended to cover these 

individuals in the carve out, but the language should be expanded to remove any doubt as to the 

scope of the carve out.
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Second, the carve out’s requirement that the employee receive no fee or compensation 

“beyond the employee’s normal compensation” might be interpreted to mean that an employee’s 

“normal compensation” generally constitutes a “fee or other compensation, direct or indirect,” 

for purposes of determining whether an individual has provided fiduciary investment advice. 

The DOL should modify the proposed regulation so that it is clear that a plan sponsor’s 

employee’s normal compensation does not constitute a “fee or other compensation, direct or 

indirect,” for purposes of providing investment advice, unless the employee provides the 

investment advice as part of the employee’s job duties for the plan sponsor. Such is the case for 

the employee addressed in the “Employees of the Plan Sponsor” carve out in the proposed 

regulation. This employee, as part of his or her job duties for the plan sponsor, provides reports 

and recommendations to investment committees and other fiduciaries of the plan. As recognized 

in the proposed carve out, an employee who provides this advice “[i]n his or her capacity as an 

employee of [the plan sponsor]” is compensated for that advice by his or her “normal 

compensation for work performed for the employer.” See 80 Fed. Reg. at 21943, 21957.

By contrast, an employee of a plan sponsor who discusses investment issues outside of 

the employee’s job duties is not compensated for that advice by his or her normal salary from the 

plan sponsor. If this employee receives no other fees or compensation in connection with this 

advice, the “fee or other compensation” element of the proposed regulation’s fiduciary definition 

should not be met.

To avoid confusion, the final regulation should reflect the following modifications:

• The “Employees of the Plan Sponsor” carve out should make clear that the carve 

out is necessary because an employee’s “normal compensation” constitutes a “fee 

or other compensation, direct or indirect” only if the employee’s job duties (for 

which at least a portion of the employee’s normal compensation from the plan 

sponsor is paid) include providing investment advice to the plan fiduciaries; and

• The definition of “fee or other compensation, direct or indirect” should state 

expressly that, in the context of an employer-sponsored plan, a plan sponsor’s 

employee’s “normal compensation” does not constitute a “fee or compensation, 

direct or indirect” for advice, where the individual’s normal employment duties 

for the plan sponsor do not include providing investment advice under the plan.

It is not feasible to have any approach other than one that makes clear that the normal 

compensation of a plan sponsor’s employee who discusses investment issues is not sufficient to 

make that person an investment fiduciary, unless providing investment advice is part of that 

person’s employment duties. For example, the final regulation should not provide that an 

employee’s salary is sufficient to constitute “compensation” under the investment advice 

regulation if the employee works in the plan sponsor’s human resources (“HR”) department. 

Such an approach would be grossly overinclusive: the internal structure for providing HR 

services vary widely from plan sponsor to plan sponsor, and many HR employees may have no 

interaction with retirement plans, let alone have duties related to investment recommendations. 

Likewise, a rule characterizing salary of employees whose job duties include performing tasks 
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related to the retirement plan is “compensation” that can make the person an investment 

fiduciary would also miss the mark: such a rule could capture IT professionals or in-house 

attorneys who may provide services for the plan but whose job has no relation to the provision of 

financial advice.

The following examples illustrate the need for the clarifications listed above: a plan 

sponsor’s employees who engage in informal investment-related discussions with their coworkers outside of their official duties and for no compensation neither satisfy the “fee or other 

compensation, direct or indirect” element of the fiduciary definition nor pose a risk of providing 

conflicted advice: 

• Example 1: Conversations Between Co-Workers. A new hire in a factory 

becomes eligible to participate in his employer’s 401(k) plan. Having no 

significant investment experience, the new hire asks a co-worker who has worked 

at the factory for decades, and is nearing retirement age, how he should invest in 

the plan. The soon-to-be retiring co-worker recommends that the new hire invest 

in the plan’s target date funds; she tells the new hire that she has invested in target 

date or similar asset allocation funds over her entire career and is now about to 

retire with a large sum of money in her 401(k) plan account. The new hire does 

not provide his co-worker with any compensation in exchange for this 

recommendation, and the co-worker receives no direct or indirect benefits from 

the recommended investment funds.

• Example 2: Conversations with a Trusted Employee. Same facts as Example 

1, except that the co-worker is a union shop steward rather than someone who 

works side-by-side with the plan participant in a factory. This union shop steward 

is an employee of the company but also is responsible for protecting the interests 

of her co-workers in the union. 

The union shop steward should not be considered a fiduciary when providing this 

investment recommendation. While the shop steward is a trusted adviser with 

respect to issues arising under a collective bargaining agreement, the shop steward 

is not an investment adviser and her job duties do not include providing 

investment advice under the 401(k) plan. As such, the investment 

recommendation to the co-worker is provided in the shop steward’s personal, and 

not employment, capacity, and the shop steward receives no compensation from 

the co-worker or investment funds. 

• Example 3: Interactions with an HR Employee (Defined Contribution Plan). 

An employee nearing his retirement date calls his employer’s HR department to 

discuss his upcoming retirement. During the course of the conversation, the HR 

employee informs the retiring employee that he may keep his 401(k) within the 

employer’s plan or roll it over into an IRA. The retiring employee asks the HR 

employee which option would be best. The HR employee responds that, in his 

opinion, the company 401(k) plan does not provide enough fixed income 

investment options for retirees and that he should considering a rollover into an 
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IRA in order to have greater investment flexibility. The retiring employee 

follows this recommendation and rolls over into an IRA. 

The HR employee does not receive a commission, fee, or any other compensation 

from the co-worker or the IRA provider. The HR employee’s job description 

requires that he provide information about distribution options at retirement, but 

the job description does not include providing recommendations regarding the 

advisability of rollovers. The HR employee was merely giving an opinion in 

response to a question from a co-worker.

Example 4: Interactions with an HR Employee (Defined Benefit Plan). Same 

facts as Example 3, except that the retiring employee participates in a defined 

benefit plan and asks for advice about whether he should elect to receive annuity 

payments or take a lump sum distribution upon retirement. The HR employee 

responds that, in his opinion, a lump sum distribution is preferable because, if the 

retiree dies young, his family will still have substantial assets.

As above, the HR employee does not receive a commission, fee, or any other 

compensation from the co-worker and is not empowered by his employer to 

provide advice about the form of distribution in a defined benefit plan. Again, the 

HR employee was giving his opinion in response to a co-worker’s question.

In each of these examples, the “fee or other compensation, direct or indirect” element of 

the proposed regulation’s fiduciary definition is not met. The employee providing the 

investment recommendation has not received any compensation from the employer, the coworker, or any investment fund for providing the recommendation. The inquiry should end here. 

However, absent a clarification in the final regulation, the phrase “beyond the employee’s 

normal compensation” in the “Employees of the Plan Sponsor” carve out could be misconstrued 

as meaning that the salary of the employee providing the investment recommendation constitutes 

a “fee or other compensation, direct or indirect” and, therefore, that the employee has provided 

fiduciary investment advice.

If the DOL is concerned that employees might be confused as to whether they are 

receiving investment advice from their co-workers, as part of their co-workers’ official duties, it 

could suggest that language along the following lines can be included in certain participant 

communications, such as SPDs or 402(f) notices, to clarify any potential misunderstanding:

No investment advice from Company employees. Please be aware 

that no employee of Company is authorized to provide you with 

investment advice—such as advice about how you should invest 

your money within the plan or advice regarding whether you should 

take a distribution from the plan or roll over assets in the plan into an 

IRA. While certain employees of the Company may have 

specialized information about how the plan works and about 

different investment options that the plan offers, such employees still 

are not permitted to provide you with investment advice.
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Finally, imposition of fiduciary status on co-workers like those in the above examples 

would needlessly expose them to significant risk of personal liability. For example, if these 

employees were fiduciaries, recipients of their “advice” could bring suit against their co-workers 

for breach of fiduciary duty for providing allegedly imprudent advice if the investments did not 

produce expected returns. Under ERISA, fiduciaries are personally liable for breaches of 

fiduciary duty. Because, in the examples above, the employees of the plan sponsor are providing 

investment advice outside of their official job duties, they might not be covered by fiduciary 

liability insurance and therefore, could face significant personal financial exposure, including, at 

a minimum, the costs of defending the lawsuit. Moreover, in contrast to a service provider call 

center where interactions are more tightly controlled and commonly recorded, the informal 

conversations reflected in the examples above are more likely to present issues of fact that must 

be resolved at trial. Thus, there would be significant risk that the regulation, if interpreted to 

capture informal discussions between co-workers, could trigger lengthy and costly litigation 

against employees who could personally be liable for investment discussions in which they 

engaged for no compensation.

3. The Regulation Should Narrow the Definition of “Recommendation.”

The term “recommendation” is one of the most critical components of the definition of 

“Fiduciary” in the Proposed Conflict of Interest Rule. Other than in the context of an appraisal 

or fairness opinion, no person can be an investment advice fiduciary under the proposed 

regulation unless he or she makes a “recommendation” regarding some aspect of an investment. 

A term as important as the term “recommendation” in the Conflict of Interest Rule must 

be clearly defined. However, the proposed regulation has defined this term in a manner that is 

too broad and too vague. Under the proposed regulation, 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.” See 75 Fed. Reg. at 21960. The preamble to the proposed regulation explains that the 

source of this definition is FINRA’s Rule 2111 and specifically requests comments on whether 

the final regulation should adopt some or all of the FINRA standards in defining communications 

that rise to the level of a “recommendation.” See id. at 21938.

Interestingly, FINRA Rule 2111 does not define the term “recommendation.” See 

FINRA Regulatory Notice 12-25, Q&A 2. Instead, FINRA Rule 2111 offers “several guiding 

principles” that parties should consider when determining whether a particular communication 

rises to the level of a “recommendation.” See id.; FINRA Regulatory Notice 11-02 at pp. 2-3. 

FINRA summarizes these facts and circumstances as follows:

For instance, a communication’s content, context and presentation 

are important aspects of the inquiry. The determination of whether a 

“recommendation” has been made, moreover, is an objective rather 

than subjective inquiry. An important factor in this regard is 

whether—given its content, context and manner of presentation—a 

particular communication from a firm or associated person to a 
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customer reasonably would be viewed as a suggestion that the 

customer take action or refrain from taking action regarding a 

security or investment strategy. In addition, the more individually 

tailored the communication is to a particular customer or customers 

about a specific security or investment strategy, the more likely the 

communication will be viewed as a recommendation. Furthermore, 

a series of actions that may not constitute recommendations when 

viewed individually may amount to a recommendation when 

considered in the aggregate. . . . These guiding principles, together 

with numerous litigated decisions and the facts and circumstances 

of any particular case, inform the determination of whether the 

communication is a recommendation for purposes of FINRA’s 

suitability rule.

FINRA Regulatory Notice 11-02, at p. 3 (internal footnotes omitted; emphasis added). 

The proposed regulation has taken one of these principles— an issue that FINRA 

describes as only an “important factor” in determining whether a communication objectively 

constitutes a recommendation—and used it as the complete definition of “recommendation.” 

The proposed regulation leaves out critical factors in the FINRA definition, including that the 

determination of whether something is a “recommendation” is an objective, rather than a 

subjective, inquiry. 

In addition to incorporating the objective standard of the FINRA rule, the final regulation 

should further refine the definition to make it more appropriate in the context of the Conflict of 

Interest Rule. Under the proposed regulation, anything that is merely a “suggestion that the 

advice recipient engage in or refrain from taking a particular course of action” would constitute a 

“recommendation” (emphasis added). 

The term “suggestion” is not appropriate: almost any comment can be construed as a 

“suggestion.” It would be more appropriate to use a term such as “endorsement” or 

“encouragement” in the final regulation, which at least would impose some requirement that the 

person speak favorably or in support of a particular investment action. Although the FINRA rule 

uses the term “suggestion,” it does so in the context of describing factors, not in the context of a 

definition. If the Conflict of Interest Rule is going to define “recommendation,”—and it might 

be appropriate to do so given that the reach of the Conflict of Interest Rule is broader than the 

reach of FINRA Rule 2111—it must do so more precisely than to cover a mere “suggestion.”

4. Any Fiduciary Status of a Call Center Employee of a Third-Party Service 

Provider Should Not Cause Liability for Plan Sponsors and Should Be 

Limited in Scope.

The proposed regulation’s preamble notes that call center employees and “possibly their 

employers” may be treated as fiduciaries. See 80 Fed. Reg. at 21945-46. As a preliminary 

matter, the regulation should make clear under what circumstances the employer of the call 
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center employee could be an investment fiduciary. In addition, the final regulation (or its 

preamble) should clarify this issue in two respects.

First, the actions of a call center employee of a third-party service provider should not 

cause fiduciary or co-fiduciary liability for the plan sponsor. If call center employees are 

employed by a third-party service provider (and not the plan sponsor), there is no basis for 

imposing imputed liability on the plan sponsor.

Similarly, any investment fiduciary status of the call center employees or their employer 

should not be a basis for co-fiduciary liability. Assuming that the plan sponsor neither 

knowingly concealed a fiduciary breach by a call center employee nor had knowledge of such 

fiduciary breach and failed to take reasonable actions to remedy it, there would be no basis for 

imposing co-fiduciary liability on the plan sponsor under ERISA Section 405(a)(1) or (a)(3). 

Likewise, a plan sponsor that acts prudently in its oversight of a third-party service 

provider has complied with its relevant duties under ERISA, has not enabled a co-fiduciary’s 

breach, and therefore, is not subject to co-fiduciary liability under ERISA Section 405(a)(2).1

 

The DOL should make clear that one way in which the obligations set forth in Section 405(a)(2) 

can be met is when plan sponsors take reasonable steps to ensure that call center employees are 

not providing specific investment recommendations to participants. Reasonable steps could 

include entering into an agreement providing that the service provider will supervise its call 

center employees and will take reasonable steps to ensure that they do not provide specific 

investment recommendations in violation of the Conflict of Interest Rule. Clarifying the 

regulation in this regard would support compliance with the regulation and assure plan sponsors 

that they will not have liability due to the actions of individuals employed by a third party, whose 

day-to-day activities they cannot control.

Second, if a call center employee (and, possibly, his or her employer) becomes an 

investment advice fiduciary with respect to one or more individual plan participants, that 

fiduciary status should be limited to the affected participant(s) and to the particular 

“recommendation” that constituted fiduciary investment advice. Neither the call center 

employee nor his or her employer should become a fiduciary with respect to all participants or 

with respect to future interactions with the affected participant(s) simply by virtue of becoming a 

fiduciary as a result of a limited interaction with one or more participants. 

5. The Regulation Should Make Clear that, as Under Current Guidance,

Employers With “Limited” Involvement with a Health Savings Account Are 

Not Fiduciaries.

In response to the DOL’s request for comments as to whether it is appropriate to cover 

and treat HSAs in a similar manner to IRAs under the proposed regulation, ERIC seeks to clarify

that: (a) the proposed regulation does not alter existing DOL Guidance, FAB 2004-01 as 

modified by FAB 2006-2, with respect to the ability of an employer to offer and contribute to a 

health savings account (“HSA”) without the HSA becoming an ERISA welfare benefit plan, and 

 1 See generally Silverman v. Mut. Ben. Life Ins. Co., 941 F. Supp. 1327, 1336 (E.D.N.Y. 1996) aff'd, 138 F.3d 98 

(2d Cir. 1998).
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(b) nothing in the proposed regulation will make the employer an investment fiduciary or cofiduciary with respect to the HSA as long as its involvement with the HSA is “limited.” As 

recognized in the existing guidance, if an employer has “limited” involvement with an HSA, the 

HSA is not an ERISA-covered plan. Such permissible involvement can include making 

contributions to the HSA (subject to specified conditions), selecting a single HSA provider, 

allowing HSA providers to market their HSA products in the workplace, or providing employees 

with general information on the advisability of using an HSA.

To ensure consistency with this guidance and to avoid confusion, the definition of “IRA” 

should state expressly that DOL Guidance, FAB 2004-01 as modified by FAB 2006-2, remains 

in full effect and that the mere act of offering a HSA, contributing to a HSA, making 

arrangements with third parties to market HSAs to employees, or providing general educational 

information about the advisability of using an HSA is not sufficient to transform the HSA to an 

ERISA-covered plan or otherwise to render the employer an investment fiduciary or co-fiduciary 

with respect to the HSA.

6. The Conflict of Interest Rule Should Treat Employers that are Financial 

Institutions the Same as Other Employers.

The Best Interest Contract Exemption in the final regulation should not exclude financial 

institutions that provide investment advice to employees in their in-house plans. This exclusion 

may have the effect of preventing otherwise willing financial institutions from providing 

fiduciary investment advice to their employees. The DOL should remove this exclusion from 

Section I(c)(1) of the Best Interest Contract Exemption and impose the same requirements on a 

financial institution when providing advice to employees in its in-house plans as it does on the 

financial institution when providing of fiduciary investment advice to the employees of unrelated 

employers. 

In this context, it is unclear why the “special nature of the employer/employee 

relationship” should outweigh the protections afforded by the Best Interest Contract Exemption. 

Cf. Prohibited Transaction Exemption 86-128, 51 Fed. Reg. 41686 (Nov. 18, 1986) (citing 

ERISA Conference Report, H.R. Rep. No. 93-1280, 93d Cong., 2D Sess. 313, 314 (1974)) (“[I]t 

would be contrary to normal business practice for a bank ... to purchase the products of another 

company [for] its own in-house plans.”). By eliminating this exclusion, willing financial 

institutions may be more likely to offer fiduciary investment advice to their employees. And 

their employees will benefit from the Best Interest Contract Exemption to mitigate harm from 

potential conflicts. Financial institutions should be able to rely on the Best Interest Contract 

Exemption without special restrictions.

7. The Regulation Should Not Be Retroactive and its Applicability Date Should 

Take into Account the Substantial Undertaking Required for 

Implementation.

As the DOL has acknowledged, the proposed regulation would significantly change a 

rule that has been in effect for 40 years, establishing new circumstances under which service 

providers are subject to ERISA’s fiduciary responsibilities. See 80 Fed. Reg. at 21928. 
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Although ERIC understands that the DOL now believes that it is appropriate to make a change, 

plan sponsors, service providers, and other stakeholders have relied on the existing interpretation 

of the statute for over 40 years.

2

In recognition of the significance of the change, the Department has proposed a 

prospective effective date and applicability date—60 days and 8 months, respectively, after the 

final regulation is published in the Federal Register—for its new interpretation of the statute. 

See 75 Fed. Reg. at 65269. However, this timeframe might not be sufficient to ensure orderly 

compliance with the final regulation. While large employers likely will need to amend a single 

administrative services contract as a result of the new regulation, service providers may have to

enter into individual contracts with more than 20 million Americans who have IRA accounts, in 

order to comply with the Best Interest Contract Exemption. To ensure an orderly process for 

plan sponsors’ contract negotiations with service providers, the DOL should work with service 

providers to extend the applicability date in an appropriate manner.

Additionally, the proposed regulation does not expressly foreclose referring to the new 

regulation as persuasive authority with respect to advice provided before the applicability date. 

In light of the unique responsibilities that go along with being treated as a fiduciary—

responsibilities that stakeholders outside the scope of the existing regulation reasonably believed 

that they did not have—the final regulation should state expressly that the DOL’s new 

interpretation of the statute may not be taken into account with respect to advice, 

recommendations, or other information provided before the applicability date. For example, if a 

claim brought after the applicability date of the new regulation relates to advice given before the 

applicability date, the new regulation should not be taken into account for purposes of 

determining whether the advice was provided by a fiduciary.3

Notwithstanding the DOL’s concerns with the existing regulation, stakeholders who 

relied on the existing regulation in good faith should not be exposed to potential liability for 

advice provided when the existing regulation was in effect.

8. The DOL Should Make a Formal Proposal Regarding a Low-Fee Exemption

so that Interested Parties Can Make Meaningful Comments.

ERIC requests the opportunity to review a more detailed proposal before issuing formal 

comments in response to the DOL’s consideration of a prohibited transaction exemption 

 2 See, e.g., Schloegal v. Boswell, 994 F.2d 266, 272-73 (5th Cir. 1993) (applying the existing regulation to determine 

whether an individual who provided advice was a fiduciary); Glaziers & Glassworkers Union Local No. 252 Annuity 

Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 1179 (3d Cir. 1996) (referring to the existing regulation to “clarify” 

what it means to “render investment advice”).

3 See generally, e.g., Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208-09 (absent an express statutory grant of 

retroactive rulemaking authority, administrative rules should not be given retroactive effect); Health Ins. Ass’n of 

Am., Inc. v. Shalala, 23 F.3d 412, 423-25 (D.C. Cir. 1994), cert. denied 513 U.S. 1147 (1995) (like legislative rules, 

interpretive rules should not be given retroactive effect); Nat’l Mining Ass’n v. DOL, 292 F.3d 849, 859, 864-65 

(D.C. Cir. 2002) (new interpretation of existing rule should not apply with respect to transactions occurring before 

effective date).
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covering “low-fee investments.” If the DOL intends to issue this exemption, it should publish a 

separate proposal for comment on this particular topic.

As a practical matter, it is not clear that a “low-fee investment” exemption would be 

workable, particularly in the context of typical employer defined contribution plans. In contrast 

to IRAs or brokerage windows, typical employer defined contribution plans offer discrete 

investment options to plan participants. The number and type of investment options are 

constrained by a number of factors, including significant research that suggests that too many 

offerings are confusing to plan participants.

4

 In such contexts, application of “low-fee 

investments” exemption could have unintended consequences. For example, as illustrated 

below, if “low-fee investments” were defined to apply to investments within a particular asset 

class, participants may be encouraged to invest in a non-diversified manner.

• Example. Plans with a Single Investment Product that Qualifies as a “LowFee Investment.” Company XYZ sponsors a 401(k) plan for its employees. The 

plan offers a limited number investment options from ABC Fund that span 

various asset classes. A participant who is in her mid-30s had invested her plan 

assets pursuant to a generally-accepted investment allocation model, based on her 

age and risk tolerance: 50% in ABC Fund S&P 500 Mutual Fund, 30% in ABC 

Fund Small-Cap Stock Fund, and 20% in ABC Fund Bond Fund. The DOL finds 

that the ABC Fund S&P 500 Mutual Fund qualifies as a “low-fee investment”

under the exemption. No other investment option offered under the 401(k) plan

meets the definition of “low-fee investment.” The participant receives fiduciary 

investment advice in compliance with the “low-fee investment” exemption 

encouraging her to invest in the ABC Fund S&P 500 Mutual Fund. She follows 

this advice and increases her investment in the ABC Fund S&P 500 Mutual Fund

to 90% of her total assets. While the participant may have increased the 

proportion her holdings of low-fee investments, she did so at the expense of 

diversifying her investments pursuant to a generally-accepted asset allocation 

model.

If the DOL sought to address this concern by mandating that the investment product be 

“broadly diversified to minimize risk for targeted return,” as contemplated in the preamble to the 

Best Interest Contract Exemption, different complications may arise. In contrast to a mutual 

fund designed to track a market index, a “broadly diversified” investment product’s performance 

will vary based on the product’s method of diversifying and its underlying assets. To ensure that 

the contemplated exemption provide meaningful benefits to participants, any broadly diversified 

product should be analyzed to account for returns net of fees. An exemption that encourages 

participants to invest in low fee funds that generate poor returns would not be in participants’ 

best interest. However, analysis accounting for performance generates uncertainty. Poor shortterm performance may cause the product to no longer to meet the requirements to be a “low-fee 

 4 See, e.g., “Pension Design and Structure: New Lessons from Behavioral Finance,” Chapter Five: How Much 

Choice Is Too Much,” Pension Research Council, The Wharton School of the University of Pennsylvania, 

http://www.pensionresearchcouncil.org/publications/document.php?file=78.
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investment” without sufficient notice—fiduciary advice to invest in the product one day may fall 

within the exemption and the next day may not. While a safe harbor could be used to address 

this concern, more information about the DOL’s proposal is necessary to provide more detailed 

comments. 

9. ERIC Is Not in a Position to Comment on Whether the Seller’s Carve Out 

Should Include Smaller Employers or Smaller Plans.

ERISA fiduciary obligations should not be imposed on sales pitches that are part of arm’s 

length transactions between unrelated third parties and sophisticated plans. ERIC appreciates the 

DOL’s inclusion of the “Seller’s Carve-Out” in the proposed regulation to address this concern. 

ERIC requests that the final regulation adopt the material provisions of this carve out.

Generally, ERIC’s members sponsor plans that substantially exceed the 100 plan 

participant and $100 million asset requirement contemplated by the proposed rule. By any 

measure, ERIC’s members’ maintain the investment-related experience sufficient to be included 

in this carve out. Accordingly, ERIC is not in a position to respond to the DOL’s request for 

comment as to the precise size threshold needed to rely on this carve out.

____________________

ERIC appreciates the opportunity to provide comments on the proposed regulations. If 

there are any questions concerning our comments, or if we can be of further assistance, please 

contact us at (202) 789-1400.

Sincerely,

Annette Guarisco Fildes

President & CEO