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July 20, 2015

Office of Exemption Determinations

Employee Benefits Security Administration 

Attention D-11712 & D-11850) 

U.S. Department of Labor 

200 Constitution Avenue NW. Suite 400 

Washington, DC 20210

Office of Regulations and Interpretations

Employee Benefits Security Administration 

Attn: Conflict of Interest Rule

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue NW. 

Washington, DC 20210

Re: RIN 1210-AB32: Employee Benefits Security Administration’s Notice of Proposed Rulemaking 

Definition of the Term “Fiduciary;” Conflict of Interest Rule-Retirement Investment Advice;

ZRIN: 1210-ZA25; D-11712: Proposed Best Interest Contract Exemption;

ZRIN: 1210-ZA25; D-11850: Proposed Amendment to and Proposed Partial Revocation of 

Prohibited Transaction Exemption 84-24

Dear Assistant Secretary Borzi and Ms. Lloyd:

The Indexed Annuity Leadership Council (“IALC”) welcomes the opportunity to comment on the 

Department’s proposed regulation revising the definition of “fiduciary” under the Employee 

Retirement Income Security Act of 1974 (ERISA) and the related Prohibited Transaction 

Exemptions (PTEs). We appreciate the Department’s efforts to constructively engage with the 

various stakeholders in this initiative to ensure that employee benefit plan participants and 

individual retirement account (IRA) holders receive investment advice that is in their best interest 

while preserving distribution channels that make available appropriate financial products to millions 

of Americans. 

The IALC, a consortium of life insurance companies that offer fixed indexed annuities, was 

established in 2011 with a commitment to providing complete and factual information about the 

use of fixed indexed annuities as a part of a balanced financial plan. Our mission is to help educate 

consumers, the media, regulators and industry professionals about the benefits of fixed indexed 

annuities. Namely, that these products offer principal protection, provide a predictable source of 

guaranteed income in retirement, and can add balance to any long-term financial plan. 

Below are our comments regarding the proposed regulation changing the definition of “fiduciary” 

and two proposed PTEs. We offer these comments and suggested modifications to help clarify the 
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proposals and help achieve the Department’s objectives of protecting plan participants and IRA 

holders from receiving investment advice that may not be in their best interest. 

I. Background on Deferred Annuities 

There are two types of deferred annuities – fixed and variable:

Fixed annuities, including fixed indexed annuities, have been used by consumers for many years as 

part of a well-structured financial plan and as a way to provide guaranteed income for life. The shift 

by employers away from defined benefit pension plans has heightened the importance of educating 

consumers about the benefits of fixed annuities that can help ensure that they have sufficient funds 

to last throughout their retirement years with income guarantees and protection. Fixed annuities

can play an important role in achieving that objective because they offer guaranteed income and 

protection from market volatility. Of course, that does not mean that fixed annuities are the only 

product that should be included in an individual’s financial plan. Rather, they are an important 

instrument to protect principal and insure against longevity risk that should be considered as part of 

sound retirement planning. 

Fixed annuities offer protection against market loss as the insurance company assumes the market 

risk. In other words, there is no risk of loss of principal (so long as the owner does not surrender 

the contract prematurely) and any earnings credited to the policy are guaranteed and cannot be lost 

or reduced in future periods. Earnings can be credited based on a periodically declared rate, a 

multi-year guaranteed rate, or a rate established based on a formula that references a market index 

(a fixed indexed annuity). In each case the contract’s premium is not invested in a separate account 

or specific investment, but rather is supported by the general account of the insurance company. 

In the case of a fixed indexed annuity the index is only used to compute interest earnings credited 

to the policy, there is no actual investment by the policyholder or the insurance company in the 

financial instruments that comprise the particular index. A typical fixed index annuity policy allows 

the policyholder to elect to switch the chosen index or computation method from year to year, or 

alternatively to select a fixed rate for the year. The only difference among these fixed annuity 

products is the method for determining the interest earnings that are credited to the policy. 

The issuers of fixed annuities do not assess sales charges on the policyholders at the time of 

issuance of the policy or at any other time. These products are regulated as insurance under state 

insurance law, protected by state guaranty funds, and are exempt securities under section 3(a)(8) of 

the Securities Act of 1933. Finally, they are sold only by state licensed insurance agents. 

Under state insurance laws, a policyholder is offered a free look period: a period of time ranging 

from 10 to 30 days depending upon the applicable state insurance law, when the policyholder has 

the right to return the policy for a full refund. Once the policy is in effect the policyholder accrues 

interest yearly, but initially does not have access to the full account value of the policy. Specifically, 

a policyholder is charged a surrender charge, or a percent of the contract value, in the event that he 

or she decides to cash-in the policy early. Surrender charge periods and applicable surrender 

charges vary from insurer-to-insurer and vary amongst products. Surrender charges are generally 

reduced each year until they are eliminated. Most products sold today have a surrender charge 

period of ten years or less and a surrender charge of ten percent or less. Surrender charges are an 

important part of a fixed annuity contract as they protect the insurance company from losses due to 

early terminations and allow the insurance company to make longer-term investments thereby 

providing higher interest rates to policyholders.
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The surrender charges are normally waived in a number of situations – for example, to satisfy 

required minimum distribution (RMD) requirements under federal pension law or in the event of 

death. Given the substantial percentage of sales of fixed indexed annuities to IRAs, waiving 

surrender charges to allow for penalty-free withdrawals to comply with RMD requirements is an 

important consumer protection feature. In addition, most policies allow a percentage of the 

contract value to be withdrawn each year after the first year without penalty. 

Because annuities are intended to be held long-term and surrender charges could be imposed under 

the terms of the policy if terminated early it is important for the policyholder to demonstrate that 

he or she has sufficient liquid assets at the time of purchase to reduce the likelihood that the 

policyholder will need to terminate the policy prematurely. State insurance laws require the 

insurance agent selling the policy, and subsequently the insurance company issuing the policy, to 

review detailed financial and other data to determine that the policy is suitable for the consumer –

with emphasis on the consumer’s liquidity needs. 

Fixed annuity policies also offer consumers a variety of liquidity options and riders that can be 

added to the policy. Options include: (i) annual penalty-free withdrawals of up to ten percent of 

the value of the policy; (ii) the ability to annuitize and receive a stream of payments for life or a 

specified period; (iii) nursing home riders which permit increased penalty-free withdrawals if the 

policyholder enters a nursing home; and (iv) terminal illness riders which permit penalty-free 

withdrawals of some or all of the policy value if the policyholder becomes terminally ill. Lifetime 

income benefit riders are also available which guarantee a lifetime income that the policyholder 

cannot outlive. The lifetime income benefit rider is an alternative to annuitizing the policy where 

the income payments are lower in exchange for increased flexibility to access the account value. 

Lifetime income benefit riders can have additional options including enhanced death benefits that 

provide enhanced payments to the beneficiary and wellbeing riders that provide increased lifetime 

income benefits to the policyholder in the event the policyholder is unable to perform a certain 

number of activities of daily living. 

In sum, fixed annuities offer an important tool in retirement planning to protect against longevity 

risk – the risk that a person outlives his or her assets. The benefit of fixed annuities was 

recognized recently by the Department of Treasury when it adopted regulations making it easier to 

hold these products in an IRA or pension plan. These so-called Qualified Longevity Annuity 

Contract regulations eased the minimum distribution requirements to prevent IRA owners and 

pension plan participants from having to prematurely surrender their fixed annuity policies or face 

penalties. 

Today there are approximately $753.1 billion in active fixed annuity policies. Of that amount about 

$303.4 billion are in fixed indexed annuity policies. While the largest sales channel for these 

products are independent insurance agents, a significant number are also sold through career 

agents, banks, broker-dealers, and registered investment advisors (see Exhibit 1). Finally, and most 

importantly for this discussion, a majority of fixed annuities are sold to plan participants and IRA 

holders (with IRA holders being the most significant market). 

Variable annuities on the other hand are very different products. Most importantly, unlike fixed 

annuities they do not offer protections against investment risk unless optional riders are purchased. 

These products might offer the potential for higher investment returns, but only by placing the risk 

of investment loss on the policyholder. Unlike fixed annuities these products are not supported by 
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the general account of the insurance company, but rather are invested in separate accounts. The 

contract earnings depend on the investment performance of the stocks, bonds, or money market 

instruments that are chosen by the policyholder, and can experience a loss in value from year-toyear. The fees associated with these products are also very different – they include mortality and 

expense risk, and administrative and underlying fund expense charges. While state insurance 

regulators also have authority over and regulate these products since they also carry insurance 

features, they are registered securities and are subject to oversight by the Securities and Exchange 

Commission and the Financial Industry Regulatory Authority (FINRA). These products are sold 

only by those who have both a FINRA issued license and a state issued life insurance license. 

Today there are approximately $1,996.5 billion in outstanding variable annuity policies. The largest 

sales channel by far for these products is broker-dealers, with some sales through career agents and 

banks (see Exhibit 2). 

II. Proposed Fiduciary Definition

1. In General

The proposed definition of “fiduciary” is intended to increase the legal standard applied to the 

investment advice offered to plan participants and IRA holders. Among other changes, the 

proposed rule will extend its reach to include advice rendered by state licensed insurance agents 

that sell fixed annuities, including fixed indexed annuities. We understand that this legal standard 

means the insurance agent must act prudently and loyally, putting the interests of the plan 

participant or IRA holder ahead of any self-interest. We further understand that in applying this 

legal standard in the context of a licensed insurance agent who is not licensed to sell other products 

such as securities, or who may only be contractually able to offer the products of certain insurance 

companies, that the agent has the responsibility to (1) assess the consumer’s needs and (2) 

determine if the product and its features satisfies those needs (i.e., whether the instrument would be 

prudent) at the time of sale. However, we understand that the agent would not be responsible for 

recommending products which the agent is not licensed or otherwise contractually able to offer to 

the consumer. Clarifying this point in the preamble of the final regulation would be helpful 

in addressing the concern that the standard might otherwise prove impossible to satisfy. 1 

2. Examples of How an Insurance Agent Satisfies Standard

While not a fiduciary standard, the National Association of Insurance Commissioners (NAIC) has 

published the Suitability in Annuity Transactions Model Regulation (Suitability Model Regulation). 

Almost all fixed indexed annuities are sold in compliance with requirements that are substantially similar to 

the Suitability Model Regulation. These state regulations require insurers or agents to make 

“reasonable efforts” to obtain a consumer’s “suitability information,” based upon which the insurer 

and agent must have reasonable grounds to believe the transaction being recommended to the 

consumer is suitable. This suitability information includes the consumer’s: age, annual income, 

financial situation and needs; financial experience; liquidity needs; risk tolerance and other 

 

1 See discussion below under III. 5 (Impartial Conduct Standards) suggesting a modification to PTE 84-24 to clarify the 

application of the best interest standard in the case of an insurance agent with a limited range of products to offer, and 

our suggested modification to the definition of “Insurance Agent” under III 8 below to clarify that PTE 84-24 is 

available to an insurance agent regardless of his or her status as a registered investment advisor or registered 

representative of a broker-dealer. 
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information. These requirements were adopted in order to ensure that the financial needs and 

objectives of consumers are appropriately addressed.

Given that the proposed regulation envisions an insurance agent selling a fixed annuity to be held 

to a higher standard than complying with the suitability standard applicable under state insurance 

law, it would be helpful for the final regulation to include in its preamble some examples of 

the conduct that an insurance agent should demonstrate under ERISA or PTE 84-24 to 

comport with the legal standard that is being imposed. For example, while not relieving the 

agent of the responsibility to fairly represent the various product features and to make 

recommendations with respect to such features that are in the consumer’s best interest, the agent 

has likely demonstrated compliance with his or her fiduciary obligation if (1) the consumer indicates 

that he or she wants to procure a fixed annuity, or wants a financial product that protects principal 

even if it means earning potentially reduced returns than other financial product alternatives; (2) the 

fixed annuity is suitable based on the state law requirements; and (3) the insurance agent, from the 

fixed annuities the agent has available, either (a) recommends the particular policy that is at the time 

of sale in the best interest of the client from the retirement products the agent has available, or (b) 

the consumer chooses the specific policy from a menu provided by the agent. 

3. Carve-Out for Illustrations and Insurance Company Quotes

The proposed regulation includes six specific carve-outs from the definition of fiduciary. We urge 

the Department to add a seventh carve out for illustrations produced or approved by or in 

coordination with an insurance company that satisfy Section 6 of the NAIC “Annuity Disclosure 

Model Regulation” (Disclosure Model Regulation) MDL 245 or any similar or successor regulation, 

and quotes for guaranteed income features and riders provided by an insurance company to an 

insurance agent. 

The Disclosure Model Regulation is intended to “ensure that purchasers of annuity contracts 

understand certain basic features of annuity contracts.” The Disclosure Model Regulation provides 

standards for the disclosure of information about annuity contracts to protect consumers and 

foster consumer education. The Disclosure Model Regulation specifies the information that must 

be disclosed, the method for disclosing it, and the use and content of illustrations when used in 

connection with the sale of annuity contracts. The Disclosure Model Regulation governs 

illustrations that are produced or approved by or in coordination with an insurance company as a 

means of helping inform consumers of how annuity products function while also comporting with 

specific consumer protections adopted by the NAIC. 

Illustrations can be misunderstood or become misleading if they are not properly constructed. 

Illustrations that satisfy the Disclosure Model Regulation provisions are unlikely to be misleading

and are subject to state regulation, while those that do not comport with the Disclosure Model 

Regulation may fail to comport with the appropriate standards and protections the Department is 

advancing in its proposed regulation. For example, the requirements of the Disclosure Model 

Regulation further the objective of the proposed amended PTE 84-24 to avoid misleading 

statements. Therefore, illustrations that satisfy this higher standard should qualify for a carve-out. 

The production and distribution of illustrations that satisfy the Disclosure Model Regulation should 

not by itself create a fiduciary relationship between the insurance company and an ultimate 

policyholder. Of course, if an insurance agent uses the illustration when making a recommendation 
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to a consumer to purchase an annuity the carve-out does not prevent the agent from being a 

fiduciary. 

Attached as Exhibit 3 are examples of illustrations that would satisfy the Disclosure Model 

Regulation. 

Second, this carve-out should cover insurance companies that are providing a quote to an insurance 

agent with respect to a guaranteed income feature or rider for a prospective policy. Just as with an 

illustration, the activity of providing a quote to an insurance agent should not in and of itself create 

a fiduciary relationship between the insurance company and the prospective policyholder. Of 

course if the insurance agent uses the quote when making a recommendation to a customer to 

purchase an annuity the carve-out does not prevent the agent from being a fiduciary. 

We suggest making the following modifications to §2510.3-21(b):

(1) In the first sentence strike “(6)” and insert “(7)” in lieu thereof;

(2) At the end of the subsection add the following new paragraph:

“(7) Illustrations and Quotes. The person produces, furnishes or makes available -

(i) illustrations produced or approved by or in coordination with an 

insurance company that (A) is domiciled in a State that adopts rules 

governing standards for illustrations of insurance or annuity contracts, 

which shall substantially meet or exceed the minimum requirements 

established by Section 6 of the Annuity Disclosure Model Regulation (or 

any similar or successor regulation thereto) adopted by the National 

Association of Insurance Commissioners (the NAIC Model Regulation), 

or (B) adopts and implements practices on a nationwide basis for the sale 

of any insurance or annuity contract that meet or exceed the minimum 

requirements of such model regulations. An illustration is described in 

this paragraph if it states that it is intended to substantially meet or 

exceed the minimum requirements of the NAIC Model Regulation; or

(ii) quotes to an insurance agent with respect to guaranteed features

(including income and rates) of the policy or riders to the policy.” 

III. Proposed Amendment to PTE 84-24 (Certain Transactions Involving Insurance 

Agents and Brokers, Pension Consultants, Insurance Companies and Investment 

Company Principal Underwriters)

The IALC appreciates the Department retaining and modifying PTE 84-24 to provide an 

exemption from the prohibited transaction rules for insurance agents who sell fixed annuities, 

including fixed indexed annuities, to plan participants and IRA holders in order to protect the 

traditional commission form of compensation paid by insurance companies. 

Preserving commission-based compensation for fixed annuities will help preserve access to 

financial advice to families who may not otherwise pay out-of-pocket for it. The Department’s 

approach is much more constructive than the approach taken by financial regulators in the United 

Kingdom which banned commission-based compensation beginning in 2013. A number of studies 

and reports have concluded that their approach dramatically reduced access to financial advice 

services, especially to families at more moderate income levels. We applaud the Department’s 
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general approach of preserving commission-based compensation while requiring insurance agents 

to comport to a best interest standard when recommending insurance products to IRA owners and 

pension plan participants. 

We are offering several suggestions below to clarify the language of the exemption’s conditions that 

preserve the Department’s stated purpose of ensuring insurance agents adhere to certain impartial 

conduct standards while not unnecessarily or unintentionally disrupting distribution channels for 

insurance products. 

The Department has inquired in its preamble about whether it has struck the right balance in terms 

of providing exemptions for securities and non-securities products. While the IALC takes no 

position regarding the proposal’s removal of variable annuities and certain mutual fund transactions 

from PTE 84-24, we believe that the conditions of the Best Interest Contract Exemption (BICE) 

would be problematic for fixed annuities and would not offer any meaningful additional 

protections for sales of fixed annuities to IRA holders. 

First, and foremost, the distribution channels for fixed annuities are significantly different than 

those that apply to securities products, including variable annuities. The BICE approach assumes 

that there is a financial institution that oversees a host of potential financial products, one or more 

of which may be appropriate for purchase by a particular customer. The insurance company 

frequently does not offer a variety of different financial and securities products. Similarly, an 

Independent Marketing Organization (IMO) does not typically offer a host of different financial 

products that would be appropriate for the BICE framework.

Second, certain particulars of BICE do not reflect the nature or distribution process of fixed 

annuity products. For example, customers who have purchased a fixed annuity may not 

communicate annually with their insurance agents (the potential fiduciaries) due to the long-term 

nature of the fixed annuity making the annual disclosure by the fiduciary challenging if not 

unworkable. Independent insurance agents frequently offer annuities from more than one 

insurance company, potentially subjecting such agents to multiple written policies and procedures 

by insurers designed to mitigate conflicts of interest. The model website disclosure chart would 

provide no meaningful additional information to an annuity purchaser, and in fact, the requested 

data sets do not reflect the nature of fixed annuity products. Similarly, the transaction model chart 

would provide no additional information to the policyholder. Also, the BICE exemption seems to 

assume an ongoing compensation and fee structure that does not reflect current fixed annuity 

market practices. Finally, given the consumer protections already afforded under state insurance 

regulations, including regulations governing sales practices, marketing, and suitability, and the 

ultimate authority of the state insurance commissioners to protect policyholders, BICE would 

introduce a very significant layer of compliance costs with little or no tangible benefit for the 

policyholder. Given the conditions of PTE 84-24, we believe the Department is correct in 

preserving, with its suggested modifications (and the clarifications offered below), this exemption 

for fixed annuities. 

We offer the following specific suggestions to clarify the proposed modifications of PTE 84-24:

1. Clarify Covered Transactions

Section I(a) of the proposed exemption covers the receipt of Insurance Commissions in 

connection with certain annuity purchases using plan assets. However, while the preamble of 
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the PTE and other sections clearly indicate that the PTE is intended to cover transactions 

involving IRAs, the covered transactions do not appear to be defined to include IRAs. 

We urge the Department to clarify that the covered transactions include sales of 

annuities to IRAs as defined in Section VI by amending section I(a) by adding “or with 

the assets of an Individual Retirement Account” after “with plan assets” each place it 

appears. 

2. Clarify the Scope of the Exemption

Section I(b) excludes from the PTE a purchase by an IRA holder of any “annuity contract that 

is a security under federal securities laws”. Technically, all annuities are securities, however all 

fixed annuities qualify as “exempt” under section 3(a)(8) of the Securities Act of 1933. 

Therefore, we suggest that if the final PTE removes variable annuities (which IALC 

takes no position on) that the more appropriate language to use in I(b)(1) is:

“a variable annuity contract or other annuity contract that is not exempt under 

section 3(a)(8) of the Securities Act of 1933 (15 U.S.C. 77c(a)(8)), or”.

3. Reasonable Compensation

One of the proposed PTE conditions would prohibit total consideration paid to the agent that 

is in excess of “reasonable compensation” as described in “ERISA section 408(b)(2) and 

408(c)(2) and Code section 4975(d)(2) and 4975(d)(10).” While we do not object to the thrust 

of this condition, we find the definition of what constitutes “reasonable compensation” for this 

purpose to be more complex than is necessary, and without sufficient guidance for purposes of 

fixed annuities. As described below, we believe some minor changes to the proposed 

description of “reasonable compensation” would not alter what appears to be the intention of 

the provision, but would offer much better guidance to insurance agents. 

The ERISA section 408(b)(2) definition of “reasonable compensation” is generally targeted at 

service contracts with ERISA plans, and fails to provide sufficient guidance for determining 

reasonableness in the context of a fixed annuity sale. To determine the proper definition of 

“reasonable compensation” we urge the Department to focus on the current regulations under 

ERISA section 408(c)(2). The regulations under ERISA Section 408(c)(2) (§2550.408c-2(b)(5)) 

reference the tax code regulations relating to compensation for personal services (26 CFR 

1.162-7) as guidance to determine whether compensation is reasonable. Those regulations 

provide that it is in general “just to assume that reasonable and true compensation is only such 

amount as would ordinarily be paid for like services by like enterprises under like 

circumstances.” That standard is more definitive in the context of fixed annuity sales.

Adopting the tax code regulation’s notion of comparing compensation to similar products 

under similar circumstances to evaluate “reasonableness” would provide greater clarity and 

provide better guidance to assist compliance. In addition, retaining the ERISA section 408 

standards for employee benefit plans and the Code’s section 4975 standards for IRAs would be 

more appropriate and workable. 
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Specifically, we suggest that Section III(c)(2) read as follows:

 “(2) In connection with the purchase of insurance or annuity contracts (or 

securities issued by an investment company) is not in excess of “reasonable 

compensation” within the contemplation of Code section 4975(d)(2) and 4975(d)(10) 

and, for plans subject to Title I of ERISA, within the contemplation of ERISA 

section 408(b)(2) and 408(c)(2). Compensation is deemed reasonable for these 

purposes if it does not exceed amounts that are consistent with comparable 

products in comparable markets. If the total is in excess of “reasonable 

compensation,” the “amount involved” for purposes of civil penalties of ERISA 

section 502(i) and the excise tax imposed by Code section 4975(a) and (b) is the 

amount of compensation in excess of “reasonable compensation.” ”.

4. Independent Fiduciary

One condition of PTE 84-24 would require the insurance agent, broker or pension consultant 

to provide certain information in writing to an independent fiduciary and obtain a written 

acknowledgment of the receipt of the information and approval on behalf of the plan. 

However, it is not clear in the proposed rule who the independent fiduciary would be in the 

case of an IRA and whether either the written acknowledgment and/or approval is required in 

such case. 

It is our understanding that an employer or trustee for the plan can sign as an independent 

fiduciary, or in the case of an IRA, the IRA owner (or IRA beneficiary in the event that the IRA 

owner is deceased or incapacitated) is envisioned as the independent fiduciary. Our 

interpretation of the proposed language is that once the requisite information is provided in 

writing to an IRA owner (or IRA beneficiary) the condition is satisfied without the need for 

further written response from the IRA owner/beneficiary. In such a case, the entering of the 

contract would be evidence that such person approved the purchase of the fixed annuity policy. 

We believe that the intent of this provision would be made clearer with the following 

changes to Section IV(b):

(1) The first sentence of (b)(1) should be amended to read as follows:

“(1) With respect to a transaction involving the purchase with plan or IRA assets of 

an insurance or annuity contract or the receipt of an Insurance Commission 

thereon, the insurance agent or broker or pension consultant provides (i) to an 

independent fiduciary with respect to the plan, or (ii) to the beneficial owner of the 

IRA, prior to the execution of the transaction the following information in writing 

and in a form calculated to be understood by a plan fiduciary who has no special 

expertise in insurance or investment matters:”; and

(2) Paragraph (b)(2) should be amended by adding “by the plan” after “Following 

the receipt”. 
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5. Impartial Conduct Standards

Section II requires a fiduciary to act in the Best Interest of the plan participant or IRA holder 

“with respect to the assets involved in the transaction.” However, unlike the proposed BICE 

PTE there is no explicit provision in PTE 84-24 that addresses how to apply the impartial 

conduct standards in the event that the insurance agent (or other fiduciary) has a limited range 

of products or annuities to offer. The modification suggested below will also partially address 

the concerns stated under paragraph 8 below and under the discussion of BICE below, that 

PTE 84-24 be available to an insurance agent that also is a registered investment advisor or 

registered representative of a broker-dealer. 

We suggest that Section II(a) be modified by adding at the end thereof before the 

semicolon:

“with respect to the insurance or annuity contracts such fiduciary is authorized to 

offer the plan participant or IRA holder”. 

6. Disclosure of Insurance Commission

Section IV(b) requires the insurance agent to disclose to the consumer the Insurance 

Commission “expressed as a percentage of gross annual premium payments for the first year 

and for each of the succeeding renewal years” that is “paid by the insurance company” in 

connection with the purchase. Some forms of commission payments may be very difficult if 

not impossible to express as a percentage of premium payments. For example, a retirement 

benefit contribution that is paid after the agent satisfies a minimum sales target would be 

impossible to quantify as a percentage of a specific premium payment. Second, as described 

below under “Definition of Commission”, the disclosure requirement does not encompass 

payments made indirectly by entities other than an insurance company or its affiliate. 

We urge that Section IV (b)(1)(B) be modified to read as follows:

“(B) The Insurance Commission, expressed as a percentage of gross annual 

premium payments to the extent feasible, and as an absolute dollar figure otherwise, 

for the first year and for each of the succeeding renewal years, that will be paid to 

the agent, broker or consultant in connection with the purchase of the 

recommended contract, and may include a description of any conditions or 

limitations with respect to any anticipated or potential such payments; and”. 

7. Definition of Insurance Commission 

The preamble to the PTE indicates that in the Department’s view the receipt of payments from 

third parties in connection with the sale of an annuity contract involving a plan or IRA would 

be a prohibited transaction. The proposed PTE covers “the receipt, directly or indirectly, by an 

insurance agent...of an Insurance Commission from an insurance company.” Section VI(f) 

defines “Insurance Commission” as a “sales commission paid by the insurance company or an 

Affiliate to the insurance agent or broker or pension consultant....” The definition of 

“Insurance Commission” is important not only to determine the scope of the PTE, but also to 

determine the anticipated payments that must be disclosed under Section IV (b) of the PTE. 

We believe that there are three distinct problems with the proposed definition:
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(a) The definition of “Insurance Commission” conflicts with the provisions of Section I that 

indicates that the scope of the exemption is intended to cover Insurance Commissions that 

are received “directly or indirectly” by the insurance agent. Frequently, an independent 

insurance agent is paid a commission by an IMO with which the agent is contracted. The 

insurance company will pay a commission to the IMO who in turns pays a commission to 

the agent. Similar arrangements exist with respect to broker-dealers and registered 

investment advisors. While the scope of the PTE appears to accommodate these 

traditional business arrangements, the definition of “Insurance Commission” seems to 

require a direct payment from the Insurance Company or its Affiliate. In most cases 

neither an IMO nor a broker-dealer is an Affiliate of the insurance company. 

(b) The use of the term “sales commission” to define “Insurance Commission” does not

provide sufficient guidance to determine the forms of payments that are included. For 

example, some insurance companies offer various forms of retirement benefits or health 

care coverage to insurance agents based on sales. It is unclear what types of payments 

constitute “sales commissions.”

(c) The complete elimination of revenue sharing payments, administrative fees and marketing 

payments is not necessary to minimize the risk that an insurance agent might be motivated 

to recommend a specific product on the basis of an incentive payment rather than what is 

in the best interest of the customer. This risk can be addressed by preventing such 

payments when they are tied to any specific product, but by allowing them only to the 

extent that they are paid on the basis of total aggregate sales. These payments support 

activities that are important components of the distribution process. For example, the 

elimination of marketing payments to agents would be a disservice to consumers as it is the 

advertising by agents that actually brings greater awareness to consumers about the financial 

products available, the companies that provide them, and how consumers can obtain them. 

Targeted advertising by agents occurs throughout the country, in rural areas and small 

communities, not just in major markets. That advertising leads to consumers seeking out 

agents and becoming educated about the financial products available to them or retirement 

planning. 

We urge the Department to modify the definition of “Insurance Commission” (Section 

VI(f)) to read as follows:

“(f) The term “Insurance Commission” means any taxable income or retirement or 

welfare benefit received directly or indirectly by an insurance agent or broker or 

pension consultant for the service of effecting the purchase or sale of an insurance 

or annuity contract, including renewal fees, trailers, and sales incentives based on 

aggregate sales, but not revenue sharing payments, administrative fees or marketing 

payments, unless such revenue sharing payments, administrative fees or marketing 

payments are based solely on the total aggregate sales with an insurance company 

of an individual insurance agent or all insurance agents contracted with a nonaffiliated entity.” 
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8. Definition of Insurance Agent 

We understand that PTE 84-24 is intended to be available for any insurance agent that sells a 

fixed annuity to a plan or an IRA holder regardless of whether the insurance agent is also a 

registered representative of a broker-dealer or a registered investment advisor who might 

otherwise rely on BICE for the sale of investment products that are securities. While 

depending on the final language adopted in BICE this may present some practical issues (see 

our comments under BICE below), we urge that the scope of the PTE be clarified.

We suggest that Section VI(e) be amended by adding at the end thereof the following 

new sentence:

“An “insurance agent or broker” shall mean any person licensed under state 

insurance law as an insurance agent or broker regardless of whether such person is 

also a registered representative of a broker-dealer or a registered investment 

advisor.”

IV. Best Interest Contract Exemption (BICE) 

We offer the following suggested changes to the new proposed BICE PTE:

1. Timing of Contract

As described above, while a majority of fixed annuity products are sold through independent 

and career insurance agents that will be able to receive commissions by complying with the 

conditions of PTE 84-24, a sizable part of the market is sold through broker-dealers and 

registered investment advisors (collectively, securities advisors). It is highly likely that absent 

any modifications to BICE, as a compliance matter, securities advisors will require 

implementation of the BICE conditions for all consumers because securities advisors also have 

the ability to offer investment products covered by BICE. The BICE conditions, as described 

above, do not reflect the nature of a fixed annuity product, and may cause many securities 

advisors to refrain from offering fixed annuities to consumers. Such a result would not serve 

the best interests of plan participants or IRA owners. 

We believe that clarifying the timing of when BICE requires the Adviser and Financial 

Institution to enter into the contract described in the PTE can mitigate these concerns. As 

drafted the PTE states that the contract must be entered into before any recommendation of 

any purchase or sale of assets. Given the other investment products that could be 

recommended, the securities advisors may not initially know if the recommendation will only be 

for a fixed annuity that would allow for reliance on PTE 84-24. Therefore, the required 

contract will be necessary and the benefits of PTE 84-24 will be lost. If however, the contract 

envisioned under BICE was required only before any purchase or sale of an asset this would 

offer an opportunity for the Adviser to determine if a fixed annuity is in the best interest of the 

plan participant or IRA owner and allow the Adviser to rely on PTE 84-24.

We understand that other stakeholders are concerned about the timing of the contract 

requirement for other operational reasons. However, for purposes of preserving securities 
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advisors as part of the distribution channel for fixed annuities we believe that a modification of 

the timing of the contract under BICE is extremely important.

Specifically we recommend that Section II(a) be amended to read as follows:

“Prior to the execution of the purchase of an Asset by the Plan, participant or 

beneficiary account, or IRA or the sale of an Asset of the Plan, participant or 

beneficiary account, or IRA, the Adviser and Financial Institution enter into a 

written contract with the Retirement Investor that incorporates the terms 

required by Section II(b)-(e).” 

2. Definition of Financial Institution

The definition of “Financial Institution” includes a broker-dealer, a registered investment 

adviser, and an insurance company who employs the Advisor or retains such person as an 

independent contractor or agent. In the case of a recommendation to purchase a fixed annuity 

by a licensed insurance agent that is employed by a broker-dealer or registered investment 

adviser the definition would make both the insurance company and the broker-dealer or the 

insurance company and the registered investment adviser jointly subject to the provisions of

BICE. However, only the broker-dealer or registered investment adviser actually supervises the 

recommendation regarding financial products that is being made. The BICE structure does not 

lend itself to designating two entities as Financial Intuitions for the identical transaction, and 

doing so would offer no additional consumer protections.

We suggest modifying Section VIII(e) by adding at the end thereof the following:

“However, paragraph (3) shall not apply with respect to an Advisor that is an 

employee, independent contractor, agent or registered representative of an entity 

described in paragraphs (1), (2) or (4).” 

3. Fiduciary

Section II(b) requires the written contract to state that the Advisor and Financial Institution are 

fiduciaries with respect to “any” investment recommendation. When a registered representative 

of a broker-dealer or registered investment adviser is also an insurance agent it is unclear if this 

requirement is limited to the particular product that is being recommended. 

We believe it would be more precise to modify the language to read as follows:

“(b) Fiduciary. The written contract affirmatively states that the Adviser and 

Financial Institution are fiduciaries under ERISA or the Code, or both, to the 

extent of any investment recommendations to the Retirement Investor.”

V. Effective Dates

The preamble to the regulation indicates that the general rule is intended to become effective eight 

months after publication of a final rule. The regulation and the PTEs (both new and modified) will 

require numerous operational and procedural changes by insurance companies, insurance agents, 

IMOs, broker-dealers, and registered investment advisers. These changes include but are not 
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limited to creating and implementing new procedures, reviewing written materials and policies, 

retraining staff, and restructuring contracts with persons involved in the distribution channels. 

Until a final rule and final PTEs are published, it is hard to determine the extent of the effort that 

will be required. It certainly would not be unreasonable to assume that even given best efforts 

and considerable resource expenditures, that an 18 to 24 month period may be required at a 

minimum to enable impacted companies and individuals to become compliant. 

VI. Conclusion 

Again, we appreciate the tremendous effort that the Department has invested in developing the 

proposed regulation and the accompanying PTEs. We believe that with some modifications as 

discussed above the interests of employee benefit plan participants and IRA owners can be better 

protected while not impairing their opportunity to purchase fixed annuities when appropriate to 

meet their retirement needs. 

Sincerely,

Jim Poolman, Executive Director

JimPoolman@indexedannuityinsights.com
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