1

July 21, 2015

Submitted Electronically

Office of Regulations and Interpretations

Employee Benefit Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Office of Exemption Determinations

Employee Benefits Security Administration

Attn: D-11712, D-11713, D-11850

U.S. Department of Labor

200 Constitution Avenue N.W., Suite 400

Washington, D.C. 20210

RE: Comments Related to the Department of Labor’s Proposed 

Regulatory Package on the Definition of the Term “Fiduciary” (RIN 

1210-AB32); Best Interest Contract Exemption (ZRIN 1210-ZA25); 

Amendment of PTE 84-24 ( ZRIN 1210-ZA25)

Dear Sir or Madam:

The Principal Financial Group®appreciates the opportunity to provide comments on the 

following United States Department of Labor’s (Department) proposals: (1) Definition of 

the Term “Fiduciary” under the Employee Retirement Security Income Act of 1974 

(“ERISA”); Conflict of Interest Rule—Retirement Investment Advice,1(2) Best Interest 

Contract Exemption (the “BIC Exemption”),2(3) Principal Transaction Exemption,3and 

 

1

 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Definition of Term “Fiduciary”; Conflict of Interest 

Rule—Retirement Investment Advice [RIN: 1210-AB32], 80 Fed. Reg. 21928 (Apr. 20, 2015) (the “ReProposing Release”), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08831.pdf. 

2 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Best Interest Contract Exemption, 

Application No. D-11712 [ZRIN: 1210-ZA25], 80 Fed. Reg. 21960 (Apr. 20, 2015), available at

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08832.pdf. 
2

(4) related amendments to four existing prohibited transaction class exemptions4

(collectively, the “Proposed Rule”).

Our comments and observations are based on many years in the retirement and 

financial services industry. We currently provide retirement services, including 

recordkeeping, investment, education and administrative services, to more than 43,000 

retirement plans and 4.2 million employee participants, including more than 29,000 

retirement plans of small businesses5and their 620,000 employee participants. In

conjunction with affiliated financial professionals, we provide investment services to 

more than 600,000 IRA customers. Additionally, our affiliated financial professionals 

provide investment, education and financial planning guidance to individual investors 

outside of their employer-sponsored plans. 

We are committed to serving the public’s retirement needs. We have over 4,100 

employees who are dedicated to supporting retirement plans and individual investors. 

We have approximately 880 employees and over 1,500 affiliated financial professionals, 

located across the country, who work directly with small plan sponsors, retirement plan 

participants, retail investors and financial professionals on a daily basis. They answer 

questions, conduct enrollment and education meetings, and provide one-on-one

financial education to clients at their worksite, at their home or over the phone. Our 

 

3 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Class Exemption for Principal 

Transactions in Certain Debt Securities between Investment Advice Fiduciaries and Employee Benefit 

Plans and IRAs, Application No. D-11713 [ZRIN: 1210-ZA25], 80 Fed. Reg. 21989 (Apr. 20, 2015), 

available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08833.pdf.

4 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendment to Prohibited Transaction 

Exemption (PTE) 75-1, Part V, Exemptions from Prohibitions Respecting Certain Classes of Transactions 

Involving Employee Benefit Plans and Broker-Dealers; Prohibitions Respecting Certain Classes of 

Transactions Involving Employee Benefits Plans and Certain Broker-Dealers, Reporting Dealers and 

Banks, Application No. D-11687 [ZRIN: 1210-ZA25] 80 Fed. Reg. 22004 (Apr. 20, 2015), available at

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08836.pdf; DEP’T OF LABOR, EMPLOYEE BENEFITS 

SECURITY ADMIN., Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction 

Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension 

Consultants, Insurance Companies and Investment Company Principal Underwriters, Application No. D11850 [ZRIN: 1210-ZA25], 80 Fed. Reg. 22010 (Apr. 20, 2015), available at

http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08837.pdf; DEP’T OF LABOR, EMPLOYEE BENEFITS 

SECURITY ADMIN., Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction 

Exemption (PTE) 86-128 for Securities Transactions Involving Employee Benefit Plans and BrokerDealers; Proposed Amendment to and Proposed Partial Revocation of PTE 75-1, Exemptions From 

Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Certain 

Broker-Dealers, Reporting Dealers and Banks, Application No. D-11327 [ZRIN: 1210-ZA25], 80 Fed. Reg. 

22021 (Apr. 20, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08838.pdf; 

and DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Proposed Amendments to Class Exemptions 

75-1, 77-4, 80-83 and 83-1, Application No. D-11820 [ZRIN: 1210-ZA25], 80 Fed. Reg. 22035 (Apr. 20, 

2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-04-20/pdf/2015-08839.pdf.

5 Retirement plans of small business defined as those with fewer than 100 participants.
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combined customer service centers receive more than 7,000 requests daily – and more 

than 1.95 million requests each year from individuals seeking information and 

assistance. These numbers don’t begin to address the calls and meetings that over

100,000 unaffiliated financial professionals and their staff are having with our mutual 

clients on a daily basis.

The Principal Financial Group shares the same overall objective as the Department – to 

help American savers better position themselves to meet their retirement income needs. 

However, we do not believe that the Proposed Rule fully achieves this shared objective. 

We are deeply concerned that, if left unchanged, the Proposed Rule will result in a 

dramatic reduction in essential financial assistance and education for the very groups 

the Department is seeking to protect: low- and moderate-income individuals and small 

employers. 

Unfortunately, the Proposed Rule imposes substantial burdens on providing education 

and advice to individuals, decreasing the likelihood they will participate in plans, 

increase savings, or stay in the system. It also increases the burden on small 

businesses, decreasing the likelihood that they will choose to adopt retirement savings 

plans or that those small businesses that currently offer employees a retirement savings 

plan will continue their plan.6The Proposed Rule also completely and inexplicably 

excludes most small employer plans from any workable exemptive relief. The end 

result of this reduction of essential support for American savers will be lack of savings 

and ultimately loss of the ability to retire securely.

Additionally, while we support a best interest standard, we do not agree that the 

Department is the proper entity to unilaterally enact this change. We believe that this 

activity must be harmonized with that of other federal agencies and self-regulatory 

organizations, and that any rule must preserve access to crucial financial education and 

assistance for small employers and individual savers. Any new best interest standard 

must allow individual savers and plan fiduciaries the ability to work with the financial 

professional of their choosing and to negotiate the method of payment for financial 

services and products. 

We are also convinced that the assumptions underlying the conclusions regarding the 

likely economic impacts of the Proposed Rule are unrealistic in terms of the resources

required to fully implement the Proposed Rule and the negative effects on plans and 

participants.

In reviewing the Department’s Proposed Rule in light of the shared objective of assisting 

American savers to better position themselves to meet retirement income needs, we 

believe that the Proposed Rule falls short of meeting the shared objective. Because the 

 

6 GREENWALD & ASSOCIATES, The Impact of the Upcoming Re-Proposed Department of Labor Fiduciary 

Regulation on Small Business Retirement Plan Coverage and Benefits, 2014
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Proposed Rule would adversely affect the retirement savings of millions of Americans 

by reducing or eliminating access to financial education as well as advice, we believe 

the result of the Proposed Rule will be: (1) reduced contributions to retirement savings,7

(2) inappropriate investment allocations,8(3) a decline in the number of small business 

sponsoring retirement plans,9and (4) increased pre-retirement cashouts of retirement 

savings.10 We stand with the opinions expressed in the vast number of comment letters 

that echo these concerns. For purposes of this letter, however, we will focus our 

comments on the following specific concerns we have about the Proposed Rule:

(1) By expanding the definition of fiduciary and narrowing the definition of 

education, the Proposed Rule effectively eliminates the meaningful access 

that small plan fiduciaries, plan participants, and individual investors currently 

have to educational information about investments and options that are 

available to them. 

(2) The proposed BIC Exemption has significant practical problems and 

shortcomings, is unnecessarily expensive and creates unwarranted 

uncertainty and legal risk.

(3) The Department’s Regulatory Impact Analysis and the Office of Management 

and Budget review process have significant shortcomings in that they used 

inaccurate and unreasonable assumptions that drastically underestimate the 

time and cost of implementing the Proposed Rule and the BIC Exemption, the 

 

7 NATIXIS, Saving is Not Enough: Liabilities, Shortfalls and the Need for Active Participation in 401(k) 

Plans, 2014. (Survey of 899 participants (finding that half with a Financial Advisor, half without a Financial 

Advisor) found that individuals with a financial advisor contributed an average of 1-2% more of their pretax salary to their 401(k) across age and financial segments.).

8 OLIVER WYMAN, The Role of Financial Advisors in the US Retirement Market, 2015. (Advised investors 

have more diversified portfolios -- own twice as many asset classes, have more balanced portfolio asset 

allocations and use more packaged products for equity exposure compared with non-advised investors; 

advised individuals, segmented by age and income, have a minimum of 25% more assets than nonadvised individuals; in the case of individuals aged 65 and older with $100,000 or less in annual income, 

advised individuals have an average of 113% more assets than non-advised investors.).

9 GREENWALD & ASSOCIATES, The Impact of the Upcoming Re-Proposed Department of Labor Fiduciary 

Regulation on Small Business Retirement Plan Coverage and Benefits, 2014. (Finding that if the 

regulatory change to fiduciary standard goes into effect, 30 percent of small businesses with a retirement 

plan are at least somewhat likely to drop their plan and approximately 50 percent say that it is at least 

somewhat likely to result in lower matching contributions, fewer investment options and higher fees for 

participating employees; close to 50 percent of small businesses without a plan state the regulation would 

reduce the likelihood of them offering a plan, with 36 percent saying it would reduce the likelihood 

greatly.).

10 QUANTRIA STRATEGIES LLC, Retirement Plan Distribution Study, 2014. (Observing that DOL’s new 

regulation could increase total retirement account cash-outs at Quantria Strategies, LLC.).
5

negative effect on plans and participants, and the negative consequences of 

the application of the Proposed Rule to welfare plans. 

1) Limitations on the Ability to Provide Meaningful and Beneficial Financial 

Assistance to Consumers and Other Unintended Consequences

By expanding the definition of who is a fiduciary and narrowing the definition of 

education, the Proposed Rule effectively eliminates the meaningful access that small 

plan fiduciaries, plan participants, and individual investors currently have to educational 

information about investments and options that are available to them. 

It is important to note at the outset that we agree with the Department that retirementrelated educational materials and programs are vitally important. For nearly two 

decades the principles of Interpretive Bulletin 96-1 have served to afford participants 

access to meaningful investment-related educational materials and programs. These 

principles are essential in helping to ensure that educational materials remain available 

to participants. 

In the Proposed Rule, the Department takes the position that any reference to 

investments or options in conjunction with asset allocation models or other materials 

constitutes “advice.” This is a significant change to well-established and long relied 

upon guidelines that have provided valuable information to millions of plan participants.

According to the Department, the change appears to be based on speculation that 

some participants may believe such references constitute advice despite 

representations to the contrary or that some participants may not understand that there 

may be other investment options despite explanations that other investments might be 

available to them. With the proposed change, the Department has effectively shifted 

the obligation to populate asset allocation models to the plan participant, who for a wide 

variety of reasons is unlikely to do so, thereby significantly undermining what has been 

a valuable tool for millions of plan participants. 

In addition, there are numerous points in time when employees who are eligible to 

participate in employer-sponsored retirement plans have key decision points about 

retirement savings. Limiting education and information will have a negative effect on 

these decisions. For example, for many employees, their first experience with a 

retirement plan may include access to a financial professional or relationship manager 

via an enrollment meeting or the ability to call in to a customer service center for 

information or education needed to make decisions around enrollment. Furthermore, as 

savers change jobs, they have to decide what to do with their retirement accounts: 

leave the money they have accumulated in the former employer’s plan, roll it to a new 

plan under their new employer, roll it into an IRA, or take a taxable distribution.

Understanding the tax implications and long-term impacts of each choice can make a 

difference in whether they are able to retire comfortably. Today, too many employees 

simply cash out because they don’t understand the long-term implications and end up 
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spending their retirement savings. Education provided by a customer service center or 

a financial professional can assist these employees in making informed decisions.

As employees get closer to retirement, they have to figure out how to make their 

accumulated assets last throughout their retirement years. Again, they must make 

some very important decisions: when to take Social Security, what to do with the 

savings accumulated in their retirement account, where to invest their savings if moving 

to an IRA, etc. This is a crucial time to talk through the many options available to them.

These key times in the life of an employee all involve decisions that affect financial 

security in retirement. If employees can’t turn to a financial professional or their 

retirement plan provider, they will likely reach out to their human resources contact, 

other co-workers, friends or relatives who may not actually be able to provide proper 

education to help navigate these decisions.

Participants and IRA owners need more, not less, education on investment options and 

other distributions options, as well as their effects. The education carve-out that requires 

that educational materials avoid specificity regarding the investment or distribution 

options available under a plan or IRA should be amended to preserve investor 

education activities that are critical to managing longevity risk and stemming retirement 

plan leakage. In addition, while the Department makes attempts to cover common 

distribution-related information “including information relating to annuitization and other

forms of lifetime income payment”, the text of the carve-out falls short of achieving its 

stated goal. 

The Importance of Face-to-Face Education - Enrollment and Deferral Interactions

Published behavioral finance research concludes that inertia is the principal culprit 

behind the lack of retirement preparedness of many American workers. The tendency 

of American workers to avoid taking action on their own to begin substantive financial 

planning and saving, and the inclination to place greater value on present rewards 

versus future rewards are the key challenges that must be overcome to get individuals 

saving and on track to meet their retirement income goals.11 

 

11 See, SHLOMO BENARTIZ, Save More Tomorrow, Practical Behavioral Finance Solutions to Improve 

401(k) Plans, Portfolio (2012); BRIDGITTE C. MADRIAN. & DENNIS F. SHEA, The Power of Suggestion: Inertia 

in 401(k) Participation and Savings Behavior, NBER Working Paper No. 7682 (2000) available at 

http://www.nber.org/papers/w7682; JOHN BESHEARS, JAMES J. CHOI, DAVID LAIBSON, BRIGITTE C. MADRAIN,

& KATHERINE L. MILKMAN, The Effect of Providing Peer Information on Retirement Savings Decisions, 

Available at http://scholar.harvard.edu/files/laibson/files/peerinfo_jof_012015.pdf; PENELOPE WANG, 

How a bowl of cashews changed the way you save for retirement, available at 

http://time.com/money/3853922/richard-thaler-behavioral-economics-cashews/; RICHARD H. THALER AND 

CASS R. SUNSTEIN, Nudge: Improving Decisions About Health, Wealth, and Happiness, Penguin Books 

(2009).
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The role of financial education in countering this drag on retirement savings is vitally

important to plan sponsors, plan participants and individual investors. Every day, our 

financial professionals and participant-facing employees are tackling this challenge by

interacting directly with individual investors and employees of our plan sponsor clients’ 

retirement plans. Nowhere is the importance of financial education more evident than in 

the work performed by our counselors who meet one-on-one with individuals at the 

worksite or over the phone, providing retirement planning assistance, building

awareness, an understanding of the need to act, and, ultimately building the confidence 

that helps individuals to take action. 

In our experience, retirement plans that utilize one-on-one education, where participants 

meet individually with a benefits counselor, have average salary deferrals that are 14% 

higher and average participation rates that are 15% higher than plans without the 

service.12 As important, 91% of participants who have participated in a meeting plan to 

take action to better prepare for retirement as a result.13 The incidence of participants 

electing to automatically increase their salary deferrals in future years was 77% higher 

for those who participated in such a meeting than for those who did not.

These are powerful results that are direct evidence that financial education now 

targeted by the Proposed Rule can make a real difference in the lives of American 

workers. Unfortunately, the Proposed Rule threatens these and other similar education 

efforts. Every client interaction we have is focused on building a participant’s 

confidence in understanding the options that are available to them. In virtually every 

discussion, clients are keenly anxious and often intimidated or confused by investment 

choices. The Proposed Rule’s expansion of who could become a fiduciary by providing 

investment advice and the corresponding narrowing of investment education will prohibit 

education professionals from fully and openly discussing specific investments that have 

been preselected by the plan fiduciary. In addition, the Rule will make these

interactions less helpful and damage the relationship with participants, placing hurdles 

that make it less likely participants will engage in these discussions and threatening the 

efficacy of these programs and the great results they deliver. 

Furthermore, relationship building with participants takes time, and a level of trust has to 

be built before the improved results described above can be achieved. The need for 

education professionals to enter into a contractual relationship with each and every 

participant prior to this process, as required by the BIC Exemption, and as described 

more fully below, severely undermines these efforts.

 

12 THE PRINCIPAL®

, Individual Investor Reporting, December 31, 2014.

13 THE PRINCIPAL®

, Retire Secure Employer Participant Satisfaction Survey,( one-on-one survey), 

December 31, 2014.
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Distributable Event Interactions

Equally as important as improving participation and adequate savings levels is the 

preservation of retirement assets when participants experience a distributable event. 

Today, service provider customer service center personnel and financial professionals 

are vital resources to help ensure participants do not hastily, and without proper 

education, make the decision to cash out their retirement savings, take a tax penalty,

and spend the proceeds on goods and services before retirement. 

Of the nearly 2 million calls we receive each year, more than 40% of these calls start 

with the participant requesting an account withdrawal, including distributions related to a 

distributable event. Under current regulations addressing distributable events, our 

counselors are able to describe all of the options available to the participant (i.e., cash 

out, maintain their account under their former employer’s plan, rollover their account to 

their new employer (if they have a plan and the plan allows it), or rollover to an IRA), 

highlight the pros and cons of each option, and discuss specifics about rollover products 

and their current defined contribution plan account. 

In these interactions, our counselors and financial professionals already follow 

guidelines such as those set forth by the Financial Industry Regulatory Authority 

(FINRA) Regulatory Notice 13-45, providing participants with an easy-to-understand 

educational handout summarizing the four main options available at distributable event 

and the pros and cons of each, discussing the importance of understanding and 

obtaining information on the fees of their current 401(k) account and noting that IRA 

fees may be higher, and providing further information on products available to them.

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By assigning fiduciary status to these interactions, the Proposed Rule will dramatically 

curtail these conversations, limiting them to general, ministerial discussions of the 

options available in order to ensure our customer service center employees do not 

cross the fiduciary line, and thus potentially engage in a prohibited transaction. When 

participants’ inevitably ask more detailed questions about their options these questions 

will potentially go unaddressed and incidences of cash outs will almost certainly 

increase dramatically. One study estimates that the prohibitions of the BIC Exemption 

will increase the incidence of cash-outs of retirement savings from participants 

terminating employment by $20 billion to $32 billion annually.15 

 

14 FINRA Regulatory Notice 13-45, Rollovers to Individual Retirement Accounts: FINRA Reminds Firms of 

Their Responsibilities Concerning IRA Rollovers (2013).

15 QUANTRIA STRATEGIES, LLC, Access to Call Centers and Broker Dealers and Their Effects on 

Retirement Savings, April 2014.
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Importance of Services to Plans - 403(b) Plan Modernization

Another example of the type of necessary services that might be negatively affected is

the services and information provided as part of 403(b) modernization. Over the past 

several years, it has become commonplace for sponsors of 403(b) plans to go through a 

modernization process. Often this has involved plan fiduciaries replacing individual 

variable annuity contracts with a more efficient group arrangement, and consolidating a 

multitude of plans. This is an appropriate and a usual outcome of a fiduciary due 

diligence review under an ERISA 403(b) plan. Unlike a 401(k) plan, where plan 

fiduciaries can simply direct the replacement of one investment option with another, 

403(b) plans often present a greater challenge. Due to the nature of individual annuity 

contracts, participants are required to direct an exchange to another vehicle – a 

fiduciary cannot simply direct that the assets be transferred. Under 403(b) regulations, 

these are handled as either plan to plan transfers (if there are multiple 403(b) plans 

involved) or are considered contract exchanges within the same 403(b) plan. 

These are generally not simple transactions for plan participants, where they would 

simply fill out paperwork for a contract exchange or plan-to-plan transfer. They usually 

require a great deal of assistance and education to understand their current annuity as 

well as the new investment option that the plan fiduciary has already determined is 

more prudent. In fact, plan fiduciaries often make determinations that the prior annuity 

products might no longer be prudent and discontinue all future contributions to these 

prior individual annuity contracts. 

The employer’s human resource personnel usually do not have the expertise to help 

participants with the specifics of an investment product and look to their financial 

professional and/or the educational personnel of their service provider for assistance. 

Under current rules, educational personnel can speak with clarity and depth about the 

old and new investments and encourage employees to sign the paperwork to transfer 

into the investment options that the fiduciary has determined are most appropriate. 

Under the Proposed Rule, the investment education carve-out no longer allows for the 

level of detailed discussion on specific investments necessary to inform and educate 

participants regarding the value of the asset transfer. If education personnel cannot 

speak with clarity and depth about the investment options, many participants will simply 

never get to the level of understanding on how to complete the appropriate paperwork. 

Therefore, the ability to carry out the fiduciary process, and get the assets moved 

consistent with the fiduciary due diligence fails. 

We hope that it was not the intent of the Department to include this type of education as 

fiduciary advice. If it is intended to be included then the BIC Exemption (or another 

exemption) needs to be altered or expanded. It is simply impractical and problematic to 

attempt to get contracts signed by each and every participant in advance of any 

discussion because:
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(1) The plan fiduciary has already hired and contracted the educational personnel 

to carry out its wishes. Such attempted BIC Exemption contracting would be 

redundant and would unreasonably complicate the relationship building

necessary with participants, and 

(2) The educational personnel cannot reasonably be expected to be responsible 

to the standard of a fiduciary for investment decisions that have already been

made by a plan fiduciary.

The Department should amend their guidance to clarify this issue. 

Importance of Services to Plans-Small Businesses and Individuals

The Department’s Proposed Rule effectively treats all selling and marketing activities as 

fiduciary investment advice when that activity is directed to small plans and IRA 

accounts, without regard to any understanding or agreement of the parties to the 

contrary. 

We are concerned with the apparent arbitrariness of the Proposed Rule’s framework, as 

well the supposition that size is a substitute for understanding this particular 

responsibility under ERISA, even if the same fiduciary is otherwise held accountable for 

understanding of and compliance with the reporting, disclosure, fiduciary, and prohibited 

transaction rules. Similarly, we are concerned with the lack of support for the 

assumption made in the Proposed Rule that IRA owners generally are not sufficiently 

sophisticated to distinguish advice from sales and marketing. The approach pursued by 

the Department in the Proposed Rule effectively eliminates, for plan sponsors, 

participants, and IRA owners, the ability to acknowledge and define the parameters of 

their engagements with third parties. 

The fact of the matter is that small businesses span a wide range in their level of 

sophistication and understanding. There is no simple way to generalize. The level of 

financial sophistication of a business owner has nothing to do with the number of 

participants in the plan. Most small business owners are faced with market realities and 

decisions every day, and for those that decidedly understand their options, cutting off 

the ability for them to “buy” exactly what they want in an understood sales transaction 

undermines access to buyer preference and what they believe is prudent from a 

fiduciary perspective. 

Additionally, we are concerned that the Proposed Rule will unnecessarily complicate 

interactions with all plans, as well as increase operational and compliance costs for 

providers and their customers. Further, the inability to conduct traditional sales and 

marketing efforts to small plans will significantly impede, if not preclude, efforts to close 

the retirement coverage gap, which is particularly acute among small employers. As the 

Department is aware, millions of working Americans do not currently have retirement 

savings opportunities through their workplace. The Proposed Rule will significantly 
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increase costs and risks attendant to reaching out to the small employer community 

and, in our opinion, further exacerbate private-sector efforts to bring retirement savings 

opportunities to all working Americans. For many of the same reasons, the 

Department’s limits on sales and marketing to new and existing IRA owners will, in our 

view, increase the risk of leakage, thereby reducing retirement savings. An inability to 

reach out to potential and existing IRA owners in an efficient and cost effective way will 

leave far too many individuals and retirees on their own to gather information and 

materials about their options, while being subject to potentially competing demands 

from family and others to use accumulated savings for non-retirement purposes. 

Marketing and sales activities serve to educate consumers about their choices and 

ensure competitive pricing of products and services.

Inhibiting the process of obtaining a competitive quote for services to a retirement plan 

(often called a request for a proposal or RFP) is another item of concern. Plans and 

their financial professionals that are attempting to identify potential service providers for 

their retirement plan commonly use an RFP to collect information to allow the plan 

fiduciary to make an informed decision in selecting a provider. An RFP frequently 

requests not only information on a service provider’s capabilities, including the number 

and nature of investments made available by the provider, but also representative or 

sample investment lineups as a way of determining the provider’s capabilities and 

potential overall fees before the plan fiduciary actually conducts a formal review and 

selection of the plan’s investment lineup. 

Because such a response “could be considered” by a plan fiduciary to be a 

recommendation that the service provider be retained by the plan, it is possible that the 

service provider could be turned into a fiduciary, thereby making certain payments to 

the service provider problematic and perhaps prohibiting the payment altogether. While 

there is an indication in the preamble to the Proposed Rule that a response to an RFP is 

not fiduciary advice, the Department should make it clear that these activities are armslength sales interactions where neither party has an assumption that the provider is 

acting in a fiduciary role. 

Importance of not inadvertently limiting investment options-Stable Value

Stable value funds play an important role in the investment option line-up for those 

plans that include them as an available choice for plan participants looking for a 

relatively low-risk investment that provides protection of principal and steady income 

that, over time, has exceeded returns from money market investments. 

The most common way for plans (particularly smaller plans) to invest in stable value is 

through a commingled fund in the form of a bank collective investment fund. Such a 

fund has the advantage of being able to diversify among multiple stable value providers 

and products. Because these funds are structured as bank collective funds or 

insurance company separate accounts in which ERISA-covered plans invest, their 

assets are treated as plan assets subject to ERISA. Thus, the parties who manage and 
12

provide advice with respect to the funds’ investments are fiduciaries subject to ERISA’s 

fiduciary responsibility provisions. These funds are typically managed and operated in 

reliance on the class exemptions for qualified professional asset managers (QPAMs) 

(PTE 84-14), in-house asset managers (INHAMs) (PTE 96-23), and bank collective 

investment funds (PTE 91-38), to the extent exemptive relief is necessary.

However, the Proposed Rule may have implication on the management and operation 

of stable value investment options. The fiduciary managing the fund frequently deals 

with third parties when purchasing investment and insurance contracts for the stable 

value arrangement. If a broker-dealer, insurance company or other party engaging in a 

transaction with the stable value investment option were treated as an investment 

advice fiduciary with respect to that transaction, the Proposed Rule would not provide a 

sufficient level of relief from the ERISA prohibited transaction rules. We do not believe 

that this is an appropriate result. We urge the Department to consider in any final rule,

the implications of the management of a stable value fund to those involved in 

underlying transactions including the issue of wrap contracts to ensure that participants 

do not lose the ability to use this very important investment option.

2) The Practical Shortcomings of the Proposed BIC Exemption 

In connection with the Proposed Rule, the Department has proposed the BIC 

Exemption. This is a previously unexplored approach to prohibited transaction 

exemptions and is highly complex and technical in nature. The BIC Exemption is 

intended to permit investment advice fiduciaries to receive otherwise prohibited 

compensation in connection with transactions involving IRA owners, plan participants 

and beneficiaries with direct investment authority, and plan sponsors of certain nonparticipant directed plans. The BIC Exemption is fraught with legal issues and practical 

shortcomings. To be eligible for this BIC Exemption, certain conditions must be met. 

First, any financial professional (and any financial institution retaining the services of 

such financial professional) relying on the BIC Exemption must enter into a written 

contract that affirmatively acknowledges that they are fiduciaries under ERISA or the 

Code with respect to any recommendation that may be made to the retirement investor.

The proposed BIC Exemption spells out specific and detailed standards, warranties and 

disclosures that must be included in the contract. Both the applicable financial 

professionals and the applicable financial institutions must agree within this contract 

that:

(1) Each will provide investment advice that reflects the care, skill, 

prudence, and diligence under the circumstances then prevailing 

that a prudent person would exercise based on the investment 

objectives, risk tolerance, financial circumstances, and needs of the 

retirement investor, without regard to the financial or other interests 

of the financial professional, financial institution or any of their 

affiliates or any other party;
13

(2) Each will not recommend any assets for purchase if the total 

amount of compensation anticipated to be received by the financial 

professional, the financial institution, and their affiliates and any 

related entities in connection with the purchase, sale or holding of 

the asset will exceed reasonable compensation in relation to the 

total services provided to the retirement investor; and

(3) All statements they make regarding the asset, the fees, the material 

conflicts of interest that they face in connection with the proposed 

transaction, and any other matters relevant to the investor's 

investment decisions, will not be misleading.

In addition, the BIC Exemption imposes a number of additional warranties that both the 

financial professionals and the financial institutions must make, including that:

(1) The financial professional, the financial institution, and their 

affiliates will comply with all applicable federal and state laws 

regarding the rendering of the investment advice, the purchase, 

sale and holding of the asset, and the payment of compensation 

related to the purchase, sale and holding of the asset;

(2) The financial institution has adopted written policies and 

procedures reasonably designed to mitigate the effect of material 

conflicts of interest and ensure that its individual financial 

professionals adhere to the impartial conduct standards; and

(3) Neither the financial institution nor (to the best of its knowledge) 

any affiliate or related entity uses quotas, appraisals, performance 

or personnel actions, bonuses, contests, special awards, differential 

compensation or other actions or incentives to the extent they 

would tend to encourage individual financial professionals to make 

recommendations that are not in the best interest of the retirement 

investor. 

A significant number of limitations, however, make the BIC Exemption extremely 

challenging and disruptive from a practical perspective. The requirements, moreover, 

that the Department proposes to impose under the BIC Exemption, include a number of 

elements that are arguably not helpful for the protection of the retirement investors as 

well as impose unnecessary burdens, costs and restrictions on the financial 

professionals and financial institutions that would be providing services to such 

retirement investors. We join with the sizeable number of other commenters who have 

observed and commented that significant revisions are required to make the Proposed 

Rule work effectively and efficiently to protect the interests of retirement investors, in a 

manner that will still provide them affordable access to the services of their preferred 

financial professional and financial services institution. 
14

The proposed exemption departs from the format of prior exemptions that have allowed 

transactions that have benefitted many plans, participants and individual investors over 

many years and creates numerous ambiguities and practical issues. 

Assistance to Small Employer Plans

By definition, the BIC Exemption inexplicably does not cover advice that would be 

provided to small employers and there does not seem to be any other exemption left 

that is available universally to small plans. This is especially puzzling because the 

Department has stated it has a strong interest in benefitting these employers. 

Specifically, the BIC Exemption does not apply to compensation received related to 

investment advice that is provided to plan sponsors of participant directed plans with 

fewer than 100 participants.16 It is our experience that the vast majority of defined 

contribution plans sponsored by small employers permit employees to direct the 

investment of their own account.17 Further, we have observed that it is often small 

employers that benefit most from the information provided regarding their plan. While a 

prohibited transaction exemption is clearly needed, we do not believe the interests of 

plans sponsored by small employers would be served by including them under the BIC 

Exemption. Instead, we believe that their interests are preserved by the existing 

prohibited transaction exemptions available today. Prohibited Transaction Exemptions 

such as PTE 84-24 should be expanded and clarified to remain useful exemptions for 

sales to small plans.

Ambiguity of Terms

The Department states in the preamble that the BIC Exemption is designed to allow 

continued receipt of commissions, yet the text of the rule does not create a clear, 

operational standard that accounts for the industry’s diverse business models. The 

ambiguity as to permissible compensation structures will result in the courts or the 

Department, rather than the retirement investor or the market, deciding the manner in 

which a retirement investor can pay for services. Allowing a court or a regulator to 

decide after the fact whether differential compensation in the form of commissions 

satisfies this standard is clearly problematic, to say the least. 

 

16 Retirement Investors: (1) A participant or beneficiary of a Plan subject to Title I of ERISA with authority 

to direct the investment of assets in his or her Plan account or to take a distribution; (2) The beneficial 

owner of an IRA acting on behalf of the IRA; or (3) A plan sponsor as described in ERISA section 

3(16)(B) (or any employee, officer or director thereof) of a non-participant-directed Plan subject to Title I 

of ERISA with fewer than 100 participants, to the extent it acts as a fiduciary who has authority to make 

investment decisions for the Plan.) 80 Fed. Reg. 21960 at 21984.

17 98% of our small 401(k) plan clients, per the Department’s definition under the Proposed Rule, allow 

employees to direct the investment of their own account.
15

“Without Regard” Provision

To meet the conditions of the BIC Exemption, the financial professional and the financial 

institution must agree that each will provide “investment advice ... without regard to the 

financial or other interests of the Advisor, financial institution or any of their affiliates or 

any other party.”

18

 This provision could easily be interpreted to imply that if a financial 

professional has any financial interest in a retirement plan or IRA transaction at all, he 

or she has violated the “without regard” provision, because the interest is just too 

omnipresent. Institutions create investment products that are offered to its customers 

for sale. There will always be some degree of difference of interest between the 

institution and the investor. The institution designs products that it believes will serve 

the needs of its clients, with the intent and objective that such products will provide the 

institution a profit because the clients will understand the benefit of access to the 

product. Even an independent financial professional has interests, such as 

compensation, keeping a customer, relationships with the investment company, and so 

on. It is hard to imagine an environment where any investment product or service could

be offered entirely “without regard” to the interest of whomever is making a profit from 

the conduct of the business. 

In addition, the BIC Exemption is drafted in such a way that it will create unnecessary 

conflicts between it and current suitability requirements (i.e., FINRA and state suitability 

rules). Under the current suitability standard, one looks at whether there is a 

reasonable basis for determining if the sale is suitable for the individual customer – not 

necessarily the “best” product. By introducing this suitability-plus standard, the 

Department is potentially creating layers of confusion about which standard applies at 

what level in the process. 

The standard proposed by the BIC Exemption is more restrictive than even the standard 

for fiduciaries under ERISA, which the Department has recognized allows for certain 

incidental benefits due to the fiduciary’s relationship to the plan.19 While it is unlikely 

that the Department expects that financial professionals as fiduciaries could interact 

with any customer entirely without regard to whether or not they will be compensated, 

the definition is very broad and subject to this unreasonable interpretation. We 

recommend the language of the proposed exemption be modified to reflect marketplace 

realities. 

Differential Compensation

As noted above, the BIC Exemption requires financial institutions to warrant that they do 

not pay their financial professionals differential compensation that would tend to incent 

 

18 80 Fed. Reg. 21960 at 21984.

19 See ERISA Advisory Op. 2001-01A (January 18, 2001).
16

the financial professional to make recommendations not in the best interest in of 

retirement investors. Separately, though, financial institutions are required to represent 

that the compensation received by the financial institution, the financial professional, 

affiliates and related parties is reasonable for the services provided to the retirement 

investor. These two separate requirements create some ambiguity as to whether the 

customary compensation practices would be permitted going forward. Further, if the 

financial institution places limits on the investments it offers, then under another section

of the exemption, the Department sets forth an even higher standard that requires the 

financial institution to justify each payment stream with separate and distinct services. 

These requirements are over and above the basic requirement that the financial 

professional only make recommendations that are in the best interest of investors. We 

join with those commenters asking that these additional requirements under the BIC

Exemption impartial conduct standards be eliminated, or sufficiently modified so as to 

be congruent with existing obligations.

Reasonable Compensation

The BIC Exemption requires that the fiduciary agree that they will not recommend an 

Asset if the total amount of compensation anticipated to be received in connection with 

the purchase, sale or holding of the asset will exceed reasonable compensation. While 

the inclusion of a “reasonable compensation” requirement may appear to be innocuous, 

we believe that its inclusion in the BIC Exemption will have several negative

consequences. For example, the term “reasonable” will be defined differently by 

different courts in different states, which will do little to help clarify for broker dealers or 

even fiduciaries whether they are being compensated in a “reasonable” manner for the 

sale or the services provided or not. Because of the uncertainty as to what will be 

considered “reasonable” compensation, financial professionals may automatically 

default to the lowest cost alternative, which may or may not be the best product for a 

particular customer. There are important components other than cost that should be 

considered (e.g., financial strength (ratings) of the insurance provider, service capability, 

investment options and guarantees). 

Timing of Contract Delivery 

Another practical consideration is that the BIC Exemption would only apply if a contract 

is entered into prior to discussions. The BIC Exemption provides that “prior to 

recommending that the Plan, participant or beneficiary account, or IRA purchase, sell or 

hold the Asset, the Advisor and financial institution enter into a written contract with the 

Retirement Investor” that incorporates the required contract terms.20 One problem with 

this requirement is that the threshold for determining when a conversation about an 

investment option or an election to take a distribution from a plan, for example, turns 

 

20 80 Fed. Reg. 21960 at 21984.
17

into a recommendation as to selling or holding an asset is so vaguely defined that it 

would be an all too easy line to cross inadvertently while working toward a contract. 

This means that the practical reality under the BIC Exemption, as drafted, is that given 

this uncertainty, the advice recipient, the financial professional, and the financial 

institution would need to enter into a contract at the beginning of the conversation to 

ensure discussions that could be a recommendation regarding an investment option are 

covered. Our experience is that this contract timing would likely have a chilling effect on 

conversations with individuals who most need assistance, including education. Such a 

rule would be cumbersome, to say the least. As noted earlier, each year our customer 

service centers receive nearly two million calls from participants seeking assistance 

regarding their plan. This assistance can include basic questions such as password 

resets, but often include requests or questions about various forms of distribution, 

including plan loans and lump sum payouts, as well as periodic payments and rollovers.

There appears to be a potential argument that a discussion with a plan participant by a 

salaried customer service center employee who happens to be employed by an 

organization that provides services to a plan could be viewed as a recommendation, 

potentially turning the customer service center employee into a fiduciary. 

As an example, suppose an individual participant calls in and inquires about the process 

for taking a lump sum distribution. He or she would like to take the distribution and 

purchase a new boat. It is unclear whether a discussion about the benefits of remaining 

in the plan and the potential adverse tax consequences for such a distribution could be 

viewed as a recommendation. Further, if the participant is invested in an investment 

option that is affiliated with the customer service center employee’s employer or if there 

is a per participant distribution fee, it would need to be determined whether the 

customer service center employee make a recommendation that represented his or her 

employer or affiliate? Would it be necessary to enter into a formal contract in order to 

have the conversation? Does this lead to a less than useful and friendly customer 

service experience? Complicating the issue of requiring a written contract before 

conversations can take place is that these conversations are often occurring over the 

phone. 

Furthermore, the language of the BIC Exemption suggests that the contract would be a 

three party contract in which both the individual financial professional and the financial 

institution would be required to enter into the contract. This presents a number of 

practical considerations. What happens if the individual financial professional leaves 

employment, is on vacation, or is otherwise unavailable? Can they substitute another 

person with the firm without signing a new contract? 

It would be extremely difficult to operationalize this requirement where a retirement 

investor works with multiple financial professionals. Take for example a financial 

institution that provides plan participants or IRA owners with recommendations through 

a customer service center. Would each phone representative have to be a party to 

each contract or would calls have to be directed to the financial professional or financial 
18

professionals that were a party to the contract for that particular plan participant or IRA 

owner? Either way, if there is any level of turnover then the contract would need to be 

amended to add new financial professionals on a constant basis. Even with respect to 

financial professionals who work in a close one-on-one basis with retirement investors it 

has become more common for these financial professionals to work in a team practice 

with financial professionals that specialize in different products and issues. As long as 

the financial institution is a party to the contract and takes responsibility for the actions 

of its financial professionals there would be no additional protection provided to the 

retirement investor by having the financial professional be a party to the contract. For 

these reasons we join with others who are respectfully requesting that the Department 

change the requirement to require that only the financial institution be a party to the 

contract. 

Disclosure Requirements

The BIC Exemption also requires disclosure of an unprecedented amount of detailed 

information. This effort is not without cost and runs the risk of “information paralysis” in 

the recipient. Retirement Investors will be overwhelmed with granular and redundant 

disclosure. In addition to the contractual disclosure, the BIC Exemption would require:

(1) a public webpage showing the direct and indirect material 

compensation payable to the financial professional, financial 

institution, or any affiliate for service provided in connection with 

each investment that a Retirement Investor is able to purchase, 

hold, or sell through the financial professional or financial institution, 

and that a Retirement Investor has purchased, held, or sold within 

the last 365 days, the source of the compensation, and how the 

compensation varies within and among investment classes;

(2) a point of sale disclosure provided prior to the execution of an 

investment transaction showing the all-in cost and anticipated 

future costs of recommended investments in a summary chart, 

including the total cost to the investor for 1-, 5-, and 10-year periods 

expressed as a dollar amount, assuming an investment of the dollar 

amount recommended by the financial professional, and 

reasonable assumptions (we note that this is likely in violation of 

existing SEC and FINRA rules) about investment performance 

(which must be disclosed) and 

(3) an individualized annual written disclosure provided within 45 days 

of the end of the applicable year showing (a) a list identifying each 

investment purchased or sold during the applicable period and the 

price at which the investment was purchased or sold, (b) a 

statement of the total dollar amount of all fees and expenses paid 

by the investor, directly and indirectly, with respect to each asset 
19

purchased, held, or sold during the period, and (c) a statement of 

the total dollar amount of all compensation received by the financial 

professional and financial institution, directly or indirectly, from any 

party, as a result of each investment sold, purchased or held by the 

investor during the period.21

The level of information required to be provided to retirement investors significantly 

exceeds those established by other ERISA regulations, which were developed over 

numerous years in an effort to provide clear and meaningful disclosure. Such incredible 

depth of disclosure is not without cost, especially for the granular detail that few will 

read in any depth, and perhaps fewer will understand. 

Delivery of voluminous information often leads to choice paralysis and inaction on the 

part of the recipient. For example, requiring the disclosure on thousands of potential 

investments typically available to an investor would require multiple phone-book size 

disclosures and almost certainly overwhelm the average recipient. 

The contemplated annual disclosure requirements, including the total dollar amount of 

all indirect compensation received by the financial professional and his or her company 

during the year attributable to the customer, will not only provide overwhelming and 

confusing data, but require the collection of information that is commercially both highly 

challenging and problematic. This data is very different from existing Department

requirements relating to disclosing indirect compensation, and would require additional

systems and data collection practices that currently don’t exist and would take years to 

build. 

In addition, before a recommended purchase of an asset is made, the financial 

professional must provide a chart to the customer with the “Total Cost” of the asset over 

1, 5, and 10 year periods, as a dollar amount, which requires the financial professional

to make assumptions about future investment performance. The assumptions that 

would need to be made in order to calculate the Total Cost could very well run afoul of 

the rules of other regulatory agencies such as the SEC and FINRA. 

We would ask the Department to conform any exemption disclosure requirements to 

those existing exemptions and regulations that provide less problematic solutions (e.g., 

regulations under ERISA sections 408(b) (2) and 404(a)). 

The Effect of Increased Litigation

The BIC Exemption effectively outsources enforcement of the prohibited transaction 

rules to the plaintiffs’ bar, including new potential class actions under state law. This is 

a significant change in the enforcement mechanisms. As a result, the Proposed Rule 

 

21 80 Fed. Reg. 21960 at 21984.
20

would require litigation under numerous jurisdictions with various interpretations of the 

federal regulation. Changes in jurisdictions will have to be monitored, as will shifting 

rulings as, for example, a Circuit Court overrules a District Court, and each different 

interpretation in each different jurisdiction will increase the compliance monitoring 

requirements. This would also undermine the Congressional goal of uniformity. It has 

long been observed by the Courts that ERISA is a "comprehensive and reticulated 

statute," the product of a decade of congressional study of the Nation's private 

employee benefit system.22 In creating the prohibited transaction rules so many years 

ago, Congress recognized the cost in time and assets of excessive litigation and the 

effective outsourcing of enforcement brings us back to that. It also introduces additional

compliance costs to the system that do not exist today. Consequentially, we would 

expect those costs to be absorbed into the business over time, and ultimately passed 

on to and paid for by the investors. There has been little or no evidence submitted that 

would bolster the Department’s argument that this Rule will significantly increase legal 

protections or favorable outcomes for plans or their participants such that the expense 

and confusion created by the Rule would be justified. 

Limited Grandfathering Provisions

The BIC Exemption provides limited grandfathering for existing customers. There are 

millions of individuals who have existing relationships with financial professionals and 

financial Institutions. For long-standing customers, in particular, it will be onerous to 

require new signatures and may be impossible from a practical perspective to 

accomplish this in the short time the Department anticipates for putting the final rule into 

effect. The exemption requires that, no matter how long and effective the relationship, a 

new contract be entered into prior to additional recommendations being made. From a 

practical perspective, a financial institution has no way to compel existing customers 

who are not actively using their services to enter into any contract. This may very well 

cause existing customers to not receive valuable information that would have been 

provided before the necessity for the BIC. We propose that if the BIC Exemption is 

adopted, the contract not be required until a new sale is executed as opposed to being 

needed at the time recommendations are being discussed with regard to a previously 

purchased product. This would not only better follow existing financial 

professional/client consultation practices, but also provide relief for call and service 

centers in providing consultation and service to existing customers.

Prohibited Transaction Exemption 84-24 

In addition to the issues presented by the BIC Exemption, there are a number of 

concerns with modifications to the other long-standing Prohibited Transaction 

Exemptions. Prohibited Transaction Exemption 84-24, for example, was created by the 

Department and amended over time, in large part to allow for the sale of insurance 

 

22 Nachman Corp. v. PBGC, 446 U.S. 359, 361 (1980).
21

contracts (and certain principal underwriter mutual fund sales) with full disclosure to 

plans and IRAs. The Department clearly understood that insurance is sold by 

appropriately licensed agents and that the agent must be appointed by the company

before compensation can even be paid. The Department also understood that every 

agent is not allowed to sell every insurance contract, but that an agent may be limited in 

what they are allowed to sell. The Department is now proposing to amend PTE 84-24 in 

a manner that is very inconsistent with current practice, without a reasonable 

explanation or rationale for this important change. 

Under the Proposed Rule, PTE 84-24 would no longer be available for variable 

annuities sold to individuals, and, instead, the PTE available for such products would be

the BIC Exemption. In contrast, financial professionals selling fixed annuities would be

able to use either PTE 84-24 or the BIC Exemption for sales to individuals. This 

asymmetry appears to assume that the financial professional will know which product is 

appropriate for the customer in advance or only offer to sell fixed annuities to the 

customer. 

For the reasons discussed above, the BIC Exemption, as currently proposed, does not 

work well. PTE 84-24 is already in use and fits the sale of insurance in a much more 

efficient, proven, transparent and clear manner. According to its Regulatory Impact 

Analysis, the Department believes that sales of variable annuity contracts are so similar 

to sales and investment advice regarding mutual funds that they should occur under the 

conditions of the BIC Exemption. However, the Department’s assessment in this regard 

ignores certain critical risk characteristics of individual variable annuity contracts that 

align these contracts more closely with insurance than many types of securities. An 

annuity contract remains an insurance product with the appropriate guarantees, even 

with the addition of a variable investment feature. Variable annuity contracts are 

insurance contracts and, contrary to the Department’s assertions in the preamble, they 

do not cease being insurance when they become variable. Instead, a variable annuity 

combines traditional insurance concepts and the variable provisions to solve two 

increasingly important problems in retirement planning – rising life expectancy and the 

declining value of the dollar over time.

23 The Department’s failure to include these 

contracts under the amended PTE has the tendency to lead to the consumer getting 

less information and less choice and seems to be unwarranted given the disclosure 

requirements of PTE 84-24, the requirement that the sale be in the best interest of the 

consumer, and the general awareness on the part of consumers that insurance agents 

are paid to sell insurance. Accordingly, the Department should reconsider the currently 

distinction between these contracts under the amended PTE 84-24, and revise the PTE 

to cover the sale of all annuity contracts.

 

23 Regulation of Variable Annuity Sales: The Aftermath of SEC v. VALIC, 1959 Wash U. Law. Q. 206 

(1959). 
22

In addition, the added definition of “Insurance Commissions” under the proposed 

amendment to PTE 84-24 is far too narrow, changing traditional forms of compensation 

for no apparent reason. Under the Proposed Rule, Insurance Commissions would be 

newly defined as commissions paid by the insurance company or any affiliate of the 

insurance agent, insurance broker, or pension consultant for effecting the purchase or 

sale of an insurance or annuity contract. It would include renewal fees and trailers, but 

would prohibit financial professionals from receiving relief under the PTE for many other 

traditional revenue sources, such as revenue sharing and administrative and marketing 

fees, as well as payments from third parties. This revision could be read to prohibit 

financial professionals from receiving these types of payments for sales to both plans 

and to IRA owners. The definition should be broadened to include more traditional 

forms of compensation to avoid unnecessary confusion and the expense of running dual 

systems for no apparent gain. 

In order to allow both plans and IRAs to continue to purchase insurance and annuity 

contracts in the normal course of business, PTE 84-24 should be expanded. This 

expansion should treat variable annuity purchases by individuals as covered 

transactions, and should allow for greater flexibility within the definition of “commission” 

to allow for traditional forms of financial professional compensation. Furthermore, it 

should be clear that the exemption provides for relief for existing transactions that rely 

on the exemption in its current form. 

In addition to the changes to PTE 84-24, for the reasons noted in this letter, we observe 

that the Department should revisit the proposed changes to other long-standing 

prohibited transaction exemptions to ensure there are no unintended consequences 

from the changes proposed. 

Small Amount Force-Outs and Automatic Rollover

Underscoring the disruptive nature the Proposed Rule could have on the landscape, it is 

unclear how many common practices will fit under the Proposed Rules. One such area 

is the Small Amount Force-Outs and Automatic Rollovers. Plans may automatically 

make distributions to terminated participants without their consent if the value of their 

vested accrued benefits (or vested account balances, in the case of defined contribution 

plans) is $5,000 or less. The Economic Growth and Tax Relief Reconciliation Act of 

2001 (EGTRRA) made changes to these rules to require that certain small cash-outs be 

automatically rolled over to an IRA, unless the participant elects to take cash or make a 

different direct rollover. This automatic rollover requirement applies if the value of the 

participant's vested accrued benefit or account balance is more than $1,000 but less 

than or equal to $5,000. Plans must provide participants with a notice explaining the 

automatic rollover provision.

Because these requirements created concerns about plan sponsors' fiduciary 

responsibilities under ERISA when choosing both a default rollover IRA provider, as well 

as the initial IRA investments, on September 28, 2004, the Department issued final 
23

rules describing a safe harbor for fiduciaries making such decisions.24 To comply with 

the automatic rollover requirement, plan sponsors must designate an institution to 

receive the rollovers. Plan sponsors must also choose how the rollovers will be 

invested. These actions are subject to ERISA's fiduciary standards. The Department’s

final rules provide that a plan sponsor or administrator will be deemed to have satisfied 

this fiduciary responsibility if certain requirements are met.

The Department should clarify that the Proposed Rules do not affect its 2004 guidance 

regarding Automatic Rollovers. The Department should further clarify that discussion by 

service providers with plan sponsors regarding the type of investment that is available 

for the automatic rollover would not constitute investment advice.

3) Significant Shortcomings in the Department’s Regulatory Impact Analysis and the 

Office of Management and Budget Review Process and the Potential Application 

of the Proposal to Welfare Plans

Implementation Estimates

The Department’s estimates regarding the time that will be needed by the industry to 

implement the changes associated with the Proposed Rule illustrates a significant

disconnect regarding the level of disruption that will be created. In order to ensure that 

the requirements of the Proposed Rule are met, we fully expect the time frame and cost 

of implementation to be much higher than estimated. The eight months allowed to 

update all systems (and determine where to build or outsource the functionality 

required) and communicate with all plans, participants, beneficiaries and IRA holders is 

simply not enough time. Based on the time spent on other similar regulatory changes,

we expect that at a minimum, it would take 24 months to have the necessary systems in 

place.

For instance, regarding some of the disclosure requirements, service providers would 

need to determine whether the data needed to prepare the required disclosures exists

today in a usable format. Based on our initial review, we know that much of the needed 

information currently does not exist in such a format.

In addition, the overall system assessment process would require significant input from 

numerous business areas, systems specialists, and legal and compliance resources.

As with all projects of this size, outside vendors and potential contractors with the skill 

sets and knowledge needed to assist with the implementation of the required systems

and process changes would need to be identified and engaged. Any information that 

does not currently exist would need to be built and integrated with existing systems. 

 

24 DEP’T OF LABOR, EMPLOYEE BENEFITS SECURITY ADMIN., Fiduciary Responsibility Under the Employee 

Retirement Income Security Act of 1974 Automatic Rollover Safe Harbor,[RIN 1210-AA92] 69 Fed. Reg. 

58018 (Sep. 28, 2004).
24

Given the broad scope of the Proposed Rule, the various changes will span many 

different system structures and require a significant level of coordination among all 

stakeholders. 

Once the assessments are complete and system changes implemented, the next step is 

to test the data and outputs to ensure that all of the changes are displaying on all 

necessary systems and documents. Affected employees in a variety of business units 

would also need to be trained on the new systems and procedures. The changes would 

then need to be communicated to all involved parties, including vendors and existing 

clients—both plan sponsors and individuals. To be asked to go through this process in 

eight months is not realistic given the far reaching effects. 

For comparison, the 408(b)(2) Regulations, a similar Department initiative, began with 

the publication of an interim final regulation with a future effective date of July 6, 2011, 

or a twelve month implementation timeline. An extension pushed this date to January 1, 

2012, which was later moved to April 1, 2012, in the final regulation. Finally, another

extension pushed the ultimate effective date to July 1, 2012. The extensions were, in 

part, an acknowledgement of the significant systems enhancements that were required 

across the industry to implement the final rule.25 The requirements of the Proposed 

Rule are, in many respects, more involved in terms of the effort that would be required 

to develop the systems needed support the requirements of the Proposed Rule.

Welfare Plans

The Proposed Rule, as written, would treat an insurer or financial professional as a 

fiduciary when promoting group health (including dental, vision and similar coverages, 

life and disability insurance products to small businesses or employees, even in 

circumstances where no plan assets are held in trust). In other words, an insurer would 

be treated as a fiduciary with respect to certain welfare benefit plans simply by reason 

of promoting its own products. This activity has long been considered to be sales and 

there is no indication that the public is confused or otherwise considers these sales to 

be fiduciary advice.

If the promotion of these insurance products to small businesses or their employees 

does become a fiduciary act, (1) the insurer would be vulnerable to a lawsuit simply for 

selling its own product without sufficiently considering the advantages of competitors’ 

products, and (2) it is unclear whether a functional prohibited transaction exemption 

 

25 REBECCA MOORE, Fees the Focus of EBSA Regulatory Agenda, PLANSPONSOR, available 

at http://www.plansponsor.com/Fees_the_Focus_of_EBSA_Regulatory_Agenda.aspx. (Asked if EBSA 

would consider a delay in the effective date of 408(b)(2), Borzi said it is sensitive to the needs of the 

regulated community to have adequate time for implementing any changes that might be required by the 

final rule.).
25

would be available to permit the continued sale by an insurer of its own insurance 

products to small businesses.

The Department did not, in the preamble to the Proposed Rule, address this issue or 

provide any analysis of the economic effects of this aspect of the Proposed Rule so it 

may be that this effect was not intended. Nevertheless we believe that this issue should 

be clarified in the final regulation. 

Conclusion

The Principal Financial Group appreciates the opportunity to provide comments and 

observations on the effect of the Proposed Rule. Ultimately, we share the Department’s 

objective of improving retirement savings and of better positioning Americans to meet 

their retirement income needs. We are strongly concerned, however, that this goal will 

be more difficult to realize under the Proposed Rule.

From our many years of experience in the retirement and financial services industry, we 

believe that the Proposed Rule, as written, includes provisions that will be difficult to 

implement and will result in unintended consequences that will likely undermine the 

Department’s objectives. As more fully detailed by the observations in this letter, we 

echo the numerous comments that believe that the Proposed Rule and the proposed 

BIC Exemption would negatively affect the system by which Plans and participants 

receive information from financial professionals, financial services institutions, and 

others, and would place unnecessary burdens and restrictions on the individuals and 

firms who could be deemed to be “fiduciaries” under the Department’s proposed 

definition of “investment advice.” 

Furthermore, the Department is not the proper entity to unilaterally enact this change. 

We believe that this rulemaking activity must be coordinated and harmonized with that 

of other federal agencies and self-regulatory organizations, and that any rule must 

preserve access to crucial financial education and assistance for small employers and 

individual savers. Without this, the Proposed Rule will add unnecessary complexity and 

confusion. It also would lead to increased litigation, which ultimately will increase costs 

to consumers and possibly lead to fewer options for consumers with regard to paying for 

services. 

Because the Proposed Rule would adversely affect the retirement savings of millions of 

Americans by reducing or eliminating access to financial education as well as advice, 

we believe the result will be: (1) reduced contributions to retirement savings, (2) 

inappropriate investment allocations, (3) a decline in the number of small business 

sponsoring retirement plans, and (4) increased pre-retirement cashouts of retirement 

savings.

In addition, given the significant difference between the Department’s understanding of 

the scope of the effect on the industry and the time that would be required to implement 
26

the Proposed Rule, it is clear that the Department and the retirement services industry 

should work more closely together. 

Accordingly, we strongly encourage the Department to consider an approach that 

facilitates an environment that promotes savings and retirement income as a primary 

objective. A system that starts with a premise that nearly everything is prohibited and 

then provides exemptions from those prohibitions becomes unwieldy when the number 

of fiduciary activities is greatly expanded and many common activities are consequently 

prohibited. The problems are exacerbated when the exemptions from those prohibited 

activities are correspondingly narrowed. A collaborative regulatory process with all 

interested parties participating will be the only way to achieve this environment in a 

reasonable fashion, without the inevitable unintended consequences of a unilateral 

promulgation.

Sincerely,

Greg Burrows

Senior Vice President

Burrows.Greg@principal.com

Phone 515-362-1844