600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

DC-9924193

-

July 21, 2015

Via: Electronic Filing

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule (RIN 1210-AB32) and Proposed Best Interest Contract Exemption 

(ZRIN 1210-ZA25)

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Conflict of Interest Rule and Proposed Best Interest Contract Exemption

Dear Sir or Madam:

Managed Funds Association (“MFA”)1appreciates the opportunity to respond to the 

regulations proposed by the Department of Labor (“Department”) on the definition of the term 

“fiduciary,” Conflict of Interest Rule--Retirement Investment Advice (the “Proposed Rule”)2and 

the Proposed Best Interest Contract Exemption (the “BIC Exemption”)3(collectively, the 

“Proposal”). MFA strongly supports the Department’s goal of protecting benefit plans and their 

participants, and we recognize that imposing fiduciary status on certain service providers to plans 

can further that goal.

 

1 MFA represents the global alternative investment industry and its investors by advocating for sound industry 

practices and public policies that foster efficient, transparent and fair capital markets. MFA, based in 

Washington, DC, is an advocacy, education and communications organization established to enable hedge fund and 

managed futures firms in the alternative investment industry to participate in public policy discourse, share best practices 

and learn from peers, and communicate the industry’s contributions to the global economy. MFA members help pension 

plans, university endowments, charitable organizations, qualified individuals and other institutional investors to diversify 

their investments, manage risk and generate attractive returns. MFA has cultivated a global membership and actively 

engages with regulators and policy makers in Asia, Europe, the Americas, Australia and other regions where MFA 

members are market participants. 

2 80 Fed. Reg. 21928 (Apr. 20, 2015).

3 80 Fed. Reg. 21960 (Apr. 20, 2015).
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 2 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

We are concerned, however, that the Proposal may have unintended and deleterious effects 

on (1) the sophisticated ERISA plans and IRAs that elect to invest in privately-offered investment

funds, and (2) the fund managers and service providers to private investment funds, regardless of 

whether those funds are deemed to hold plan assets for purposes of ERISA. We appreciate the 

Department’s determination that valuations provided to collective investment vehicles do not create 

a fiduciary relationship under ERISA. We also are pleased to note that the Department altered the 

proposal to carve out of the definition of fiduciary “offers or recommendations to plan fiduciaries of 

ERISA plans to enter into a swap or security-based swap that is regulated under the Securities 

Exchange Act or the Commodity Exchange Act.”4 For the reasons discussed below, however, we 

believe that further tailoring and clarification of the Proposal is needed to achieve the stated 

objectives of the Department’s carve-outs for collective investment vehicles. Further, we believe 

that the Proposal needs to be amended to permit the marketing and sale of private investment funds 

to sophisticated plan and IRA investors without such marketing and sales activities being deemed 

fiduciary in nature. Absent additional changes, the broad scope of the Proposal could 

unintentionally bring the investor reporting and sales activities of private investment funds within 

the scope of fiduciary advice, even though we believe those activities should not be characterized as 

providing investment advice or recommendations to plan investors.

Hedge funds and other alternative investment vehicles are and continue to be a valuable 

component of the investment portfolio for sophisticated investors, including plans. As we have 

previously noted in the MFA 2011 letter, the properly managed addition of such funds to a plan’s or 

IRA’s portfolio may provide diversification, risk management, and returns that are not correlated to 

traditional equity and fixed income markets. These are critical benefits that help plans generate 

sufficient returns to meet their obligations and help sophisticated IRA holders to accomplish their 

financial goals. For the reasons discussed below, we believe that, as drafted, the Proposal could 

impair the ability of plans and the IRAs of sophisticated investors to invest in hedge funds and other 

alternative investment vehicles and we ask the Department to reconsider aspects of the Proposal 

that would result in such a harmful consequence to plans.

Overview

As noted above, MFA strongly supports the Department’s goal of protecting benefit plans 

and their participants. However, without further clarification, we believe the language in the 

Proposal could have a number of detrimental, and likely unintended, effects. We also support the 

Department’s decision to exclude valuations provided to collective investment vehicles from the 

type of services that create a fiduciary relationship. We are concerned, however, that the Proposed 

Rule nonetheless has the potential to extend fiduciary obligations too far by making persons ERISA 

fiduciaries because they provide statements of value to investment fund investors that are ERISA 

plans, plan fiduciaries, plan participants or beneficiaries, IRAs, or IRA owners (“plan investors”). 

Further, the Proposed Rule threatens to radically alter the sale of investment products to plan 

investors and sophisticated IRA holders by deeming the sales process itself to be fiduciary in nature. 

 

4 80 FR at 21936. See letter from Richard Baker, President and CEO, MFA, to the Office of Regulations and 

Interpretations, Employee Benefits Security Administration, U. S. Department of Labor, February 3, 2011 (“MFA 2011 

letter”) at 13.
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 3 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

This is inconsistent with the statute and existing Department guidance and, we believe, beyond the 

scope of the policy concerns underlying the Proposed Rule. As a result, the Proposed Rule and the 

BIC Exemption may have the effect of unnecessarily limiting the ability of eligible plan and IRA 

investors to make prudent investments.

Specifically, MFA is concerned that: 

 The Proposed Rule may impose fiduciary status on fund managers and service providers 

in cases where the Department and Congress have established that no fiduciary status 

should exist, i.e., in the case of managers and service providers to funds not deemed to 

hold plan assets under ERISA (“Non-Plan Asset Funds”);

 The Proposed Rule is ambiguous and could result in uncertainly regarding when 

providing a statement of value to investors in a private investment fund is a fiduciary act;

 The Proposed Rule creates disincentives for fund managers and service providers to 

provide certain information to plan investors, including reporting of the fund’s net asset 

value, market commentary, fund commentary, and transparency reporting often 

provided to all fund investors, to the detriment of those investors; 

 The Proposed Rule may make sales communications about an investment fund by that

fund’s manager to prospective plan investors—conduct which is already regulated under 

federal securities laws—fiduciary investment advice;

 The Proposed Rule will make it unreasonably difficult for managers of privately offered 

investment funds to discuss and sell interests/shares in those funds without providing 

additional protections for plan investors that are eligible to invest in private funds; 

 The Proposed Rule will make it difficult for certain “plan asset” funds, including funds 

of funds and “funds of one,” to enter into necessary and routine transactions;

 The Proposed Rule imposes new standards that are inconsistent with existing 

Department rules, including Prohibited Transaction Exemption 84-14; and

 The BIC Exemption unreasonably restricts investment choices by plan investors that are 

otherwise eligible, under federal securities laws, to invest in privately offered funds and 

other investments.

Statements of Value

We appreciate and support the Department’s change from the 2010 proposed rule on the 

Definition of the Term “Fiduciary”5(the “2010 Proposal”) that excludes valuations and appraisals 

provided to collective investment vehicles from the scope of the Proposed Rule. For the reasons 

discussed below, we believe that the Proposed Rule as drafted nonetheless has the potential to 

extend fiduciary obligations beyond the Department’s intended scope by making persons who 

provide statements of value to plan investors ERISA fiduciaries. 

 

5 75 Fed. Reg. 65263 (Oct. 22, 2010).
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 4 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

The Proposed Rule would categorize any entity as a fiduciary if it provides a statement of 

value to a plan investor if such statement is (1) in connection with a specific transaction; and (2) 

pursuant to an agreement or understanding that the advice is individualized to, or specifically 

directed to, the advice recipient for consideration in making investment or management decisions. 

The Proposed Rule excludes statements of value made to an employee stock ownership plan (the 

“ESOP carve-out”) or to an investment fund, such as a collective investment fund or pooled 

separate account, that holds assets of more than one unaffiliated plan (the “pooled fund carve-out”). 

The Proposed Rule also excludes statements of value made solely for the purposes of complying 

with state or Federal law, rule or regulation, or the rule or regulation of a self-regulatory organization 

(the “compliance with law carve-out”). 

We appreciate the efforts by the Department to address the issues raised by commenters in 

connection with the 2010 Proposal through the carve-outs and requirement that the statement of 

value be in connection with a specific transaction. Nonetheless, we believe that the Department 

should amend the proposed carve-out to ensure that it has the intended effect. We are concerned 

that, as currently drafted, many managers and service providers may not be able to rely on the 

provision because it is not clear from the text of the Proposal that the pooled fund carve-out would

extend to statements provided directly to investors in funds, including statements that contain fund 

or market commentary provided to all investors that go beyond mere reporting of a fund’s net asset 

value. The pooled fund carve-out also may not cover routine communications with fund investors,

to the extent the communication is made to a specific investor rather than all investors concurrently. 

We believe it is important for the pooled fund carve-out to cover communications with 

investors in the fund as we do not believe that managers and service providers will likely be able to 

conclude that such communications are not statements made “in connection with a specific 

transaction” and, therefore, outside the scope of the regulation. Broadly construed, a statement 

made “in connection with a specific transaction” could include: investing in a fund, redeeming 

interests in a fund, deciding to make, or not to make, additional investments in or redemptions from 

a fund or even decisions to rebalance other parts of an investing plan’s portfolio based in part on 

assets held by a fund. Because fund managers and other fund service providers may not know why 

a plan investor is requesting a statement of value, a broad interpretation of “in connection with a 

specific transaction” could result in such managers and service providers being considered ERISA 

fiduciaries without certainty regarding when they are taking on fiduciary responsibility. Similar 

questions likely would arise to the extent that a plan investor requests such information in a 

particular format. Routine communications by fund managers and service providers to plan 

investors about the value of the plan’s account or interests/shares in a fund could therefore be 

treated as fiduciary investment advice, especially if the communication is not explicitly required by 

law. 6 We note in this regard that many private investment funds send monthly (or other periodic) 

statements to investors, which are not required by law, but instead represent a common industry 

practice.

 

6 Also, we note that the compliance with law exception does not cover non-U.S. laws. Frequently, the funds that 

ERISA plans and IRAs invest in are organized in non-U.S. jurisdictions, and those jurisdictions, as well as the 

jurisdictions where a fund is offered, may impose other reporting requirements.
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 5 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

For example, plan investors in funds frequently have side letters or other arrangements 

requiring that a fund provide the plan with regular statements of value, presumably to assist the plan 

in determining what action the investor may take in connection with the investor’s interests/shares 

in the fund. These contractually required statements of value likely would not fall within the 

compliance with law carve-out and thus could be deemed fiduciary investment advice under the 

Proposal. 

Managers and service providers to funds, particularly Non-Plan Asset Funds, are likely to 

refuse to agree to these arrangements, which have great benefits to plan investors, if fiduciary status 

is imposed as a result. Periodic performance reporting or any other communication to a plan 

investor in a fund that contains the fund’s net asset value (“NAV”) could be a fiduciary act that 

would raise uncertainty regarding whether the fees charged on the value of assets would violate the 

prohibited transaction provisions of ERISA. 

Uncertainty regarding the scope of this provision is likely to create a disincentive for fund 

managers and service providers to disclose routine and relevant information to fund investors, a 

result contrary to the Department’s goal of protecting such investors and inconsistent with the 

pooled fund carve-out. For example, many funds have administrators that calculate the fund’s net 

asset value and periodically provide that information to funds and investors. In addition, many 

funds have administrators or another service provider (such as a data aggregator) prepare and 

disseminate transparency reports to investors with information about the fund’s investments and 

providing verification of asset pricing. Such administrators may be unwilling to take on fiduciary 

risk, ultimately reducing the availability of independent valuations of fund assets. Alternatively, 

these service providers may be willing to provide valuations and transparency reporting to a fund, 

but unwilling to allow the fund to provide those valuations to plan investors, disadvantaging the plan 

investor.7If fund managers and other service providers, such as administrators, valuation agents and 

data aggregators, are deemed to be fiduciaries in connection with providing any statement of value 

to a plan investor (or a statement from such person that is passed on by the fund to investors), the 

result of the Proposal as drafted may be to ultimately deprive plan investors in a fund with ready 

access to basic information about the fund, such as the NAV, that is generally provided to fund

investors. Further, faced with potentially prohibitive costs or the inability to find suitable service 

providers in the first place, funds may be reluctant -- or even unable -- to take investments from 

plans and sophisticated IRA holders, which would greatly limit these investors’ alternative 

investment options. The cost to plans of these lost opportunities and limited choices could be 

significant.

 

7 In addition, because the Department’s advisory opinions on performance fees essentially require an 

independent valuation of fund assets in calculating the performance fee, this aspect of the Proposal may make it difficult 

for funds to be transparent with plan investors about whether a fund manager is entitled to, and the amount of, a 

performance fee in any particular year. See DOL Advisory Opinion 99-16A (Dec. 9, 1999); DOL Advisory Opinion 89-

31A (Oct. 11, 1989); DOL Advisory Opinion 86-21A (Aug. 29, 1986); and DOL Advisory Opinion 86-20A (Aug. 29, 

1986
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 6 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

Although an issue for all funds in which plans invest, this raises particularly troublesome 

concerns for managers and service providers to Non-Plan Asset Funds. As drafted, issues with 

respect to communications with fund investors exists whether or not the fund is considered to hold 

“plan assets” for ERISA purposes. Thus, a manager or a service provider to a Non-Plan Asset Fund 

also risks being considered a fiduciary in connection with routine statements of value made to a plan 

investor in such fund. As we discussed in our comments on the 2010 Proposal, we respectfully 

submit that imposing fiduciary status on managers and service providers to Non-Plan Asset Funds is 

inconsistent with ERISA. ERISA Section 3(42) and the Department’s regulations on when the 

assets of an entity will be deemed to hold plan assets8 provide that an entity that is not registered as 

an investment company and whose securities are not publicly offered shall only be considered plan 

assets if equity participation in the entity is “significant,”9 meaning if “25 percent or more of the 

value of any class of equity interests in the entity is held by benefit plan investors.”10 Accordingly, 

we respectfully believe that this aspect of the Proposal that could make managers and service 

providers to such funds fiduciaries are inconsistent with ERISA Section 3(42) and the Department’s 

regulations.

11

 We are deeply concerned about any interpretation of the Proposed Rule that would 

make managers and service providers to Non-Plan Asset Funds fiduciaries because of routine 

communications of the fund’s value or other fund specific information to plan investors in a NonPlan Asset Fund, particularly communications provided to all fund investors.

We note that the pooled fund carve-out does not take into account a “fund of one” 

structure. Many plans, particularly larger plans that routinely invest in private funds, use wholly 

owned “funds of one” for various reasons, including, for example, limiting the plan’s liability in 

connection with investments and to make investments pari passu with a fund manager’s existing fund 

through a plan-controlled entity. The pooled fund carve-out’s non-application to funds of one 

would result in disparate treatment of any person providing valuation information to a fund of one 

in connection with the fund’s investments as compared to a pooled fund and could result in less 

information being available to managers of, and investors in, funds of one, interfering with the 

structures adopted by plan fiduciaries to prudently make and monitor plan investments.

To address the above issues, we respectfully recommend that the Proposed Rule be revised 

to allow fund managers, service providers and their agents to be able to communicate directly with 

plan investors,12 provide them with factual valuation and valuation-based information, and respond 

to investor questions, in each case without additional liability. This can be accomplished by 

 

8 29 CFR §2510.3-101.

9 29 CFR §2510.3-101(a)(2). 

10 29 CFR §2510.3-101(f); ERISA § 3(42). 

11 See MFA 2011 letter.

12 If our recommendations with respect to marketing, discussed further below, are not adopted, then the 

Department should make clear that basic communications of value, such as performance reporting and NAV, to 

prospective plan investors are likewise excluded from coverage under the Proposed Rule.
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 7 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

clarifying that such communications are not to be considered “in connection with a specific 

transaction” regardless of what use the plan investor may make of them. Alternatively, the 

Department can revise the Proposed Rule to provide an explicit carve-out for such communications 

to plan investors. Such a carve-out should state that any fund, fund manager, fund service provider, 

or agent of the foregoing that gives plan investors fund information about NAV (both for the fund 

as a whole and on a per capital account, share or unit basis), performance, and other information 

relating to the fund (collectively, “Fund Information”) is not, for that reason alone, providing 

fiduciary investment advice, regardless of whether the information is provided routinely or on 

request and regardless of whether the information is provided to all investors or only to specific 

investors.

It is important to note that, even under this proposed approach, plan investors would still be 

protected from inaccurate or misleading information under the Investment Advisers Act of 1940 

(“Advisers Act”), the Securities Act of 1933, the Securities Exchange Act of 1934, (including Rule 

10b-5 thereunder) and, with respect to plan asset funds, ERISA. We also note that fund managers 

to investment funds that are deemed to hold plan assets under ERISA are ERISA fiduciaries with 

respect to the investment advice they provide to the investment fund, including “funds of one.” 

If the Department declines to clarify that providing Fund Information to plan investors does 

not constitute providing fiduciary investment advice, at the minimum: (1) the Proposed Rule should 

be revised to make clear that providing Fund Information to any plan investor or a group of plan 

investors should be considered the same as providing information to the fund and thus the pooled 

fund-carve out should apply, and (2) the pooled fund carve-out should be clarified to include “funds

of one” as discussed above. Absent these changes, the pooled fund carve-out in the Proposed Rule 

is unlikely to achieve the intended objective, which would significantly affect a fund’s ability to 

operate on a day-to-day basis and potentially restrict the flow of information to plan investors in 

investment funds.

The Ability to Market One’s Own Products and Services

MFA respectfully urges the Department to alter the Proposal so that it will not interfere

inadvertently with legitimate marketing activity for private funds. The Proposed Rule states that any 

person who makes a recommendation to a plan investor about investing in a fund or retaining a 

manager and who receives a fee or other compensation, directly or indirectly from any source, 

would be a fiduciary unless a carve-out applies. Read literally, this could apply to all persons who 

sell or market interests in funds, both “inside” persons (i.e., the manager of a fund and other persons 

directly involved in the operation of the fund) and “outside” persons (i.e., unaffiliated persons 

engaged by the fund or its manager solely for marketing and distribution), and cause all sales activity 

to be treated as fiduciary activity. Similar to the concerns with respect to investor reporting 

discussed above, while this an issue for all funds marketed to plan and sophisticated IRA investors, 

this raises particularly troublesome concerns for people who are marketing Non-Plan Asset Funds. 

We are concerned that, absent a revision of the Proposal or the inclusion of an applicable carve-out, 

the Proposal is likely to have a material adverse impact on private investment funds because it will 

make it difficult or impossible to market private funds to plan investors.
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 8 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

Private investment fund managers conduct non-public offerings of their funds and services 

to investors. Marketing of private investment funds is done both by the fund manager and through

paid placement agents or other persons who are independent of the manager but who are retained 

(and compensated by the manager or the fund) to market the fund, the manager and its services. 

The offer and sale of private investment funds is a lengthy process as a result of the extensive due 

diligence conducted by sophisticated investors. Marketing often involves a number of meetings with 

investors and providing investors with significant amounts of information about the fund, including

fund commentary, commonly in an investor letter, and investor specific information. Although 

managers do not compensate themselves for marketing, the manager receives asset management and 

other fees from investors that ultimately decide to invest in the manager’s fund. The Proposed Rule 

suggests that a manager’s receipt of management and/or other fees may be considered to be 

compensation for purposes of the new definition of investment advice. If so, this would put fund 

managers in the unique position of acting as fiduciaries merely by trying to market their own 

products and services. MFA believes that asset managers, like other service providers, should be 

able to market their goods and services to plan investors without being deemed an ERISA fiduciary 

with respect to that marketing activity. When a manager, or a placement agent, is marketing a 

private investment fund, they are not making recommendations to potential investors, nor are they 

in a position to make a fiduciary determination regarding whether the potential investor should 

invest in the fund being marketed. As such, imposing fiduciary obligations in connection with “selfmarketing” activities by managers or marketing by paid placement agents or others performing 

similar functions would have a material and adverse impact on MFA members and make it difficult 

for plan investors to learn about potentially appropriate investments. 

The Department has long recognized the distinction between communications that are 

intended to sell a product or service and communications that constitute investment advice. 13 

Notably, in its discussion regarding transactions with fiduciaries in the Department’s regulation on 

the general statutory exemption for services or office space, the Department stated in Example 1 

that an investment adviser retained by a plan that proposes to a plan sponsor to perform additional 

portfolio evaluation services for the plan for additional fees is not engaging in prohibited selfdealing. As the Department recognizes, this is because the adviser is not using any of the authority, 

control or responsibility that makes the adviser a fiduciary to cause the plan to select and pay for the 

portfolio evaluation services.14 In contrast, Example 2 in the same regulation says that a consultant 

that is already a fiduciary violates Section 406(b)(1)-(3) when, in a fiduciary capacity, it recommends 

to a trustee that the trustee cause the plan to purchase an insurance policy from a company that will 

pay the consultant a commission in connection with that purchase. According to the example, the 

 

13 In that regard, when discussing third party placement agents or similar third parties, we are not including third 

party consultants or other persons who are making recommendations to plan investors as to whether the plan should 

invest in a private investment fund, or recommending which private investment fund(s) the plan should invest in. Our 

discussion relates only to those persons (managers and third parties) engaged in marketing and selling fund interests, but 

who are not providing advice to pension plans.

14 29 CFR § 2550.408b-2(f), example (1).
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 9 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

consultant is using the authority, control, or responsibility that makes it a fiduciary to cause the plan 

to enter into a transaction that will result in the consultant receiving additional compensation. The 

Department also notes in Example 2 that Prohibited Transaction Exemption (“PTE”) 77-9 (now 

PTE 84-24) will provide relief from this prohibition.15 Taken together, these examples show that the 

Department has long been of the view that a fiduciary does not engage in a prohibited transaction 

when it acts on its own behalf to propose that a plan buy an additional service or product from the 

fiduciary for additional compensation. Put another way, Example 1 demonstrates that, when a plan 

elects to purchase additional services or products from a fiduciary in response to a proposal or offer 

by the fiduciary, any consideration the fiduciary receives from providing the additional service or 

product is permitted and will not support a claim that the fiduciary has violated Sections 406(b)(1) or 

406(b)(3) of ERISA. Furthermore, Example 2 demonstrates the Department’s longstanding 

willingness to provide exemptive relief for a third party’s receipt of reasonable commissions in 

connection with the sale of a product to a plan.

MFA, therefore, respectfully requests that Section (1)(a) of the Proposed Rule be amended 

to make clear that a fund manager does not make an investment recommendation for a fee or other 

compensation under Section (a)(1) of the Proposed Rule when it offers to provide or continue to 

provide asset management services to a retirement plan investor or markets to a retirement plan 

investor a product such as an equity interest in a fund, trust, or other investment entity to which the 

manager or an affiliate provides asset management services. This would allow fund managers to 

market their services and products to retirement plan investors without inadvertently becoming 

fiduciaries merely by engaging in sales conduct. 

Suggested Revisions to the Seller’s Carveout

Alternatively, the Seller’s Carveout, set forth in Section (b)(1) of the Proposed Rule, should 

be revised to permit fund managers to market investment products to retirement plan investors 

without acting as fiduciaries in connection with their marketing activities. Although the Seller’s 

Carveout is obviously intended to be limited to plan investors with a certain level of financial 

expertise, the carveout is too limited and imposes new standards that are inconsistent with ERISA 

and other laws, particularly as applied to sales of privately offered investment funds. 

Under the federal securities laws, privately offered funds generally may not be sold to the 

general public or retail investors and are usually offered only to “accredited investors” or “qualified 

purchasers,” which are investors that are deemed to have sufficient sophistication and ability to 

absorb the risks associated with making an investment. Although the Seller’s Carveout uses 

different conditions designed to ensure a sufficient level of sophistication, these conditions are both 

inadequate and unnecessarily restrictive. Specifically, one condition of the Sellers’ Carveout (that a 

plan have 100 or more participants) equates plan size in terms of participants with financial 

sophistication. MFA believes that it is more appropriate to use asset size, as the definitions of 

accredited investor and qualified purchaser do, as a proxy for sophistication, and respectfully 

requests that the Sellers’ Carveout be revised to cover, in the case of a purchase or redemption of an 

 

15 29 CFR § 2550.408b-2(f), example (2).
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 10 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

interest in a private fund, employee benefit plans and IRAs that are eligible under federal securities 

laws (including accredited investors and qualified purchasers) to invest in such funds. MFA also 

requests that the Sellers’ Carveout be revised to clarify that the restriction on receiving a fee in 

connection with a transaction (see Proposal (b)(1)(3) and (C)(1)(3)), does not apply to the receipt, by 

a fund manager or its affiliate, of an asset management, incentive or performance fees (or incentive 

or performance allocations) from a fund.

An alternate condition, that the plan’s assets are managed by an independent plan fiduciary 

that has at least $100 million in employee benefit plan assets under management, is inconsistent with 

existing Department exemptions and guidance. For example, PTE 84-14, as amended, permits an 

investment adviser or other financial institution that is a “qualified professional asset manger” or 

“QPAM”, and therefore a fiduciary of the plan assets under its management, to cause a plan to 

engage a variety of transactions that would otherwise be prohibited by ERISA. Meeting the 

standards required to be a QPAM connotes a level of experience and sophistication, which we 

understand to be very important to the Department regardless of the source of the QPAM’s assets 

under management. Yet the Sellers’ Carveout imposes significantly stricter standards on an 

independent plan fiduciary seeking to rely on Section (b)(1)(C) of the Proposed Rule, notably the 

requirement that the fiduciary have at least $100 million in employee benefit plan assets under 

management (compared with $85 million in assets under management for a QPAM that is an SEC 

registered investment adviser and no assets under management requirement for QPAMs that are 

banks or insurance companies). These conflicting standards will lead to confusion with no 

additional protection for plans and the Department has provided no explanation as to why the 

proposed $100 million threshold would better protect plan investors than the QPAM standard. For 

example, a fund manager that is a QPAM but that only has $80 million in assets that are attributable 

to employee benefit plans, can represent that a purchase of an asset for a plan investor’s account is 

exempt from the prohibited transaction restrictions in Section 406(a) of ERISA and can engage in 

multiple transactions with “remote” parties in interest. Yet that same QPAM could not, if this 

provision of the Seller’s Carveout remains unchanged, represent that it is the sole fiduciary 

responsible for the decision to purchase the asset because it does not have sufficient employee 

benefit assets under management. To avoid this result, Section (b)(1)(C) of the Proposed Rule 

should be conformed to Part VI(a) of PTE 84-14. 

Finally, the Sellers’ Carveout as drafted applies only to plans as defined in Section 3(3) of 

ERISA. This restriction means, for example, that an investment fund that is deemed to hold plan 

assets under Section 3(42) of ERISA (whether a pooled fund or a “fund of one” established for a 

single plan or affiliated group of plans) cannot rely on the Seller’s Carveout. Many plan investors 

invest in private or alternative funds through “funds of funds” and “funds of one” and private funds 

that seek investment from such funds would not be able to rely on the Sellers’ Carveout to market 

their funds. Given that private funds are not offered to retail or unsophisticated investors, this 

limitation would appear to frustrate plan diversification with no enhanced protection for plan 

investors that are eligible to invest in such funds. MFA respectfully requests that the Seller’s 

Carveout be revised to apply to marketing and sales to all retirement plan investors eligible to invest 

in private investment funds, including accounts or funds deemed to hold plan assets pursuant to 

Section 3(42) of ERISA (including, but not limited to accounts that are maintained by IRAs that are 
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 11 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

accredited investors or qualified purchasers) as well as plans as defined in Section 3(3) of ERISA or 

to clarify that a fund holding plan assets is deemed to be acting on behalf of the plans, including 

IRAs, investing in the fund. 

Suggested Revisions to Best Interest Contract Exemption

The revisions discussed above would permit a fund manager to continue to sell its own 

investment products and services consistent with existing Department guidance. They would not, 

however, permit an adviser to use placement agents or other third-party sales persons that are 

compensated in connection with a sale of an interest in a private fund. Although the proposed BIC 

Exemption permits sales persons to receive commissions in connection with sales of certain 

investment products, the exemption only applies to a limited universe of investment products 

defined as “Assets.”16 

MFA believes this is too restrictive and will unnecessarily restrict eligible retirement plan 

investors from continuing to be able to invest in investment funds that are privately offered. As 

noted above, federal securities laws permit accredited investors and qualified purchasers to purchase 

interests in privately offered funds. Because these funds are not sold to the general public or to 

retail investors, revising the definition of “Asset” in the BIC Exemption to include privately offered 

funds would not result in any change to the current ability of sophisticated small plans and IRAs to 

purchase such investments. Rather, it would allow eligible plans and IRAs to continue to meet their 

financial goals by purchasing interests in such funds and benefit from the conditions of the BIC 

Exemption. 

MFA also notes that plan investors currently invest in non-U.S. funds that are registered in 

their home jurisdiction or listed on an exchange in their home jurisdiction (or both). Many plan 

investors invest in these funds to take advantage of investment returns offered by non-US markets. 

These plan investors should be allowed to continue to do so. MFA respectfully requests that the 

definition of “Asset” be revised to include non-U.S. investment funds that are registered in their 

jurisdiction of formation or exchange listed. To provide clarity regarding the scope of investment 

funds that would be covered by such revisions, the Department could look to existing securities laws 

definitions, such as (1) an entity that meets the definition of “private fund” in section 202(a)(29) of 

the Advisers Act, or an entity formed in a jurisdiction outside of the U.S. that would be a private 

fund if formed in the U.S., or (2) an entity that would be an investment company under section 3(a) 

of the Investment Company Act of 1940, but for one or more of the exceptions in section 3(c) of 

that Act, or an entity formed in a jurisdiction outside of the U.S. that would be such an entity if 

formed in the U.S.

* * * * * *

 

16 Specifically, bank deposits, CDs, mutual fund shares, interests in bank collective funds, insurance company 

separate accounts, exchange-traded REITs, exchange-traded funds, certain corporate bonds, agency debt securities and 

U.S. treasury securities (each as defined by FINRA rules), insurance and annuity contracts, guaranteed investment 

contracts, and exchange-traded equity securities.
Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration

July 21, 2015

Page 12 of 12

600 14th Street, NW, Suite 900 Washington, DC 20005 Phone: 202.730.2600 Fax: 202.730.2601 www.managedfunds.org

MFA strongly supports the Department’s goal of protecting benefit plans and their 

participants, and we recognize that imposing fiduciary status on certain service providers to plans can 

further that goal. We appreciate the Department’s determination that valuations provided to collective 

investment vehicles do not create a fiduciary relationship under ERISA. For the reasons discussed 

above, we believe that further tailoring and clarification of the Proposal is needed to achieve the stated 

objectives of the Department’s carve-outs for collective investment vehicles and to permit the 

marketing and sale of private investment funds to sophisticated retirement plan investors without such 

marketing and sales activities being deemed fiduciary in nature. If you have any questions regarding 

any of these comments, or if we can provide further information, please do not hesitate to contact 

Benjamin Allensworth or the undersigned at (202) 730-2600.

Respectfully submitted,

/s/ Stuart J. Kaswell

Stuart J. Kaswell

Executive Vice President & Managing 

Director, General Counsel