1 

Edward Van Dolsen 

Executive Vice President 

President of Retirement 

& Individual Financial Services 

730 Third Avenue | 5th Floor 

New York, NY 10017 

T 212-916-4292 

F 212-916-5060 

EVanDolsen@tiaa-cref.org 

July 20, 2015 

By Email: e-ORI@dol.gov

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Conflict of Interest Rule, Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

By Email: e-OED@dol.gov

Office of Exemption Determinations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Suite 400 

Washington, DC 20210 

(D-11712; D-11850; D-11327; D-11687) 

 

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

Proposed Rule (RIN 1210-AB32) 

Proposed Best Interest Contract Exemption (ZRIN: 1210-ZA25) 

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 

84-24 (ZRIN: 1210-ZA25) 

Proposed Amendment to Prohibited Transaction Exemption 75-1 (ZRIN: 1210-ZA25) 

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction Exemption 

86-128 (ZRIN 1210-ZA25) 

Ladies and Gentlemen: 

Teachers Insurance and Annuity Association – College Retirement Equities Fund 

(“TIAA-CREF”) is pleased to submit this comment letter on the Department of Labor’s proposal 
2 

to change the definition of “fiduciary” under the Employee Retirement Income Security Act of 

1974, as amended (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), 

to add new prohibited transaction exemptions, and to make changes to existing prohibited 

transaction exemptions (collectively, the “Proposal”). TIAA-CREF is a mission-driven company 

that seeks to provide those who serve others with the income they have earned and need in their 

retirement years. We do this through annuities, both fixed and variable, and mutual funds. 

Annuities are the only way to guarantee that our clients will not outlive their income, so they are 

particularly important to achieving our mission.

We appreciate the effort made by the Department in developing the Proposal, and are 

fully supportive of imposing a clear Best Interest1 standard in the situations addressed by the 

Proposal. We are concerned, however, that some of the Proposal’s details would seriously 

undermine our ability to fulfill our mission. Some requirements are impractical and would 

impose significant cost, time and resource burdens that are unnecessary to accomplish its 

purposes. For a company such as TIAA-CREF that operates on a non-profit basis, those burdens 

will ultimately be felt by participants via additional fees or lower returns on their investments. 

We have thought carefully about the potential effects on TIAA-CREF’s current business, and 

suggest a number of areas below where we think some narrowing and simplification will 

preserve the intent of the Proposal. 

We have the following key issues: 

 The proposal raises unnecessary barriers to TIAA-CREF in its key mission to 

provide plan participants and IRA Owners with the advice they need on 

guaranteed lifetime income solutions so they will not outlive their retirement 

income. 

 

 The proposal unnecessarily restricts and brings into question the types of 

payments TIAA-CREF can receive for providing recordkeeping and 

administrative services to Plans and IRAs on a cost effective basis. 

 The proposal unnecessarily restricts what TIAA-CREF and its representatives can 

say about its products and services in both educational and sales settings. 

 The Best Interests Contract Exemption has needlessly expensive and burdensome 

conditions and is unworkable in its present form. 

 We have a number of other concerns, comments, and proposed modifications to the 

Proposal. We intend these to be constructive and help the Department achieve the purpose of the 

Proposal. As a guide to the organization of our comments, here is a general table of contents. 

Section Page 

I Introduction 3 

II Key Structural Issues 5 

 1

 Capitalized terms not defined in this letter have the same meaning as in the Proposal. 
3 

III Importance of Advice and Guaranteed Income; Access to Advice 8 

IV Definition of Fiduciary Investment Advice 11 

V Carve-Outs 18 

VI Exemptive Relief for Participant-Directed Plans 30 

VII Best Interest Contract Exemption 36 

VIII Other Comments 54 

IX Conclusion 57 

I. Introduction 

About TIAA-CREF 

 TIAA-CREF is the leading provider of retirement services in the not-for-profit and K-12 

markets and a global asset manager with more than $869 billion in assets under management.2

 

The organization was founded nearly a century ago with the mission to “serve those who serve 

others” and “aid and strengthen” our client institutions. Teachers Insurance and Annuity 

Association of America (“TIAA”) was formed by the Carnegie Foundation for the Advancement 

of Teaching in 1918, is incorporated as a stock life insurance company in the State of New York 

and operates on a not-for-profit basis. The College Retirement Equities Fund (“CREF”) – the 

world’s first variable annuity – was created in 1952 to give retirement savers the ability to invest 

in equities and reduce their exposure to inflation risk. 

Throughout its history, TIAA-CREF has helped millions of Americans achieve financial 

well-being and a secure retirement. Today, TIAA-CREF is a Fortune 100 company with 12,500 

employees and 130 offices nationwide, serving 5 million individuals and over 16,000 

institutions. As TIAA-CREF works to fulfill its mission in the 21st century, we have grown our 

asset management capabilities, becoming a three-time winner of the Lipper Award for Best 

Overall Large Fund Company in 2012, 2013, and 2014, the world’s largest agriculture investor, 

and the world’s second-largest commercial real estate manager. We have undertaken this growth 

to support and enable the core focus of our business: helping the people we serve achieve a 

financially secure retirement. We believe that focus, along with our nonprofit heritage and 

unique mission, set us apart in the financial services industry. 

Our unique corporate structure allows us to focus our efforts on successful retirement 

outcomes for participants. TIAA has no outside shareholders, other than our Board of Overseers, 

which is a not-for-profit entity. Importantly, according to TIAA’s corporate charter, TIAA 

functions without profit to the corporation or its shareholders. CREF, a companion organization, 

is operated at cost. That means that TIAA-CREF can use operating earnings to fortify the 

overall organization. As a result, our corporate interests are aligned with those of our clients – 

both at the plan and individual investor level. 

 

2

 As of June 30, 2015. 
4 

Today TIAA-CREF offers to both plan sponsors and IRA investors a diversified array of 

ten annuities, proprietary mutual funds advised by an affiliate, and non-proprietary mutual funds 

from scores of different fund families. We believe we act in the best interest of plan participants 

and IRA Owners at any interaction with them – whether we are selling these products, educating 

people, or providing fiduciary advice, the products are designed to be in their best interests. 

They provide our participants with the security they need in retirement. The TIAA employees 

who market and sell these products to the plans we recordkeep and to our plan participant and 

IRA clients are not paid commissions. 

Our clients largely use defined contribution plans as their primary retirement vehicles, 

and understand the value of lifetime income vehicles and our TIAA and CREF annuities. TIAACREF drives results – in 2014 we paid $4.7 billion to retired clients, including 28,000 annuitants 

over the age of 90. 

TIAA-CREF is Committed to a Best Interest Standard 

 TIAA-CREF supports the goal of the Department and the Administration of imposing 

a best interest standard on Advisers and their institutions in many situations of concern to the 

Department. Indeed, we wholeheartedly agree with the Secretary’s statements that, “[r]etirement 

security is a fundamental pillar of the middle class,” and that “[w] e must ensure that Americans 

who work hard and save responsibly for retirement are getting a fair share of the returns on those 

savings.”3

 And we agree that generally those situations of concern include discussions where a 

plan participant is advised to roll over assets from a retirement plan to an IRA. We believe that 

advice about distributions from a retirement plan, including whether to roll to an IRA, should be 

subject to the same ERISA fiduciary standard as all other advice. 

TIAA-CREF has been dedicated for almost 100 years to helping those who serve others 

to and through retirement. “Putting the Customer First” is a core value that helps define the way 

we serve participants and IRA Owners, including the services and products we offer to help them 

to and through retirement. The Proposal accords with our values, how we historically have 

conducted our business, and how we value the participants and IRA Owners we serve. 

We also believe, however, that modifications to the Proposal are needed to ensure that 

participants and IRA Owners continue to have access to advice and educational resources that 

enable them to plan effectively for retirement. Successfully planning for, and living through, 

retirement is complex. It is informed by the paths individuals take as well as life’s unexpected 

twists and how they react and adapt. Success also depends in part on having access to the right 

resources at the right points in time, and often we find that successful retirees have had a number 

of conversations with financial professionals throughout their lives. The new administrative 

assistant or teaching hospital resident, or the assistant physics professor with two children, is not 

a “high net worth” individual with the resources to pay a fiduciary advisor out of 

pocket. Instead, they are juggling student loans, credit card debt, assembling the down payment 

 3

 Testimony of Thomas E. Perez, Secretary, U.S. Department of Labor, before the Health, 

Employment, Labor and Pensions Subcommittee of the Committee on Education and the Workforce, U.S. 

House of Representatives, June 17, 2015. 
5 

for a house, or (at a later stage) paying a mortgage while saving for college tuition for the 

children. In our experience, the right resource to get our participants on track to retirement 

security is provided at no out-of-pocket expense, through our bundled recordkeeping offer. Our 

aim with these comments is to help the Department avoid a fiduciary framework that is so rigid 

and restrictive that it would become legally impossible or economically impractical to provide 

this help to people who need it. 

A conversation with a financial professional who can dynamically interact with the 

participant will help address his or her needs and circumstances in a manner which a self-service 

educational tool or automated advice program cannot. By way of example, we have found that 

our plan participants are more likely to act on the fiduciary retirement plan advice we deliver, 

and save more for retirement, when the advice is delivered through one of our employees where 

they have the opportunity to ask questions and obtain supporting information than when they 

obtain the same advice through our online tool.4

 

 One way we measure our success in aligning our interests with participants is through a 

short survey with a question that we present to every individual participant after an advice 

session discussing plan accounts or IRAs: 

“How strongly do you agree or disagree that [Name of TIAA-CREF Employee] puts your 

interests first?” 

The permitted answers are: “strongly agree”, “agree”, “neither agree nor disagree”, “disagree”, 

or “strongly disagree.” From 2012 through May 2015, between 95% and 98% of respondents 

either agreed or strongly agreed that their TIAA-CREF employee consultant “put their interests 

first.” We are proud of this record and strive to maintain it; our business processes include 

having a director-level supervisor call clients who have scored us less favorably to understand 

why and be sure their needs have been met. 

II. Key Structural Issues - Summary 

Our key concerns are: 

1. The Proposal raises unnecessary barriers to guaranteed lifetime income solutions 

(annuities), both inside a plan and in an IRA. We are concerned that the broad 

definition of “investment advice”, the limited counterparty carve-out, the constricted 

definition of education, a Best Interests definition that departs from the settled 

approach used in ERISA, and the new limits proposed on various Prohibited 

 4

 In 2014, 55% of participants using our online retirement plan advice tool took one of the 

following actions after receiving the advice: increased their savings, reallocated their holdings, or 

rebalanced their portfolio—all toward improving their retirement outcome. However, when the same 

retirement plan advice was delivered through one of our employees, 62% of participants who received the 

advice took one of the same actions. 
6 

Transaction Exemptions (“PTEs”), all taken together, raise major questions about 

TIAA-CREF’s ability to describe and sell appropriate proprietary products, including 

the “in-plan” and individual annuity options through which TIAA-CREF can provide 

plan participants and eligible IRA investors guaranteed lifetime income. These 

annuities are important for and in the best interest of our participants, because they 

are a low-cost means for them to avoid outliving their retirement income. 

To close this gap, we suggest that the Department (i) narrow the definition of 

“investment advice” so routine sales activities can be conducted without imposing 

fiduciary status, (ii) broaden the seller’s carve-out to include sales of products and 

services (including asset management services) to plans of all sizes and IRAs, and 

(iii) retain the standard for distinguishing “education” from “advice” first set forth in 

IB 96-1. 

2. Revenue Sharing. The Proposal’s changes to the current PTEs appear to 

unnecessarily restrict appropriate forms of compensation received by TIAA-CREF, 

such as revenue sharing from mutual funds and amounts received for recordkeeping 

and plan services from proprietary annuity contracts. These forms of compensation 

to the company, which are fully disclosed to plan sponsors and explicitly permitted 

under Section 408(b)(2), permit us to offer low cost recordkeeping and investment 

management services. These revenue streams are critical to our success in providing 

low-cost services to plans. 

The Department should clarify that changes to the current prohibited transaction class 

exemptions apply at the Adviser level, not at the Financial Institution level, and are 

not intended to preclude TIAA-CREF or its corporate affiliates from receiving these 

types of payments in conjunction with recordkeeping and other services provided to 

retirement plans. 

On a related point, the Department should not prescribe conduct standards or 

restrictions on permissible forms of compensation that would limit TIAA’s ability to 

sell its high-quality mutual funds and annuity products through its own sales 

force. As noted above, we are a three-time winner of the Lipper Award for Best 

Overall Large Fund Company, and CREF has among the lowest mortality and 

expense risk charges of any variable annuity product. It would be unfortunate and 

contrary to the Department’s intent if TIAA-CREF Advisers were required to sell 

lower quality or more expensive third-party products because of the proposed 

exemptions. 

3. Clarify Treatment of Recommendations or Mentions of Exempt Products or 

Services. The Proposal appears to indicate that a reference to or recommendation – 

or a mere mention – of a product or service that is designed and operated to be an 

exempt transaction would be investment advice, even if no compensation is received 

by TIAA-CREF or the Adviser on account of the recommendation. For example, a 

referral to an independent advice program that qualifies under the SunAmerica 

Advisory Opinion of the Department (Advisory Opinion 2001-09A) or as an “eligible 
7 

investment advice arrangement” under ERISA Section 408(g), or to an exempt total 

fee offset arrangement (see, e.g., Advisory Opinion 2005-10A), should not be 

prohibited because, although TIAA-CREF or its Affiliates or Related Entities may 

receive compensation as part of the underlying arrangement, that compensation is 

permissible. As long as no additional compensation is paid by the plan or IRA for the 

referral or recommendation itself, the referral or recommendation is a permissible 

separate transaction that should not require an exemption like the BIC Exemption or a 

separate PTE. 

4. The BIC Exemption has Impractical and Cost-Prohibitive Aspects. Certain 

conditions of the BIC Exemption are impractical and cost prohibitive, and render the 

BIC Exemption virtually unworkable. Onerous and unnecessary conditions include 

some of the contracting requirements, warranties, the disclosure requirements, and 

extremely burdensome recordkeeping requirements. In addition, we believe the 

restrictive definition of “Assets” is arbitrary and will limit investor choice to the 

detriment of participants. 

Our comments below focus on the cumbersome requirements to execute the contract 

before the recommendation (not before the execution of the transaction), argue that 

the contract should be between the investor and the firm but not the Adviser, suggest 

the Department drop the requirement to include specific warranties in the contract, 

suggest a change in the Impartial Conduct Standard to eliminate the language adding 

the concept of “without regard” to the financial interests of the firm or the Adviser, 

address the definition of “Assets”, and suggest ways of simplifying the disclosure 

obligations so they are useful to investors and feasible for service providers. 

The BIC Exemption as proposed simply does not address today’s reality of multichannel interactions between clients and TIAA-CREF. We provide several examples 

below to demonstrate that the traditional model of direct meetings in person between 

client and Adviser is no longer the norm. For example, if we do not have an email 

address that meets the Department’s requirements, we would be forced to delay the 

execution of an investment transaction pending receipt of a written triparty contract 

that must be delivered and returned via regular mail. This scenario creates market 

risk to the participant or IRA Owner that can be very significant and upsetting to the 

client. 

A cross-functional team at TIAA-CREF has estimated the additional costs and 

burdens of complying with the contract, disclosure and record retention requirements 

of the BIC Exemption. First, the team estimated the one-time cost of building the 

infrastructure to (a) capture, at the point of contact with clients, the information 

needed to produce and distribute the triparty contract and point-of-sale (“POS”) 

disclosure, (b) produce and distribute POS disclosures and triparty contracts, storing 

the data, and combining it with investment option cost information to produce annual 

disclosures, (c) building web disclosure requirements, and (d) developing the 

capabilities to meet the audit requirements of the Proposal. We estimate these onetime efforts would take at least 9-15 months depending on funding, final design 
8 

details, and dependencies with other projects, at a cost of approximately $24.7 

million. 

Once that infrastructure has been developed, we estimate that each year an additional 

870,000 calls or other interactions with clients would require changes to comply with 

the BIC Exemption, and we would have to send an additional 1.55 million packages 

via email or regular mail. An additional 320 full time employees would be required. 

The total recurring annual costs would be approximately $37.8 million. 

These are staggering estimates of the direct cost of the exemption as proposed. And 

these do not include the indirect costs to participants, such as longer cycle times and 

market risk because of interjecting agreements and disclosures into existing 

processes. Within our non-profit system, ultimately all of these costs – and related 

risks such as litigation risk – will be passed on to our clients, who will suffer reduced 

investment returns because of increased fees, a more difficult client experience and, 

most importantly, less income in retirement. 

We offer below a number of comments that address these and other concerns, while 

preserving the guiding principles of the Proposal. 

III. The Importance of Advice and Guaranteed Income; Access to Advice 

 Advice is important to ensuring successful outcomes in retirement, and is directly related 

to our mission of helping the people we serve achieve a financially secure retirement. Earlier 

this year, TIAA-CREF engaged an independent research firm to poll a random, nationwide 

sample of financial decision makers in households with at least $250,000 in investable assets to 

understand better their approach to saving for retirement. While we understand this surveyed 

group of participants is well above the current average balance of plan participants across the 

industry, this survey demonstrates that a large part of the success of this group is because they 

had access to and used advisors. For example, one finding of this survey was that more than half 

(53%) of respondents first met with an advisor between the ages of 25 and 44. Of these, 27% 

first met with an advisor between the ages of 25 and 34. We believe that when investors talk to 

an advisor to receive basic guidance and education early on in their careers, when they likely 

have very little savings, they are more likely to succeed in saving for retirement. 

In examining how these financial decision makers manage their assets and what they do 

to prepare for retirement, some important findings emerged. For one, saving for retirement is a 

top priority among these investors. According to the survey, 50% say their most important 

investment goal is to generate income in retirement, and 41% say their top goal is to accumulate 

savings for retirement. 

What do they do to reach their goals? 60% said they use a financial advisor to help them 

manage their investments. In terms of reliable sources of information, 57% of respondents said 

that an advisor is the most reliable, followed distantly by financial newspapers (23%) and 
9 

financial websites (20%). Survey respondents noted several areas where advisors helped them 

make good decisions: 

 During times of market turmoil: 53% of respondents with an advisor said they 

took no action during recent market volatility because their portfolio was 

regularly managed and positioned to ride out turbulence. But for respondents 

without an advisor, only 41% had confidence to stay the course with their 

portfolios. 

 Understanding their investment costs: 72% of investors with an advisor have 

checked the fees on their investments in the last six months. 

 Surveyed investors who used advisors said they found them helpful in these areas: 

o Determining which investment vehicles are appropriate for their goals 

(97%) 

o Recommending how to divide investments among asset classes such as 

stocks and bonds (97%) 

o Explaining how to turn savings into lifetime income in retirement (93%) 

o Strategizing about financial legacy and estate planning (93%) 

The Link Between Access to Advice and Successful Retirement Outcomes 

The value of advice is measurable also in terms of outcomes. Independent research 

suggests that the impact of making intelligent financial planning decisions has a quantifiable 

impact on a client’s outcomes. Guidance that extends beyond a standard asset allocation pie 

chart to include an analysis and discussion of the underlying investments is critical and is an 

important step in achieving the full benefit of a diversified asset allocation strategy. There is an 

increasing correlation across asset classes that may not be evident to the average investor – for 

example, convertible income securities at times perform more like equities than traditional fixed 

income investments. Additionally, guidance on important decisions such as the beneficial 

impact of asset location (i.e., the benefits of holding income-generating assets in tax deferred 

accounts and capital gains-generating investments in taxable accounts), use of annuities and use 

of dynamic withdrawal strategies (e.g., the order of withdrawals across multiple accounts to 

protect against the adverse effects of drawing down assets during a bad market) has also been 

found to improve investor outcomes. 

Investors who “go it alone” tend to find the learning curve steep and time consuming. 

There also is a hidden cost to the investor of poor decision making. Research has shown that 

providing information alone has not resulted in material improvements in a client’s financial 

decision making. Conversely, research also has shown that providing guidance at pivotal 

decision points leads to better decision making.5

 

The Importance of Guaranteed Lifetime Income in Retirement 

In recent years, American workers have been realizing that assuring their retirement 

savings will last for their lifetime is just as important as their efforts to accumulate savings 

during their working years. This has become increasingly important as employers have moved 

 

5

 See note 3, infra. 
10 

from defined benefit pension plans, which offer guaranteed lifetime income, to defined 

contribution plan, where the worker bears the risks of loss and longevity. The importance of 

protecting their savings in plans became so apparent in the financial crisis of 2008 and 2009, 

when millions of workers lost hundreds of millions of dollars in retirement savings. 

 TIAA-CREF has long recognized, even before the financial crisis, the need for American 

workers to focus on the preservation of their retirement savings during the “decumulation” phase 

of the retirement lifecycle. That is why we have become an industry leader in providing “inplan” individual and group annuity products that offer guaranteed lifetime income. These 

products protect retirement savings throughout the accumulation and retirement lifecycle, and 

shift the investment risk to the company as the insurance company guarantor. TIAA-CREF 

works hard to manage that risk to be in a position to meet the obligations under its annuity 

contracts. As an insurance company subject to state insurance law, TIAA-CREF must maintain 

strict capital requirements and undergoes extensive risk testing to assure it can meet its 

contractual obligations. 

 The Department also recognizes the importance of lifetime income to American workers 

as they move to savings vehicles such as defined contribution plans and IRAs. A Department 

news release states: “As Americans live longer and pensions increasingly trend away from the 

traditional defined-benefit structure that provides a stream of guaranteed income for the duration 

of a retiree’s life, improving access to lifetime income options is an important way to help 

retirees manage their savings.6

 Similarly, the Department recognized the importance of lifetime 

income in the preamble to the Proposal: “Based on public input received in connection with its 

joint examination of lifetime income issues with the Department of the Treasury, the Department 

is persuaded that additional guidance may help improve retirement security by facilitating the 

provision of information and education relating to retirement needs that extend beyond a 

participant’s or beneficiary’s date of retirement.”7

 Additionally, both the Department and the Treasury Department have undertaken 

significant efforts in recent years to promote guaranteed lifetime income, focusing on Qualified 

Longevity Annuity Contracts,8 the use of deferred income annuities in target date funds,9 and the 

expected proposed regulations on lifetime income stream illustrations in benefit statements. But 

the Proposal risks of discouraging guaranteed lifetime income solutions because they are more 

complex products than mutual funds and necessarily cost more because of their guarantees. 

A very recent study examines lump-sum distributions, annuitization, and annuity life 

options among households observed at ages 65-69 and 75-79 and relates these pension 

provisions to poverty incidence and the risk of falling into poverty at older ages. The results 

indicate that households with pensions that are annuitized with the joint-and-survivor life option 

 6

 News Release, EBSA, US Labor, Treasury Departments act to enhance retirement 

security for an America built to last (Feb. 2, 2012), available at: 

http://www.dol.gov/opa/media/press/ebsa/EBSA20111653.htm. 

7

 80 FR at 21944 (April 20, 2015). 

8

 IRB 2014-30. 

9

 Joint Department and Treasury Department guidance, October 2014. 
11 

and that do not take lump-sum distributions before age 55 can best avoid income and asset 

poverty.10 

IV. Definition of Fiduciary Investment Advice 

Background 

The Department proposes to eliminate the current five-part test and replace it with a twopart test that requires an Adviser and Financial Institution to determine (i) if recommendations of 

certain types (“Covered Advice”) will be made for compensation and (ii) if so, whether the 

advice is rendered “pursuant to a written or verbal agreement, arrangement or understanding that 

the advice is individualized to, or that such advice is specifically directed to, the advice recipient 

for consideration in making investment or management decisions with respect to securities or 

other property of the plan or IRA.” 

A “recommendation” is defined in the Proposal as “a communication that, based on its 

content, context, and presentation, would reasonably be viewed as a suggestion that the advice 

recipient engage in or refrain from taking a particular course of action.” In the Preamble to the 

Proposal, the Department states that the parties must have a “meeting of the minds” (i.e., 

agreement or understanding) that the advice is individualized or specifically directed to the plan 

or IRA, but no such “meeting of the minds” is required regarding “the extent to which the advice 

recipient will actually rely on the advice.” 80 FR at 21940 (April 20, 2015) 

Concerns 

The proposed changes to the fiduciary definition are so broad that Advisers, Financial 

Institutions, Affiliates and Related Entities will almost always become fiduciaries under ERISA 

and the Code when they engage in routine sales of products and services to plans and IRAs. 

Such persons and entities could even become fiduciaries when they engage in activities 

incidental to the sales process because of the Proposal’s constricted interpretation of the 

everyday term “education”. For example, mere discussions of products and services (e.g., sales 

presentations) that the Adviser and Financial Institution offer could be construed as fiduciary 

advice; the delivery of a brochure or sales presentation that is not personalized should not rise to 

the level of “investment advice”. In addition, completing requests for proposal (“RFPs”), to the 

extent the RFP includes a sample fund line up or discusses certain products and services, could 

also be construed as fiduciary “investment advice” under the Proposal. Finally, customizing a 

brochure to address different market segments (e.g., plan size) appears to be “investment 

advice.” 

 10 Natalia S. Orlova, Matthew S. Rutledge, and April Yanyuan Wu, Transition from 

Defined Benefit to Defined Contribution Pensions: Does it Influence Elderly Poverty?, The Center for 

Retirement Research at Boston College, CRR WP 2015-17, July 2015. 
12 

The Proposal’s basic presumption of fiduciary status for almost any interaction with a 

plan fiduciary, plan participant or beneficiary, or IRA Owner simply does not conform to normal 

business practices where a buyer of a product or service would not reasonably expect that the 

seller will act as a fiduciary during the sales process.11 Unfortunately, while the Proposal 

includes a few “carve-outs” from the definition, the only carve-out that addresses sales activities 

does not apply to IRAs and small participant-directed defined contribution plans, which make up 

a substantial majority of the retirement marketplace. 

For example, TIAA-CREF routinely receives requests from plan sponsor or consultant 

fiduciaries, for either existing or new clients that are below the 100 participant or $100 million 

thresholds for the counterparty carve-out to apply, to provide sample menus that will allow us to 

provide recordkeeping services with no cost beyond the investment management fees, on a 

bundled basis. We have thousands of plan sponsor clients in this category. The menu must 

permit us to cover our costs of servicing the plan, so TIAA-CREF develops a “revenue 

requirement” that sets forth the estimated revenue necessary so we can provide services without 

losing money. That requirement depends on several proprietary factors, including the size and 

complexity of the client, potential economies of scale, and costs due to inefficient processes at 

the plan sponsor (such as the need to process payrolls by hand or incomplete or nonconforming 

data feeds). The revenue necessary may be provided through explicit fees paid by the plan 

sponsor or by participants through charges to their plan accounts. More frequently, it is provided 

by revenue share paid to TIAA-CREF by nonproprietary mutual funds or recordkeeping offsets 

credited by our proprietary annuities or mutual funds. Consultants who are acting as fiduciaries 

for plan sponsors often request that certain share classes be on the menu and they want to 

understand the effect on our pricing. 

We always disclose revenue share or similar fees and expenses in our recordkeeping 

agreement, and provide details about our direct and indirect compensation in our 408(b)(2) 

disclosures. We strictly comply with the guidance of IB 96-1 when providing these services – 

although specific funds are identified to the plan sponsor or other fiduciary as a necessary 

product of the pricing or RFP process, it is clear that these activities are ancillary to selling 

activities. The decisions about which investment options should be on the menu for retirement 

plans are fiduciary decisions, and under that demanding standard the fiduciary must be fully 

informed about costs and value. That characterization does not depend on the size of the plan, so 

the failure of the counterparty carve-out to cover small plans leaves no room for legitimate 

selling activities that are recognized as such for larger plans. 

 11 Hecker v. Deere & Co., 556 F.3d 575,583 (7th Cir. 2009) (In concluding that Fidelity did 

not act as a fiduciary when it negotiated its compensation with regard to services provided to the plan, the 

court noted that “there are cases holding that a service provider does not act as a fiduciary with respect to 

the terms in the service agreement if it does not control the named fiduciary's negotiation and approval of 

those terms.”); Renfro v. Unisys Corp., 671 F.3d 314, 324 (3rd Cir. 2011) (“‘When a person who has no 

relationship to an ERISA plan is negotiating a contract with that plan, he has no authority over or 

responsibility to the plan and presumably is unable to exercise any control over the trustees' decision 

whether or not, and on what terms, to enter into an agreement with him. Such a person is not an ERISA 

fiduciary with respect to the terms of the agreement for his compensation.’”, citing F.H. Krear & Co. v. 

Nineteen Named Trs., 810 F.2d 1250, 1259 (3rd Cir. 2011). 
13 

At the individual investor level, plan participants and IRA Owners expect a financial 

institution to provide information about the product and services within the plan or IRA. The 

retirement investor is not well served by restricting such communications simply to description 

of asset classes. For example, let us say a plan participant or IRA Owner contacts our call center 

and asks about a specific type of fund, like an international equity fund, and whether that type of 

fund is available. The call center employee tells him there are several such funds that meet the 

criteria, including a proprietary mutual fund, and the employee names them, discusses their 

performance and tells the client about their fees. The client then says, “Okay, please transfer 5% 

of the amounts from fund A into the proprietary international mutual fund.” The call center 

employee then must say, “I cannot do that now,” because to meet the applicable BIC Exemption 

he or she has to enter a contract with the client and provide a written point of sale disclosure. In 

the meantime, the client is subject to market risk while this paperwork is completed. 

We submit that this kind of conversation should not rise to the level of fiduciary advice at 

all. It should, under the intent of the regulation, be considered education requested by the client 

and the regulation should make this clear. Another reason for treating this type of conversation as 

other than investment advice is that the participant or IRA Owner may at the time of the 

conversation do nothing. However, at a future time he or she might make a change (perhaps by 

using TIAA-CREF’s web functionality) and we would not know that the information was used in 

any way until after the transaction – and the link with the conversation will never be clear. At 

that point it will not be possible to comply with an exemption like the BIC Exemption. 

The various investment options available through a plan or IRA, including TIAA’s and 

CREF’s guaranteed in-plan annuity offerings, have differing features, investment objectives, and 

risks. Participants frequently have basic questions about the details . Basic information about 

products and their features in the context of education about investing concepts and asset classes 

promotes financial literacy and helps, not hinders, the process of making well-informed 

investment decisions. Such basic education, without a call to action or a recommendation (or a 

reasonable basis for an expectation that the client is relying on the statement to make an 

investment decision) does not rise to the level of fiduciary advice and should be encouraged, not 

discouraged. We should be able to provide it without having to satisfy an exemption like the 

BIC Exemption (if it is even available for the transaction). 

Another example relates to certain arrangements where a discretionary investment 

adviser hires a third party adviser to provide it with generic model portfolios. The discretionary 

investment adviser may consider the models as part of its discretionary investment advisory 

services to clients (which may include plans and IRAs). The model provider does not know of 

the discretionary investment adviser’s clients, and accordingly, the models are generic and not 

individualized to any of the discretionary investment adviser’s clients. Nor is there any advisory 

or other relationship between the model provider and the discretionary investment adviser’s 

clients. Because the discretionary investment adviser is a fiduciary when providing services to a 

plan, the model provider may be considered a fiduciary when it provides its model to the 

discretionary investment adviser, even though it does not provide services individualized or 

directed to the plan and IRA clients of the discretionary investment adviser and even though it 

has no knowledge of or information regarding the discretionary investment adviser’s clients. 
14 

We believe that this result is unintended and request that the DOL clarify that model providers 

are not investment advice fiduciaries in this context. 

The breadth of the definition of fiduciary investment advice, the unavailability of a carveout and the shift of the burden of proof12 will require our Advisers, and TIAA-CREF and its 

Affiliates and Related Entities, to assume fiduciary status even where no plan fiduciary or IRA 

holder could reasonably expect that the Adviser or Financial Institution is acting in a fiduciary 

capacity. In such a case, the Financial Institution will have to assume the costs associated with 

complying with (or failing to comply with) the BIC Exemption or the other exemptions covered 

by the Proposal or decline to provide financial advice, thus depriving the Retirement Investor of 

a valuable service. 

Alternatively, we believe there are many situations where TIAA-CREF will want to act 

as a fiduciary on behalf of its clients but will confront technical problems under the various PTEs 

as proposed to be amended. We believe the definition of investment advice should be narrowed 

so that TIAA-CREF is in a position to better determine when it will be a fiduciary. 

Finally, we note that the fiduciary relationship for investment advice cannot be created 

before there is a binding commitment to pay direct or indirect compensation to the fiduciary 

(unless, of course, there has been an acknowledgement of fiduciary status). The Proposal should 

be amended to state this fundamental point explicitly. 

Proposed Modifications 

For these reasons, we urge that the Department modify the definition of “investment 

advice” as follows: 

1. “Specifically Directed To”. The “specifically directed to” language should be 

removed. The mere fact that a suggestion is “specifically directed to” a retirement 

investor is simply not relevant to the question of whether a fiduciary relationship 

has been entered into with a plan, plan participant or IRA holder. 

2. Individualized. The “individualized to the advice recipient” language requires 

greater precision and should be modified to read “sufficiently individualized as to 

the plan, participant or beneficiary, or IRA Owner to form a reasonable basis for 

reliance by the advice recipient.” This language is in line with the “meeting of the 

minds” language in the Preamble and is in accordance with the DOL’s statements 

throughout the Preamble that it views as “fiduciary” in nature those investment 

recommendations where there is an expectation that the advice provider will 

provide unbiased and impartial advice that is in the recipient’s best interest. 

 

12 Unlike the current regulation where the Department must prove that all five elements of the fivepart test are met in order to assert fiduciary status, the Proposal essentially shifts the burden to the Adviser 

and Financial Institution to prove that, even though they are presumed to be a fiduciary, they will not be 

treated as one by demonstrating conformance with a carve-out. 
15 

 For example, a model portfolio provider should not be considered a fiduciary 

when it provides its model to the discretionary investment adviser, because it does 

not provide services individualized or directed to the plan or IRA clients of the 

discretionary investment adviser and has no knowledge of or information 

regarding the discretionary investment adviser’s clients. We believe that this is 

unintended and would request that the DOL clarify that model providers are not 

investment advice fiduciaries in this context. 

3. Definition of Recommendation. The definition of “recommendation” is too broad 

and should be replaced with one that focuses on whether a qualitative judgment 

has been conveyed. For example, a “recommendation” should be viewed as “a 

communication that, based on its content, context, and presentation, would 

reasonably be viewed as a call to take action or to refrain from taking action.” 

 Two potential sources of guidance that support this approach are (i) DOL 

guidance on the “endorsement” of a program and (ii) FINRA guidance on 

recommendations. 

a. DOL’s authority regarding the activities that constitute the “endorsement” 

of an IRA or group-like insurance product should be seen as a guidepost in 

developing the definition of “recommendation.” The DOL has issued a 

regulation that provides a safe-harbor exclusion from ERISA coverage for 

certain group-type insurance programs offered by an employer to 

employees. One of the conditions of that safe-harbor regulation requires 

that “the sole function of the employer or employee organization with 

respect to the program are, without endorsing the program, to permit the 

insurer to publicize the program to employees or members, to collect 

premiums through payroll deductions or dues check offs and to remit them 

to the insurer.” 29 C.F.R. § 2510.3-1(j)(3). In its guidance, the 

Department recognizes that fiduciary duties attach only when an 

employer’s involvement is active enough to rise to the level of endorsing 

the arrangement. 

b. FINRA guidance concerning the distinction between recommendations 

and non-recommendations focuses not on the existence of a mere 

suggestion, but on whether there has been a communication that might 

reasonably be viewed as a “call to action” that might reasonably influence 

an investor to trade a particular security or group of securities. See NASD 

Notice to Members 01-23. 

4. Neutral and Factual Communications. Under our proposed approach, 

communications that remain neutral about the product, investment or manager, 

make no subjective statements regarding the quality of the product or investment, 

and express no subjective qualitative judgments about whether, for example, the 

product or manager is a “good fit” or the “right choice” for the investor would 

avoid rising to the level of a “recommendation.” Similarly, references to awards, 
16 

ratings, and achievements (such as Lipper awards, Morningstar ratings, or 

insurance ratings) should be permitted as purely informative and neutral. 

5. When the Fiduciary Relationship is Established. The definition of fiduciary 

investment advice should state specifically, under Section 3(21) of ERISA, that 

the fiduciary relationship does not begin until the fiduciary either receives direct 

or indirect compensation for the covered advice, the investor enters a binding 

commitment to pay such compensation, or the fiduciary has acknowledged the 

relationship. 

Investment Management and Other Services 

Background 

The definition of Covered Advice includes a “recommendation as to the management of 

securities or other property” and a “recommendation of a person who is also going to receive a 

fee or other compensation for providing” a “recommendation as to the management of securities 

or other property.” The definition of fiduciary “investment advice” appears to include the sale 

by an Adviser of investment advice services, managed account services, or investment 

management services provided by an Adviser or a Financial Institution, Affiliate, or Related 

Entity. Thus, for example, if the Adviser provides an objective statement that describes the 

Adviser and that ends up persuading the plan fiduciary to hire the Adviser to manage the assets 

of a plan on a discretionary basis in exchange for a fee, he or she will be acting as a fiduciary. 

Concerns 

We believe this result may be an unintended consequence of the Proposal. Notably, this 

result appears to contradict the Department’s own regulations at 29 CFR 2550.408b-2, Examples 

(1), (3) and (4). Those examples point to situations in which an employer or similar fiduciary 

makes the decision to hire an independent third party to provide fiduciary or non-fiduciary 

services (or additional service) on behalf of the plan and the Department concluded that the 

exemption under ERISA section 408(b)(2) is available because the employer or similar fiduciary 

decided to hire the service provider and the service provider did not use any authority, control or 

responsibility that makes it a fiduciary to cause the payment of compensation (or additional 

compensation) to itself. 

For example, TIAA-CREF provides investment allocation advice to plan participants in 

accordance with the SunAmerica advisory opinion (DOL Advisory Opinion 2001-09A), and a 

managed allocation service that also follows that Advisory Opinion. We submit that educating 

and marketing to a participant or plan sponsor about either service should not amount to 

fiduciary advice because TIAA-CREF is not being paid to provide such advice until the 

participant or plan sponsor uses the service. At that point, TIAA-CREF accepts fiduciary 

responsibility for the service and has managed its conflicts undercurrent DOL guidance. 
17 

Proposed Modifications

Recommendations for no Additional Fee. The Department should clarify that the 

marketing and sales of “fee based” investment advice and investment management services are 

not “fiduciary investment advice” as long as no compensation is paid by the plan or IRA to any 

firm or individual in connection with the marketing and sales of such services. Thus, while fees 

would be paid to the Adviser for the provision of advisory or management services, the Adviser 

would not become a fiduciary until the advisory or management agreement is entered because no 

compensation would be paid by the plan or IRA in conjunction with the marketing or sale 

activities themselves. 

Valuations 

Background 

Covered Advice also would include appraisals or similar statements, whether verbal or 

written, “concerning the value of securities or other property if provided in connection with a 

specific transaction or transactions involving the acquisition or disposition, or exchange, of such 

securities or other property by a plan or IRA”. The definitional section of the Proposal 

(paragraph (b)(5)(ii)) clearly excludes from fiduciary status appraisals to an investment fund 

which holds plan assets of more than one unrelated plan. 

Concerns 

The definition of Covered Advice in italics above is extremely broad and threatens to 

capture communications that reflect market values from market sources, even in the absence of a 

recommendation. This might include everything from planning reports compiled for the 

convenience of the retirement investor setting forth his or her various assets to provide a 

snapshot of his or her complete financial picture to periodic statements required under FINRA 

rules. These sorts of communications should not be covered by the definition. 

We appreciate the Department’s response to previous comments about independent 

valuations provided to investment funds holding assets of unrelated plans. Adding the exclusion 

in paragraph (b)(5)(ii) relieves concerns we had about whether routine independent valuations 

provided to the TIAA Real Estate Account could have been viewed as fiduciary actions. 

Proposed Modifications 

Definition of Covered Advice. We suggest that the Proposal be clarified so the types of 

communications described above, including quarterly statements and website presentations of 

account investments and values, do not constitute Covered Advice.
18 

V. Carve-Outs 

Counterparty (Sellers) Carve-Out 

 Background and Concerns 

We have noted that the Department’s approach in the Proposal is to define “investment 

advice” so broadly that virtually all sales activity is included in the definition of “investment 

advice.” For example, it is unrealistic to expect a participant in a conversation with a call center 

representative not to wonder how a particular product works. A participant might want to know 

how TIAA-CREF decides about the crediting rate on TIAA Traditional, our fixed annuity. What 

mortality and expense charges might apply to the CREF accounts, and how much are they for 

other variable annuity products? What are the differences between our CREF variable annuities 

and our TIAA-CREF mutual funds and what benefits are offered by each? How does a CREF 

variable annuity provide guaranteed lifetime income? A multitude of questions help educate the 

plan participant or IRA Owner about the type of investment that might be right to help achieve a 

particular investment goal. 

By defining “investment advice” very broadly and then introducing “carve-outs,” the 

Department effectively shifts its burden under current law to prove that a person acts as a 

fiduciary. Under the Proposal, the Adviser and TIAA-CREF would be obligated to prove they 

are not fiduciaries by proving that they fit within a carve-out. We respectfully suggest that some 

narrowing of the term “fiduciary” is appropriate as described above. But regardless of whether 

that term is narrowed, we would suggest modifications to the counterparty carve-out as discussed 

in the following paragraphs. 

The Department intends to carve out an arm’s-length sale, purchase, loan or bilateral 

contract between a plan and a seller of products and services if certain disclosure and other 

requirements are met. The Department states that the “overall purpose” of the seller’s carve-out 

is “to avoid imposing ERISA fiduciary obligations on sales pitches that are part of arm’s length 

transactions where neither side assumes that the counterparty to the plan is acting as an impartial 

trusted adviser, but the seller is making representations about the value and benefits of proposed 

deals.”13 TIAA-CREF agrees. As explained above, in most sales situations a plan fiduciary, 

plan participant and beneficiary, and IRA Owner do not reasonably expect that the seller will act 

under a fiduciary standard, particularly if the carve-out’s requirements are met. However, TIAACREF is concerned that the carve-out does not apply to small participant-directed plans unless 

the plan is represented by a fiduciary with at least $100 million dollars of employee benefit plan 

assets under management, and does not apply to any IRA. 

We see no justification for this distinction between small and large plans in the law or in 

policy. We are not aware of any evidence (and the Department has not identified any) that IRA 

Owners and smaller plans are less able to identify situations where a conflict exists or may 

develop. The fiduciary standard is elastic in scope and interpretation – it requires that 

 13 80 FR at 21941 (April 20, 2015). 
19 

appropriate consideration be given to all of the relevant facts and circumstances. The carve-out 

should be similarly flexible rather than artificially excluding IRAs and plans below a certain size. 

Proposed Modifications 

1. Apply Carve-out to Plans and IRAs. The Proposal provides for a counterparty carveout, which effectively provides a safe harbor for fiduciaries who sell to plans with at 

least 100 participants as long as certain requirements are met. 

By establishing a size limitation, the Department appears to be taking the position that 

fiduciaries of large plans are capable of distinguishing circumstances where the 

Adviser or Financial Institution is merely selling a product or service rather than 

providing investment advice. However, the limitation of this carve-out to plans of a 

certain size is contrary to a fundamental premise underlying ERISA. ERISA requires 

that a plan fiduciary (e.g., the plan sponsor) act in accordance with ERISA’s fiduciary 

duty provisions regardless of the size of the fiduciary. ERISA does not hold plan 

fiduciaries to a lesser standard merely because they are small in size. Rather, if the 

plan fiduciary lacks the requisite expertise to perform its duties, it may hire 

professionals with the appropriate expertise to help it meet is duties under ERISA or 

it may delegate its fiduciary responsibilities to another fiduciary. However, in any 

case, the plan fiduciary is not absolved from fiduciary status due to a lack of 

expertise. 

To be consistent with this fundamental premise under ERISA, the Department should 

extend the counterparty carve-out to a plan of any size as long as the requirements in 

the carve-out are otherwise met. Similarly, the Department has never interpreted the 

Code to distinguish between whether an IRA Owner or other fiduciary is capable of 

evaluating whether an Adviser or Financial Institution acts as a seller or as a 

fiduciary. Therefore, the counterparty carve-out should also be extended to IRAs. If 

extended to IRAs, the seller’s carve-out would require Advisers to fairly inform the 

investor of the existence and nature of the Adviser’s and Financial Institution’s 

financial interests in the transaction. 

2. Alternative Approaches. Alternatively, if the Department does not believe that the 

counterparty carve-out should apply to all small plans and IRAs, we believe that sales 

to small plans and IRAs of a certain size or those that are represented by an 

independent investment adviser registered under state or federal securities laws (and 

thus subject to supervision by a state or federal agency with examination and 

enforcement authority) should be carved out, as described below. 

a. Plans with 10 or Fewer Participants: The Department noted a precedent for a 100 

participant threshold in its requirements regarding filing Form 5500. Plans that 

have less than 100 participants are not subject to financial statement audit 

requirements and need not complete Schedule C. Thus, the Department implies 

that those plans need some sort of protection from Advisers who sell investment 

products and services to them that is not otherwise available via the Form 5500 
20 

and Schedule C requirements. However, we do not believe there is such a 

connection between the Form 5500 and Schedule C requirements and increased 

fiduciary sophistication, and the Department has not demonstrated such a 

connection. Furthermore all retirement plans receive fee disclosure under the 

Department’s final regulations under Section 408(b)(2). Therefore, we believe 

that the number is arbitrary and that a lower number is reasonable. For example, 

the Department noted that most plans with fewer than 100 participants have fewer 

than 10 participants. In our view, a 10 participant threshold would be sufficiently 

protective.

b. IRA Owners who are Sophisticated Investors: Similarly, the Owner of an IRA 

that is an “accredited investor” under SEC Rule 501 of SEC Regulation D14

promulgated under section 4(a)(2) of the Securities Act of 1933, as amended 

(“Securities Act”) can purchase an interest in an investment fund without the 

fund’s interests becoming subject to registration under the Securities Act. Yet, 

the Proposal suggests that the very same purchaser cannot make sound investment 

decisions in managing its IRAs. To the contrary, we believe that IRA Owners 

who are accredited investors can make fully informed, sound investment 

decisions and should be “carved out” under the counterparty exception if they 

give such a representation.15

c. Plans and IRAs Represented by Adviser: Finally, the Department points to its 

cross-trading exemption as a basis for the $100 million dollar threshold used to 

designate sophisticated fiduciaries acting on behalf of a plan. However, much 

like the 100 participant threshold, we do not see and the Department provides no 

connection between that $100 million amount and the ability of a fiduciary to 

adequately act on behalf of a small plan or IRA. For example, under the SEC’s 

Regulation D, an employee benefit plan within the meaning of ERISA is an 

accredited investor as long as the decision to invest in the security is made by a 

plan fiduciary, as defined in ERISA section 3(21), which is either a bank, savings 

and loan association, insurance company, or registered investment adviser, or if 

the plan has at least $5 million in assets under management. In addition, if the 

plan is a participant-directed plan, the plan is an accredited investor if each of the 

participants is an accredited investor. Also, the term “investment manager” as 

defined under ERISA section 3(38), which includes a registered investment 

adviser, bank or insurance company, does not require that the manager have a 

certain amount of assets under management. 

 14 17 C.F.R § 230.500, et. seq. 

15 An “accredited investor” includes individuals who have annual earned income of more 

than $200,000 ($300,000 with a spouse) or who have a net worth of more than $1,000,000. See 17 C.F.R. 

§ 230.500 et seq. The SEC explains that a “principal purpose of the accredited investor concept is to 

identify persons who can bear the economic risk of investing in these unregistered securities.” Investor 

Bulletin: Accredited Investors, S.E.C. Pub. No. 158 (Sept. 2013), available at: 

http://www.sec.gov/investor/alerts/ib_accreditedinvestors.pdf. 
21 

Yet, the Proposal suggests that a party needs at least $100 million of benefit plan 

assets under management to be able to recognize when an Adviser and Financial 

Institution sells products and services rather than gives advice. To the contrary, 

we believe that the carve-out should apply in any case in which the sponsor or 

fiduciary receives investment advice from a fiduciary as defined under ERISA 

Section 3(21) or Section 3(38) that is a bank, savings and loan association, 

insurance company, or registered investment adviser about the purchase of an 

investment product or service as long as such plan or IRA fiduciary is 

independent from the seller. In addition, if the sponsor or similar fiduciary does 

not receive advice from such a fiduciary, the dollar threshold for the benefit plan 

assets under management should be $5 million rather than $100 million of assets 

under management, as that standard would be consistent with existing SEC 

guidance. 

 

Platform Carve-out 

Background 

The Department included in the Proposal carve-outs for investment platforms and the 

provision of limited information regarding the investments on the platform. The Department 

does not specifically state that a variable annuity contract is a “platform.” Furthermore, the 

Department specifically excludes IRAs from the platform carve-out because “there typically is 

no separate independent ‘plan fiduciary’ who interacts with the platform provider to protect the 

interests of the account owners. As a result, it is much more difficult to conclude that the 

transaction is truly arm’s length or to draw a bright line between fiduciary and non-fiduciary 

communications on investment options.” The Department requested “specific comment as to the 

types of platforms and options that may be offered to IRA Owners, how they may be similar to 

or different from platforms offered in connection with participant directed individual account 

plans, and whether it would be appropriate for service providers not to be treated as fiduciaries 

under this carve-out when marketing such platforms to IRA Owners.” 

Concerns 

First, we note that the courts and the Department have always taken the position that the 

creation of a platform is not a fiduciary act. TIAA-CREF is concerned that the Department’s 

inclusion of a platform carve-out implies that the creation of a platform gives rise to fiduciary 

status when under current law TIAA-CREF has no reason to believe the mere creation of a 

platform gives rise to fiduciary status. Therefore, the Department should clarify that providing 

or making available an investment platform is not included within the threshold definition of 

“investment advice.” 

The Department has indicated that a service provider to a plan or IRA does not act as a 

fiduciary by merely providing a platform of investments to such plan or IRA as long as a 

fiduciary independent of the platform provider approves the platform, such fiduciary receives 

notice regarding any changes to the platform, and such fiduciary approves by either affirmative 
22 

or negative consent any changes to the platform that impact the plan.16 However, the DOL also 

notes that if the service provider or its affiliate provides investment advice for purposes of 

ERISA with regard to the selection of one or more investments on the platform and such advice 

results in the payment of additional compensation to the service provider or its affiliate, such 

service provider or affiliate could be viewed as using its fiduciary authority to increase its own 

compensation in violation of ERISA section 406(b).17 As such, the service provider may act as a 

non-fiduciary with regard to creating the investment platform, but act as fiduciary with regard to 

investment of plan or IRA assets in the platform investments. Further, we note that several 

courts have stated on different occasions that a service provider does not act as a fiduciary when 

it provides a platform or “big menu” of lifetime income and mutual fund investments to ERISAgoverned plans.18 

The “education and monitoring assistance” section of the platform carve-out, at Sec. 

2510.3-21(b)(4) of the Proposal, excludes from fiduciary status an activity that “merely provides 

objective financial data and comparisons with independent benchmarks to the plan 

fiduciary.” As we explain below, TIAA-CREF regularly provides performance and benchmark 

information to plan participants and beneficiaries, plan sponsors, and IRA Owners. We often 

employ composite benchmarks in accordance with SEC rules, because in our judgment they 

more accurately reflect the investment goals and strategies of the particular investment 

option. The SEC rules require us to show an independent benchmark (called an “appropriate 

broad-based securities market index”) in the risk-return table in the fund prospectus, in addition 

to the composite benchmark.19 We suggest that the Department provide specifically that using of 

a composite benchmark, accompanied by the type of broad-based securities market index 

required by the SEC rules, would satisfy this aspect of the platform carve-out rules. 

Proposed Modifications 

1. Platform Offerings are not investment advice. Based upon the foregoing, the 

Department should clarify that the creation of a platform for plans or IRAs in and of 

itself, does not involve fiduciary “investment advice,” unless the platform creator 

acknowledges fiduciary status in creating the platform. We believe that this approach 

is appropriate because the existence of a platform carve-out implies that the creation 

of a platform is tantamount to the provision of investment advice under certain 

circumstances. This would expose platform providers to additional litigation and 

 16 Adv. Op. 97-16A (May 22, 1997) (making available a menu of funds to a plan sponsor 

and retaining the ability to change the funds offered under that menu did not rise to the level of a fiduciary 

act as long as an independent plan fiduciary approved the initial menu and had the opportunity to approve 

any changes to the menu with advance notice of the proposed change). 

17 Id.; see also DOL Adv. Op. 2003-09A (June 2, 2003). 

18 See Hecker v. Deere & Co., 556 F.3d 525 (7th Cir. 2009); see also Leimkuehler v. Am. 

United Life Ins. Co., 713 F.3d 905 (7th Cir. 2013), Zang v. Paychex, 728 F.Supp.2d 261 (W.D.N.Y. 

2010); Santomenno v. John Hancock Life Ins. Co., No 2:10-cv-01655 (WJM), 2013 WL 3864395 (D.N.J. 

2013). 

19 See SEC Form N-1A, Instruction 2(b) to Item 4 and Instruction 6 to Item 27(b)(7). 
23 

compliance risk without any corresponding benefit to participants, beneficiaries, or 

IRA Owners. 

2. Alternative Approach. Alternatively, as explained below, the platform carve-out 

should be modified so that (a) variable annuity contracts are included as “platforms” 

for purposes of the carve-out, (b) IRA platforms qualify for the carve-out, (c) an 

employee-Adviser’s provision of investment advice regarding investment offerings 

available under the platform will not result in the loss of the carve-out with regard to 

the Financial Institution that created the platform, and (d) a composite benchmark that 

complies with SEC guidance may be used under the education and monitoring 

assistance rules. 

a. Variable Annuity Contracts are “Platforms”. If the Department takes the position 

that platforms should be the subject of a carve-out, the Department should clarify 

that individual or group variable annuity contracts offered to a plan sponsor 

constitute a “platform” for purposes of the carve-out. TIAA offers plans fixed 

annuities that qualify as guaranteed benefit contracts under ERISA and a separate 

account offering direct investments in real estate (the TIAA Real Estate Account), 

and CREF offers variable annuities with a choice of eight different investment 

portfolios or accounts, each with its own investment objective and strategy. Plan 

participants and beneficiaries or IRA Owners can transfer among these various 

annuities or mutual funds on the platform while they are in their accumulation 

phase, and they can get the benefits of a lifetime income stream by annuitizing 

their accumulated account balance at distribution, while still having the option to 

direct the investment of their account balances during their working years or 

afterwards. The insurance portion of the contracts gives the participant the 

annuitized distribution option. In addition, TIAA-CREF has a more conventional 

variable annuity offered through an insurance company separate account that 

provides several mutual funds as investment options. The plan sponsor or 

fiduciary selects which of the investment options will be made available under the 

plan or IRA. As such, these annuity offerings are indistinguishable from a 

platform of investments made available by a broker-dealer, recordkeeper, or other 

platform provider, but offer the added benefit of lifetime income protection 

through an annuitization option. 

While we do not read the Proposal to preclude annuity contracts from the 

platform carve-out, we believe that the final regulation should clarify that annuity 

contract and separate account offerings can qualify as a “platform” for purposes 

of the carve-out. 

b. Carve-out for IRA Platforms. 

While TIAA-CREF believes that investors are often best served by retaining 

assets in employer plans which provide access to guaranteed income, opening and 

maintaining an IRA (including in some cases, a rollover of assets into an IRA to 

obtain a consolidated or appropriately diversified investment portfolio or 

additional services) also can serve the retirement investor’s best interests. To this 
24 

end, TIAA-CREF IRAs allow the retirement investor to choose the investment 

options that best fit his or her needs. Investment options include annuities and 

mutual funds issued by TIAA-CREF affiliates, third party mutual funds, stocks, 

bonds and other typical brokerage investments. The retirement investor can 

choose to manage his or her IRA on a self-directed basis or engage TIAA-CREF 

to manage the account through enrollment in one of TIAA-CREF’s managed 

account programs. These options allow the retirement investor to complete his or 

her retirement portfolio with investment options that complement the investments 

held in the employer-sponsored plan and achieve diversification of investments 

across retirement savings in a manner that may not be available if he or she were 

to limit investing strictly to options available within the employer plan. 

As discussed above, the Department’s exclusion of IRAs from the platform carveout fails to recognize its own prior position and that of the courts that creating a 

platform and making it available is not itself a fiduciary act. Further, by 

excluding IRAs the Department appears to assume that IRA Owners are incapable 

of recognizing when they are being offered an investment platform from which 

they may select, as opposed to when advice about which option to choose is being 

provided. We do not agree with this position. TIAA-CREF provides individual 

fixed and variable annuity contracts to IRAs that are very similar to the annuity 

contracts it offers to participant-directed individual account plans, as well as other 

investment options including mutual funds and brokerage accounts. We believe it 

unlikely that any IRA Owner would believe that including any number of 

investment options under an individual contract would be tantamount to giving 

advice to the IRA holder to invest in any one or more of the investment options, 

particularly if the number of investment options is sufficient to offer “diversified 

investment alternatives which constitute a broad range of investment alternatives” 

and TIAA-CREF as the platform provider included the disclosure required under 

the proposed platform carve-out. 

Therefore, we disagree with the Department’s position on this point and believe 

that the platform carve-out should be made available to IRAs. 

c. Role of Employees. The proposed Platform carve-out applies to a “person” who 

“markets and makes available to an employee benefit plan (as described in section 

3(3) of the Act), without regard to the individualized needs of the plan, its 

participants, or beneficiaries, securities or other property through a platform or 

similar mechanism from which a plan fiduciary may select or monitor investment 

alternatives” if certain requirements are met. The “person” may also make 

available to the plan fiduciary, participants, and beneficiaries information about 

the investment alternatives within certain limits and the platform carve-out will 

continue to be available. The Department does not specify whether the “person” 

is the Financial Institution that is the platform provider or an Adviser (i.e., an 

independent contractor, agent, or registered representative of the Financial 

Institution). 

However, TIAA-CREF provides education and advice through employees, not 

through independent contractors or non-employee insurance agents. Employees, 
25 

of course, act on behalf of the employer as its agents in the scope of their 

employment. We are concerned that the Proposal could be interpreted to provide 

that the platform carve-out is not available to TIAA or CREF if an employee of 

TIAA advises a plan fiduciary regarding what investments are made available 

under the plan. This means that we will be unnecessarily exposed to compliance 

and litigation risk in the event that the carve-out is not available. In addition, this 

result would be inconsistent with the language in section 3(21) of ERISA, which 

provides that a person is a fiduciary “with respect to a plan to the extent . . . he 

renders investment advice for a fee or other compensation . . . .” 

Therefore, the DOL should clarify the platform carve-out continues to be 

available to a Financial Institution even if an Adviser provides investment advice 

about the investment alternatives in the platform, and even if the Adviser is an 

employee of the Financial Institution. 

d. Education and Monitoring Assistance. The Department should provide 

specifically that using a composite benchmark, accompanied by the type of broadbased securities market index required by the SEC rules, would satisfy this aspect 

of the platform carve-out rules. 

Education Carve-out 

Background 

TIAA-CREF agrees with the Department’s proposal to recognize that investment 

education is not, and should not, be treated as investment advice under ERISA, based on 

principles articulated in Interpretive Bulletin 96-1.20 We believe that the framework reflected in 

IB 96-1 has led to greater access to educational information for the millions of plan participants 

and IRA Owners serviced by TIAA-CREF. We believe the provision of this information 

improves their chances at a financially secure retirement. However, we note that the carve-out 

specifically excludes asset allocation models populated with specific investment funds. The 

Department, based upon its own experience and public comments, believes that asset allocation 

models populated with actual investment alternatives available under the plan or IRA “function 

as tailored, individualized investment recommendations, and can effectively steer recipients to 

particular investments, but without adequate protections against potential abuse.”21 

Also, the carve-out as proposed includes information about discussing distribution 

alternatives in the lifetime income context.

Concerns 

The Department’s position ignores the fact that most asset allocation models are 

populated with the investments actually available under the plan or IRA. In this way, the model 

is most helpful to the plan fiduciaries, plan participants, plan beneficiaries, and IRA holders that 

 20 29 C.F.R. § 25.09.96-1 (“IB 96-1”). 

21 80 FR at 21945 (April 20, 2015). 
26 

rely on them. Restricting the Education carve-out to generic models will require wholesale 

changes to the models currently in use and reduce significantly the usefulness of the model itself. 

TIAA-CREF believes such a restriction would dramatically reduce the value of participant 

education initiatives by making it exceedingly difficult, if not impossible, to impart the 

information needed by participants to implement their investment decisions. 

It is significant that “the Department believes that FINRA’s guidance in this area may 

provide useful standards and guideposts for distinguishing investment education from investment 

advice under ERISA.”22 The Department has asked for comments on the discussion in FINRA’s 

“Frequently Asked Questions, FINRA Rule 2111 (Suitability)” (“FINRA FAQs”) of the term 

“recommendation” in the context of asset allocation models and general investment strategies.23 

In our view, FINRA guidance is informative as to whether the population of asset allocation 

models with specific funds may be advice. The FINRA FAQs reference FINRA Regulatory 

Notice 12-25 for guidance as to when an asset allocation model is a recommendation. That 

Notice points to FINRA Rule 2111.03, which provides for a safe harbor from the suitability 

requirements if an asset allocation model meets certain requirements. In Question 8, FINRA 

states that “as an allocation recommendation becomes narrower or more specific, the 

recommendation gets closer to becoming a recommendation of particular securities and, thus, 

subject to the suitability rule, depending on a variety of factors (including the number of issuers 

that fall within the broker-dealer’s allocation recommendation)” (emphasis added). Clearly, 

FINRA believes that in at least some circumstances the allocation can be populated with specific 

investments without becoming advice. The determinative factor is whether they are presented in 

a way that the result in a recommendation. In other words, FINRA requires no blanket 

prohibition, unlike the Department’s Proposal. 

The Proposal states that the plan may “describe investment objectives and philosophies, 

risk and return characteristics, historical return information or related prospectuses of investment 

alternatives under the plan or IRA.” Thus, it appears that a person can provide information 

identifying the asset classes of the plan’s or IRA’s investment options and can provide a 

hypothetical asset allocation for the plan fiduciary, plan participant or beneficiary, or IRA holder, 

but the person cannot combine the two. Is it permissible, for example, to present two separate 

information brochures, each of which contains one of the two points? When, if at all, does the 

regulation link those two pieces of data so that separately they are educational, but together 

constitute advice? 

As a practical matter, we note that when a plan sponsor or independent fiduciary 

significantly revamps a plan’s investment menu, or (in the case of a multi-vendor 403(b) plan) 

consolidates multiple recordkeepers into a sole recordkeeper, those changes are explained in a 

transition guide or other participant brochure. These guides are carefully written to make the 

changes as clear as possible, and would always contain a list of the new investment options, a 

description of which asset classes they are in, and a description of any decisions the fiduciary has 

made about how eliminated funds will be mapped to the new funds. These are educational 

activities that describe the new offering and investment menu, not recommendations. Quite 

 22 80 FR at 21945, fn 24. 

23 Id. 
27 

often, the guide will also contain model asset allocations, which under the Proposal would seem 

to change the entire brochure into “advice” to the extent they are coupled with the description of 

the new investment options. It is a stretch to see how this sort of balanced presentation could 

morph an educational process into a “tailored, individualized investment recommendation” that 

“effectively steers recipients to particular investments.” 

One of the unintended consequences of the Department’s shift of the IB 96-1 line 

between education and advice is to make it more difficult for us to provide data about the 

performance and fees of existing options, as well as benchmark information. We provide this 

data regularly, at the request of many of our plan sponsor clients, and the basic performance data 

over multiple time periods helps our clients meet their fiduciary requirements to assess and 

monitor the investment options they have chosen for their plans, to fulfill commitments made in 

their investment policy statements, and identify candidates for their watch lists. For many plan 

sponsor clients, we provide this data on quarterly webcasts, and always invite plans with both 

large and small numbers of participants. 

 We understand this sort of practice to be relatively common in the retirement services 

industry. If the Department retains the existing separation of education and advice in accord 

with the principles of IB 96-1, it would not appear that providing data of this sort, with no 

editorial comment or marketing, would rise to the level of fiduciary advice. But if the 

Department does not retain that approach, it should specifically state this service for plan 

sponsors does not constitute advice.24

 

The Proposal provides generally that a recommendation about whether to take a 

distribution from a plan and to roll over the distribution to another plan or IRA is fiduciary 

advice. We agree there may be many instances when such a recommendation is fiduciary advice 

as opposed to education, based on the particular facts and circumstances. We believe that in 

many cases participants are well served to keep their assets within a plan. We occasionally 

observe transactions where IRA providers have convinced our plan participants to roll over in 

ways we believe could be easily argued are against the participants’ best interests. Such abuses 

may be related to advice to a plan participant to liquidate a favorable investment with a current 

interest rate far above what is available in the current IRA market, or to enroll in a “teaser” offer 

providing incentives for a rollover, or a situation where a plan participant rolls assets to an IRA 

without understanding that his or her new investments have a much different risk profile (such as 

a move to a long term bond fund from a guaranteed fixed annuity). A seller’s carve-out under 

which an IRA investor or potential IRA investor would clearly understand when he or she is 

being sold, versus being advised, would adequately address those abusive situations. 

In the education carve-out, the Department states that certain plan information is carved 

out from investment advice because the information is investment education rather than advice. 

Regarding the plan information regarding distributions, a person may “describe the terms or 

 24 The “selection and monitoring assistance” carve-out from the proposed fiduciary 

definition, Proposed Reg. Sec. 2510.3-21(b)(4), may permit this activity as a carve-out from fiduciary 

activities. But, in fact, this activity is educational, not advisory, so it should not be necessary to rely on a 

carve-out. 
28 

operation of the plan or IRA, inform a plan fiduciary, participant, beneficiary, or IRA Owner 

about the benefits of plan or IRA participation, the benefits of increasing plan or IRA 

contributions, the impact of preretirement withdrawals on retirement income, retirement income 

needs, varying forms of distributions, including rollovers, annuitization and other forms of 

lifetime income payment options (e.g., immediate annuity, deferred annuity, or incremental 

purchase of deferred annuity), advantages, disadvantages and risks of different forms of 

distributions.” However, any such information must be provided “without reference to the 

appropriateness of . . . any individual benefit distribution option for the plan or IRA, or a 

particular participant or beneficiary or IRA Owner.” 

The carve-out in the Proposal would require a financial professional providing holistic 

education to omit information that is both appropriate and arguably indispensable to a 

participant’s or IRA Owner’s understanding of his or her choices. Obviously a plan participant 

or IRA Owner must understand his or her distribution options and minimum distribution 

requirements (under section 401(a)(9) of the Code). The carve-out appropriately requires the 

material to be factual and objective. Because of the heightened emphasis in the definition of 

advice on distributions, however, the education carve-out should specifically permit distribution 

education and rollover education. It is critical that participants in plans be provided information 

that supports the public policy objective of keeping retirement assets in retirement vehicles so 

that the assets will be available in the retirement phase of life. We strongly urge the Department 

not to limit discussion of distributions in education. 

In general, call center employees should be permitted to explain any information required 

to be included in a notice under section 402(f) of the Code, an IRA disclosure statement, a 

prospectus or other required disclosure, or an information return. The allowance of education 

incidental to disclosure should not be limited to tax information. If the information given is not 

accurate, customers have recourse through the usual company complaint channels and legal 

remedies. 

Proposed Modifications 

1. Identifying Specific Investment Options should be Permitted. In the final regulation, 

the Department should extend the education carve-out to asset allocations among the 

investment options available under the plan or IRA, as previously determined by a 

plan fiduciary or IRA holder. We believe that the potential for abusive “steering” 

identified by the Department can be eliminated in one of two ways. First, the 

Department can require that if “a model asset allocation identifies or matches any 

specific investment alternative available under the plan with a generic asset class, 

then all investment alternatives under the plan with similar risk and return 

characteristics must be similarly identified or matched.” 61 FR 29586, 29587 

(exposure draft). In the event many investment alternatives are available within an 

asset class, the final regulation should permit asset allocation models to identify a 

representative subset of alternatives, as long as the subset is selected based on neutral 

factors and does not disproportionately identify alternatives that result in the most 

compensation being paid to the adviser or financial institution. Second, any potential 

for abuse by the model provider in the plan context would be eliminated if the plan 
29 

sponsor or independent plan fiduciary could select the specific investment options 

included for each asset class in the portfolio. 

We also request clarification that providers of generic asset allocation models to 

financial services companies that serve as discretionary investment managers and 

fiduciaries to a plan would not be viewed as providing investment advice. 

2. Continue the Well-Understood IB 96-1 Standard for Education. As we noted in the 

Summary of Key Structural Issues at the beginning of this comment letter, we 

respectfully request the Department to retain the well-known and well-understood 

standard for distinguishing “education” from “advice” first set forth in IB 96-1, and 

permit educational materials and conversations that describe how specific products 

work and how they may benefit plan sponsors and participants. Providing basic 

education about these specific product details, without a call to action or a reasonable 

basis for an expectation that the representative is selling, do not rise to the fiduciary 

level of advice, and should not be discouraged. 

3. Transition Guides. We would find very helpful an example in the final regulation that 

concludes that furnishing a transition guide for participants as described above does 

not constitute advice because of its educational nature, as long as it follows 

fundamental rules about refraining from a call to action or creating a reasonable basis 

that the seller is acting on behalf of the plan. Similarly, the Department should clarify 

that providing data to plan sponsors, participants, or IRA Owners about the 

performance and fees of existing options, as well as benchmark information, is not 

fiduciary advice. 

4. Clarify the Language about Distribution and Rollover Education. Our concern is that 

the carve-out provides no specific information about how to distinguish between 

providing rollover education versus rollover advice. The language above seems to 

suggest that an Adviser may provide information that a rollover opportunity is 

available, but provides no clarity how one might provide education on the benefits of 

a rollover to a plan or IRA. On the other hand, the Proposal provides guidance on 

how to inform plan participants about the advantages of remaining in the plan. In 

addition, in the course of a discussion about a plan’s distribution options, a plan 

participant will almost inevitably ask whether TIAA-CREF offers an IRA product. 

The language in the education carve-out suggests that even answering the question 

“yes” may trigger loss of the carve-out, which should not be the case. We assume 

this is not the intent of the Department. 

Therefore, the Department should include more guidance in its final regulation regarding 

when information about distribution options (including rollovers) is education rather than advice. 

As noted above, we recommend the Department retain the current IB 96-1 line between 

education and advice. 
30 

VI. Exemptive Relief for Participant-Directed Plans 

The Proposal may unnecessarily restrict appropriate forms of compensation received by 

TIAA-CREF 

 

Background 

The Department proposes to modify the current exemptions available under ERISA and 

the Code, so that certain prohibited transactions that may arise by reason of investment advice 

provided to “Retirement Investors” may only be permitted through the BIC Exemption. The BIC 

Exemption would be available for prohibited transactions that may arise by reason of providing 

investment advice to IRA Owners regarding the purchase of insurance products and mutual 

funds that are securities for purposes of the federal securities laws. For insurance products that 

are not securities (such as fixed annuities), the Adviser, Financial Institution, Affiliate, and 

Related Entity may rely on the BIC Exemption or PTE 84-24, as modified by the Proposal. 

The Department has stated that the intent of the BIC Exemption is to allow the receipt of 

revenue streams that are normally received by the Adviser, Financial Institution, Affiliate, and 

Related Entity, provided that the exemption conditions are met. (As explained below, we believe 

the conditions of the BIC Exemption must be modified for the exemption to be workable.) 

Importantly, however, the BIC Exemption does not apply to advice given to plan 

sponsors or similar fiduciaries of participant-directed defined contribution plans. As such, 

Advisers and Financial Institutions must rely on existing PTEs, as amended. 

Currently, prohibited transactions that arise by reason of providing investment advice to a 

sponsor or similar plan fiduciary of a participant-directed defined contribution plan, regardless of 

the size of the plan, may be exempt under PTEs 75-1, 84-24, or 86-128. Each of these class 

exemptions was modified by the Proposal. The modifications to these exemptions make it 

impossible for the Adviser, Financial Institution, Affiliate, and Related Entity to receive 

conventional forms of compensation for distribution and other services, such as commissions, 

12b-1 fees, shareholder servicing fees, sub-transfer agent fees, revenue sharing and other third 

party payments for the following reasons: 

1. PTE 84-24 defines “Insurance Commission” as “a sales commission paid by the 

insurance company or an Affiliate to the insurance agent or broker or pension 

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

contract, including renewal fees and trailers...” However, the definition specifically 

excludes “revenue sharing payments, administrative fees or marketing payments, or 

payments from parties other than the insurance company or its Affiliates.” Moreover, 

the definition covers only commissions paid to an agent, broker, and consultant. 

TIAA-CREF uses its employees to educate about and sell annuity products and 

mutual funds on its platform to its plan participants and IRA Owners, and does not 

pay commissions but instead considers the extent of sales as a factor in awarding 

variable compensation (bonuses) to the employee. 
31 

2. Similarly, the definition of ‘‘Mutual Fund Commission’’ includes a “commission or 

sales load paid either by the plan or the investment company for the service of 

effecting or executing the purchase or sale of investment company shares,” but 

specifically excludes “a 12b-1 fee, revenue sharing payment, administrative fee or 

marketing fee.” 

3. Section I(a)(4) of the proposed changes to PTE 84-24 exempts “the purchase, with 

plan assets, of an insurance or annuity contract from an insurance company”. Given 

this clear statement, we do not understand the need for retaining Section I(a)(5), 

which addresses the purchase of an insurance or annuity contract from an insurance 

company which is a fiduciary or a service provider solely by sponsoring a master or 

prototype plan. 

Concerns

There will be many instances where TIAA-CREF will voluntarily take on a fiduciary role 

under the Proposal and will need to rely on the amended PTEs. TIAA’s employees educate our 

clients about annuity products and mutual funds we sell on our platforms. TIAA-CREF does not 

pay commissions for these activities, but instead considers the volume of sales of all TIAACREF products as a factor in awarding variable compensation to the employee. However, 

TIAA-CREF and its affiliates do receive 12b-1 fees, revenue sharing payments, administrative 

fees or marketing fees, and other third-party payments for the sale of shares in mutual funds 

made available under variable annuities and on its other platforms. These third-party payments 

enable TIAA-CREF to provide flexibility to its plan and IRA clients regarding how they will pay 

for several services associated with maintaining the plan such as recordkeeping, trustee and 

custodial services. Many of our plan sponsor clients prefer to pay for these services in this 

manner rather than paying directly from plan or IRA assets, and this compensation structure is a 

business necessity in this era of open architecture. 

As a result of the proposed amendments to PTE 84-24, the Proposal effectively prohibits 

the receipt of third-party payments where they are permitted under the current exemptions. For 

example, when TIAA-CREF offers a variable annuity that includes unaffiliated funds or a 

platform of mutual funds outside of an annuity contract that includes unaffiliated and affiliated 

mutual funds to self-directed defined contribution plans, and a TIAA-CREF employee provides 

investment advice to the plan fiduciary regarding which funds to make available under the plan, 

PTE 84-24, as proposed, can be read to prohibit TIAA-CREF’s receipt of third-party payments. 

Similarly, PTE 86-128, as proposed, does not cover agency transactions and narrowly defines 

“Commission,” so we believe that no compensation can be paid in connection with purchases 

and sales of unaffiliated mutual funds’ shares under that exemption. In addition, while the 

Department may take the position that the BIC Exemption may permit the receipt of third-party 

payments from affiliated and unaffiliated mutual funds, the BIC Exemption does not exempt 

compensation paid with respect to purchase and sales transactions involving advice given to plan 

sponsors and similar fiduciaries of participant-directed plans. 

If the Department intends to provide special treatment to insurance and investment 

companies that sponsor master or prototype plans (see PTE 84-24, Sections I(a)(5) and (6)), we 
32 

do not understand why that special treatment is appropriate. We note that there is currently no 

master or prototype program for 403(b) plans, although we anticipate the IRS may approve a preapproved plan document program for 403(b) plans by 2017 or 2018. 

The proposed changes to PTE 75-1, Part II and PTE 86-128 similarly appear to make it 

impossible for TIAA-CREF and other providers to receive 12b-1 fees, revenue sharing payment, 

marketing fees, administrative fees, sub-TA fees, and the other payments in connection with the 

purchase and sale of unaffiliated mutual fund shares. This is because almost no mutual fund 

shares are purchased or sold in the manner described in the proposed exemption. Instead, mutual 

fund shares are purchased by a recordkeeper on an agency basis, on behalf of the plan, not on a 

principal basis from inventory held by the recordkeeper. Further, unlike the current PTE 75-1, 

Part II, the proposed PTE 86-128 cannot be read to exempt any prohibited transaction that may 

arise in connection with the purchase and sale transaction, but rather is limited to 

“Commissions,” which do not include the aforementioned payments. The inability of TIAACREF and other providers to receive revenue sharing and other payments will prevent us from 

charging plans lower fees for our products and services. 

Proposed Modifications 

1. Comments on PTE 84-24, as amended. Proposed PTE 84-24, Part I(a)(3) provides 

that if the conditions of the exemption are met it covers “the effecting by an insurance 

agent or broker, pension consultant or investment company principal underwriter of a 

transaction for the purchase, with plan assets, of an insurance or annuity contract or 

securities issued by an investment company.” Currently, PTE 84-24, Part III(c) 

includes the same language, which is generally interpreted to exempt any prohibited 

transaction that may arise by reason of the sale of an “insurance or annuity contract” 

– including payments of 12b-1 fees, revenue sharing payments, administrative fee, 

marketing fees and similar amounts to an insurance company that issues a group 

variable annuity contract. We and others have understood the current language to 

provide relief for any conflict of interest that we and our employee-agents may have 

when recommending annuities or funds, which would include such compensation. In 

addition, the provision is interpreted to apply to such payments made in connection 

with investment advice given by the fund’s underwriter (or an affiliate). However, 

the proposed limits in the definitions of “Insurance Commission” and “Mutual Fund 

Commission” call into question whether the Department views such payments to the 

insurer as problematic. 

TIAA-CREF will rely on this exemption to sell its fixed and variable proprietary payout annuities to plan participants. And any recordkeeper with an open architecture 

offering with non-proprietary mutual funds will have the same concern about getting 

compensated for the services it provides to the mutual fund family. We therefore 

need to be assured that TIAA-CREF’s receipt of fees under those contracts is covered 

under PTE 84-24. This is a critical element of our success in providing lifetime 

income solutions to plan participants with low fees for recordkeeping expenses. And 

our ability to do so is in the best interest of our participants who need these annuities 

and the financial support they provide in retirement. 
33 

In addition, participants would benefit if TIAA-CREF could sell its variable annuities 

to IRA holders using PTE 84-24. A participant may well have a combination of plan 

and IRA money at retirement and we should be able to rely on PTE 84-24 for both the 

participant’s plan and IRA assets where we believe that a combination of fixed and 

variable pay-out annuities from both sources is in the best interest of the participant. 

These payments allow us to charge self-directed defined contribution plans lower fees 

for investment, recordkeeping, insurance guarantees, and other products and services 

necessary for the operation of the plan. 

2. Comments on PTE 75-1 and PTE 86-128, as amended. The Department should 

extend PTE 86-128 to include agency purchase and sale transactions of mutual fund 

shares and to include payments of 12b-1 fees, revenue sharing payments, marketing 

fees, administrative fees, sub-TA fees, and other payments to a Financial Institution. 

We note that the PTE 86-128 will now include the Impartial Conduct Standard and 

continue to include the current exemption’s reporting requirements. Thus, the plans 

will be adequately protected from any conflicts of interest. 

Details of the Best Interest Standard in PTE 84-24 and PTE 86-128 

Background

In the Proposal, the Department intends to modify PTE 84-24 so that the insurance agent 

or broker, pension consultant, insurance company or principal underwriter complies with 

Impartial Conduct Standards. Among other things, these standards require that the insurance 

agent or broker, pension consultant, insurance company or principal underwriter act in the ‘‘Best 

Interest’’ of the plan or IRA. A person acts in the “Best Interest” if he or she acts with 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 plan or IRA, without regard to the financial or other interests of the fiduciary, any 

affiliate or other party.”25 Apparently, the Department added this condition not to create new 

duties for plan fiduciaries, but to extend ERISA-type duties to IRA advisors, who are not subject 

to section 404 of ERISA.26 

Concerns 

TIAA-CREF fully supports the Department’s adoption of the Best Interest standard. But 

we believe that standard should be phrased so it is identical to the duties of prudence and loyalty 

that have been developed since ERISA was passed. Because the operative language in the 

Proposal does not expressly incorporate the section 404 duties, the Department risks creating for 

plans and IRAs a new and independent standard. At the least, this new standard will cause 

uncertainty for years to come, and at worst, it establishes an even broader and potentially 

unachievable standard, particularly for those making recommendations with respect to 

 25 Prop. PTE 84-24 §VI(b); Prop. BIC Exemption § VIII(d) (emphasis added). 

26 80 FR at 21970 (April 20, 2015). 
34 

proprietary products and services. The potential for increased litigation over the meaning of the 

additional phrase added to ERISA’s standard fiduciary definition risks subjecting TIAA-CREF 

to unnecessary litigation, the cost of which will directly be borne by our participants in lower 

retirement benefits. ERISA’s fiduciary standard is the highest standard required by law and does 

not need this kind of enhancement to protect our participants and IRA Owners. 

We also do not believe that a fiduciary to an IRA should be subject to a standard that is 

articulated differently from ERISA’s standard. ERISA’s duty of prudence requires the fiduciary 

to act with the “care, skill, prudence, and diligence under the circumstances then prevailing that a 

prudent man acting in a like capacity and familiar with such matters would use in the conduct of 

an enterprise of a like character and with like aims.” ERISA’s duty of loyalty requires that a 

fiduciary “shall discharge his duties with respect to a plan solely in the interest of the participants 

and beneficiaries and . . . for the exclusive purpose of . . . providing benefits to participants and 

their beneficiaries.” As in the plan context, adding a “Best Interest” standard articulated 

differently from the ERISA fiduciary standard will only increase compliance risk and litigation 

risk, without meeting the Department’s stated goal to assure that fiduciaries acts in the plan’s and 

IRA’s best interest. For example, ERISA’s duties of prudence and loyalty allow a fiduciary to 

recommend the sale of proprietary products or the sale of products that will cause certain 

payments being made to an agent or insurance company. However, the Best Interest standard’s 

phrase “without regard to the financial or other interests” exposes financial professionals and 

insurers to the risk they can offer no advice with respect to a proprietary product or a transaction 

resulting in the payment of revenue sharing. 

In particular, the Proposal’s language “without regard to the financial or other interests of 

the Adviser, Financial Institution, any Affiliate, Related Entity, or other party” could call into 

question one of the longstanding tenets of ERISA’s duty of loyalty – the concept of permissible 

incidental benefits. The duty of loyalty has been consistently interpreted to permit a fiduciary to 

benefit from a plan transaction as long as that benefit is incidental to a decision that is in the best 

interests of the plan participants. The U.S. Supreme Court has held that a fiduciary does not 

violate ERISA by taking action otherwise consistent with ERISA’s duty of loyalty but that 

incidentally benefits the fiduciary.27 Moreover, the Department has acknowledged and accepted 

this interpretation of ERISA’s fiduciary duty in several of its own Advisory Opinions.28 

As currently proposed, the Best Interest standard provides no clear guidance or examples 

regarding compliant sales practices, particularly regarding the sale and recommendation of 

proprietary products (even products like ours that are designed to be in the best interests of our 

participants). The “without regard to” language could be interpreted to preclude the sale of 

proprietary products altogether. The outcome here would be a standard that would favor certain 

 27 See Hughes Aircraft v. Jacobson, 525 U.S. 432 (1999); Lockheed Corp. v. Spink, 517 

U.S. 882 (1996). 

28 See, e.g., A.O. 2011-15A (February 3, 2011); 2001-01A (Jan. 18, 2001), and 2003-04A 

(Mar. 26, 2003). 
35 

business models at the expense of others.29 For example, insurance companies like TIAA-CREF 

only sell proprietary annuity products. By prohibiting insurance companies from exclusively 

selling their own products, the Department would only decrease the availability of guaranteed 

lifetime income products. These are, of course, the very products our participants need to be 

able to retire without fear of outliving their income. 

 Proposed Modification 

1. Apply the ERISA Standard. Therefore, we urge the Department to modify the Best 

Interest standard in 84-24 and 86-128 to require the fiduciary adviser to act: 

(i) with 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 plan or IRA, and (ii) solely in 

the interest of the Retirement Investor, in each case as such standards are interpreted 

under Section 404 of ERISA. 

We make a similar recommendation about the use of the Best Interest Standard in the BIC 

Exemption; see below. 

2. Proprietary Products. We also ask the Department to confirm that to comply with the 

Best Interest and Impartial Conduct Standards an Adviser need not recommend nonproprietary products or the “lowest cost” product. This is especially important to us 

because we have designed our annuities to always be in the best interest of our 

participants by providing the guarantees that they need. These annuities have to be 

economically viable in order to provide benefits that can last for decades in 

retirement. Mutual funds cannot provide these guarantees. They must be paid for, 

and that makes annuity products – both fixed and variable – inherently more 

expensive than low cost mutual funds. The Department’s current guidance, including 

PTE 77-4 and PTE 84-24, contemplates that a fiduciary can provide advice to invest 

in a proprietary product and still meet ERISA’s duty of loyalty requirements. 

Further, the Department and the courts have long recognized that cost is simply one 

factor among several, including quality of the product or service, to be considered 

when making any fiduciary decision.30

 29 The Department has recognized the need to provide relief for the sale of proprietary 

products to plans since the enactment of ERISA. See, e.g., ERISA Section 408(b)(5); PTE 77-3; PTE 84-

24; A.O. 2000-15A. 

30 See Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir. 2009) (“nothing in ERISA 

requires every fiduciary to scour the market to find and offer the cheapest possible fund (which might, of 

course, be plagued by other problems)”; Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 596 (8th Cir. 

2009) (a fiduciary might “have chosen funds with higher fees for any number of reasons, including 

potential for higher return, lower financial risk, more services offered, or greater management 

flexibility”); see also United States Department Of Labor: Employee Benefits Security Administration

Meeting Your Fiduciary Responsibilities, 1, 5 (February 2012), available online: 

http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html
36 

VII. Best Interest Contract Exemption 

Background and Concerns 

 Sophisticated plan sponsors and fiduciaries want their service providers to maintain 

multiple touch points with plan participants, and IRA Owners demand the same service. These 

contacts may be educational or may constitute advice, and it is impossible to predict how a 

conversation or discussion will go – exactly the point of having well-trained representatives who 

can bring their entire experience to bear on the interaction. Therefore the service provider will 

err on the side of considering any possible interaction as one that should be subject to the BIC 

Exemption. To the extent this turns out to have been unnecessary, the firm and the Adviser may 

have unnecessarily subjected themselves to potential liability. It would be helpful for the 

Department to clarify that an interaction that did not require the BIC Exemption cannot give rise 

to liability under it, and that such a provision in the written contract will be enforceable. 

 

 At the same time, the BIC Exemption must be flexible enough to accommodate varying 

channels (ways of delivering advice), such as in person, on the phone, or on the web. As 

presently drafted it appears only to contemplate advice provided on a transactional basis. It 

ignores that what Retirement Investors often need is a holistic assessment of their retirement 

portfolio and the options for meeting their future retirement needs that is delivered through in 

person interactions that allow for back and forth interaction between the Adviser and the 

Retirement Investor. This kind of dialog cannot be replicated through self-service tools or use of 

a computer model. It also should be available to Retirement Investors regardless of net worth 

and the ability to pay an asset-based fee. 

 These needs are particularly pronounced where the Retirement Investor is nearing or 

entering retirement and seeking advice on how he or she can create an income stream that will 

last through retirement. In such instances, a multi-pronged approach may be in the Retirement 

Investors’ best interest, taking into account guaranteed income sources from Social Security and 

fixed annuities (which may be available under the employer plan) that can provide a guaranteed 

income floor to meet fixed expenses as well as a systematic withdrawal portfolio that allows him 

or her to continue to experience growth in assets through an investment portfolio consistent with 

his or her risk tolerance, objectives and other needs. This holistic approach typically considers 

several investment options which may be implemented together or at various points in time by 

the investor. Additionally, the Retirement Investor may interact with several Advisers about his 

or her needs throughout this process, with varying areas of specialization. 

But the BIC Exemption imposes a transaction-based contracting and disclosure regime on 

what should be a fluid discussion that addresses varying needs and investing options and at 

varying times in the Retirement Investor’s life. It is unclear how a Financial Institution would 

administer such contract and disclosure obligations when providing advice that is geared to a 

holistic assessment of retirement needs at various points in time. Would the written contract 

need to be amended with each successive interaction? Would each Adviser serving the 

Retirement Investor (albeit at different points in time) need to be a party to the contract with the 

contract delineating the role of each? Would the disclosures envisioned by the rule need to be 

updated with each successive interaction and include cumulative information reflecting each 
37 

product or service discussed over time? We submit that the costs of building systems to 

accommodate such requirements (which we have estimated; see below) could make the 

provision of such services unfeasible from an economic perspective – especially where the 

participant pays no advisory fee for such services and the only compensation the firm earns is 

paid in connection with the distribution of the products in which the participant chooses to invest 

(e.g., 12b-1 fees and administrative fees). Additionally, the potential risks associated with 

immaterial or unintentional breaches of an agreement and the compliance challenges associated 

with subjective, hard-to-measure exemption requirements would need to be factored into firms’ 

willingness to provide the service and pricing for such services. This could result in firms 

declining to provide such services entirely or only providing such services for an asset based fee 

reflective of the costs of compliance with the BIC Exemption and risks involved, effectively 

putting valuable advice outside the reach of many participants and IRA Owners who need it the 

most. As we note in Section III of this letter, the value of advice to participants in connection 

with investment decision making should not be discounted by the Department. 

There are potentially very serious consequences from an immaterial failure to meet some 

of the detailed requirements of the BIC Exemption. These risks are not proportionate to any 

harm to the investor. We think participants and IRA Owners would ultimately be well served by 

a general provision in the exemption that would excuse Advisers and Financial Institutions from 

immaterial and unintentional breaches, so they do not give rise to exposure to the IRS for excise 

taxes or to private plaintiff lawyers for strike suits and nuisance settlements. Such an approach 

would help participants and IRA Owners because the costs of serving them would be reduced, 

and would be consistent with the policy approach used by the Department in drafting the BIC 

Exemption, which is unlike the typical extremely detailed requirements of a PTE. A savings 

provision may be narrowly drafted, as set forth below. 

Impartial Conduct Standard 

Background 

The BIC Exemption requires a warranty from the Adviser and Financial Institution that 

they will conform to an Impartial Conduct Standard. Among other things, the standard requires 

that the Adviser act in the “Best Interest” of the Retail Investor. The Adviser and Financial 

Institution act in the “Best Interest” if they provide “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 Adviser, Financial 

Institution or any Affiliate, Related Entity, or other party.” 

Additionally, while not part of the Impartial Conduct Standard, the Adviser and Financial 

Institution must provide a number of warranties, including that “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 Advisers to 

make recommendations that are not in the Best Interest of the Retirement Investor.” 
38 

The Proposal goes on to provide that the aforementioned warranty provision “does not 

prevent the Financial Institution or its Affiliates and Related Entities from providing Advisers 

with differential compensation based on investments by Plans, participant or beneficiary 

accounts, or IRAs, to the extent such compensation would not encourage advice that runs counter 

to the Best Interest of the Retirement Investor (e.g., differential compensation based on such 

neutral factors as the difference in time and analysis necessary to provide prudent advice with 

respect to different types of investments would be permissible).” 

In the Preamble to the BIC Exemption, the DOL noted that a “level-fee” structure, in 

which compensation for Advisers does not vary based on the particular investment product 

recommended, is not required to satisfy this condition. It also specified five examples of 

compensation structures that could satisfy the contractual warranty: independently certified 

computer models, asset-based compensation, fee offsets, differential payments based on neutral 

factors, and aligned policies and procedures. 

Concerns 

We fully support the application of the Best Interest standard based on a common 

understanding of the duties of prudence and loyalty as developed to date. But the “Best Interest” 

standard as articulated is unnecessarily duplicative in cases where advice provided to a 

Retirement Investor has already resulted in fiduciary status under ERISA. In addition, in the 

context of both plans subject to ERISA and IRA Owners where ERISA does not apply, the 

articulation of the “Best Interest” standard in a manner that does not reflect the prudence and 

loyalty standards in ERISA section 404(a) is not consistent with the Department’s stated intent 

that the standard should be interpreted “in light of forty years of judicial experience with 

ERISA’s fiduciary standards and hundreds more with the duties imposed on trustees under the 

common law of trusts.” As we argue above in connection with PTEs 84-24 and 86-128, the 

Proposal’s articulation will only expose Advisers and Financial Institutions to unnecessary 

compliance and litigation risk. The Department should state in the final BIC Exemption that 

“Best Interest” has the same formulation and meaning as the duties of prudence and loyalty 

under ERISA section 404.

Under a proposed BIC warranty, fee structures that “tend to encourage individual 

Advisers to make recommendations that are not in the Best Interest of the Retirement Investor” 

are prohibited. This warranty is not necessary as long as the Adviser or Financial Institution, as 

appropriate, state in the contract that they will comply with the “Best Interest” standard. Settled 

ERISA jurisprudence and DOL guidance already establish how a fiduciary should act in the 

“best interest” of an investor.31

 31 In fact, the judicial interpretation of the “solely in the interest of the participants” 

language in section 404 of ERISA is that a fiduciary does not breach his duty of loyalty by pursuing a 

course of conduct which serves the interests of the plan's beneficiaries while at the same time 

“incidentally benefitting” the fiduciary himself. See Morse v. Stanley, 732 F.2d 1139, 1146 (2d Cir.1984); 

Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.1982); Siskind v. Sperry Ret. Program, Unisys, 47 F.3d 

498, 506 (2d Cir.1995). 
39 

In essence, the warranties are guides about processes that should be put into place to help 

Financial Institutions comply with the Impartial Conduct Standards. It seems clear that to meet 

those standards all applicable laws should be complied with, policies and procedures should be 

in place to mitigate material conflicts and to police the activities of Advisers, measures should be 

adopted to prevent conflicts that would cause violations of the standards, and there should not be 

compensation practices in place that would encourage Advisers to make recommendations not in 

best interest of the Retirement Investor. We believe these are appropriate reference points that 

may be suggested in the preamble to final regulations, but they should not be made the basis for 

strike suits by plaintiff class action lawyers where the actions have been, in fact, prudent. From a 

public policy point of view, fiduciaries should be tasked with establishing processes and 

procedures to comply with the prudent person rule, just as they have for over 40 years. 

Alternatively, if the Department insists on maintaining the current warranty requirement, 

the Preamble should include more than just examples of fee structures that likely pose no 

conflict under current law. Rather, those examples should be supplemented with examples of 

arrangements that could potentially result in a conflict, but otherwise pass muster under the BIC 

Exemption. Otherwise, to avoid litigation and tax risk an Adviser and Financial Institution may 

have to adopt one of the fee structures offered as an example under the Proposal, or decline to 

provide the service. With respect to the example that neutral factors can include compensation 

based on a reasonable assessment of the time and expertise necessary to provide prudent advice, 

the Department should clarify that the reasonableness assessment could be based on a good faith 

estimate of the amount of time and expertise required and would not require the Financial 

Institution nor its Adviser to track the time actually spent on each advice interaction. In addition, 

the Department should clarify that a neutral factor may be an assessment of the amount generally 

charged for similar services or products in the marketplace. 

Proposed Modifications 

1. Apply ERISA Standards. The “Best Interest” standard in the Proposal should read as 

follows: “(i) provide advice with the care, skill, prudence, and diligence under the 

circumstances then prevailing that a prudent man acting in a like capacity and 

familiar with such matters would use in the conduct of an enterprise of a like 

character and with like aims and (ii) solely in the interest of the Retirement Investor, 

in each case as such standards are interpreted under Section 404 of ERISA.” 

2. Eliminate warranties. All warranty requirements should be eliminated from the BIC 

Exemption because they are unnecessary legally under the Best Interest standard and 

the written contract requirement will provide adequate remedies for a breach of that 

standard. 

3. Provide Additional Guidance on Compensation. Alternatively, if the Department 

insists on maintaining the “tend to” warranty requirement, the preamble to the final 

rule should include examples of fee structures that likely pose a conflict, to provide 

guidance about types of compensation arrangements for Advisers that can manage the 

conflict. 
40 

4. Distinguish between Adviser Conflicts and Firm Conflicts. In the BIC Exemption, 

the Department should clarify the distinction between the management of Adviser 

conflicts versus the management of conflicts of the Financial Institution, Affiliates, 

and Related Entities. Therefore, to the extent that the Financial Institution does not 

compensate Advisers in a way that will cause the Adviser to make recommendations 

not in the Retirement Investor’s “Best Interest,” the ability of the Financial Institution 

to receive 12b-1 fees, shareholder servicing fees, sub-transfer agent fees, revenue 

sharing and other payments as a result of the recommendations should be treated as a 

separate transaction. The Department should also clarify that such a transaction may 

be exempt under ERISA section 408(b)(2) if the payments are not otherwise 

prohibited compensation or may be exempt under the BIC Exemption as long as the 

payments to the Financial Institution do not induce the Adviser to make 

recommendations that are not in Retirement Investor’s “Best Interest.”. 

Reasonable Compensation Requirement 

Background 

We recognize that ERISA and the Department have long required, and properly so, that 

the compensation paid to an Adviser, Financial Institution, Affiliate and Related Entity for the 

purchase and sale of account assets and the provision of services be “reasonable.” The 

Department’s regulations under Section 408(b)(2) specifically acknowledge that the value of the 

services provided is a critical factor in evaluating the reasonableness of fees. 

Proposed Modification

To reinforce ERISA’s standard as to reasonableness of fees, the Department should 

include in the Proposal language reaffirming its position that an Adviser need not recommend or 

select the lowest cost product or service, but rather that ERISA requires a qualitative analysis 

requiring a review of the facts and circumstances with cost being just one factor to consider. The 

clarification would be particularly important for IRAs, as there is little guidance from the 

Department about the reasonableness of IRA fees. 

Written Contract Requirement 

Background 

The BIC Exemption requires that the Retirement Investor enter into a tri-party agreement 

with the Financial Institution, signed by the Adviser, the Financial Institution, and the Retirement 

Investor, before any investment advice is provided to the Retirement Investor. This condition 

will simply not work in the normal course of business dealings between a prospective client and 

the Adviser and Financial Institution, from both a timing and an operational perspective. 
41 

Concerns 

Under the Proposal, an employee of TIAA-CREF who makes a “recommendation” in the 

context of a sales presentation before the investor has had the opportunity to make a judgment 

about whether the recommendation is worthy of serious consideration appears to become an 

Adviser immediately and would need to enter into a contract with the investor prior to providing 

the sales presentation. We do not believe that many investors would be willing to enter a 

contract with an Adviser or provide the detailed personal financial information needed by the 

Adviser to make a fiduciary decision before they understand the nature of the recommendations 

that the Adviser will make. And requiring a prospective investor to sign a detailed, tri-party 

contract before the Adviser may give the client any recommendations whatsoever will bring a 

quick end to the sales process. Additionally, TIAA-CREF personnel would be unable to assist 

investors with time sensitive matters (e.g., unforeseen market events) that require a discussion of 

investment options without first entering into the three-party agreement with the investor – thus 

potentially exposing the investor to market risk while waiting for the contract signature process 

to be take place. Moreover, if the expertise of more than one TIAA-CREF employee is needed 

to assist the client, multiple Adviser signatures may be required to be obtained. 

 

TIAA-CREF, like many other Financial Institutions, employs a multi-channel servicing 

model – typically, Retirement Investors can obtain assistance with their accounts, including 

advice where available, through our call center, on the campuses of their plan sponsor employer 

by meeting with a field consultant or, in some cases, by establishing a relationship with our 

Individual Advisory Services group (in this latter case, the Retirement Investor is supported by a 

dedicated advisor or advisory team).32 Many TIAA-CREF representatives may serve the 

Retirement Investor based on the multi-channel servicing model and the Retirement Investor 

may not access the same representative for each interaction or transaction. Some of these 

interactions may constitute advice under the Proposal; others may not. Additionally, as noted 

above, the advice provided may be holistic and iterative over time and may involve multiple 

TIAA-CREF employees. The agreement requirement of the BIC Exemption must flexible 

enough to accommodate not only a multi-channel servicing model but also the provision of 

holistic advice, which is an important approach to meeting the participant’s needs in the most 

effective way possible. It is not practicable to require a tri-party agreement for each such 

interaction or with multiple Advisers. It is likewise impractical to establish a requirement which 

would effectively require the Financial Institution to amend the agreement when one or more 

Advisers cease to support the Retirement Investor and one or more new Advisers begin to 

support the Retirement Investor in place of the departing Adviser(s) or, in concert with the initial 

Advisers who signed the agreement with the goal of providing holistic advice. 

Also we note that basic agency principles would make the principal (TIAA-CREF or its 

affiliates) responsible for the acts of the employee-advisor. For example, Restatement 3d of 

Agency § 2.04 states, “An employer is subject to liability for torts committed by employees 

while acting within the scope of their employment.” And, for example, New York law 

recognizes that liability for any violations of law or regulations by an agent or employee, if 

 32 The participant also can obtain assistance on a self-directed and automated basis through 

the TIAA-CREF.org website. 
42 

working in the scope of the agent’s or employee’s actual and apparent authority, would fall on 

the employer.33 So while there may be some cautionary or in terrorem effect on the Adviser 

from having signed the agreement, we submit that, given typical corporate indemnity policies 

that protect employees against personal liability for actions within the scope of their duties, the 

financial risk of bad actions will fall on the employer or Financial Institution. 

Another set of issues arises because of the structure of diversified financial services firms 

such as TIAA-CREF: which entity should be a party to the written contract? Fiduciary advice 

under the Proposal likely will be provided by a licensed representative of a broker-dealer or 

registered investment advisor (“RIA”), so it may appear that the contracting party should be the 

entity with whom the representative is associated for purposes of providing fiduciary investment 

advice (i.e., the brokerage or RIA firm that holds the securities licenses associated with the 

recommendation/fiduciary advice activities). However, in our case the representatives typically 

are “employees” of another entity (TIAA), although the supervisory responsibility for the 

representatives’ fiduciary advice activity resides with the broker-dealer affiliate or RIA. Under 

FINRA rules, any person engaged in the securities business of the broker-dealer firm must be 

registered with FINRA as a registered representative of such firm and such persons may perform 

securities activities on behalf of the firm only to the extent appropriately licensed and supervised 

by the firm. Similar concepts apply to investment adviser representatives of RIA firms regarding 

investment advisory activities under applicable state laws. To obtain such licenses, the 

representatives must pass one or more qualification exams designed to demonstrate competence 

in connection with the securities or investment advisory activities in which the representatives 

will engage. The representatives must also complete continuing education associated with the 

licenses. Broker-dealer firms also must provide periodic training to their representatives on 

relevant topics. 

In any event, the prohibited transactions sought to be addressed by the Proposal occur at 

multiple entity levels. In our case, the parent company TIAA acts as recordkeeper, offers the 

Traditional or fixed annuity backed by its general account, and offers various separate accounts 

including the Real Estate Account. Subsidiaries include a registered broker-dealer subject to 

SEC supervision, a federally chartered trust company subject to OCC and Federal Reserve 

supervision that acts as trustee and custodian for plan and IRA assets, a mutual fund adviser 

under the Investment Company Act, and others. In addition, TIAA offers and provides services 

for the eight CREF annuities, and it appears that CREF is a Related Entity and may even be an 

Affiliate. Our point is that requiring written contracts with each of these entities would involve a 

dizzying array of contracts, especially when multiple Advisers may be required to sign the same 

contract (and the contract amended from time to time to add and replace Advisers who provide 

advice to the client).

Furthermore, the agreement requirement should be flexible enough to allow for multiple 

services to be addressed, so there would be no need for multiple agreements with a Retirement 

Investor. 

 33 See U.S. v. Incorporated Village of Island Park, 888 F. Supp. 419, 444 (E.D.N.Y. 1995). 
43 

Proposed Modifications

1. Timing of the Contract. The final BIC Exemption should not require that an 

agreement be entered prior to when investment advice is provided, but rather before 

the implementation or execution of such advice. Accordingly, the Department should 

revise section II(a) of the BIC Exemption to state: “(a) Contract. Prior to the 

transaction for which relief is sought under Section I, the Adviser and Financial 

Institution enter into a written contract with the Retirement Investor . . . .” 

2. Multiple Entities. Where multiple Affiliates or Related Entities may provide services, 

the Department should confirm that the written agreement may be entered by one 

firm on behalf of all Affiliates or Related Entities involved or potentially involved. 

3. Comprehensive, Evergreen Agreement. The Department should confirm that specific 

Assets need not be identified – instead, the contract may refer to all products and 

services on the platform. As the preamble notes (FR at 21969), the contract may be 

included in a comprehensive agreement that covers a wide array of potential advice 

activities, and the contract may be evergreen (i.e., terminable upon reasonable notice 

by either party). This confirmation should be moved into the language of the final 

regulation with the force of law rather than in a preamble, especially given the 

potentially significant consequences of a prohibited transaction. 

4. Only the Retirement Investor Must Sign. Contractual undertakings between a 

Financial Institution and an investor, including a Retirement Investor, typically 

involve an account agreement between the Financial Institution and the investor. The 

investor typically signs the agreement, but it is commercially impractical for a 

representative of the Financial Institution to sign each such agreement on behalf of 

the Financial Institution. The contract is enforceable upon the acceptance of the 

account by the Financial Institution or the provision of the applicable service. It 

would require a massive undertaking from a cost, time and resource perspective, for 

us to shift to the construct set forth in the Proposal. Additionally, it is not clear how 

this would or could work where advice is provided through a call center or in the 

context where holistic advice is provided over time and potentially by multiple 

Advisers. Nor is it clear how Financial Institutions could easily amend the contract. 

For these reasons, we suggest that the Department clarify that the agreement need not be 

signed by the Financial Institution as long as it clearly states that it will bind the institution. 

5. Disclaimers. The contracting institution must be able to disclaim liability for acts or 

omissions of a third party, such as a custodian or clearing firm, and for punitive and 

consequential damages. 

6. Materiality. The definition of “Material Conflicts of Interest” should be revised to 

incorporate a standard of materiality. Additionally, the terms “direct” and “indirect” 

should have the same meanings attributed to them under Section 408(b)(2) of ERISA 

and the Form 5500. 
44 

Compensation and Other Disclosure Requirements 

Background 

 The BIC Exemption conditions include making available certain disclosures and other 

information available to Retail Investors and the public. These disclosures are in addition to 

other disclosures that may be required under ERISA section 408(b)(2) or other applicable law. 

They include the following: 

Point of Sale and Annual Disclosure: The proposed BIC Exemption requires a point of 

sale disclosure that must be delivered prior to the execution of any investment transaction. Such 

disclosure must include the following: (i) the all-in cost and anticipated future costs of 

recommended Assets in in a summary chart and the “total cost” to the Retirement Investor for 1-, 

5- and 10- year periods expressed as a dollar amount and (ii) the “Total Cost” of investing in an 

Asset. Additionally, on an annual basis, the Retirement Investor must receive (i) a list of each 

Asset purchased or sold during the applicable period and the price at which the Asset was 

purchased or sold, (ii) a statement of the total dollar amount of all fees and expenses paid by the 

Retirement Investor, both directly and indirectly, regarding each Asset purchased, held or sold 

during the applicable period; and (iii) a statement of the total dollar amount of all compensation 

received by the Adviser and Financial Institution, directly or indirectly, from any party, as a 

result of each Asset sold, purchased or held by the Retirement Investor during the applicable 

period. 

Website Disclosure: The Financial Institution and the Adviser must maintain a public 

webpage, updated not less than quarterly and written in a manner easily accessible to a 

Retirement Investor and the general public. The website must also include (i) all direct and 

indirect compensation that the Adviser may obtain on every Asset and (ii) in machine-readable 

format, all direct and indirect material compensation payable to the Adviser, Financial Institution 

and any Affiliate, including its source, regarding each Asset that a plan, participant or 

beneficiary account or an IRA can purchase, hold, or sell through the Adviser or Financial 

Institution, and that the plan, participant or beneficiary account or IRA has purchased, held, or 

sold within the last 365 days. 

Concerns

The proposed point of sale, annual, and website disclosures are extremely onerous. 

Implementation of these disclosure requirements will require a huge investment in technology 

and human resources to produce such disclosures and their implementation will take significantly 

more time than the proposed effective date of the final regulation. Further, TIAA-CREF believes 

that the type of disclosure requested will be of little benefit to plan fiduciaries, plan participants 

and beneficiaries, and IRA holders. 

We understand the Department’s concern about its lack of resources to oversee 

compliance with the BIC Exemption, and its decision to rely in part on private enforcement 

activities. But contractual actions must be calibrated so they do not lead to nuisance or strike 
45 

suits that add no value to participants or investors but only increase their costs, as in TIAACREF’s structure the cost of litigation will ultimately be passed on to them. To help investors 

reach a successful retirement, disclosure about conflicts is appropriate but should come at a 

realistic cost to the service provider.34

We noted in the “Key Structural Issues” discussion at the beginning of this letter that a 

cross-functional team at TIAA-CREF has estimated the additional costs and burdens of 

complying with the contract, disclosure and record retention requirements of the BIC Exemption. 

As noted in that section, we estimate these one-time efforts would take at least 9-15 months to 

complete depending on funding, final design details, and dependencies with other projects, at a 

cost of approximately $24.7 million. 

Once that infrastructure has been developed, we estimate that each year an additional 

870,000 calls or other interactions with clients would require changes to comply with the BIC 

Exemption, and we would have to send an additional 1.55 million packages via email or regular 

mail. An additional 320 full time employees would be required. The total recurring annual costs 

would be approximately $37.8 million. 

A much better alternative is available. In recent years financial institutions have devoted 

significant financial and compliance resources to complying with the Department’s Section 

408(b)(2) disclosure regulations, and helping their plan sponsor clients comply with their Section 

404(a)(5) disclosure regulations. These disclosures are designed to make sure participants 

understand the costs and fees of their retirement plan investments. 

Proposed Modifications 

1. Simplify Disclosure Requirements. The Department should not require the point of 

sale and annual disclosures as proposed. Rather, the Department should require 

disclosures for plan sponsors substantively identical to those required under its 

Section 408(b)(2) regulation, and disclosures to plan participants and IRA Owners 

substantively identical to those required under Section 404(a)(5) but from the service 

provider rather than the plan sponsor. Such disclosures could be coordinated with the 

plan sponsor’s 404a-5 notice to eliminate duplicate efforts. This approach would 

provide the key information plan sponsors, plan participants and IRA Owners would 

need and it would leverage systems already built. 

2. Eliminate Website Disclosure. We respectfully submit that the costs and burdens of 

the website disclosure requirement far outweigh any potential benefit to the 

Retirement Investor, and therefore cannot be justified from a cost perspective. This 

disclosure is not useful to the investor. In furtherance of financial literacy, DOL 

 34 We note also that there could be cost and competitive advantages to marginal providers 

who decide not to comply despite legal requirements. In such a case, there would be no private right of 

action (given the marginal provider would have avoided entering into the written contract required by the 

BIC Exemption). Additionally, well known budgetary and resource constraints of the IRS may make 

detection of such unscrupulous behavior and imposition of excise taxes an uncertain result at best. 
46 

should focus on disclosures that educate the Retirement Investor about different types 

of investments, and how to assess their performance and the fees. Disclosure should 

not focus on cost alone, as cost tells only part of the story. For example, certain 

investment types cost more than others – e.g., active vs. passive funds – and cost 

alone is not indicative of the appropriateness of an investment. The requirement to 

include total fees from any party should be limited, in our case, to the fees paid to 

TIA and its affiliates. For example, introducing brokers typically do not have 

transparency into all forms of fund compensation payable to the clearing broker. 

3. Conform Point of Sale Disclosure with SEC and FINRA Rules. With respect to the 

point of sale disclosure, including 1-, 5- and 10-year charts depicting the investment’s 

total cost over those periods would be of limited use to the Retirement Investor and 

will not allow a comparison to costs of other available investments. Moreover, it may 

result in delays in execution of a transaction as the point of sale disclosures will take 

time to generate – to the ultimate detriment of the Retirement Investor (particularly in 

times of market volatility). We believe the Retirement Investor would better served if 

the Adviser directs him or her to the relevant information as to fees and cost in a 

mutual fund or variable annuity prospectus.35 The disclosures do not appear to apply 

to other types of investments. 

Clarification may be needed from other regulators, such as the Securities and 

Exchange Commission, FINRA and state insurance regulators, regarding the 

circumstances under which Financial Institutions may include prospective cost 

estimates in a fair and balanced manner and consistent with their rules and 

regulations, especially where the estimates are dependent upon return assumptions. 

For example, forward-looking statements are problematic under FINRA rules, as they 

require speculation. And unless delivery of the POS disclosure can be deemed a good 

order requirement, the requirement to deliver the disclosure prior to execution of a 

recommendation may cause difficulty with respect to SEC and FINRA rules that 

require prompt delivery of orders to purchase a security. 

4. Allow Flexible Delivery Procedures. The Department must provide a flexible 

construct for the delivery of the point of sale disclosures. For example, will Advisers 

be allowed to deliver the disclosures via e-mail or another electronic channel? Can 

disclosures be read to an investor in a recorded telephone conversation? Must the 

Adviser comply with the requirements of ESIGN before delivering the disclosures via 

electronic mechanisms? Depending on the answers to these and other questions, the 

transaction may be delayed. If the disclosures must be delivered by paper in the 

absence of the investor’s consent, the transaction may be further delayed. 

 35 For mutual funds and variable annuities, the DOL should simply require the Adviser to 

direct a Retirement Investor to the expense example in the fund or variable annuity prospectus, as 

applicable. This expense example, which is a longstanding SEC requirement, will show the cumulative 

expenses paid over a 1-, 3-, 5-, and 10-year period on a $10,000 initial investment. 
47 

5. Limit Fee Disclosure to the Adviser. Regarding the annual disclosure, the disclosures 

with respect to total fees paid to any party should be limited to the fees paid to the 

Adviser, if any. With respect to fees paid to TIAA-CREF and its affiliates as well as 

any other party, the Retirement Investor should be directed to the relevant section of 

the applicable mutual fund or variable annuity prospectus and we should be permitted 

to provide the investor with disclosure which articulates the type of fees the Financial 

Institution and its affiliates receive. The Financial Institution may not have 

information concerning the compensation arrangements that non-affiliated entities 

have with the issuer of the investment, such as clearing brokers, so this information 

cannot be required. 

Range of Investment Options 

Background 

The proposed BIC Exemption requires that a determination be made that the Financial 

Institution offers, and the Adviser makes available, all asset classes necessary to serve the best 

interests of the Retirement Investor. The Financial Institution may offer only proprietary 

products, only those that generate third party fees, or only those of a particular asset class or 

product types if additional requirements are met. Specifically, the Financial Institution must 

make a written finding that the limitations do not prevent its Advisers from providing advice that 

is in the Retirement Investor’s best interests, the compensation received for the provided services 

must be reasonable and written notice must be provided to the Retirement Investor of any such 

limitations. 

Concerns and Proposed Modifications

Asset Classes. Further definition is needed as to “asset classes” to determine that all asset 

classes are offered and made available to serve the best interests of the client. Are the asset 

classes only equities, debt and cash? What about guaranteed income? We believe guaranteed 

income is an important tool to create a guaranteed income floor in retirement. We assume an 

Adviser making available guaranteed income products in lieu of fixed income would not 

compromise the Adviser’s ability to provide advice that is in the Retirement Investor’s best 

interests and the Adviser would not need to advise on fixed income investments as well. 

Limited Range. Additional clarity is needed on what constitutes a limited range of 

investments. Does making available mutual funds or annuities only within an IRA constitute a 

“limited range” if the mutual funds or annuities cover all asset classes? If a written finding is 

required by the Financial Institution that the limitations do not prevent its Advisers from 

providing advice in the Retirement Investor’s best interest, can the finding be made as to the 

platform it offers (rather than specific to each investor and each time advice is provided)? 

Because repercussions would be severe and could require reversing transactions if the 

requirements are not met, Financial Institutions need objective criteria that are easily applied. 
48 

Reasonableness of Fees. It also is unclear how one would measure and apply the test that 

requires compensation to be both reasonable in relation to the value of the specific services 

provided to the Retirement Investor in exchange for payments and also not above the fair market 

value of the services. Under this construct, it would appear the Adviser and the Financial 

Institution must have knowledge of the pricing structures used by competitors for such services 

at the time of providing the advice. Reasonable compensation should instead be the sole test. 

Recordkeeping and Data Requests

Background 

 The BIC Exemption also requires the Financial Institution to maintain information on a 

quarterly basis as to inflows, outflows and holdings for each Asset purchased, sold or held under 

the exemption. This information includes the identity and quantity of each such Asset 

purchased, sold or held, the aggregate dollar amount invested or received and the cost to the 

investor for each such Asset, the revenue received by the Financial Institution and its affiliates in 

connection with each purchase, sale or holding (with each revenue source identified along with 

the reason for the payment). Investor- and Adviser-specific information must be maintained, 

including portfolio valuation information and inflow and outflow information. The data must be 

maintained for six years from the date of the transaction and must be provided to the Department 

upon request within six months from the date of the request. Furthermore, documentation 

demonstrating the conditions of the exemption have been met also must be maintained for six 

years and provided to the Department, the Internal Revenue Services, any Retirement Investor 

and any plan sponsor whose participants engaged in a transaction under the exemption. Any 

such information disclosed to the Department would be available publicly. 

Concerns 

 We believe the above requirements are unreasonable given the time-consuming and 

costly systems builds that would be needed as well as privacy considerations. TIAA-CREF’s 

estimates of the cost to meet these requirements are included in the BIC Exemption costs 

described above. We further believe it would be inappropriate to disclose Retirement Investor 

and Adviser information in public filings, even on a per-Adviser aggregate basis. We are 

concerned that such disclosures may be at odds with privacy protections afforded under state 

laws. Additionally, we believe disclosure of per-Adviser performance information would be 

potentially misleading and prone to unfair manipulation by competitors. Additionally, given that 

failure to comply with the above requirements are severe and would negate a Financial 

Institution’s ability to rely on the exemption, any recordkeeping requirements must provide a 

carve out for records that are lost or destroyed because of acts beyond the Financial Institution’s 

reasonable control. 

Proposed Modifications 

 Recordkeeping. If our suggestion above to employ 404(a)(5) and 408(b)(2)-style 

disclosures is adopted by the Department, many of our recordkeeping concerns would be 

ameliorated because the data necessary to demonstrate compliance would be readily available. 
49 

TIAA-CREF already has systems in place to retain the data necessary. In addition, per-Adviser 

data should not be subject to disclosure, and a carve-out should be added to address lost or 

destroyed records. 

Application of BIC Exemption to Rollovers, Managed Accounts and Recommendations of 

Investment Managers 

Background and Concerns 

The BIC Exemption “permits Advisers, Financial Institutions, and their Affiliates and 

Related Entities to receive compensation for services provided in connection with a purchase, 

sale or holding of an Asset by a Plan, participant or beneficiary account, or IRA, as a result of the 

Adviser’s and Financial Institution’s advice to” Retirement Investors. The proposed exemption 

defines the term “Asset” in the proposed exemption. We note that the definition of this term 

does not include an IRA or plan nor does it address the recommendation of an investment 

manager who provides covered advice for a fee such as a managed account provider, even 

though TIAA-CREF receives no compensation for marketing the service but simply receives an 

“assets under management” fee if it is engaged. While TIAA-CREF is not compensated for the 

actual sale, the ultimate management fee paid to TIAA or its Affiliate may be deemed 

compensation for purposes of the proposed “investment advice” definition. 

 We are also concerned that the BIC Exemption could be interpreted not to apply to any 

advice about the decision to take a distribution and roll it over to an IRA or transfer it to another 

plan. We assume this was an oversight. The typical rollover advice transaction may comprise 

four potential separate recommendations: (i) a recommendation to hire the Adviser; (ii) a 

recommendation to take a distribution from the plan; (iii) a recommendation to roll over to an 

IRA; and (iv) a recommendation regarding how to invest the assets of the IRA once rolled 

over. Under the Proposal, the Adviser acts as a fiduciary with respect to each of the 

recommendations. We view each as a separate transaction for which an exemption is needed. 

Proposed Modifications 

1. Clarify BIC Exemption Applies to Rollovers. Under the Department’s much 

expanded definition of fiduciary advice, a typical rollover transaction might involve 

each of the four separate fiduciary recommendations outlined immediately above. 

We request that the Department clarify that the BIC Exemption applies to a 

recommendation to transfer assets to a specific IRA or a retirement plan either from 

another retirement plan or from another IRA. 

2. Sale of Management Services Should not be Advice. The Department should clarify 

that marketing “fee-based” investment advice or management services, including 

managed account services, will not be considered fiduciary advice so long as no 

compensation is received by any firm or individual in connection with the marketing 

or the sale of the services. Thus, while the adviser or manager would receive fees for 

the provision of advisory or management services, it would not be considered a 
50 

fiduciary adviser when marketing those services. If the Department insists on 

subjecting this marketing to fiduciary standards, we request that the BIC Exemption 

be revised to provide relief for this type of “advice.” 

To address these two points, we propose the following revision to Section VIII(c) of the 

BIC Exemption. We note that our comment immediately following would eliminate the need for 

a detailed definition of Asset, so we offer this revision only if the Department does not agree 

with our comment below. 

(c) An ‘‘Asset,’’ for purposes of this exemption, includes only the following 

investment products: IRA, an investment management or advisory 

agreement, bank deposits, certificates of deposit (CDs), shares or interests in 

registered investment companies, bank collective funds, insurance company 

separate accounts, exchange-traded REITs, exchange-traded funds, corporate 

bonds offered pursuant to a registration statement under the Securities Act of 

1933, agency debt securities as defined in FINRA Rule 6710(l) or its successor, 

U.S. Treasury securities as defined in FINRA Rule 6710(p) or its successor, 

insurance and annuity contracts, guaranteed investment contracts, and equity 

securities within the meaning of 17 CFR 230.405 that are exchange-traded 

securities within the meaning of 17 CFR 242.600. Excluded from this definition 

is any equity security that is a security future or a put, call, straddle, or other 

option or privilege of buying an equity security from or selling an equity 

security to another without being bound to do so. 

Definition of “Asset” 

Background 

The BIC Exemption applies to the receipt of “compensation for services provided in 

connection with a purchase, sale or holding of an Asset.” The Department specifically defines 

“Asset” as a limited set of types of securities and other property. The Department states that 

“Limiting the exemption in this manner ensures that the investments needed to build a basic 

diversified portfolio are available to plans, participant and beneficiary accounts, and IRAs, while 

limiting the exemption to those investments that are relatively transparent and liquid, many of 

which have a ready market price. The Department also notes that many investment types and 

strategies that would not be covered by the exemption can be obtained through pooled 

investment funds, such as mutual funds, that are covered by the exemption.” However, the 

Department requests comments regarding whether other investments should be included. 

Concerns 

There is no precedent for an approved asset list under ERISA; the common law and 

statutory concepts of such a list have been discredited for decades under state law principles of 

trust investments.36 The Department substitutes its judgment for the market at peril. Its 

 

36 See Stewart E. Sterk, Rethinking Trust Law Reform: How Prudent is Modern Prudent Investor 

Doctrine, 95, CORNELL L. REV. 851, 853 (2010); see also Trent S. Kiziah, Uniform Prudent Investor Act 
51 

proposed list will lead to difficult questions of classification and interpretation, and will impede 

product innovation and development. For example, many plans prefer to invest through 

separately managed accounts (“SMAs”) for many reasons. Certain clients want to own their 

underlying portfolio securities directly, prefer a format where the adviser is a direct fiduciary to 

the client, and retain the flexibility to impose investment and trading restrictions on their 

accounts, vote proxies and enjoy the other rights of security holders. We note that for plans that 

invest through SMAs, the “Asset” list excludes certain security types that plans may find 

beneficial, including non-U.S. ordinary securities, municipal bonds and others. We also note that 

pooled investment vehicles such as unit investment trusts and non-publicly traded REITs are 

excluded. There may be sound portfolio management and investment reasons for plan 

fiduciaries to own these vehicle types and asset classes and we believe that plans should have the 

right to own them. Investing in these asset classes and vehicles types may be in a plan’s or 

IRA’s best interest. We believe that plan fiduciaries and IRA Owners and their Advisers should 

have the right to make their own investment choices, and that is it not appropriate for the 

Department to substitute its judgment for that of the plan and their Advisers. 

Proposed Modification 

The term “Asset” should include any asset that a fiduciary to the plan or IRA has 

determined to be consistent with the Best Interest standard. 

Prohibitions against Principal Transactions 

Background 

Section I(c)(2) of the BIC Exemption provides that the exemption does not apply to 

compensation received “as a result of a transaction in which the Adviser is acting on behalf of its 

own account or the account of the Financial Institution, or the account of a person directly or 

indirectly, through one or more intermediaries, controlling, controlled by, or under common 

control with the Financial Institution (i.e., a principal transaction).” The Department’s reasoning 

is that “Principal transactions involve conflicts of interest not addressed by the safeguards of this 

proposed exemption.” 

Concerns 

We are concerned that the aforementioned language may be interpreted to provide that 

TIAA-CREF cannot sell annuity contracts it issues because a TIAA-CREF employee in 

recommending such products may be viewed as “acting on behalf of its own account or the 

account of” TIAA or its affiliate. 

 

and Modern Portfolio Trust Investment Statutes, The American College of Trust and Estate Counsel 

(Nov. 21, 2013), available online: www.actec.org/public/Documents/Studies/Kiziah_50_State_UPIA.pdf. 

See generally Harvard College v. Amory, 26 Mass. 446, 461 (1830). 
52 

Proposed Modifications 

Principal Transactions. Therefore, Section I(c)(2) should be revised as follows: 

“compensation is received as a result of a transaction in which the Adviser is acting on behalf of 

its own account or the account of the Financial Institution, or the account of a person directly or 

indirectly, through one or more intermediaries, controlling, controlled by, or under common 

control with the Financial Institution (i.e., a principal transaction), unless the Financial Institution 

or an Affiliate or Related Entity is the issuer of the Asset.” 

Failure of BIC Exemption to cover Financial Institution’s own Plans 

Background and Concerns 

TIAA-CREF is concerned that we will not be able to make available our own investment 

products and services, particularly TIAA-CREF’s IRA products, to employees and former 

employees who participate in our ERISA-covered plans, because the BIC Exemption does not 

apply if “The Plan is covered by Title I of ERISA, and . . . the Adviser, Financial Institution or 

any Affiliate is the employer of employees covered by the Plan . . . .” In the preamble to the 

proposed definition of fiduciary, the Department states that “The Department believes that due to 

the special nature of the employer/employee relationship, an exemption permitting an Adviser 

and Financial Institution to profit from investments by employees in their employer-sponsored 

plan would not be in the interest of, or protective of, the plans and their participants and 

beneficiaries.”37

 TIAA-CREF believes that the Department should make exemptive relief available to 

Advisers, Financial Institutions, and any Affiliate that make available their own products, 

including IRAs, and services to employees and former employees. This follows the statutory 

exemption under ERISA Section 408(b)(5). The legislative intent behind that exemption is, “it 

would be contrary to normal business practice to require the plan of an insurance company to 

purchase its insurance from another insurance company.” H. Rep. 93-1280, at 314 (1974) (Conf. 

Rep.). The Department has broadened the exemption available under Section 408(b)(5) through 

PTE 89-41. In addition, the Department issued PTE 77-3 to permit investment of plans in 

mutual funds that are proprietary to the plan sponsor or an affiliate. TIAA-CREF notes that PTE 

89-41 and PTE 77-3 condition the relief on no commission being paid. However, the relief in 

408(b)(5) and the PTEs is not conditioned on no “profit” and they contemplate that the financial 

institution will receive some type of indirect benefit. 

 

Proposed Modification 

Permit No-Commission Sales. Therefore, we ask that the Department create an exception 

to the exclusion in the BIC Exemption so that the Adviser, Financial Institution or any Affiliate 

 

37 80 FR at 21968 (April 20, 2015). 
53 

that is the employer of employees covered by a Plan subject to Title I of ERISA may market, 

sell, or otherwise make available proprietary products, including IRAs, and proprietary services 

to the Plan, Plan participants and beneficiaries, and IRA Owners so long as the Adviser, 

Financial Institution or any Affiliates receive no commission for the sale of such product or 

service. 

Inadvertent Compliance Failures 

 Background and Concerns 

As noted above, an immaterial failure to meet some of the detailed requirements of the 

BIC Exemption can lead to catastrophic taxes and private remedies out of all proportion to any 

harm to the investor. We think participants would ultimately benefit from a general provision in 

the exemption that would excuse immaterial and unintentional breaches, so they do not give rise 

to exposure to the IRS for excise taxes or to private plaintiff lawyers for strike suits and nuisance 

settlements. 

Proposed Modification

 Address Inadvertent Compliance Failures. TIAA-CREF recommends that the BIC 

Exemption be modified so the Adviser, Financial Institution, Affiliates and Related Entities 

could rely on the Exemption if they have acted in “good faith and with reasonable diligence” in 

complying with the BIC Exemption, any failure is not material to the Retirement Investor, and 

there is a commitment to correct any errors within a reasonable time period after detection to the 

extent practicable. In addition, the Department should clarify that an interaction that did not 

require the BIC Exemption cannot give rise to liability under it, and that such a provision 

limiting liability in the written contract will be enforceable. 

Grandfathering – BIC Exemption 

Background

The proposed exemption indicates that agreements in place prior to the effective date of 

the final regulation must be amended to include the BIC Exemption conditions if the Adviser and 

Financial Institution intend to rely on such exemption regarding advice given after the 

applicability date. Specifically, section VII(b)(3) of the Proposal makes exemptive relief 

available only if there is no advice given by the Adviser or Financial Institution after the 

applicability date. 

Concerns 

TIAA-CREF cannot reasonably be expected to amend thousands of participant 

agreements within a short period of time, or ignore legitimate requests for advice after the 

applicability date to the detriment of participants and IRA Owners. Under the Proposal, the 

Adviser cannot answer the customer’s question unless and until multiple parties enter into a 
54 

written contract, because any response as to buying, holding, or selling would be considered a 

“recommendation” without the protection of the BIC Exemption. Such a requirement would 

create potentially ruinous delays in, and deprive existing clients of reasonable access to, the 

advice they need to secure their retirement future. 

Proposed Modifications 

Grandfathering. The Department should grandfather all pre-effective date agreements 

under prior law so all existing sales and new transactions under those agreements (e.g., 

additional deposits, re-allocation, and follow-up communications) are covered by prior law, even 

if such agreements are modified under their terms. Future transactions such as whether existing 

plan assets should be rolled over to an IRA would be subject to the new rules. 

VIII. Other Comments 

Welfare Plans 

Background 

Under Section 3(21) of Title I of ERISA, the term “fiduciary” applies in the context of all 

types of plans, including pension and welfare plans (as long as not otherwise exempt under 

Section 4 of Title I of ERISA). The existing regulations set forth the criteria for establishing a 

fiduciary relationship in connection with an investment advice provided to a welfare plan. 

However, the Proposal attempts to subject welfare plans to a much broader definition of 

“investment advice” by including welfare plans in the definition of a “plan” in paragraph (f) of 

the Proposal. 

 

Concerns 

TIAA-CREF offers recordkeeping and trust services in connection with retiree healthcare 

savings programs, which use voluntary employee beneficiary associations described in section 

501(c)(9) of the Internal Revenue Code. As discussed above, the breadth of the definition of 

fiduciary investment advice, the limitations of the carve-outs and the shift of the burden of proof 

will require our Advisers, TIAA-CREF and certain affiliates to assume fiduciary status even 

where no plan fiduciary or participant could reasonably expect that the Adviser or TIAA-CREF 

is acting in a fiduciary capacity. However, as the Department has itself acknowledged in the 

Preamble to the final regulations under Section 408(b)(2), there are significant differences 

between service and compensation arrangements of welfare plans and those involving pension 

plans. In fact, the Department decided to pursue a distinct regulatory initiative with respect to 

disclosure framework applicable to the welfare plans under Section 408(b)(2). The Department 

should reach a similar conclusion regarding a new definition of “investment advice” as applied to 

welfare plans (and especially, in the absence of any analysis with respect to potential 

consequences of its application to welfare plans). 
55 

Proposed Modifications 

Definition of Plan. For the above reasons, we urge the Department to modify the 

definition of a “plan” in paragraph (f) of the Proposal to mean “any employee pension plan as 

described in section (2)(A) of the Act and any plan described in section 4975(e)(1)(A) of the 

Code.” 

 

Streamlined Exemption 

 

We do not think the Department should pursue the suggestion that a special, streamlined 

exemption for “certain high-quality low-fee investments” be created as an alternative to the BIC 

Exemption or another exemption. We expect that an exemption of this type could substantially 

favor passive investment vehicles, which we do not believe are the right option for every investor 

and in every situation. Further, this type of exemption could be viewed as tantamount to explicit 

DOL approval of whatever product or service fell within the exemption, regardless of 

performance or suitability. Instead, plan fiduciaries and IRA Owners with the help of their 

Advisers (not the Department) should determine what investments are prudent and appropriate 

under ERISA.38 

Even the suggestion of a “separate streamlined exemption” for advice related to “certain 

high-quality low-fee investments” raises a serious question about how much weight should be 

given to the cost of products and services versus other qualitative factors. Rather, ERISA 

requires a qualitative analysis requiring a review of all the relevant facts and circumstances, with 

cost being one of many factors to consider. The suggestion that only cost matters is contrary to 

prior positions of the DOL and the courts, which have stated that ERISA does not require a 

fiduciary to recommend or select the lowest cost product or service. Rather, ERISA requires a 

qualitative analysis requiring a review of the facts and circumstances with cost being one factor 

to consider.39 

One potential consequence of such an exemption could be to discourage the adoption of 

guaranteed lifetime income products. As noted at the beginning of this letter, the Department 

and the Treasury Department have recently taken several steps – which we applaud – to 

encourage the availability of lifetime income products within participant-directed defined 

contribution plans.40 A low-fee safe harbor would likely drive plan sponsors fearful of litigation, 

and their consultants, away from lifetime income solutions, because the cost of the pooling of 

 38 We note that TIAA-CREF offers low-cost mutual funds that are passively managed and 

highly rated by Morningstar. Sales of these funds would presumably benefit from a “low-cost 

exemption” but we oppose the suggestion nonetheless for the reasons stated. 

39 We note that “cost” is inherently difficult to evaluate in the context of investments that 

pay additional interest or dividends in light of general account performance and other variables, as the 

additional interest or dividends are economically equivalent to rebates or other cost reductions. In a 

similar vein are fluctuating 10b-1 and other fees received by an insurer that are applied against contract 

charges. For long term investments, it is too simplistic to look only at upfront costs. 

40 See text accompanying notes 8 and 9, infra.
56 

risks and longevity insurance that only insurance companies may provide is greater than the cost 

of indexed, passive investments. Such a step would frustrate the Department’s goals of 

encouraging lifetime income options within plans, where they are subject to fiduciary oversight 

and protection. 

In addition, absent specific regulatory language in the Proposal, it would be inappropriate 

for the Department to proceed with finalizing a regulation about low-fee investments . Such a 

regulation could have far-reaching ramifications, similar to the promulgation of the QDIA 

regulations in 2007 which led to a wide acceptance of target date funds as default investments in 

plans. Such a broad economic effect and legal change requires a specific proposal followed by a 

notice and public comment period. 

Effective Date – Proposed Modifications 

The requirements of the Proposal, even if modified as we suggest, will require a 

significant amount of time for TIAA-CREF to determine which of its activities will be 

“investment advice”, to write and test needed software code so data are transferred among our 

systems accurately, and implement business, compliance, and audit procedures. In addition, we 

believe that the changes to our systems needed to meet the disclosure requirements of the BIC 

Exemption could take at least nine to 15 months to implement. Therefore, an effective date of 

eight months after the final regulation is published will not be sufficient time for TIAA-CREF or 

any other large financial institution to complete the necessary tasks. For expenditures of money 

and resources of the magnitude contemplated (at least $25 million up front and extra annual costs 

estimated at $38 million), a compressed budget and funding cycle will seriously disrupt other 

important projects that would benefit participants and IRA Owners. To accommodate the 

immense burden of operational compliance, we request an extension of the effective date of no 

sooner than 36 months after the date the final regulation is published in the Federal Register. In 

addition, given the complexity of the Proposal, we believe the Department should specifically 

acknowledge that good faith efforts with reasonable diligence to comply with the terms and 

conditions of the final rule are sufficient to demonstrate compliance. 

We note that for the Department’s disclosure regulation under Section 408(b)(2), 4 1⁄2 years 

passed between the initial proposed rule and effectiveness (two years after publication of the 

interim final rule). The effective date was delayed four times. And for 404a-5 disclosure, four 

years passed between the initial proposed rule and effectiveness (1-3/4 years after publication of 

the final rule). The effective date was delayed four times, by 3-1/2 years. The Proposal dwarfs 

both of those projects in scope, cost, and importance.