INTERNATIONAL
BROTHERHOOD
OF ELECTRICAL
WORKERS.

900 Seventh Street, NW
Washington, DC 20001
202.833.7000
www.ibew.org

LONNIE R. STEPHENSON
International President

SAM J. CHILIA
International
Secretary-Treasurer

Form 200

July 21, 2015

Office of Regulations and Interpretations
Office of Exemption Determinations
Employee Benefits Security Administration
U.S. Department of Labor

200 Constitution Avenue NW, Suite 400
Washington, DC 20210

Re: Conflict of Interest Rule, RIN: 1210-AB32; Proposed Best Interest
Contract Exemption, ZRIN: 1210-ZA25

To Whom It May Concern:

On behalf of the approximately 750,000 active members and retirees of the
International Brotherhood of Electrical Workers (IBEW), I write in support of the
Department of Labor’s (DOL) recently proposed rule: Definition of the Term
“Fiduciary”; Conflict of Interest Rule — Retirement Investment Advice. While
most IBEW members have defined benefit plans', many members also have
retirement investments in 401(k) Plans or Individual Retirement Accounts (IRAs)
and will be positively impacted by the proposed regulation. The IBEW supports
the DOL’s proposal because it will provide greater investment protection for its
members and plan administrators.

Over the last 40 years the financial services and retirement planning
industry has changed considerably. A shift from defined benefit plans to defined
contribution plans began in the 1980s. A recent report by the DOL outlined this
change:

“In 1978, when legislation was enacted authorizing
401(k) type plans that allow employees to contribute
to their own retirement plans on a pre-tax basis,
participants contributed 29 percent of contributions to
[defined contribution] plans...In the years following
1978, employee contributions to [defined
contribution] plans steadily rose to a peak of
approximately 60 percent in 1999, where it has
remained.”?

Despite these dramatic changes, the regulatory definition of fiduciary
investment advice has not been updated.

Professionals are currently using titles such as financial adviser or financial
consultant while offering services they call financial planning or retirement

| IBEW member pensions vary by industry and employer.
2

http:/www.dol.gov/ebsa/pdf’20 I pensionplanbulletin. pdf


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planning. These professionals are regulated as salespersons and are not required to
act in the best interest of their clients. Therefore, professionals holding themselves
out as financial advisers or consultants can make decisions in their self-interest at
their clients’ expense. In other words, it is permissible for professional
salespersons masked as financial advisers to give advice that will not benefit their
clients but benefit themselves through commission or other sale-based incentives.
The DOL’s proposed regulation is a positive step toward closing many of the
loopholes that allow for this conflicted behavior.

Nearly nine out of ten American households engage in some sort of
financial planning? The majority of 401(k) or IRA participants are very dependent
on these investments for their retirement. The growing prevalence of 401(k) and
IRA investments coupled with a 2012 study of financial literacy among investors
makes a clear case for more protective investment regulations. According to the
study, many investors are relying on financial advisers because they “do not
understand the most elementary financial concepts, such as compound interest and
inflation.” These individuals believe that the advice they are being given is in their
best interest.° Unfortunately, most clients are unaware of their adviser’s
compensation structure and the advice they are receiving is not always in their best
interest.

The IBEW applauds the DOL for this long overdue update to the 1975
regulatory definition of fiduciary investment advice. The current regulatory
definition of investment advice under the Employee Retirement Income Security
Act (ERISA) requires that each prong of a five part test be met before a fiduciary
standard is imposed. The DOL’s current proposal would replace the five part test
with a straightforward definition that parallels the definition of investment advice
under securities laws. There are several key components of the proposal that the
IBEW strongly supports. First, an individual would render investment advice and
trigger fiduciary duty when he or she is compensated for providing an
individualized recommendation to a plan participant, an IRA owner, a retirement
plan, or an IRA. Under the proposed rule, advice would not have to be provided on
a “regular basis” before fiduciary protections would be triggered. Second, there
will no longer have to be a “mutual agreement” that the advice given forms the

* Consumer Federation of America, Financial Planning Profiles of American Households, Sept.

households.pdf?sfvrsn=2_
* Staff of the Office of Investor Education and Advocacy of the U.S. Securities and Exchange
Commission, Study Regarding Financial Literacy Among Investors, As Required by Section 917 of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, Aug. 2012, at vii-viii.

5 See generally Angela A. Hung, et. al., Investor and Industry Perspectives on Investment Advisers
and Broker-Dealers, Jan. 2008.



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| BROTHERHOOD
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WORKERS»

July 21, 2015
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“primary basis” for the investment decision being made. Finally, rollover
recommendations would now trigger fiduciary responsibility so that the best
interest of the client would be the focus of the recommendation made. These are all
important, overdue updates for those saving for retirement.

The proposed rule will protect the millions of Americans who are presently
relying on what they believe to be investment advice directly related to their
retirement security. For the reasons explained above, it is extremely important to
hold those giving advice to the same ERISA fiduciary standard as registered
investment advisers. It is time that regulations reflect the marketplace and investor
needs. The DOL’s proposal does just that. The IBEW commends the DOL for its
careful balance of consumer protection and industry preservation.

Sincerely yours,

Powers

Lonnie Stephenson
International President

LRS:mlm