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Via Electronic Submission to www.regulations.gov

July 21, 2015

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, N.W.

Washington, D.C. 20210

Office of Exemption Determinations

Employee Benefits Security Administration 

Attn: D-11712

U.S. Department of Labor

200 Constitution Avenue, N.W., Suite 400

Washington, D.C. 20210

Re: EBSA RIN 1210-AB32. Definition of the Term “Fiduciary”; Conflict of Interest 

Rule-Retirement Investment Advice

Re: EBSA-2014-0016; ZRIN: 1210-ZA25 

 Proposed Best Interest Contract Exemption

Ladies and Gentlemen:

This letter is submitted by the Society of Human Resources Management (“SHRM”) in 

response to the request for comments by the Employee Benefits Security Administration 

(“EBSA”) on its proposal to revise 29 C.F.R. Section 2510.3-21(c) by expanding the definition 

of “fiduciary” who renders “investment advice” and to issue a Best Interest Contract Exemption

(“BICE”).

Founded in 1948, the Society for Human Resource Management (SHRM) is the world’s 

largest HR membership organization devoted to human resource management. Representing 

more than 275,000 members in over 160 countries, the Society is the leading provider of 

resources to serve the needs of HR professionals and advance the professional practice of human 

resource management. SHRM has more than 575 affiliated chapters within the United States and 
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subsidiary offices in China, India and United Arab Emirates. Many of our members perform inhouse administrative and fiduciary activities for employer-sponsored pension plans. SHRM 

appreciates the Department’s efforts to ensure protections for plan participants, sponsors, 

administrators and retirement plan providers. Creating an environment that encourages 

retirement savings while protecting pension plan assets is of utmost importance. Just as 

importantly, overly burdensome regulations can have unintended consequences, including higher 

costs, increased record-keeping requirements, as well as creating barriers to saving for

retirement. As the Department considers comments to these proposed rules, it is imperative that 

the regulatory environment does no harm to the retirement system. 

INTRODUCTION

SHRM agrees that the current regulations narrowing the statutory definition of fiduciary 

investment advice are outdated and do not adequately protect the interests of plan sponsors, plan 

participants and beneficiaries. Significant changes have occurred in the retirement plan 

landscape, including (i) the introduction of and growth in participant-directed individual account 

plans; (ii) the changes to and complexity of the various sales and distribution methods for 

retirement plans; (iii) the complexity of the compensatory arrangements with advisors, trustees

and other service providers; and (iv) the increase in the types of investments products offered to 

plan sponsors, plan participants and beneficiaries. These circumstances justify the revocation of 

the current five-part test used to determine whether a person is a fiduciary by reason of rendering 

investment advice to plan sponsors, plan participants and beneficiaries. These plan participants

should be able to receive much needed expert advice from advisers who acknowledge their 

fiduciary status and such advice should be unbiased and free of conflicts of interest. 

SHRM’s specific comments follow below.

COMMENTS ON THE CONFLICT OF INTEREST RULE – RETIREMENT INVESTMENT 

ADVICE

(1) THE EXPANSION OF THE GENERAL DEFINITION OF INVESTMENT ADVICE 

INCREASES PROTECTION TO PLAN SPONSORS, PLAN PARTICIPANTS AND 

BENEFICIARIES, AND IRA OWNERS.

The proposed definition eliminates many conditions placed on the advice contained in the 

1975 regulations that allowed advisers to easily avoid fiduciary status - - the proposal provides 

that the advice does not have to be made on a regular basis, does not need to be given under a 

mutual agreement that the advice will serve as a primary basis for investment decision, and does 

not need to be individualized based on the particular needs of the plan. Rather, the proposed 

definition provides that the advice either be individualized or specifically directed to the advice 

recipient, and also that the advice needs to be considered by the recipient in making investment 

decisions. SHRM believes that this new definition better conforms to the statutory definition of 

“fiduciary” found in Section 3(21) of the Employee Retirement Income Security Act of 1974 
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(“ERISA”) and Section 4975(e)(3) of the Internal Revenue Code of 1986 (“Code”). Moreover, it 

increases the likelihood that investment advisers will be deemed fiduciaries required to act in the 

best interests of their retirement investors. 

(2) THE EXPANSION OF THE INVESTMENT ADVICE TO INCLUDE RECOMMENDATIONS 

TO TAKE BENEFIT DISTRIBUTIONS AND RECOMMENDATIONS ON INVESTMENT OF 

ASSETS TO BE ROLLED OVER OR OTHERWISE DISTRIBUTED FROM PLANS OR IRAS 

INCREASES PROTECTION TO PLAN PARTICIPANTS AND BENEFICIARIES AND IRA 

OWNERS.

SHRM agrees with the Department of Labor (“DOL”) that an adviser who makes 

recommendations to a participant or beneficiary to take a distribution from a plan (whether or not 

combined with a recommendation on how to invest those assets) constitutes “investment advice”

as long as the adviser gets direct or indirect compensation for that advice. A participant who 

terminates his/her employment has the choice to keep their account balance in the plan until 

retirement or receive a distribution that may be rolled over into another qualified plan or an IRA 

or receive a cash distribution. Thus, advice to take a distribution (whether in-serve or after 

termination) relates to how those monies should be invested. Moreover, advice provided 

regarding where to invest those assets outside of the plan (whether provided while those assets 

remain in the plan or not) likewise constitutes investment advice. 

(3) PROFESSIONALS WHO PROVIDE APPRAISALS AND FAIRNESS OPINIONS 

REGARDING THE VALUE OF SECURITIES AND PROPERTY IN CONNECTION WITH 

SPECIFIC TRANSACTIONS SHOULD NOT BE DEEMED FIDUCIARIES.

The DOL’s current proposal limits the provision of appraisals and fairness opinions by 

professionals as investment advice to those provided in connection with a specific transaction or 

a transaction involving the acquisition, disposition, or exchange of securities or other property by 

the plan. One of the “carve-outs” proposed in the regulation excludes from the definition of 

fiduciary investment advice appraisals, fairness opinions, or statements of value if they relate to: 

(i) Employee Stock Option Plans (“ESOPs”); (ii) collective investment funds; and (iii) reporting 

and disclosing obligations under ERISA, the Code, or other federal or state laws.

While SHRM appreciates that the DOL has limited the 2010 proposal (which included all 

appraisals, fairness opinions, and valuations as to the value of securities or property held by the 

plan), SHRM continues to believe that the imposition of ERISA (or other fiduciary duties) on 

appraisers, financial experts and other professionals who render fairness opinions will assuredly 

drive up the cost of experts and reduce the number of experts who will agree to provide services 

to plan fiduciaries.

Moreover, by making an appraiser or other expert an ERISA fiduciary, it would change 

the current framework of the federal common law governing ERISA fiduciary duties. Under 

current ERISA law, an appraisal or fairness opinion is obtained by plan fiduciaries to assist them 
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in deciding the value of assets which may be held in a plan. The plan fiduciary has the primary 

obligation to reasonably investigate the merits of any particular financial transaction and if the 

plan fiduciary lacks the expertise to make such a determination, he/she is obligated to obtain the 

assistance of any expert. However, even when an expert is retained to provide expert assistance 

to the plan fiduciary, the plan fiduciary must still exercise his/her independent judgment 

regarding the transaction. The plan fiduciary cannot rely solely on expert advice. Rather, the plan 

fiduciary must evaluate the expert’s report, ask questions, assess the responses and ultimately 

make the judgment whether to rely on the appraisal or valuation. 

Under the proposed regulation, the plan fiduciary will not be retaining professional 

advice to make decisions with respect to transactions, but rather will be hiring a fiduciary to 

render a decision on behalf of the plan. Nothing in the ERISA definition of fiduciary supports a 

wholesale revision of the law as developed by the federal courts. SHRM believes that the 

professional standards under which the experts operate ensure that the appraisers and valuation

experts are conducting fair and reasonable valuations. SHRM recommends instead that the DOL 

enact regulations (similar to IRS regulations under Code Section 409A relating to the valuation 

of employer stock that is not readily tradable on an established securities market) setting 

standards for valuations of plan assets. 

(4) THE “COUNTER PARTY” OR “SELLER’S” CARVE-OUT SHOULD APPLY TO SMALL 

PLANS AS LONG AS THE PLAN FIDUCIARY ACKNOWLEDGES THAT HE OR SHE HAS 

SUFFICIENT FINANCIAL EXPERTISE TO EVALUATE THE TRANSACTION AND 

DETERMINE IT TO BE PRUDENT AND IN THE BEST INTEREST OF THE PARTICIPANTS 

AND BENEFICIARIES.

SHRM believes that the counterparty carve-out from the definition of fiduciary 

investment advice is beneficial to plan sponsors. It allows individuals and entities to sell their

products and other investment opportunities to independent plan fiduciaries. The person must: (i) 

obtain written representation that the independent fiduciary will not rely on the person to act in 

the best interests of the plan, to provide impartial investment advice, or to give advice in a 

fiduciary capacity; (ii) inform the independent plan fiduciary of the existence and nature of the 

person’s financial interests in the transactions; (iii) not receive a fee or other compensation 

directly from the plan or plan fiduciary for the provision of investment advice (as opposed to

other services); and (iv) know or reasonably believe that the plan fiduciary has sufficient 

expertise to evaluate the transaction. Advisers to small plans (less than 100 participants) have 

been excluded from the carve-out unless the independent plan fiduciary has at least $100 million 

in plan assets under management. 

SHRM recommends that small plans be included in the carve-out, even if the independent 

plan fiduciary does not have $100 million or more in plan assets under management. We believe 

that required disclosures make clear to any plan fiduciary that the adviser is not acting as a 

fiduciary and is merely selling an investment or product. The independent plan fiduciary should 

acknowledge in writing before the transaction that he/she has sufficient expertise to evaluate the 
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transaction and determine whether it is prudent and in the best interest of the plan participants 

and beneficiaries. Even though recommendations to small plan sponsors/fiduciaries are routinely 

presented as advice or consulting services, we do not believe this will continue to be the case if 

clear disclosures are made as required by the carve-out. If the plan sponsor acknowledges in 

writing his/her expertise in being able to evaluate the transaction, that should be sufficient. 

(5) THE “PLATFORM PROVIDER” CARVE-OUT SHOULD REQUIRE 

ACKNOWLEDGEMENTS BY THE PLAN FIDUCIARIES.

The platform provider carve-out allows platform providers to not be investment advice 

fiduciaries if they market or make available investment vehicles on their platforms, as long as 

such offerings are not tailored to the individual needs of the plan and its participants and 

beneficiaries and they disclose in writing that they are not undertaking to provide impartial

advice or give advice in a fiduciary capacity. The carve-out also allows certain activities that 

platform providers may carry out to assist plan fiduciaries in selecting and monitoring 

investment alternatives. 

While SHRM is supportive of this carve-out, we believe that, similar to the counterparty 

carve-out, the independent plan fiduciary should acknowledge in writing that he/she: (i) is the 

person assuming fiduciary duties under ERISA; and (ii) has sufficient expertise to evaluate the 

transactions and make selection of investment options that are prudent and in the best interest of 

plan participants on beneficiaries. Many times plan fiduciaries do not understand that platform 

providers have financial or other relationships with the offered investments and are not providing

impartial investment advice. Platform providers sometimes provide “value added” services 

offering to the plan fiduciary an adviser (on a non-fiduciary basis) to assist in developing a 

diversified portfolio of investments. Some platform providers also offer to the plan fiduciary socalled “fiduciary warranties”, giving the distinct impression that the plan sponsor does not have 

to worry about fiduciary responsibilities. The acknowledgement by the fiduciary that he/she is 

the fiduciary and possesses expertise to make investment decisions would put plan 

sponsor/fiduciaries on notice of their fiduciary responsibilities. 

COMMENTS ON BEST INTEREST CONTRACT EXEMPTION (BICE)

(1) THE EXEMPTION REDUCES THE PROTECTIONS FOR SMALL PLAN 

FIDUCIARIES AND PARTICIPANT AND BENEFICIARIES. 

SHRM recommends that the BICE should be available exclusively for advisers in the 

IRA market. The exemption reduces the protections for small plans and plan participants and 

beneficiaries. 
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ERISA provides general fiduciary rules governing plan fiduciaries, along with prohibited 

transactions rules. There are statutory and class exemptions that allow fiduciaries to plans and 

those providing advice to plan participants and beneficiaries to receive differential and third party 

compensation under protective conditions. 

Advisers to plan participants and beneficiaries are already allowed to receive differential 

and third party payments under ERISA for the provision of investment advice to plan 

participants and beneficiaries. The Pension Protection Act of 2006 (“PPA”) amended both 

ERISA and the Code to add a statutory exemption relating to the provision of participant 

investment advice. It was determined by Congress that the statutory exemption would be the best 

mechanism to ensure that fiduciary advisers provide impartial and unbiased advice to 

participants and beneficiaries. Specifically, PPA added a statutory exemption under ERISA 

Section 408(b)(14) and Code Section 4975(d)(17). ERISA Section 408(b)(14) applies to the 

provision of advice under an “eligible investment advice arrangement” as defined in ERISA 

408(g)(2), to participants and beneficiaries of a defined contribution plan that permits them to 

direct the investment of their plan accounts. If the conditions of Section 408(g) are met, Section 

408(b)(14) exempts from the prohibited transaction rules the provision of investment advice, the 

investment transaction entered into pursuant to the advice, and the direct or indirect receipt of 

fees or other compensation by the fiduciary adviser or an affiliate in connection with the 

provision of the advice or the transaction pursuant to the advice. An “eligible investment advice 

arrangement” is an arrangement that either provides that any fees (including any commission or 

other compensation) received by a fiduciary adviser for investment advice or with respect to the 

investment of plan assets do not vary depending on the basis of any investment option selected, 

or uses a computer model under an investment advice program that meets the requirements of 

ERISA Section 408(g)(3). 

The DOL, in December 2009, after much contentious debate, published final regulations 

and a class exemption from the prohibited transaction provisions. Those final regulations were 

withdrawn by the new administration, and new proposed regulations were issued in March 2010. 

After another thorough review, final regulations were promulgated in October 2011without a 

prohibited transaction exemption. The BICE essentially undermines those regulations and the 

protections provided to participants and beneficiaries under the statutory exemption. 

Also, SHRM notes that the DOL has promulgated regulations on fiduciary disclosures in 

participant-directed accounts. These disclosures include plan-related information, fee and 

expense information, and performance data. See 29 C.F.R. Section 2550.404a-5. The 

information is comprehensive and differs materially from the disclosure and information 

required to be disclosed to participants and beneficiaries under the BICE. If a fiduciary provides 

advice to plan participants and beneficiaries, would these fiduciary disclosures in the DOL 

Section 404 regulations continue to apply? The disclosures under the BICE are duplicative in 

many respects with those required under ERISA and are not as comprehensive. 

The DOL has extended the BICE to advisers to plan fiduciaries of small non-participantdirected plans, but not to large plans or small participant-directed plans. DOL explained in the 

Preamble that advice providers to large plans are already accustomed to operating in a fiduciary 

environment and within the framework of existing prohibited transaction exemptions. Thus, to 
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include large plans in the BICE would have the undesirable effect of reducing protections 

provided under existing laws to these investors, without any offsetting benefits. SHRM believes 

that small plans (whether participant-directed or not) deserve the same protections of existing 

laws that large plans (for the most part) currently enjoy. The BICE reduces protections for these 

small plans, without any offsetting benefits. 

The DOL has issued regulations under ERISA section 408(b)(2) at 29 C.F.R. Section 

2550-408b-2, which provide extensive disclosures that must be provided to plan fiduciaries prior 

to entering into an arrangement with an adviser on behalf of a plan. The regulations also 

prescribe annual disclosures that service providers have to provide to plan fiduciaries. Although 

the BICE contains disclosure requirements, they are different from and less comprehensive than 

those in existing Section 408(b)(2) regulations. If a fiduciary provides advice to small nonparticipant-directed plans, would these Section 408(b)(2) disclosures continue to apply? 

SHRM requests that DOL reconsider its position to extend the BICE to advisors to plan 

participants and beneficiaries and small non-participant directed plans. The ERISA requirements 

should apply to all plans, no matter what size, and the participants and beneficiaries should 

continue to receive the protections from conflicted advice from the statutory exemption. 

(2) THE DOL SHOULD NOT ISSUE A STREAMLINED EXEMPTION AT THIS TIME.

The DOL is seeking comments on whether to promulgate an additional streamlined 

exemption that would apply to compensation received in connection with investments by plan 

fiduciaries, participants and beneficiaries, and IRA owners in certain “high quality, low fee 

investments,” subject to fewer conditions of the BICE. One such condition is that the impartial 

conduct standards would not apply. The DOL explains that such an exemption could achieve 

important goals of minimizing compliance burdens for advisors and their financial institutions 

when they offer investment products with little potential for material conflicts of interest.

SHRM is not supportive of an additional streamlined exemption. It has the potential for 

advisors to steer small plan fiduciaries, plan participants and beneficiaries, and IRA owners to 

certain investments that may be low fee, but otherwise may not provide comparable net returns 

or otherwise be inappropriate for retirement investors. Moreover, SHRM believes that all 

fiduciaries should be subject to ERISA’s fiduciary rules or the impartial conduct standards in the 

BICE.

CONCLUSION

SHRM supports DOL’s efforts in updating the definition of a fiduciary providing 

investment advice. Most of the proposed changes will provide much needed assurances that 

advisers to plan fiduciaries and participants and beneficiaries will not be able to easily evade 

ERISA’s (or the Code’s) fiduciary status. SHRM also believes there are some areas, as described 
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above regarding DOL’s proposal of the BICE, which warrant further consideration and should be 

revised. 

SHRM believes that improving access to retirement plans is a key component to ensure a 

financially sustainable retirement and we appreciate the opportunity to comment on these 

important regulations. Should you have any questions or need additional information, please feel 

free to contact me. 

Sincerely, 

Michael P. Aitken

Vice President of Government Affairs

Society for Human Resource Management