February 3, 2011

Division of Regulations

Employee Benefits Security Administration

200 Constitution Avenue NW

FP Building, Room N-5655

Washington, DC 20210

Submitted to: e-ORI@dol.gov

Re: Definition of Fiduciary Proposed Rule

Ladies and Gentlemen:

AARP appreciates the opportunity to comment on the Department of Labor’s

(Department) request for comments on the proposed amendment to 29 CFR § 

2510.3-21(c), the regulation interpreting ERISA § 3(21)(A)(ii), to establish additional 

circumstances where investment advice providers are subject to ERISA’s fiduciary 

responsibilities. AARP supports the Department’s review of this regulation given 

that the current manner in which employee benefits are provided is significantly 

different from the situation in 1975; indeed, the retirement benefits industry has 

changed dramatically with the shift from defined benefit plans to defined 

contribution plans. Consequently, AARP believes that a revision of this regulation 

to reflect the practices in the current market place is needed to better protect the 

interests of plans and their participants and beneficiaries. 

AARP is the largest nonprofit, nonpartisan organization representing the interests of 

Americans age 50 and older and their families. Nearly half of our members are 

employed, full or part-time, with many of those employers providing retirement 

plans. A major priority for AARP is to assist Americans in accumulating and 

effectively managing adequate retirement assets to supplement Social Security. 

The shift away from defined pension plans to defined contribution plans has placed

significant responsibility on individuals to make appropriate investment choices so 

that they have adequate income to fund their retirement years. 

In order to help individuals make appropriate investment decisions, AARP shares 

the goal of increasing access to investment advice for individual account plan 
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February 3, 2011

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participants. To that end, we have consistently asserted that such advice must be 

subject to the Employee Retirement Income Security Act’s (ERISA) fiduciary rules, 

based on sound investment principles and protected from conflicts of interest. The 

recent financial turmoil and scandals underscore the imperative that such advice is 

independent and non-conflicted, and the standards governing industry practices 

involved in rendering investment advice are fair, clear and easy to understand. 

AARP submits the following specific comments on the proposed regulations:

I. Description of What Constitutes Investment Advice: AARP favors the 

Department’s inclusion of appraisals and fairness opinions concerning the 

value of securities or other property as the type of activities that constitute 

investment advice. Moreover, AARP supports the inclusion of advice 

related to the management of securities or other property, such as 

recommendations as to the exercise of rights appurtenant to shares of 

stock (i.e., proxy voting) and the selection of persons to manage plan 

investments. It appears to AARP that such appurtenant rights are no less 

property interests than are the underlying property to which they are 

appurtenant, and it would undermine protection of all such property to 

exclude any aspect of the property.

AARP believes that the added benefits to plan fiduciaries, participants and 

beneficiaries of broadening the scope of activities under the definition of 

investment advice are substantial. At the same time, AARP believes, and 

it has yet to be demonstrated otherwise, that incremental burdens, 

economic or other, of including all such activities are relatively minor. 

Finally, AARP believes that the Department’s inclusion of plan participants 

and beneficiaries within the protective arch of the proposed regulation 

squarely hits the mark, inasmuch as the explicit purpose of ERISA is to 

protect participants and beneficiaries. See Title I – Protection of 

Employee Benefit Rights and ERISA § 2.

II. Recommendations Related to Taking a Plan Distribution: The 

Department has requested comment on whether and to what extent the 

final regulation should define the provision of investment advice to 

encompass recommendations related to taking a plan distribution. AARP 

believes that it is essential for the proposed regulation to include 

investment adviser activities that touch the distribution of assets from all 

forms of employer-sponsored retirement plans. In this regard, AARP 
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points to the fact that the distribution stage and process is critical in the 

cycle of plan participant events in that decisions made with respect to the 

timing and manner of plan distributions will often determine the efficacy of 

a working lifetime of retirement savings. In short, a plan participant is in 

an extremely critical position at distribution decision-making time 

regarding how to take distributions from his or her retirement plan. 

Decisions made at that time are often effectively irreversible, at least in a 

practical sense, on account of the fact that tax consequences and 

transaction costs generally make it impractical even to consider backing 

up the distribution election. Thus, it is essential for the participant to have 

the protection of ERISA’s fiduciary duty cloak attaching to the investment 

adviser who undertakes to guide a participant at election time. 

III. Frequency or Regularity of Investment Advice: AARP applauds the 

proposed rule insofar as it does not require investment advice to be 

rendered with any particular frequency or regularity in order to subject the 

adviser to ERISA’s fiduciary standards. AARP believes this approach 

comports with ERISA’s overall aim to protect plans and particularly plan 

participants, and that any consideration, not to mention emphasis, on 

frequency or regularity in this arena would severely depart from the 

statute’s prescribed standard of conduct applicable to those upon whom 

plans and participants rely in order to formulate and implement investment 

decisions. AARP believes that this issue goes to one of the primary 

reasons ERISA was enacted, and that the stakes are too high for any rule 

to compromise the point. To carry the point to its appropriate logical 

extension, the proposed rule rightly omits any requirement that the parties 

have a mutual understanding that the advice will serve as a primary basis 

for plan (or participant) investment decisions. Rather, the proposed rule 

essentially embeds an irrebuttable presumption that fiduciary status 

attaches to a financial adviser with respect to whom it is understood by the 

parties that the adviser’s advice will be considered in connection with 

making a decision related to plan assets. AARP endorses this allocation 

of rights and responsibilities as between adviser and plan/participant. 

IV. Proposed Limitations as to Fiduciary Designation: AARP has 

significant concerns about the potential interpretation and breadth of the 

limitations set forth in § 2510.3-(21)(c)(2)(i) of the proposed rule. The 

general definitional provisions of the proposed rule, set out in § 2510.3-

(21)(c)(1)(i) and (ii) are explicitly subject to the limitations set forth in §
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February 3, 2011

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2510.3-(21)(c)(2)(i). Specifically, the limitation removes from the definition 

of fiduciary persons who “can demonstrate that the recipient of advice 

knows or, under the circumstances, reasonably should know, that the 

person is providing the advice or making the recommendation in its 

capacity as a purchaser or seller of a security or other property, or as an 

agent of, or appraiser for, such a purchaser or seller, whose interests are 

adverse to the interests of the plan or its participants or beneficiaries, and 

that the person is not undertaking to provide impartial investment advice.” 

In practical application, the limitation transfers to the adviser who would 

seek its benefit the burden of proving entitlement. AARP believes that, as 

written, the proposed limitation dilutes the value of the remainder of the 

proposed rule as well as the Pension Protection Act’s investment advice 

provisions. 

A. Per se Exclusion from Limitation of Individual Plan Participants: 

AARP believes that the limitations of proposed § 2510.3-(21)(c)(2)(i) 

should not be applicable in any case to advice rendered to individual 

plan participants. In other words, the rebuttable presumption of 

fiduciary status that appears to be the rule of the proposed regulation 

should be revisited and discarded as contrary to ERISA’s statutory 

safeguards expressed in the Pension Protection Act to protect against 

the rendering of conflicted investment advice to plan participants. 0F

1

 

Thus, AARP believes that the Department would overstep its powers to 

include individual plan participants within the ERISA parties with 

respect to whom the exceptions to fiduciary status stated in proposed §

2510.3-(21)(c)(2)(i) may be asserted. 

B. Plan Protections from Limitations: AARP believes that investment 

advisers to plans and plan fiduciaries should be required under any 

proposed limitation to overcome a rigorous presumption of fiduciary 

status in order to escape such status. Because the objective of ERISA 

and its interpretive regulations is to protect plan participants, rather 

than to promote the ease of vendors and service providers doing

business with ERISA plans, AARP submits that the proposed limitation 

as to the fiduciary designation should be conditioned upon (1) 

satisfactory compliance by the adviser with a comprehensive 

disclosure regimen, (2) incorporating a statement of the conflict or 

conflicts inherent in the proposed relationship, (3) a full disclosure of all 

sources and amounts of fees or other compensation to inure to the 

 1 See ERISA § § 408(b)(14) and 408(g), setting forth rigorous standards for conflicted investment advisers.
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investment adviser, and (4) a clear and unequivocal acknowledgement

of the conflict by the small plan’s fiduciary. Finally, the investment 

adviser who seeks the shelter of the limitation should have the 

obligation to maintain full and sufficient records documenting the 

applicability of the limitation for a suitable period following the 

rendering of the excepted investment adviser services.

V. Assisting Plan Fiduciary to Select and Monitor Investments: In 

connection with § 2510.3-(21)(c)(2)(ii)(B) and (C), AARP understands that

the Department seeks to relieve investment advisers from the burdens of 

fiduciary status in connection with the adviser’s role in assisting a plan 

fiduciary to carry out its plan administration responsibilities to select and 

monitor plan investment options, and the adviser properly disclaims 

fiduciary status in connection with its activities. AARP believes, however, 

that the general language of the proposed rule paints with too broad a 

brush, and that it would be appropriate for the Department to revisit that 

aspect of the regulation with an eye toward recognizing the significance of 

the investment selection and monitoring process. 

At least three circuit courts have held that in a section 404(c) plan a 

fiduciary’s duty does not include the selection and monitoring of 

investment options. See, e.g., Hecker v. Deere & Co., 556 F.3d 575 (7th 

Cir. 2009); Langbecker v. Electronic Data Sys., 476 F.3d 299, 307 (5th 

Cir. 2007); Jenkins v. Yaeger, 444 F.3d 916 (7th Cir. 2006); accord, In re 

Unisys Sav. Plan Litig., 74 F.3d 420, 455 (3d Cir. 1996) (in dicta); contra, 

DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418 n. 3 (4th Cir. 2007).

These decisions indicate that courts would permit fiduciaries to choose all 

underperforming funds as investment options without finding a violation of 

ERISA’s prudence standards. We believe that in the preamble the 

Department should remind fiduciaries that consistent with its recent 

amendment to the interpretive regulations under section 404(c) the 

selection and monitoring of investment options are a fiduciary function. 

We reiterate this position here because the implications are obvious.
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February 3, 2011

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AARP appreciates this opportunity to provide its views on the proposed amendment to the 

regulation related to the definition of a fiduciary in connection with investment advice 

providers to ERISA retirement plans. If you have any questions, please do not hesitate to 

contact Tom Nicholls at 202.434.3765 or Jay Sushelsky at 202.434.2151.

Sincerely,

David Certner

Legislative Counsel & Legislative Policy Director

cc: Robert Doyle

Director, Office of Regulations and Interpretations

Jeffrey Turner 

Chief, Division of Regulations