H. STEWART DUNN, JR. IVINS, PHILLIPS & BARKER JAMES S.Y. IVINS (188'-1960) CHARTERED 

CARROLL J. SAVAGE PERCYW. PHII..I..IPS (1882-1868) 

ERIC R. FOX RICHARD B. BARKER (\806-1888) 1700 PENNSYLVANIA AVENUE, N.W., SUITE 600 LESUE JAY SCHNEIDER 

ROBERT H. WELLEN WASHINGTON, D.C. 20006-4723 OF COUNSEL 

KEVIN P. O'BRIEN STEPHEN N. SHULMAN 

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ROBERT B. STACK DAVID D. SHERWOOD FACSIMILE (202) 393-7601 MICHAEL R. HUFFSTETLER USA MILOT 

LAURIE E. KEENAN FACSIMILE (202) 347-4256 

JEFFREY E. MOELLER 

STEVEN H. WITMER IPBIiIIPBTAX.COM 

ROSINA B. BARKER LOS ANGELES OFFlCE WWW.IPBTAX.COM WlLUAM L. SOLLEE. JR. 1875 CENTURY PARK EAST 

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JENNIFER J. FINN .. NOT AOM1TTI!O IN TI1I!'!: DUITfltlCT 01" COLUMBIA DANIELLE E. ROLFES 

JONATHAN ZIMMERMAN February 2, 2011 

VICTOR S. CHANG 

NICOLE OCCHUIZZO 

JOHN D. BATES 

MATIE B. I..ITTLE 

JOHN LOVELACE 

DOUGLAS M. ANDRE 

CRISTOPHER BRISCOE' 

MICHAEL KAERCHER' 

Delivered via e-mail to: e-ORI@dol.gov 

Office ofRegulations and Interpretations 


Employee Benefits Security Administration 


Attn: Definition of Fiduciary Proposed Rule 


RoomN-5655 


U.S. Department of Labor 


200 Constitution Avenue, NW 


Washington, DC 20210 


Re: Definition of the Term "Fiduciary" (RINI210-AB32) 

Ladies and Gentlemen: 

On behalf of a client who has been a sponsor of closed-end private-equity style 

real estate funds for the last 15 years, we are writing in response to the request for 

comment on the Department ofLabor's proposed rule that would change the definition of 

the term "fiduciary," In response to both market pressure from existing and potential 

fund investors and the Private Fund Investment Advisers Registration Act of 2010 (a 

component of the Dodd-Frank Wall Street Reform and Consumer Protection Act), which 

would require our fund sponsor client and many of its peers to register by July 21, 2011, 

our client has recently registered with the Securities and Exchange Commission as an 

investment adviser under the Investment Advisers Act of 1940. 

The DOL's proposed rule 251O.3-21(c) (in particular rule 2510.3-21(c)(1)(ii)(C), 

which clarifies that SEC-registered investment advisers will be considered ERISA 

fiduciaries in certain circumstances) raises concerns that a fund sponsor's status as an 

investment adviser will make it impossible for the fund sponsor to avoid ERISA fiduciary 
IVINS, PHILLIPS & BARKER 

Office of Regulations and Interpretations Page 2 


Employee Benefits Security Administration 


status due to existing relationships that they and their affiliate entities have with certain 

types of ERISA-regulated fund investors. Specifically, a limited number of the investors 

in our client's funds are (i) defined benefit plans ("Defined Benefit Investors"), investing 

under the direction of their trustees, and (ii) individuals who have invested through their 

"individual account plans" (e.g., their IRAs) ("Defined Contribution Investors"). The 

proposed rule raises similar, but slightly different, concerns with respect to both Defined 

Benefit Investors and Defined Contribution Investors. Each of these concerns is 

discussed below. 

Defined Benefit Investors 

Several of our client's existing fund partnerships have admitted Defined Benefit 

Investors, and they intend to continue to admit Defined Benefit Investors as they sponsor 

future funds. Their fund partnership agreements traditionally require that they, as fund 

sponsor/general partner, provide periodic reports to all of their fund investors (including 

Defined Benefit Investors) detailing valuations and performance of fund assets. This is 

often a requirement of state partnership law. For example, section 17-305 of the 

Delaware Revised Uniform Limited Partnership Act requires that a general partner 

provide information upon request reasonably related to a limited partner's interest as a 

limited partner, including true and full information regarding the status of the 

partnership's financial condition. 

In addition, Defined Benefit Investors and their plan fiduciaries often require fund 

sponsors and their affiliated general partner entities to complete periodic questionnaires 

regarding fund valuations and performance. Such reports are very common within the 

private equity fund industry, and are often provided separately from the specific requests 

fund sponsors/general partners receive to assist their Defined Benefit Investors in the 

completion of Schedule C to their Series 5500 forms. 

It is our view that such partnership reports and questionnaires are "provided for 

purposes of compliance with the reporting and disclosure requirements of the Act, the 

Internal Revenue Code, and the regulations, forms and schedules issued thereunder" 

within the meaning of the exclusion established under proposed rule 2510.3-21 (c )(2)(iii). 

The investment fiduciaries of the various Defined Benefit Investors insist upon such 

reports and questionnaires in their roles as fiduciaries, which means that the documents 

are provided for purposes of compliance with ERISA, although perhaps not directly for 

purposes of compliance with the reporting and disclosure requirements of ERISA. We 

request that the DOL revise the text of the proposed rule before final implementation to 

clarify this point. This clarification will enable fund sponsors and their affiliate general 

partner entities, without fear of acquiring ERISA fiduciary status, to continue to provide 

to Defined Benefit Investors the partnership reports and questionnaires that all investors 

in private real estate funds demand (and, indeed, that are often required under state 

partnership law). 
IVINS, PHILLIPS & BARKER 

Office of Regulations and Interpretations Page 3 


Employee Benefits Security Administration 


Defined Contribution Investors 

Several of our client's eXIstmg fund partnerships have admitted Defmed 

Contribution Investors, and the fund partnership agreements (and state partnership law) 

typically require that the sponsor and its general partner affiliate entities provide these 

investors with partnership reports similar to those discussed above under Defined Benefit 

Investors. While proposed rule 2510.3-21(c)(2)(iii) provides an exclusion to ERISA 

fiduciary status for reports "provided for purposes of compliance with the reporting and 

disclosure requirements of the Act, the Internal Revenue Code, and the regulations, forms 

and schedules issued thereunder," this exclusion does not apply where such report 

"involves assets for which there is not a generally recognized market and serves as a 

basis on which a plan may make distributions to plan participants and beneficiaries." 

The interests held by Defined Contribution Investors in our client's private fund 

partnerships are not permitted under state and federal securities laws to trade freely on a 

generally recognized market. Furthermore, the underlying assets of such partnerships 

(i.e., the real estate investments owned by the funds) are inherently illiquid and often 

trade in off-market transactions. Moreover, Defined Contribution Investors must use 

reports regarding these assets (provided pursuant to partnership agreements or state 

partnership law) as a basis on which to make distributions from the individual retirement 

account to their participants and beneficiaries. 

Therefore, a strict interpretation of the language of proposed rule 2510.3­

21(c)(2)(iii) seems to indicate that a fund sponsor and its affiliate general partner entities 

cannot continue to honor their contractual and state statutory reporting obligations to 

existing Defined Contribution Investors without attaining ERISA fiduciary status. We 

request that the DOL revise the text of the proposed rule before final implementation to 

clarify that a fund sponsor and its affiliate general partner entities will not be deemed to 

be an ERISA fiduciary solely because of its compliance with existing partnership 

arrangements and state partnership law reporting obligations. 

ERISA Investors in General 

Much of the private-equity fund industry views the party-in-interest limitations, 

limitations on incentive fees, requirements of terminable investment arrangements, and 

other implications of ERISA fiduciary status as incompatible with the industry's business 

model where illiquid closed-end fund investments and "carried interests" (i.e., incentive 

fees to general partners) are the norm. Our client agrees with this view, and has therefore 

always taken care to ensure that admitting ERISA-regulated investors into their funds 

does not subject them to ERISA fiduciary responsibilities (either by operating their funds 

as venture capital operating companies, or by capping ERISA-regulated investments 

below the 25% "substantial participation" threshold). Without the clarifications requested 

above, our client fears that their business model - which they feel and we agree provides 
IVINS, PHILLIPS & BARKER 

Office ofRegulations and Interpretations Page 4 


Employee Benefits Security Administration 


a valuable investment opportunity for ERISA-regulated investors - could be placed in 

peril by the DOL's proposed rule. At a minimum, to protect the expectations of both 

investors and fund sponsors/general partners, any expansion of the definition of fiduciary 

should be prospective, and should not apply to agreements entered into on or before the 

effective date of final regulations. 

Summary 

To enable our fund sponsor client to continue offering investment opportunities to 

Defined Benefit Investors, our client requests that the regulation clarify that partnership 

reports and questionnaires be considered "provided for purposes of compliance with the 

reporting and disclosure requirements of the Act" as that phrase is used in section 2510.3­

21(c)(2)(iii). To continue offering those investment opportunities to Defined Contribution 

Investors, our client requests that, even where those reports and questionnaires are the 

basis for a distribution to an individual retirement account participant or beneficiary, the 

reports and questionnaires should not cause the preparer to be considered a fiduciary. At 

a minimum, our client requests that the regulation be prospective to avoid the disruption 

of existing investment arrangements. 

Sincerely yours, 

cJ~~·~ 

Laurie E. Keenan