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June 13, 2011 G

The Honorable Hilda Solis

United States Department of Labor
200 Constitution Avenue
Washington, DC 20210

Re: Definition of the Term Fiduciary

Dear Secretary Solis:

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As you know, the new definition of “Fiduciary” proposed by the Department of Labor (DoL) :
raised a number of concerns from various stakeholder groups. One particular area of concern is
the impact on individual retirement arrangements (IRAs).

| applaud the DoL’s desire to increase protections for investors in Individual Retirement
Accounts. However, any new consumer protection measures must not be so stringent as to make
the IRA market impossible to serve.

Assistant Secretary Phyllis Borzi of the Employee Benefit Security Administration, which
proposed the rule, has emphasized that the proposed changes to the definition of “fiduciary”
would be the first since the original definition was set in 1975 following the passage of the
Employee Retirement Income Security Act of 1974 (ERISA). Since that time, the fiduciary
standard set under ERISA has not been applied to brokerages serving IRA clients. Instead, those
brokerages have been regulated under the Securities Act of 1934, regulation which covers all of
their clients, not only those with IRAs.

The current rules on IRAs, which have been in place for over three decades, have permitted
brokerages to serve clients with a business model that includes such practices as charging for
commissions, and maintaining an “inventory” of securities to sell to clients. While these
elements of the brokerage business model are not without controversy, they are generally
understood and accepted. Indeed, Dol. has made it clear to my staff that they have no intention
of prohibiting brokerages from charging commissions or selling out of inventory when they
serve IRA clients.

However, commissions and inventory sales would be prohibited under a hard fiduciary standard.
In the absence of additional exemptions from DoL.’s list of prohibited transactions, brokerages
say that they will be forced either to suspend service to their IRA clients or to alter the fee
structures they charge clients in such a way that will price many IRA investors out of the market
for investment advice.



I understand that DoL is working on new exemptions to the list of prohibited transactions.
However, bringing brokerages under fiduciary regulation would represent an enormous change
for the industry. If the transition is not handled correctly, DoL may deprive middle income IRA
investors from access to investment advice. despite the DoL’s stated intentions.

As such, 1 would encourage you to delay the introduction of the interim final rule until the issue
of exemptions to prohibited transactions is resolved. If this cannot be accomplished, | would
encourage you to consider re-proposing the new fiduciary rule, or excluding IRAs from the new
rule altogether and dealing with them separately.

I look forward to further communication with you and Assistant Secretary Borzi on this issue.

Sincerely,

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Claire McCaskill
United States Senator