United States Senate

HING TON, 0 208

August 6, 2015

The Honorable Tom Perez
Secretary

U.S. Department of Labor

200 Constitution Avenue, N.W.
Washington. DC 20210

Dear Secretary Perez:

We write regarding the U.S. Department of Labor's (DOL) Notice of Proposed
Rulemaking released on April 14 with respect to proposed changes to the definition of
“fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act of
1974. We share the goal of protecting hard-working Americans as they save for retirement. And
we agree that too many Americans are insecure about their retirement. However, we encourage
you to ensure that rules related to retirement savings do not work at cross-purposes in a way that
could limit investor access to education and increase costs for middle-class Americans.

Americans who spend their lives working hard deserve a secure retirement, but
unfortunately far too many approach it unaware of the challenges that lie ahead and thus are
either without a clear plan to ensure long-term security or simply unable to attain long-term
security. That is why we strongly supported Section 913 of the Dodd-Frank Act to provide for
the establishment of a uniform fiduciary duty that applies to both Broker-Dealers and Registered
Investment Advisors, benefiting all investors looking to save for retirement.

We support holding Broker-Dealers to a best-interest standard, and we support the DOL’s
overall goals. However, we are concerned that the rule in its current form could stifle access to
meaningful investment advice for millions of Main Street investors. As you consider changes to
the proposed rule, we strongly encourage you to focus on the following areas:

1. Business Model Neutral: We urge you to make substantive changes to the rule based off
- of feedback received through public comment to ensure that it is effective and does not
significantly disrupt the current business model. It is critically important that Broker-
Dealers can use the Best Interest Contract Exemption to provide their customers with
commission-based advice. This type of advice has long allowed middle-class Americans

to access affordable retirement advice. Fundamentally altering the current business
model, which we believe the rule would do in its proposed form by eftectively requiring
leve! fees — whether intentional or unintentional — could limit access to retirement advice
and may push investors out of many options that they can afford. It is also important to


note that Congress clearly defined in Section 913 of Dodd-Frank that rules addressing
changes to standards of care need to assess the potential impact on retail customers and
that any changes preserve the business models currently in place. We hope that as the
rule moves through the process this directive in Dodd-Frank will be considered.

Variety of Products: As currently proposed, we remain concerned that the Department’s
proposal could eliminate a number of products that currently exist in the marketplace
today, such as annuities. While certain products, including annuities, may not be the
right fit for every investor, we do not believe eliminating access to products is an

appropriate solution.

. Education: The gap between what individuals need for retirement and what they have
set-aside for retirement is in the trillions of dollars. Educational materials are a critical
tool to reduce this troubling investment gap. Unfortunately, the rule in its current form
could limit educational materials to abstract items and conversations that will do little to
assist the average investor. We urge you to make significant changes to ensure future
retirees are able to access pertinent information about specific products to help prepare
them for retirement.

Point of Rollover/Leakage: We all agree that a key aspect of whether or not someone will
have the necessary means to live out their retirement is influenced by decisions that are
made at the point of rollover. It is clear that there is already a significant amount of
leakage at the point of rollover, as evidenced by the GAO’s study, ‘“401(K) Plans, Policy
Changes Could Reduce the Long-term Effects of Leakage on Workers’ Retirements
Savings”, which cites that nearly $74 billion is cashed out during job changes.

We are concerned though, as currently proposed, all conversations would trigger
fiduciary duties, even those where no concrete advice is given. We fear this could lead
investors to cash out their retirement accounts and would encourage the Department to
look for ways to ensure that this doesn’t occur.

. Sales: A key aspect of retirement savings comes from small businesses being able to
provide options to their employees. We are concerned that the seller’s exemption is
limited to an extent that would prevent financial professionals from being able to engage
small businesses without triggering fiduciary duties.

. Current Investors: The proposed rule runs the risk of forcing a significant amount of
existing investors to go through an arduous process without obvious benefits. We believe
existing investors should have the option of forgoing this process if they so choose.


7. Coordination: We strongly encourage you to ensure that efforts between the Department
of Labor, the Securities and Exchange Commission (SEC) and the Financial Industry
Regulatory Authority (FINRA) do not work at cross-purposes in a way that results in
conflicting regulatory structures and strongly urge you to monitor the progress of both of
these Agencies on this issue. We urge you to solicit meaningful input from the SEC and
the FINRA, as they are currently the primary regulators of Broker-Dealers and provide us
with details on the exact suggestions you have taken from both of these institutions.
Based on your previous answers to this question, it is unclear what input your
Department has incorporated from either the SEC or FINRA.

Finally. we request that DOL engage relevant stakeholders, including our offices, as the
tulemaking process continues. This open dialogue will improve communication and ease
unnecessary concerns. Indeed, concern about the rule as currently drafted has already led to
legislative proposals in Congress that would prevent the DOL from completing action on this
tule. We helieve there is an opportunity to craft a system that better protects investors while at
the same time ensuring that we do not limit access to advice. This will allow Main Street
investors to appropriately prepare for and attain financial sccurity during their retirement.

We look forward to continuing our conversations on how to reach our shared goals and
appreciate your consideration of these requests.

Sincerely,
Jon Tester Joe Ponnelly XI
United States Senator ited Syates Senator
dedi edbeee> PA —
Heidi Heitkamp S Angus King) NV

United States Senator United States Scnator