this proposal in an interim-final format. In fact, because of the number of unanswered questions,
an interim-final rulemaking in this matter would be highly inappropriate.

Millions of workers and their families are dependent upon our nation’s retirement system. We
fully support efforts to making the system better for them. Regulatory proposals secking to
improve the retirement system must be done carefully and prudently to avoid uncertainty and
disruption in the marketplace.

Sincerely,

DL ch
John fine, Chairman Dave Camp, Chairman
C ittee on Education and Committee on Ways and Means
the Workforce
Michael B. Enzi, Ranking Member Orrin G. Hatch, Ranking Member
Committee on Health, Education. Committee on Finance

Labor and Pensions

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consulted about or is prepared to enforce this new wave of excise taxes. The negative
consequences of this proposal to the IRA marketplace could be severe, yet the Department has
wholly failed to assess or even attempt to explain those consequences.

The blurring of regulatory lines in the proposal and lack of interagency consultation are not
confined to the IRS. It is clear that federal securities, banking and commodities/futures
regulators, as well as FINRA and state regulators - several of which are or will be engaged in
rulemaking directly relevant to or impacted by the Department’s proposal - were not consulted
in the preparation of this proposal. In addition, this proposal goes against the President’s decree
in Executive Order 13563, issued on January 18, 2011, which seeks greater coordination,
simplification, and harmonization across agencies to reduce regulatory burdens, reduce costs,
and simplify rules.

With respect to financial education, the Department’s proposal raises significant questions as to
what will be considered financial literacy and education and what will be considered investment
advice. Currently, the Department’s Interpretive Bulletin 96-1 outlines what is considered
financial education pursuant to the current definition of fiduciary under 29 CFR 2510.3-21(c).
However, the proposal appears to significantly reduce what constitutes financial education and
raises the question as to whether Interpretive Bulletin 96-1 is still in effect. Further, recent
hearings in Congress have shown that workers and their families are struggling to understand
how to invest for their retirement. Any attempts by the Department to limit financial literacy and
education are steps in the wrong direction. In fact, in this age of smartphone applications and
internet social media, the Department should be putting forth efforts to enhance financial literacy
and education through the development of retirement tools and applications rather than curtailing
them. We are concerned that attaching a fiduciary obligation, and associated liability, to actions
promoting financial literacy and education would likely discourage such activity and harm the
retirement security of millions of workers and their families.

Rather than bring about certainty and clarity to our nation’s retirement system, we believe that
the proposal has raised many unanswered questions. In its current form, the Department’s
regulatory proposal is unworkable and if finalized could cause significant unintended
consequences in the retirement benefits community. As such, we urge the Department to
suspend its rulemaking process until questions concerning the full impact of the proposal,
including its relationship to (and impact on) other federal and state regulatory efforts can be fully
reconciled. If the Department decides to move forward with the proposal then we strongly
believe that, at a minimum, the proposal be re-proposed for public comment before any final
regulations are promulgated.

Any new proposal should be coordinated with other federal regulatory agencies and other
regulators who also oversee financial products and services bought for retirement plans. In
addition, any new proposal must have the appropriate economic analyses that analyze the entire
scope of entities and participants affected and in particular small entities under the RFA.

Finally, we strongly believe that the Department must not issue any guidance relating to defining
the term fiduciary in an interim-final rulemaking. Under the statutory requirements of the
Administrative Procedure Act, there is no condition present that would warrant the issuance of


GHB4B

Congress of the United States
Washingtan, AE 20515

April 14, 2011

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Sm mh te

‘The Honorable Hilda L. Solis Ey0° 3

Secretary 20 ae ~
U.S. Department of Labor a a

200 Constitution Avenue. NW Pater] 2
Prekt ey x a

Washington, DC 20210 as 5 ww

raed

The Honorable Timothy Geithner
Secretary of the Treasury
1500 Pennsylvania Avenue. N.W.
Washington, 1.C. 20220

The Honorable Douglas Shulman
Commissioner of the Internal Revenue Service
1750 Pennsylvania Avenue, N.W.

Vashington, D.C. 20006

oner Shulman:

retaries Solis and Geithner and Commi:

A”) of the Department of Labor

Recently, the Employee Benefits Security Administration (*

(the “Department’”) proposed to change the regulatory structure for and definition of the term
“fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”), Definition

of the Term ° Fiduciary.” (RIN 1210-\B32). ‘The term fiduciary is one of the key terms of
ERISA as it determines which persons and entities owe the highest level of care to pension plans
and their participants and beneficiaries. We of course believe that those who provide investment
advice should be thoroughly trained. professionally licensed, highly ethical, devoted to the
financial best i interests of their clients. and abide by the highest standards of professionalism.
However, consistent with these views we also believe that any attempt to change the
regulatory structure governing investment relationships in the retirement planning m
must be done carefully and prudently as to avoid uncertainty and disruption. In addition, any
change must be supported by economic data and regulatory prudence to avoid duplicative or
conflicting regulatory structures of other federal regulators.

The current ERISA regulatory structure requires that a person satisfy a five-part test in order to
be considered a fiduciary rend: investment advice. regulatory structure has stood for
thirty-five years and has provided clarity and certainty to plan sponsors and their s
providers to the benefit of pension plans and their workers and retirees. We recognize that
federal agencies “regulations may be revisited from time to time to address changes and
innovations in the marketplace. However, the current fiduciary definition is the basis of tens of

vice

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thousands of service provider contracts and is relied upon by millions of individuals and their
families. Thus, changes should facilitate and not hinder customer-oriented innovations and

advancements, and not add to the cost to businesses and individuals of obtaining investment
services.

The regulatory proposal issued by the Department completely rewrites the regulatory structure to
broadly define and substantially expand who would be considered a fiduciary. In essence, this
proposal completely flips the regulatory structure so that a person would be presumed to be a
fiduciary. The proposal establishes this presumption by attempting to narrow the application of
the broad definition of fiduciary through a list of limitations.

We are concerned that the bright-line regulatory test and guidance that has governed for the past
thirty-five years is being discarded in a manner that is very likely to bring considerable
disruption in the service provider and plan sponsor community. The comment letters sent to the
Department in response to the proposed regulation published in the Federal Register on October
22, 2010, and testimony presented to EBSA at the hearing on March 1 and 2 present a long list of
scenarios and fact patterns highlighting the ambiguity, uncertainty, and substantial burdens
resulting from the proposal. After careful review of these concerns, we believe that the proposal,

in its current form, is unworkable as it creates too many unanswered questions as to who is and
who is not a fiduciary.

In addition, we have significant concerns that:

1) The economic analyses prepared for the proposal are significantly flawed especially
as the analyses neglected to look at small business plan sponsors and others as to
whether they will experience any regulatory or paperwork burdens and, as to small
service providers, the proposal failed on its face to perform an adequate economic
impact analysis;

2) The economic analyses did not separately address the proposal’s effects on the
availability, and cost, of services to individuals owning individual retirement accounts
(“IRAs”);

3) No thorough vetting or coordination was undertaken by the Department with other
federal regulators to avoid duplicative, overlapping, or conflicting regulatory
environments for service providers and others who provide services to retirement
plans; and

4) The proposal raises questions about the types and forms of financial literacy and
education that will be permitted.

The Regulatory Flexibility Act (“RFA”) requires that federal regulatory agencies must prepare
an economic analysis if a regulatory proposal has a significant economic impact upon a
substantial number of small entities. The law requires an analysis of all small entities affected.
In the preamble to the proposal, the Department states that the proposal would affect sponsors,
fiduciaries, service providers and providers of investment and investment advice related services
to plans and accounts (including individual retirement accounts). However, the Department only
looked at a very small segment of service providers that are listed on filed Form 5500s.


According to the Department’s own statistics, there are nearly 600,000 defined contribution
plans and nearly 38,000 defined benefit plans with fewer than 100 participants. Each and every
one of these plans will be affected by the change in the definition of fiduciary for service
providers and each of these plans will have to enter into new contracts with new terms if and
when the Department’s proposal is finalized. These plans are without a doubt sponsored by
small businesses. However, the Department failed to conduct any economic analysis on the
effect of the proposal on these small plans.

Also, if the intent of the proposal is to expand the definition of who is a fiduciary, then the
Department failed in its regulatory analyses of service providers as the Department only looked
at current service providers and not those who will be affected by the proposed regulatory
expansion. Furthermore, the Department minimized the number of current small service
providers, even though the objective data in the Department’s possession indicates that 5,170 of
5,300 affected service providers (or 97.5%) are “small” according to the Small Business
Administration definition. The Department merely speculates that the number of small service
providers must be less than 5,170, without any support for such speculation or even indicating
how many service providers the Department would categorize as small. Finally, the Department
acknowledges that small service providers will require ERISA fiduciary duty liability insurance,
but makes no attempt to estimate the likely cost of the coverage, notwithstanding that there is a
well-established fiduciary insurance market in the United States.

In addition, the Department failed to include these entities in its economic analysis prepared
pursuant to Executive Order 12866. Clearly, the economic analyses conducted by the
Department failed to meet the requirements of the RFA and Executive Order 12866.

We also have significant concerns with the apparent lack of interaction and cooperation between
the Department and other federal regulators who oversee products and services sold to retirement
plans and participants. For example, the Department clearly states that the proposal is intended
to cover service providers who offer IRAs. The proposal seems to create a regulatory
conundrum as to which regulatory structure would apply to financial products sold both on the
retail market and to IRAs. The market confusion over the applicable fiduciary standard would
create a headache for workers and their families as well as create logistical, administrative, and
liability problems for plan sponsors and service providers. It also should be noted that it is
unclear as to whether the Department has the statutory authority to expand its jurisdiction into
retirement products and services sold through IRAs.

IRAs are not employee benefit plans, and there are many fundamental differences between IRAs
and employer-sponsored retirement plans. IRA owners have greater flexibility than retirement
plan participants regarding the investment and management of their accounts. Many of the
provisions of ERISA and the Internal Revenue Code (“Code”) that apply to retirement plans do
not apply to IRAs. The unintended negative consequences of the Department’s proposal for IRA
owners have simply not been considered. One obvious effect of the Department’s proposal,
however, will be to trigger the Code’s prohibited transaction excise taxes for a vastly larger
population of investment professionals with no apparent corresponding benefit for IRA owners.
There has been no discernible effort by the Department to assess the magnitude of the impact of
the excise tax, nor is there any indication that the Internal Revenue Service (“IRS”) has been