4245 N. Fairfax Drive, Suite 750 | Arlington, VA 22203 | P 703.516.9300 F 703.516.9308 | www.asppa.org

May 5, 2010

Office of Regulations and Interpretations

Employee Benefits Security Administration

U.S. Department of Labor, Room N-5655

200 Constitution Avenue, NW

Washington, DC 20210

Attention: 2010 Investment Advice Proposed Rule

The American Society of Pension Professionals & Actuaries (ASPPA), the Council of 

Independent 401(k) Recordkeepers (CIKR), and the National Association of Independent 

Retirement Plan Advisors (NAIRPA), appreciate the opportunity to comment on the 

newly proposed regulation relating to the provision of investment advice to participants 

and beneficiaries issued on March 2, 2010. 

ASPPA is a national organization of more than 7,500 retirement plan professionals who 

provide consulting and administrative services for qualified retirement plans covering 

millions of American workers. ASPPA members are retirement professionals of all 

disciplines including consultants, administrators, actuaries, accountants, and attorneys. 

The large and broad-based ASPPA membership gives it unusual insight into current 

practical problems with the Employee Retirement Income Security Act and qualified 

retirement plans with a particular focus on the issues faced by small- to medium-sized 

employers. ASPPA membership is diverse and united by a common dedication to the 

private retirement plan system. 

CIKR is a national organization of 401(k) plan service providers. CIKR members are 

unique in that they are primarily in the business of providing retirement plan services as 

compared to financial services companies who primarily are in the business of selling 

investments. The independent members of CIKR offer plan sponsors and participants a 

wide variety of investment options from various financial services companies without an 

inherent conflict of interest. By focusing their businesses on efficient retirement plan 

operations and innovative plan sponsor and participant services, CIKR members are a 

significant and important segment of the retirement plan service provider marketplace. 

Collectively, the members of CIKR provide services to approximately 68,000 plans 

covering 2.8 million participants and holding in excess of $120 billion in assets.

NAIRPA is a national organization of firms which provide independent investment 

advice to retirement plans and participants. NAIRPA’s members are registered 
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investment advisors whose fees for investment advisory services do not vary with the 

investment options selected by the plan or participants. In addition, NAIRPA members 

commit to disclosing expected fees in advance of an engagement, reporting fees annually 

thereafter and agreeing to serve as a plan fiduciary with respect to all plans for which 

they serve as a retirement plan advisor. 

Background

The consequences of concentrated investments, made without regard to risk tolerance or 

investment horizon, can be dire for participants and beneficiaries who often lack access to 

professional, prudent investment guidance. The statutory exemption in the Pension 

Protection Act of 2006 (PPA) will make it more likely that participants and beneficiaries 

may obtain assistance in diversifying investments and appropriately reflecting their own 

risk tolerances and investment horizons in asset allocations. ASPPA, CIKR and NAIRPA 

strongly support the purpose of this timely legislation.

However, the non-statutory class exemption that was promulgated in conjunction with 

withdrawn final regulation (i.e., the portion that does not relate to the statutory exemption 

from the prohibited transaction rule enacted in PPA) would not have furthered that 

purpose. We believe it potentially would have exposed participants and beneficiaries to 

conflicted investment advice without sufficient protection from the effects of an adviser’s 

conflicts of interest. Furthermore, this exemption is contrary to Congressional intent and 

we fully support its exclusion from the new proposed rule.

ASPPA, CIKR and NAIRPA are generally supportive of the new proposal. However, we 

are concerned that the new proposal may unnecessarily interject government regulators 

into the role of investment advisor by dictating the parameters of what is acceptable in 

the realm of investment theory. We believe that job is better left to trained and 

experienced professionals who should be able to apply their considered expertise when 

either giving investment advice or creating computer models. Our concerns in this regard 

are discussed in greater detail below.

Discussion

ERISA and the Internal Revenue Code generally prohibit plan fiduciaries from rendering 

any investment advice to plan participants and beneficiaries that would result in the 

payment of additional fees to the fiduciaries or their affiliates. PPA §601 provided a 

statutory prohibited transaction exemption to the rule [codified at ERISA §§ 408(b)(14) 

and 408(g) and IRC §§ 4975(d)(17) and 4975(f)(8)] for certain transactions that may 

occur in connection with the provision of “eligible investment advice” by a “fiduciary 
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adviser,” subject to specific requirements. In particular, the final PPA investment advice 

provision allowed two specific permissible investment advice exceptions: (1) “feeleveling” arrangements; and (2) certified computer model arrangements. 

When the original proposed investment advice regulation was issued by the DOL on 

August 22, 2008, interpreting PPA §601, a separate prohibited transaction class 

exemption (Class Exemption) was also issued that provided relief for certain transactions 

that went beyond the scope of relief contemplated in the statutory language. The DOL 

incorporated the separate Class Exemption into the original version of the Final 

Regulation which was published on January 21, 2009, and withdrawn on November 20, 

2009. 

The withdrawn Class Exemption clearly went beyond the scope of the investment advice 

prohibited transaction relief as enacted by PPA. Congress spent a considerable amount of 

time examining and debating the optimum way to encourage employers to provide 

investment advice and education to their employees without removing the carefully 

crafted protections from conflicted advice originally put in place over 30 years ago. 

ASPPA, CIKR and NAIRPA fully support the policy behind making professional prudent 

investment advice more easily available to plan participants and beneficiaries. However,

we believe that working Americans should not have their retirement assets exposed to 

conflicted investment advice where the adviser has a financial interest in what investment 

choices to recommend, regardless of what disclosure is being provided. If the Class 

Exemption had not been withdrawn, there is a high likelihood that plan participants and 

beneficiaries would have been subjected to investment advice that is not in their best 

interest as a result of conflicts of interest that could benefit the fiduciary adviser. For this 

reason, ASPPA, CIKR and NAIRPA fully support the DOL’s withdrawal of the Class 

Exemption portion of the original Final Regulation. The enactment of ERISA §§ 

408(b)(14) and 408(g) reflect Congressional desire to provide very limited relief for 

providing conflicted investment advice. We believe the new proposal issued on March 2, 

2010, more closely reflects what Congress intended.

In the new proposal, the Department invited comment from interested persons on “the 

conditions applicable to investment advice arrangements that use computer models under 

proposed § 2550.408g-1(b)(4)(i).” The request for comment then enumerates a list of 

thoughtful questions that attempt to surface important issues pertaining to the notion of 

“generally accepted investment theories.” We appreciate the Department’s desire to 

understand the terms by which computer models, or any other delivery system for 

investment advice, can and should be constrained to increase the chances of successful 

participant investment outcomes. However, we do not believe that the Department, nor 

any other legislative or regulatory entity, should be in the business of ratifying or 

endorsing any particular investment theory or practice.
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Rather than explicitly or implicitly endorsing a particular theory or methodology, 

ASPPA, CIKR and NAIRPA would instead like to encourage the Department to continue 

to hold up a certain set of core fiduciary values that have, over time, proven to be 

generally accepted and deemed to be prudent. Such values might include the need for 

portfolio diversification, investing for the long term, the payment of only reasonable fees 

for investment services and the need to keep potential conflicts of interest with respect to

the advice given to a minimum. There may be others as well. While particular 

investment strategies and products come and go in our ever more rapidly evolving 

industry, these core values remain the same and provide benchmarks, or standards, 

against which all theories, styles and methodologies can be measured. 

None of these values, employed in a vacuum, would provide a prudent basis for decisionmaking. They work interdependently and in different combinations in different 

scenarios. Just because a given portfolio is diversified does not make it prudent if it is 

also expensive and riddled with conflicts of interest for the manager. The fact that a 

given investment is less expensive than another competing investment is meaningless if 

that original investment is not appropriate for a given investor or portfolio.

Investment theories that attempt to advance one particular methodology, e.g. active vs. 

passive management, also should not be preferred or excluded. Both can be used within 

prudent fiduciary values and both can also be structured in a manner which violates them. 

Fundamental to our securities laws is the notion that “past performance is no guarantee of 

future results.” That is no less true of passive strategies than it is of active investment 

strategies. 

The proposed regulation asserts that, with respect to the computer model, advice should 

not “inappropriately distinguish among investment options within a single asset class on 

the basis of a factor that cannot confidently be expected to persist in the future.” The 

expectation of persistence is, by definition, a judgment call on which competing, 

legitimate players will differ. Recent experience with regard to investment returns might 

lead one to conclude that nothing can confidently be expected to persist in the future 

based on a factor in the past. Persistence can only be recognized in hindsight. Process, 

principles and values are the things that can truly, with foresight, be expected to persist. 

The values and the process with which a prudent fiduciary arrives at the conclusion to 

employ a given strategy or methodology is what the Department should be emphasizing

rather than attempting to dictate the theories themselves.

****

These comments were prepared by ASPPA’s Department of Labor Sub-committee of the

Government Affairs Committee, with input from CIKR and NAIRPA. Please contact 
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Craig P. Hoffman, General Counsel and Director of Regulatory Affairs, at (703) 516-

9300 if you have any comments or questions regarding the matters discussed above. 

Thank you for your consideration of these comments.

Sincerely,

/s/ /s/

Brian H. Graff, Esq., APM Judy A. Miller, MSPA

Executive Director/CEO Chief of Actuarial Issues

/s/ /s/

Craig P. Hoffman, Esq., APM David M. Lipkin, MSPA, Co-chair

General Counsel Gov’t Affairs Committee

/s/ /s/

Robert M. Richter, Esq., APM, Co-chair James Paul, Esq., APM, Co-chair

Gov’t Affairs Committee Gov’t Affairs Committee