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done as clients invest new money or transfer money to new investments. Unless existing IRA accounts
are grandfathered, registered representatives may be forced to abandon IRA account owners rather than
trigger additional disclosure, increased cost to the client, and liability risks.

Implementation of the Proposed Rules as drafted will result in issues that mirror the current problems
in the UK resulting from the Retail Distribution Review.

Throughout the Public Hearings, Timothy Hauser, DOL Deputy Assistant Secretary for Program Operations,
indicated that the Proposal is not intended to ban commissions. Various panelists and comment letters,
however, gave examples that demonstrate that without significant revisions, a predictable consequence
of the Proposal will be the elimination of products offered on a commission basis, an increase in fee-based
advisory arrangements, and a concomitant retreat of financial advisors from the low and middle market,
leaving less wealthy investors without anyone to advise them.

In 2012 UK legislation eliminated commission payments to advisers and platforms through the
implementation of legislation that came into effect as the result of a Retail Distribution Review (‘RDR’)
conducted by the UK Financial Services Authority (predecessor to the current Financial Conduct Authority
(“FCA”)). While the intention of the RDR reforms was to improve the nature of financial advice received
by consumers, its actual impact has been to shrink the overall financial advice market. After the adoption
of the RDR, 26% of FCA registered advisors withdrew from providing financial advice to retail investors of
moderate means. Barclays estimates that UK consumers now require financial assets of at least GBP
150,000 (USD 230,000) in order to receive tailored face-to-face financial advice. The subsequent “advice
gap” that has emerged for small account investors has led to the UK government recently launching a
major new review into the UK financial advice market (the “Review’) to determine how the insurance
market can work better for consumers. The Review, which was announced on August 3, 2015, is being
led by the UK Treasury and the FCA and will specifically consider “the provision and effectiveness of advice
across retail markets to assess whether differences in regulatory requirements around advice lead to
unintended consequences for consumers and firms.” The initiation of the Review clearly suggests that the
consequences of the RDR have had a negative impact on the UK market.

Jackson’s parent company, Prudential plc, is one of the largest life insurers in the UK market® and has had
first-hand experience with the RDR reforms. We believe that the findings of the UK government, which
will have experienced more than three years of the impact of eliminating commission payments to
financial advisers by the time of the publication of the Review’s findings, will be particularly informative
to the DOL and should be considered in advance of moving ahead with the DOL Proposal.

The return of variable annuities into the scope of PTE 84-24 will assist the retirement planning of
millions of Americans.

Many Americans are now facing the hard reality that their current income and savings will not sustain
them through their retirement years. For these investors, variable annuities alone offer a genuine
opportunity for market appreciation while providing both lifetime guarantees and death benefits.
Including variable annuities within 84-24 will insure that investors can continue to utilize this critically
important product in planning for their retirement.

® Prudential plc (NYSE: PUK) is a company incorporated in England and Wales. Prudential plc is not affiliated in any
manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of
America.


Q

annuities under one exemption as opposed to singling out variable annuities for the more onerous and ill-
suited requirements of the Proposed BIC Exemption.

The proposed amendments to PTE 84-24 for the sale of annuities should be revised, continuing to keep
all annuities, fixed and variable, in the same category of insurance. Having a separate exemption for all
annuities provides a number of regulatory benefits. A separate exemption highlights the fact that
annuities are different from other investments, minimizes inappropriate comparisons of fundamentally
different products/services and allows consumers to easily compare all annuity products under one set of
rules.®

Investor rights will continue to be protected under PTE 84-24 through the required disclosure of conflicts
of interests, reasonable compensation requirements, and restrictions on misleading statements. These
protections will be supplemented by the existing regulatory structure and disclosures already required for
variable annuities by the Security and Exchange Commission and the Financial Industry Regulatory
Authority. PTE 84-24 can be further amended to meet the DOL objectives by providing for a workable
best interest standard that requires the advisor to put the client’s interests before the advisor’s interests.
The addition of an enforceable best interest standard is discussed in the supplemental response letter
submitted by the leading life insurance companies in the United States, including Jackson, and dated
September 24, 2015. We encourage the DOL to review and adopt the proposed language contained in
the letter.

The inclusion of variable annuities within PTE 84-24 will only work, however, if the definition of insurance
commission is revised. The Proposal amends the exemption to define insurance commission to mean only
a sales commission paid by the insurance company. This revised definition excludes revenue sharing
payments, administrative fees or marketing payments, or payments from parties other than the insurance
company or its affiliates. As the number one writer of variable annuities and affiliate of a top 10
independent contractor broker-dealer, Jackson understands the negative impact to our broker-dealer
partners of excluding these other types of payments from the definition of commission. This negative
impact is further described in the comment letter from National Planning Holding, Inc. dated September
24, 2015.

Jackson supports grandfathering of business issues prior to the Proposal’s applicability date.

We continue to strongly urge the DOL to fully grandfather IRA accounts existing before the applicability
date of the final regulation. As discussed by several commentators during the Public Hearings, failure to
grandfather existing accounts essentially results in the retroactive application of the Proposals.” While
existing accounts may gradually migrate from commission to fee based accounts over time, it should be

© For additional support for including variable annuities in PTE 84-24, please refer to the following testimony at the
Public Hearings: Conflict of Interest Public Hearing at 119 (Aug. 10, 2015) (statement of Nick Lane, Chairman,
Insured Retirement Institute), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript1.pdf;
Conflict of Interest Public Hearing at 225 (Aug. 10, 2015) (statement of Stephen Saxon and Thomas Roberts, Groom
Law Group Chartered), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript1.pdf; Conflict of
Interest Public Hearing at 998 (Aug. 12, 2015) (statement of Michael L. Hadley and Joseph F. McKeever, Davis and
Harman LLP, on behalf of the Committee of Annuity Insurers), available at: http://www.dol.gov/ebsa/pdf/1210-
AB32-2-HearingTranscript3.pdf.

” Conflict of Interest Public Hearing at 1017 (Aug. 12, 2015) (statement of Jason Bortz, Capital Group Companies),
available at http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript3.pdf; Conflict of Interest Public Hearing
at 132 (Aug. 10, 2015) (statement of David Blass, General Counsel, Investment Company Institute), available at:
http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript1.pdf.

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Q

We appreciate the opportunity to respond to the DOL Proposals. If we can be of any further assistance
to the DOL as it considers these comments, please contact me.

Sincerely,

7 a

James R. Sopha
President
Jackson National Life Insurance Company


JACKSON’

1 Corporate Way

Lansing, MI 48951

Phone: 517/702-2513

James R. Sopha Fax: 517/702-2445
President james. sopha@jackson.com

September 24, 2015

Employee Benefits Security Administration Employee Benefits Security Administration
Office of Regulations and Interpretations Office of Exemption Determinations

Conflict of Interest Rule, Room N-5655 U.S. Department of Labor (Attention D-11712)
U.S. Department of Labor 200 Constitution Avenue, NW

200 Constitution Avenue, NW Suite 400

Room N-5655, Washington, DC 20210

Washington, DC 20210

FILED ELECTRONICALLY

Re: Definition of the Term “Fiduciary;” Conflict of Interest Rule (RIN 1210-AB32) (the
“Fiduciary Proposal”)

Proposed Best Interest Contract Exemption (ZRIN 1210-ZA25) (the “Proposed BIC
Exemption”)

Proposed Amendment to Proposed Partial Revocation of Prohibited Transaction
Exemption (PTE) 84-24 (ZRIN 1210-ZA25) (the “84-24 Amendment”)

To Whom It May Concern:

Jackson National Life Insurance Company’ (“Jackson”) is pleased to provide these supplemental
comments with respect to the Department of Labor's (“DOL”) notice of proposed rulemaking concerning
the Fiduciary Proposal, the Proposed BIC Exemption and the 84-24 Amendment (collectively, the
“Proposal”). This letter addresses certain comments made during the hearings on the Proposal from
August 10-13, 2015 (the “Public Hearings”).

We are encouraged by the willingness of the DOL to address the concerns raised regarding the Proposal.
Jackson believes the most important concern raised is the critical need to modify the Proposal to ensure
that it does not prohibit or unduly restrict investors’ access to variable annuities. To achieve this objective,
the DOL should restore variable annuities to the scope of PTE 84-24. The continued inclusion of variable
annuities in PTE 84-24 will allow the DOL to meet its objectives without adversely affecting, or eliminating,

* Jackson National Life Insurance Company is a stock life insurance company organized under the laws of the state
of Michigan since 1961. Jackson submitted original comments to the Proposal in a letter to the DOL dated July 21,
2015.

Jackson is the marketing name for Jackson National Life Insurance Company (Home Office: Lansing, Michigan)
and Jackson National Life Insurance Company of New York (Home office: Purchase, New York).


Q

investors’ access to important retirement planning tools, including lifetime income guarantees and death
benefits.

The Public Hearings confirmed that variable annuities serve a critical role in retirement planning.

A consistent theme in the comments at the Public Hearings was that all members of the retirement
planning industry and regulators want what is in the best interest of Americans planning for, or in,
retirement. There was also consensus that investors are best served by having access to a wide variety of
investments, products and guarantees from which they can select to construct a solution that meets their
financial goals and long-term retirement savings needs. While a variable annuity may not be the right
choice in every situation, its inclusion in a retirement plan is likely to be the right choice for millions of
Americans who want (and need) the opportunity to participate in market appreciation while also
obtaining guaranteed lifetime income and death benefits.

The assurance that investors will have some minimum level of income is critical given that 41% of people
ages 55 to 64 and 52% of people ages 65 to 74 have no retirement savings.? Investors must save more
income to make up this savings gap, and annuities with living benefit guarantees provide a way to do so
while still having downside protection.

During the Public Hearings, some commentators suggested variable annuities are similar to other
securities-based investments. These commentators misunderstand the unique benefits of variable
annuities, which offer upside market opportunity and downside market protection. Variable annuities
with living benefit guarantees provide investors opportunities for growth of income through market
participation while also providing a guarantee that their income will not drop and that they will not outlive
that income. No other investment product in the world can offer this value to an investor.

Secretary Perez has publicly discussed one example when an investor had a negative experience with a
variable annuity.’ There are millions of other examples, however, when investors benefited from the
protections provided by an annuity’. On the heels of the global financial crisis Americans lost billions of
dollars in retirement savings. During this time, not a single Jackson variable annuity investor suffered a
reduction in their contractual guaranteed minimum withdrawal benefits.

Death benefit guarantees are also unique features of an annuity. If an owner dies when the market value
of the contract has decreased, the death benefit feature guarantees that his or her beneficiary will receive
an amount at least equal to the original premium invested into the contract. In fact, since 2008 Jackson

? United States Government Accountability Office. Retirement Security: Most Households Approaching Retirement
Have Low Savings. GAO-15-419, May 12, 2015. Available: http://www.gao.gov/assets/680/670153.pdf. [2 June
2015].

* This example was discussed by Scott Stolz from Raymond James during the Public Hearings. See Conflict Of
Interest Proposed Rule, Related Exemptions and Regulatory Impact Analysis Hearing Before the Dep’t of Labor Emp.
Benefits Sec. Admin. at 323 (Aug 10, 2015) [hereinafter Conflict of Interest Public Hearing] (statement of Scott
Stolz, Senior Vice President, Raymond James), available at http://www.dol.gov/ebsa/pdf/1210-AB32-2-
HearingTranscript1.pdf.

4 See examples provided in the following testimony at the Public Hearings: Conflict of Interest Public Hearing at
501 (Aug. 11, 2015) (statement of J. Lee Covington, II, Senior Vice President and General Counsel, Insured
Retirement Institute), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript2.pdf; Conflict of
Interest Public Hearing at 123 (Aug. 10, 2015) (statement of Nick Lane, Chairman, Insured Retirement Institute),
available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript1.pdf.

2


Q

has paid out over $600 million in death benefits that exceeded the actual contract value. Jackson’s excess
death benefit claims represented 5.5% (2014) to 32.41% (2009) of the total variable annuity claims.

Year TotalVAClaims ExcessDB % Excess over Total

2008 $ 378,722 $ 75,582 19.96%
2009 «$ 452,171 $ 146,556 32.41%
2010 $ 558,840 $ 92,237 16.51%
2011 $ 680,772 $ 73,398 10.78%
2012 $ 822,921 $ 86,442 10.50%
2013 $ 934,221 $ 68,148 7.29%
2014 $1,072,490 $ 59,012 5.50%
Total $ 4,900,137 $ 601,375 12.27%

[Table Values are in thousands]

Of course, products that offer the opportunity for market appreciation, guaranteed income for life, and
death benefits may not be offered to investors at the same cost as products (such as mutual funds and
fee based advisory accounts) that do not offer income guarantees and death benefits. Jackson joins the
commentators at the Public Hearings who warned that the Proposal’s focus on the use of low cost
products will result in variable annuities not being offered to investors despite the fact that any fee
differential is justified by the significant additional guarantees and benefits offered by a variable annuity.
The objective of the Proposal should be to ensure that each customer gets the product that is in his or her
best interest — not just the cheapest products. The Proposal should be revised to make sure that the
determination of what is in a client’s best interest includes both costs and benefits.

Variable annuities should remain covered in PTE 84-24 with other insured products.

Jackson supports the commentators at the Public Hearings who discerned no logical reason why variable
annuities should be treated differently than other insurance products, and who offered many persuasive
reasons why variable annuities should be treated the same as other insurance products. The presence of
guarantees means that variable annuities are insurance products that have more in common with fixed
annuity products that have minimum interest guarantees than they do with mutual funds.

While fixed and variable annuities may provide different benefits, all annuities serve a primary goal of
providing insurance protection guarantees against longevity and other risks. All annuities offer important
retirement income options for consumers who must find a way to provide lifetime income now that
Defined Benefit Plans are no longer provided to the average worker. Recent changes to the structures of
fixed indexed annuities (FIAs) and variable annuities, including increasingly complex indexes within FIAs,
the addition of risk managed indexes within FIAs, the addition of guaranteed minimum withdrawal
guarantees on FIAs and lower cost variable annuity GMWB options, have resulted in these products
becoming remarkably similar. These benefits and similarities support the consistent treatment of all

5 See Conflict of Interest Public Hearing at 119 (Aug. 10, 2015) (statement of Nick Lane, Chairman, Insured
Retirement Institute), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript1.pdf; Conflict Of
Interest Public Hearing at 343 (Aug 10, 2015) (statement of Scott Stolz, Senior Vice President, Raymond James),
available at http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript1.pdf.); Conflict of Interest Public
Hearing at 385 (Aug. 11, 2015) (statement of Carl Wilkerson, Vice President and Chief Counsel, American Council of
Life Insurers), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript2.pdf.

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