NATIONAL 

ASSOCIATION 

OF 

REAL ESTATE

INVESTMENT

TRUSTS®

♦ ♦ ♦

REITS:

BUILDING 

DIVIDENDS 

AND 

DIVERSIFICATION®

September 24, 2015 

Submitted Electronically – e-ORI@dol.gov and e-OED@dol.gov

 

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

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

 Best Interest Contract Exemption (ZRIN 1210-ZA25)

Ladies and Gentlemen: 

We appreciate the opportunity to offer additional comments regarding the 

Department’s regulatory package expanding the definition of fiduciary 

investment advice and preventing conflicts of interest in advice provided to 

ERISA-covered retirement plans and Individual Retirement Accounts (“IRAs”). 

The extensive comments received by the Department and the four days of public 

hearings on the proposed rule and the accompanying prohibited transaction 

exemptions demonstrated the significant public interest in these issues. This 

interest is quite appropriate given the Department’s goal of changing the way 

investment advice is provided to all ERISA-covered retirement plans and to all 

Individual Retirement Accounts (“IRAs”), representing many trillions of dollars 

in retirement savings. These public hearings also served to highlight the fact 

that there are many discrete items of discussion within the broader package, 

some of which are quite controversial.

As we previously wrote1

, NAREIT shares the Department’s goal of improving 

the quality of investment advice provided to plans, plan participants and IRA 

owners, and of ensuring such advice is in their best interests. However, we 

remain very concerned that the Department must achieve this goal without 

limiting retirement investors’ access to the full range of investment products and 

services available to plans and IRAs. 

 1 See, letter from the Executive Committee of the Public Non-listed REIT Council of the 

National Association of Real Estate Investment Trusts (NAREIT), July 21, 2015 to the 

Department of Labor available at. http://www.dol.gov/ebsa/regs/cmt-1210-AB32-2.html
As a number of witnesses testified during the public hearings, retirement 

investors must be able to diversify their holdings across a broad spectrum of 

risks as part of a prudent retirement portfolio. Further, each plan, each 

participant, and each IRA owner has individualized retirement needs and 

objectives. Consequently, the Department’s regulatory efforts must ensure that 

advisors to these plans, participants, and IRA owners are able to discuss all 

available investment alternatives, not just selected asset types. Those 

alternatives must include a broad range of real estate investments to allow 

advisors to act in the best interest of retirement investors. 

About NAREIT:

The National Association of Real Estate Investment Trusts (“NAREIT”) is the 

worldwide voice for REITs and real estate companies with interests in U.S. real 

estate and capital markets. NAREIT’s members are REITs and other real estate 

businesses throughout the world that own, operate and finance commercial and 

residential real estate. Public Non-Listed REITS (“PNLR”) participate at 

NAREIT through the Public Non-Listed REIT Council (the “PNLR Council”), 

which consists of 42 NAREIT PNLR corporate members. The mission of the 

PNLR Council is to advise NAREIT’s Executive Board on matters of interest 

and importance to PNLRs.

NAREIT’s PNLR Council has reviewed the public comments filed in July and 

the testimony presented at the August hearings, and has developed the attached 

additional comment letter for submission and consideration by the Department.

NAREIT and its PNLR Council look forward to working with the Department as 

it works on developing a final rule and final prohibited transaction class 

exemptions, and we would be pleased to answer any questions the Department 

may have.

Please feel free to contact me if you would like to discuss our positions in 

greater detail.

Respectfully submitted,

Steven A. Wechsler

President & CEO
September 24, 2015 

Submitted Electronically – e-ORI@dol.gov and e-OED@dol.gov 

Office of Regulations and Interpretations

Office of Exemption Determinations

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

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

 Best Interest Contract Exemption (ZRIN 1210-ZA25)

Ladies and Gentlemen: 

The Public Non-Listed REIT Council (“PNLR Council”) of the National Association of Real 

Estate Investment Trusts (“NAREIT”) appreciates the opportunity to submit these additional 

comments following the public hearings on the Department’s regulatory efforts to redefine 

fiduciary investment advice provided to ERISA plans, plan participants and beneficiaries, and 

IRA owners. Specifically, we submit additional comments on the proposed regulation (the 

“Proposal”)

1 redefining the term “fiduciary” with respect to investment advice under ERISA 

§3(21)(A)(ii), and the proposed prohibited transaction class exemption “Best Interest Contract 

Exemption” (the “BIC Exemption”).2

About PNLRs:

As we discussed in our July 21, 2015 letter to the Department3, PNLRs are valuable investment 

options for many investors and are commonly found in IRA portfolios. They are public 

companies whose securities are registered with the SEC, though not listed on a stock exchange. 

PNLRs are subject to IRS requirements that include distributing all of their taxable income to 

shareholders annually in order to be subject to just one level of taxation, and must make regular 

SEC disclosures, including quarterly and yearly financial reports, which are publicly available 

through the SEC’s EDGAR database. As with mutual funds or any other pooled investment, 

there are a variety of fees charged in connection with PNLRs that are reflected in net returns and 

clearly disclosed in the prospectus, which is publicly available from the SEC. These fees will 

become even more transparent to PNLR shareholders when FINRA Regulatory Notice 15-02

comes into effect next year.

Overview:

As we explained in our July 21, 2015 comment letter, the PNLR Council supports the goals 

behind the Department’s regulatory efforts. We agree that retirement investors should receive 

advice that is in their best interest—the needs of the participant or IRA owner should come first. 

 1 80 Fed. Reg. 21,928 (Apr. 20, 2015).

2 Id at 21,960.

3 See, letter from the Executive Committee of the Public Non-listed REIT Council of the National Association of 

Real Estate Investment Trusts (NAREIT), July 21, 2015 to the Department of Labor available at

http://www.dol.gov/ebsa/regs/cmt-1210-AB32-2.html.
Employee Benefits Security Administration 

September 24, 2015

Page 2

In fact, it is precisely because of our strong belief in this core principle that we are again writing 

to ask the Department to remove the limited definition of “asset” in the Best Interest Contract 

Exemption (the “BIC Exemption”). The practical effect of the limited list of assets in the 

definition is to prevent advisors from putting the participant or IRA owner first—an advisor 

using the BIC Exemption is simply not allowed to discuss assets not on the list, no matter how 

much those assets are in the best interest of the participant. This outcome is inconsistent with the 

Department’s purpose in proposing the rule.

The BIC Exemption Should Allow Advisors to Provide Individualized Advice in the Best 

Interest of Investors Planning for Retirement: 

The Department received extensive comments on this regulatory package, and heard testimony 

from witnesses for four full days at the recent administrative hearings. This public interest is due 

to a basic but crucial fact—the Department’s decisions will have significant consequences on the 

adequacy of the retirement savings of America’s workers. We reviewed many of these 

comments, and followed the testimony presented at the hearings, particularly as they related to 

the BIC Exemption. 

This review suggests a contradiction between the Department’s policy goals and the effect of the 

BIC Exemption. The purpose of the regulatory package is to ensure retirement investors get 

quality, impartial, individualized advice from financial professionals. The Proposal and the BIC 

Exemption are both designed to do this by removing conflicts of interest. Yet the list of 

“approved” assets in the BIC Exemption prevents those same advisors from giving quality, 

impartial, individualized advice about any asset not on the list. Regardless of the individual 

circumstances of the IRA owner, her impartial advisor cannot discuss an asset not on the 

Department’s one-size-fits-all list of assets if the advisor is using the BIC Exemption. 

Obviously, each retirement investor has different needs, different retirement objectives, and 

different types of personal assets outside of retirement accounts—all of this must be taken into 

account when an advisor makes an investment recommendation. Advice in the retirement 

investor’s best interest is individualized, and an investment right for one person may not be right 

for another. Logically then, it doesn’t make sense for the Department to exclude entire asset 

classes from advice available to tens of millions of retirement investors, especially when doing 

so adds no additional protection from conflicts of interest. 

The BIC Exemption Must Be Redrafted to Avoid Negative Consequences for Participants 

and IRA Owners:

In an exchange regarding the BIC Exemption asset list between a hearing witness and a 

Department official, the official suggested that the asset list didn’t prevent an advisor from 

giving advice on any asset so long as that advice occurred outside of the BIC Exemption.4

 While 

this is technically true, it does not address the fundamental problem. The BIC Exemption will 

likely be necessary for a large number of plan transactions. For example, the BIC Exemption 

will likely be necessary for advisors assisting plan participants with IRA rollovers. It is also 

 4 Raw transcript of testimony presented on August 11, 2015, at 638, accessed on September 21, 2015 at 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-HearingTranscript2.pdf.
Employee Benefits Security Administration 

September 24, 2015

Page 3

likely that the BIC Exemption could become a preferred compliance method for advisors 

operating under the new rules to address other situations. Consequently, our concerns regarding 

the asset list underscore a fundamental flaw in the structure of the BIC Exemption and the entire 

regulatory package. 

For all of these reasons, the PNLR Council continues to believe that the Department must 

address this issue in the final rule. As written, the Proposal and the BIC Exemption would have 

a negative effect on the availability of quality investments, like PNLRs, used by IRA owners and 

participants to diversify their retirement portfolios. 

• Remove the List from the Asset Definition

Our preferred solution to the problem would be to amend the BIC Exemption definition of assets 

in Sec. VIII(c)5 to remove the list entirely. It serves only to limit investment and advice options 

for IRA owners and participants, while offering them no additional benefits.

As discussed above and in our July 21, 2015 comment letter, the Proposal and the BIC 

Exemption already prohibit conflicts of interest—the asset list provides no additional protection 

against conflicts. Further, the structure of the asset list is contrary to the purpose of the BIC 

Exemption, which was to “...flexibly accommodate a wide range of current business 

practices...” through a principles-based exemption.6 The asset list is anything but flexible—it is 

a bright line dividing assets into those that can and can’t be discussed, regardless of their merits 

to any particular individual.

Finally, as we highlighted in our previous letter, the Department historically has rejected 

investment asset class limits, writing, “no such list could be complete...”7

 This is a very good 

point—an asset list in BIC would be fixed as of that point in time. No new investments would be

eligible for the BIC exemption absent a separate regulatory approval granted on a case-by-case 

basis. 

• Other Alternatives

If the Department will not remove the asset list from the BIC Exemption, we ask that the 

definition be modified to permit important investments like PNLRs that help IRA owners 

achieve diversified portfolios composed of asset classes with relatively uncorrelated risks and 

returns.

One solution would be to add PNLRs to the list of assets in the definition. As we discussed in 

our July 21, 2015 comment letter, we believe PNLRs meet the criteria identified in the Preamble 

to the BIC Exemption that investments be “commonly purchased”8 by retirement plans and 

IRAs, and contribute to a “basic diversified portfolio” with investments that are “relatively 

transparent and liquid” even if there is no “ready market price.”9

 5 80 Fed. Reg. 21,987 (Apr. 20, 2015). 6 Id. at 21,961 7 44 Fed. Reg. 31,639 (June 1, 1979). 8 80 Fed. Reg. 21,968 (Apr. 20, 2015). 9 Id.
Employee Benefits Security Administration 

September 24, 2015

Page 4

 

We also urge the Department to consider the promising approach proposed by the Investment 

Program Association (“IPA”) in its September 24, 2015 comment letter, which sets forth an 

expanded set of Policies and Procedures applicable solely to retirement plan investments in 

“Public Products” (including PNLRs). We would welcome the opportunity to discuss these ideas 

further with the Department.

The Proposal and the BIC Exemption Need a Reasonable Transition Rule:

As the Department heard from a number of witnesses in the hearings, the transition rule for the 

Proposal and the BIC Exemption does not work as proposed. The Department suggests that the 

new fiduciary definition and its associated exemptions would take effect eight months following 

the publication of the final rule in the Federal Register. Without a transition rule, this would 

result in tens of millions of existing advice arrangements having to be fundamentally reformed 

on a single day. Unfortunately, the only transition rule provided by the Department is in Section 

VII(b)(3) of the BIC Exemption, which would permit only certain eligible existing arrangements 

to continue, and only up to the point that additional advice would be provided after the effective 

date. If additional advice would be provided, the existing arrangement would have to be 

modified. The PNLR Council initially raised this in its July 21, 2015 comment letter and our 

review of the hearing testimony has reinforced our view that the Proposal’s approach to the 

effective date is fundamentally flawed in a number of ways.

First, the asset definition would affect the BIC Exemption transition rule; PNLRs and other 

investments not on the “legal list” of assets set forth in the BIC Exemption would be ineligible. 

Thus, the same IRA account might have assets to which the transition rule applies, and assets to 

which it does not. Further, the Proposal would disrupt legal contracts entered into voluntarily by 

willing parties under the prior rule—it is questionable whether the Department can disrupt these 

otherwise valid contracts.

Accordingly, we reiterate our request that the Department adopt the following clear and 

straightforward transition rule: With respect to new advice arrangements entered into on or after 

the effective date, the new regulatory standards would apply. With respect to existing advice 

arrangements entered into prior to the effective date —including assets acquired pursuant to such 

previous arrangements—the previous regulatory standards governing these arrangements would 

remain in effect until they are terminated or renewed by the parties.

We further request that this effective date language be included in the general rule, not in the 

BIC Exemption only, so that this sensible approach is generally applicable.

Conclusion:

We continue to believe IRA owners and plan participants would be best served by removing the 

asset list from the asset definition in the BIC Exemption. This would ensure advisors are able to 

act in their client’s individualized best interest, rather than having the Department make that 

decision for IRA owners and plan participants. We also urge the Department to adopt a clear,

straightforward and traditional transition rule permitting contractual arrangements agreed to prior 

to the effective date to be governed by the regulatory standards in place at that time. 
Employee Benefits Security Administration 

September 24, 2015

Page 5

The PNLR Council looks forward to working with the Department, and we would be pleased to 

answer any questions the Department may have regarding PNLRs or REITs generally.

Thank you for your consideration of our comments, and please feel free to contact me if you 

would like to discuss our positions in greater detail.

Respectfully submitted,

Executive Committee

NAREIT PNLR Council

CHAIR:

Daniel L. Goodwin

Chairman and CEO, The Inland Real Estate Group, Inc.

 Robert S. Aisner

CEO, Behringer

William M. Kahane

Managing Member, AR Capital, LLC

Charles J. Schreiber

CEO, KBS Realty Advisors

Sherri W. Schugart

Senior Managing Director/CEO, 

Hines Interests Limited Partnership

Kevin A. Shields

CEO, Griffin Capital Corporation

Thomas K. Sittema

CEO, CNL Financial Group