May 4, 2010

Submitted Electronically

Employee Benefits Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, DC 20210

Attn: 2010 Investment Advice Proposed Rule 

Ladies and Gentlemen:

The American Benefits Council (Council), the American Council of Life Insurers (ACLI), and 

the Investment Company Institute (ICI) appreciate this opportunity to submit joint comments on 

the Department’s proposed investment advice rule implementing section 601 of the Pension 

Protection Act (PPA). Information on our organizations is at the end of this letter.

We are writing to express our shared commitment to expanding opportunities for plan sponsors 

to offer, and plan participants to access, professional investment advice that can help participants

effectively accumulate and manage their retirement savings.

1

 We think this is very important 

and appreciate the Department’s continued efforts to finalize rules implementing the PPA’s 

investment advice exemption. We also strongly support the Department’s commitment to 

preserve guidance on investment advice issued prior to the PPA, including the SunAmerica 

Advisory Opinion (2001-09A). Many existing investment advice programs in 401(k) plans rely 

on that guidance and any reversal or change to prior guidance would have risked the continued 

availability of investment advice to plan participants.

We also write to express our concern, however, about the Department’s conclusions regarding 

the use of historical performance in evaluating investments. In addition, we are concerned about

the possibility that the Department will seek in the final rule to define generally accepted 

investment theories or effectively require plan fiduciaries in other contexts such as the selection 

 

1 The Investment Company Institute also has filed a separate comment letter on the proposal.
2

of a plan’s investment fund line-up to favor particular investments or particular investment 

styles. As we discuss below, ignoring past performance is inconsistent with generally accepted 

investment practices and having the Department opine on how plan assets should be invested 

would be a radical departure and a mistake.

Finally, our organizations support a clarification to the rule’s description of the fee leveling 

condition, described below. 

The Department Should State that Historical Performance is an Appropriate Factor to Consider

The proposal adds a new condition that would require computer models to avoid inappropriate 

investment recommendations based on distinctions among investments in an asset class that 

“cannot confidently be expected to persist in the future.” In the preamble, the Department 

explains this new condition as follows:

While some differences between investment options within a single asset class, 

such as differences in fees and expenses or management style, are likely to persist 

in the future and therefore to constitute appropriate criteria for asset allocation, 

other differences, such as differences in historical performance, are less likely to 

persist and therefore less likely to constitute appropriate criteria for asset 

allocation. Asset classes, in contrast, can more often be distinguished from one 

another on the basis of differences in their historical risk and return 

characteristics.

Given the Department’s explanation, we are concerned that the new condition effectively 

prohibits a computer model from taking into account the historical performance of an investment 

option. This result would not be consistent with generally accepted investment practice. 

Historical performance is considered routinely by investment professionals in evaluating mutual 

funds, insurance company pooled separate accounts, collective trusts, and other investment 

options. 

Adopting this condition with the Department’s explanation would call into question longestablished practices in many other contexts in which fiduciaries who select and monitor 

investment options or investment managers take into account historical performance of the

investment option or manager. For example:

 Plan fiduciaries of participant-directed defined contribution plans consider, among other 

factors, the historical performance of investments when selecting the investment menu 

for plans, and monitor that performance over time against similar funds. Fiduciaries 

routinely replace funds that underperform relative to their peers.
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 Plan fiduciaries of defined benefit plans who engage investment managers routinely 

consider, among other factors, the historical performance of the investment manager in 

managing similar assets, and monitor the investment manager’s performance over time.

 Computer models currently available under the SunAmerica advisory opinion routinely 

use historical performance, among other factors, in selecting among funds on a plan 

menu within an asset class.

 Disclosure rules require that historical performance be provided to participants and 

investors, precisely because this information is relevant to the decision to select a 

particular fund. The PPA exemption itself requires a fiduciary adviser to disclose “the 

past performance and historical rates of return of the investment options available in the 

plan.” Historical performance is a key disclosure in mutual fund prospectuses and would 

be a key disclosure in the Department’s proposed participant disclosure regulation.

We believe that historical performance is not the only criteria that should be considered, and in 

fact employers and other plan fiduciaries should and do consider performance alongside other 

factors like fees. It is also generally accepted that historical performance should be considered 

net of fees and that long term performance is generally a better measure than short term 

performance. But that does not lead to the conclusion that historical performance generally 

should not be considered.

Second, the new condition is unnecessary. Congress gave to the eligible independent expert the 

task of determining, among other things, whether a computer model properly takes historical 

performance into account consistent with generally accepted investment theories. We do not 

believe it is necessary or appropriate for the Department to interfere with the independent 

expert’s certification.

We recognize that the Department may be concerned about inappropriate uses of historical 

performance. We recommend, however, that the Department drop the new condition and instead 

simply require that the eligible investment expert look at how the computer model takes 

historical performance into account in certifying the model in order to determine that the 

approach is consistent with generally accepted investment theories. Alternatively, the 

Department could revise the proposed condition to state that a computer model may not be 

“inappropriately weighted with respect to any investment option”—incorporating the statutory 

language in ERISA section 408(g)(3)(B)(v).
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The Department Should Not Attempt to Define Generally Accepted Investment Theories or 

Favor One Investment Style

The proposal asks for comment on a series of questions related to the PPA requirement that 

advice generated by a computer model be based on generally accepted investment theories. The 

questions suggest the Department may seek to define generally accepted investment theories and 

codify the types of information that a computer model should (and should not) consider in 

making recommendations, and the conclusions that the computer model must draw from that 

information. The questions also suggest the Department believes a computer model should favor 

passive investments, such as index funds. We urge the Department not to attempt to define 

generally accepted investment theories or embark on a process that will micromanage plan 

investing. 

First, an exercise to define generally accepted investment theories has implications far beyond 

computer models under the PPA exemption and would be a radical departure in the 

administration of ERISA. It necessarily would be viewed as the government setting standards on 

how employee benefit plan assets should be invested.2 Since the enactment of ERISA, the 

Department has never before sought to define what investments or types of investments might or 

might not be appropriate for plans, instead leaving those decisions to plan fiduciaries under 

ERISA’s prudent expert standard. The Department’s approach has allowed theories underlying 

investment of plan assets to evolve over time, under broad principles of diversification and 

prudence taking into account the needs of the plan and participants. Rules that indirectly 

required plans to invest assets in a particular way by favoring a popular type of investing would 

freeze innovation and, to the extent imperfect, do harm to all participants. Any attempt to codify 

generally accepted investment principles by the Department could only reflect the current 

thinking of some investment advisers and would be counterproductive.

Second, we think it sets a dangerous precedent for the government to usurp the role of fiduciaries 

by placing its thumb on the scale for one kind of investment—index funds. These decisions are 

best left to the prudent decision making of employers considering the individual needs of the 

plan. Index funds of many kinds are widely available from mutual fund providers and as 

investments under pooled separate accounts, and often used in pension plans. Employers

commonly include one or more index funds in a 401(k) plan’s line-up; one survey found that 70 

percent of plans offered a domestic equity index investment option in 2008.3 Indexing is 

 

2

It might even be viewed as implied government standards for investing other personal assets, corporate assets and 

trust assets, which are all subject to various fiduciary standards.

3

Profit Sharing/401k Council of America, 52nd Annual Survey of Profit Sharing and 401(k) Plans, Reflecting 2008 

Plan Experience (2009).
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particularly popular with domestic large-cap funds. ICI data shows that in 2009, of assets held in 

401(k) plans in large-cap blend domestic equity mutual funds, index funds represented 59%. 

These data show that index funds are well-known in the marketplace and plan fiduciaries 

consider them for inclusion in a plan’s line-up, and that participants use them.

To the extent the Department is concerned about costs and views index funds as favorable 

because of their lower costs, the Department’s proposal already requires that computer models 

take the fees and expenses of an investment option into account. Our organizations support that 

computer models take fees and expenses into account, but believe that investments should not be 

evaluated solely based on fees.

Finally, a long inquiry into the details of generally accepted investment theories will simply 

delay the final regulations. It is important that these regulations be finalized so that the plan 

sponsors and their service providers can begin to consider making advice under the PPA 

exemption available.

The Department Should Clarify the Fee Leveling Condition 

The Department revised the fee leveling condition to make clear that the compensation of the 

fiduciary adviser and its employees must comply with the condition. As written, however, the 

provision is somewhat ambiguous in that it would prohibit compensation “that is based in whole 

or in part on a participant’s or beneficiary’s selection of an investment option” (emphasis added). 

This suggests that a flat commission earned on an investment—that is, a commission that is the 

same regardless of the investment option chosen—would not be permitted because the 

commission is “based on” the selection of the investment. The fee leveling condition in the PPA, 

however, is intended to prohibit compensation that varies and thus might create a conflict of 

interest for a fiduciary adviser.

The rule should be clarified to prohibit fees and other compensation that “vary based in whole or 

in part on a participant’s or beneficiary’s selection of an investment option.” This change would 

be consistent with the Department’s prior guidance on the fee-leveling condition in the PPA, 

including in Field Assistance Bulletin 2007-1, and with the intent of the proposal expressed in 

the preamble.

* * *

Our organizations would be happy to discuss our concerns in more detail. We share the 

Department’s goal of increasing opportunities for retirement savers to access investment advice. 

We urge that a final rule, with the changes we have recommended, be adopted promptly.
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Respectfully Submitted,

Jan Jacobson

Senior Counsel

Retirement Policy

American Benefits Council

James Szostek

Vice President

Taxes & Retirement Security

American Council of Life Insurers

Mary Podesta

Senior Counsel

Pension Regulation

Investment Company Institute

* * *

The American Benefits Council is a public policy organization representing principally Fortune 

500 companies and other organizations that assist employers of all sizes in providing benefits to

employees. Collectively, the Council’s members either sponsor directly or provide services to 

retirement and health plans that cover more than 100 million Americans.

The American Council of Life Insurers represents more than 300 legal reserve life insurer and 

fraternal benefit society member companies operating in the United States. These member 

companies represent over 90% of the assets and premiums of the U.S. life insurance and annuity 

industry.

The Investment Company Institute is the national association of U.S. investment companies, 

including mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment 

trusts (UITs). ICI seeks to encourage adherence to high ethical standards, promote public 

understanding, and otherwise advance the interests of funds, their shareholders, directors, and 

advisers. Members of ICI manage total assets of $11.94 trillion and serve almost 90 million 

shareholders.