PACIFIC 

~ LIFE 

September 24, 2015 

Filed Electronically 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW, Room N-5655 

Washington, DC 20210 

SHARON A. CHEEVER 

Senior Vice President 

General Counsel 

Law Department 

Telephone (949) 2 19-3852 

FAX (949) 219-3706 

email : Sharon.Cheever@PacificLife.com 

Office of Exemption Determinations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue, NW, Suite 400 

Washington, DC 20210 

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

Proposed Best Interest Contract Exemption (ZRIN: 1210-ZA25); 

Proposed Amendment to and Proposed Partial Revocation of Prohibited Transaction 

Exemption (PTE) 84-24 for Certain Transactions Involving Insurance Agents and 

Brokers, Pension Consultants, Insurance Companies and Investment Company 

Principal Underwriters (ZRIN: 1210-ZA25) 

To Whom It May Concern: 

Pacific Life Insurance Company is submitting this letter during the 2"d comment period, regarding the 

proposed rule and prohibited transaction exemptions promulgated under Sections 3{21)(A)(ii) and 2510.3-

21 of the Employee Retirement Income Security Act ("ERISA") (collectively, the "Proposal"). This letter is 

not meant to restate all the issues and questions raised in our first comment letter, but rather focuses on 

one item for the U.S. Department of Labor's ("Department") consideration: that a product manufacturer is 

not subject to the fiduciary duty absent a recommendation, regardless of state insurance appointment 

laws. 

We anticipate and support letters to you from others, including, the Committee of Annuity Insurers, 

Insured Retirement Institute ("IRI"), the Chamber of Commerce and the American Council of Life 

Insurers ("ACLI"), that will address other important issues such as; the sensible recognition that both 

fixed and variable annuities are insurance products and should be subject to the same exemption (PTE 

84-24), the need for a clear grandfathering provision, extension of time for implementation, clarification 

for the definition of "recommendation" and what is covered by the education carve out, and revisions to 

the proposed BICE. In addition, Pacific Life also refers you to a letter submitted by Lincoln Financial 

Group that we signed as part of a group of top insurance carriers to specifically address the treatment of 

variable annuities in the Department's Proposal. 
Office of Regulations and Interpretations 

September 24, 2015 

Need for a Manufacturer's Carve-Out 

Office of Exemption Determinations 

Pacific Life fully supports the Department's stated goal of a Best Interest Standard. In our prior 

comment letter, we described how our products are only offered to the end consumer through 

independent advisers that are not affiliated with Pacific Life. We strongly believe, based on the 

Department's commentary during the hearings, that the Department would agree that absent a 

recommendation, advice or a call to action for a fee or other compensation by a manufacturer company 

or its employees, the mere issuance of its products to Retirement Savers in the ordinary course of 

business would not alone trigger fiduciary duty. Despite that reasonable conclusion, for the following 

reasons, we believe such a carve-out is necessary. 

In order to avoid confusion between a manufacturer's role and responsibilities under the Department's 

Proposal and existing state insurance laws, a specific carve-out is crucial. Under state insurance laws, 

insurance products (annuities) can only be sold by state licensed producers (agents) that are appointed 

(authorized) by each insurance company whose product the agent sells. The appointment is the 

mechanism to evidence the agent's authority to sell that company's insurance products under state 

insurance law. It is unclear in the Proposal whether simply as a result of such state law appointment of 

an independent agent a product manufacturer/issuer can: 1) become an ERISA fiduciary; 2) be required 

to enter into a BIC even if the product manufacturer is totally removed from the individualized 

investment advice being provided to the client as specified in the Proposal; or 3) be subject to the 

Impartial Conduct Standards due to the wording used in the Proposal to describe individuals and entities 

providing investment advice (e.g., insurance agent, insurance broker, pension consultant, insurance 

company or mutual fund principal underwriter) or their Affiliates or controlling entities. An example 

with a diagram of this fact pattern is attached as Appendix 1. 

By way of analogy, this is similar to how, under existing ERISA law, mutual funds' issuers would not be 

considered fiduciaries simply by being the chosen investments in a wrap account set up and 

recommended by an ERISA fiduciary investment adviser. Stated another way, we believe that adding 

potential fiduciary liability for product manufacturers who play no part in making individualized 

investment recommendations is not a "gap" that the Department is trying to close through this 

Proposal. 

To remove any doubt on this issue and to avoid any future disputes as to the Department's intent 

(keeping in mind that the Department may not be the arbiter of this distinction if the fiduciary question 

is in front of a court, for example), we recommend the addition of the following specific "carve-out" 

from the definition of fiduciary for a manufacturer/issuer that does not directly render personalized 

investment advice or make individualized recommendations to the public. 

Sec. 2510.3-21 Definition of "Fiduciary." 

{1} Manufacturer/Issuer of Insurance or Investment Products. {1} An Insurance Company, 

including its Affiliates, when solely performing the role of manufacturer/issuer or (when 

applicable) underwriter and distributor of investment products, shall not be deemed to be a 

Fiduciary within the meaning of section 3{21}{A) of the Act or section 4975{e}{3}{B) of the 

Code, with respect to an employee benefit plan or IRA solely because such Insurance 

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Office of Regulations and Interpretations 

September 24, 2015 

Office of Exemption Determinations 

Company or other manufacturer/issuer of investment products issues annuity or other 

insurance or investment products to such plan or IRA in the ordinary course of its business if 

the Insurance Company or other manufacturer/issuer of investment products, or their 

employees, do not: 

(a) Render investment advice (as defined in paragraph (a) of this section) for a fee or 

other compensation related to such advice with respect to such insurance or 

investment products (as opposed to compensation for the product itself or services 

related thereto). Represent or acknowledge that it is acting as a fiduciary within the 

meaning of the Act with respect to the advice described in paragraph (a}{l} of this 

section. 

(b) Render advice pursuant to a written or verbal agreement, arrangement or 

understanding that the advice is individualized to, or that such advice is specifically 

directed to, the advice recipient for consideration in making investment or 

management decisions with respect to annuities, insurance or other investment 

products it manufactures. 

{2} For purposes of this section, an Insurance Company in its capacity as a product 

manufacturer/issuer is not considered a Fiduciary, Affiliate or a Financial Institution merely because 

a state insurance licensed and appointed agent, agency or their representatives, and state and 

federal securities licensed advisers or firms, who may or may not be a Fiduciary pursuant to this 

section, are required by state insurance laws to be appointed or otherwise authorized to sell the 

Insurance Company's products. 

Conclusion 

Pacific Life agrees with the Department that Investment Advisers should be required to act in the best 

interest of their client. Our request for the carve-out is not an attempt to skirt responsibility for our 

products as state insurance laws cover a myriad of product issues (as do SEC rules for variable products). 

We are simply not close enough to the individualized advice to be considered a fiduciary under the 

ERISA standards. As a product manufacturer, we have an enforceable contractual obligation to our 

annuity contract owners to deliver on our promises and to not misrepresent our products. Product 

issues are separate and apart from advice issues. We are already accountable for compliance with a 

copious amount of state and, depending on the product, federal laws and regulations that enhance 

consumer protection1 and subject us to regulatory scrutiny, and if necessary, litigation. 

Pacific Life echoes the request from our trade organizations, colleagues, lawmakers and many others 

who have submitted comments during this process for 1} a re-proposal and additional opportunity to 

comment on the expansive and groundbreaking changes the Department is suggesting for the 

retirement landscape in the United States and 2} an extended time for implementation of the final 

1 

See Appendix 2 attached from Appendix to ACLI July 21,2015, Submission to the Department of Labor on the Fiduciary Rule (Table of 

contents enclosed for your reference) 

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Office of Regulations and Interpretations 

September 24, 2015 

Office of Exemption Determinations 

regulations, particularly with regard to the reporting and technology requirements imposed by the new 

schematic. 

We greatly appreciate the Department's willingness to hear our point of view, and take into 

consideration the recommendation we have made. 

Senior Vice President and 

General Counsel 

4 
Office of Regulations and Interpretations 

September 24, 2015 

State Appointment Scenario 

Office of Exemption Determinations 

Appendix 1 

Financial Institution Z is a large, full service, financial services institution. It has a registered investment 

adviser affiliated entity {"RIA W"), an affiliated retail broker-dealer {"BD X"), and an affiliated licensed 

insurance agency {"Insurance Agency Y"). 

Financial Institution Z wants to make available insurance products {including variable insurance products 

which are securities) to its customers. So, BD X and Insurance Agency Y enter into Selling Agreements 

with various insurance companies, including Insurance Company A, to make the products of those 

insurance companies available to their reps for sale to the customers of BD X and Insurance Agency V. 

John Doe, is licensed as an investment adviser representative {"IAR") of RIA W, a registered 

representative of BD X, and a licensed insurance agent of Insurance Agency Y and is supervised by those 

entities. 

Under state insurance laws, among other requirements, an agent must be "appointed" as an agent by an 

insurance company to sell insurance products of that particular insurance company. So, John Doe 

obtains appointment as an agent to all the insurance companies that the entities with which he is 

affiliated has selling agreements, including Insurance Company A. 

Sally Smith is a customer of John Doe. John Doe acts as Sally Smith's investment adviser representative 

providing investment advice, as her broker for conducting securities transactions, and as an insurance 

agent for assisting Sally Smith with her insurance needs. 

John Doe meets with Sally Smith and, based on financial and other information provided by Sally Smith, 

recommends in his investment adviser capacity to Sally Smith that she purchase a variable annuity from 

Insurance Company A in her IRA account to help her meet the retirement savings short fall she currently 

appears to have and to provide protection against the risks indicated by Sally Smith. John Doe provides 

that advice in his investment adviser capacity for RIA W, executes the security sale in his registered 

representative capacity for BD X, and executes the insurance sale as an agent of Insurance Agency V. 

The product is manufactured by Insurance Company A. 

Under the current construct of the DOL Proposal, the recommendation to purchase the variable annuity 

by John Doe would arguably create a fiduciary relationship by John Doe; by affiliated entities Financial 

Institution Z, RIA W, BD X, Insurance Agency Y; and arguably Insurance Company A. 

We don't believe the Department intended that the product manufacturer, in this case Insurance 

Company A, was to be a fiduciary under the proposal merely because state law requires that the 

persons that sell its products are required to be appointed with the insurance company. Clearly, no 

recommendation has been provided by Insurance Company A in the above scenario and Insurance 

Company A should be excluded from the definition of a fiduciary under the proposal. 

In fact, under the scenario provided above and in accordance with the current Proposal, in order to 

comply with the BIC requirements, a BIC contract would have to be executed by Sally Smith, John Doe, 

and at a minimum, RIA W, BD X and Insurance Agency Y to receive the protections afforded by the 

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Office of Regulations and Interpretations 

September 24, 2015 

Office of Exemption Determinations 

exemption. That would be a five party agreement (not to mention the need for a 6th party if the 

insurance company manufacturer is not excluded from the definition as requested). In fact, if John Doe 

is appointed with six insurance companies and he is uncertain as to the product to be recommended at 

the time the BIC agreement is executed, all six insurance companies would be required to sign a BIC with 

Sally Smith. And, now that they are contractually bound to Sally Smith to be a fiduciary, should the five 

companies whose product was not recommended or sold still have exposure to Sally pursuant to the BIC 

agreement for the recommendation of the competitor's product by John Doe? The obvious answer 

would appear to be no. 

Who signs the BICE? 1) Sally Smith, 

If John Doe recommends that 2) John Doe, 

Sally Smith purchase a 3) RIA W, 

4) BD X, variable annuity, who must 5) Insurance Agency Y, and 

sign the BICE? 6) All insurance companies that John Doe is appointed with? 

Financial Institution Z 

(large, full service, 

financial services institution) 

I 

I I I 

KIAW BOX Insurance Agency Y t-tt:o: d (affiliated retail (affiliated licensed Services John Doe provides to his .,. T 

r) broker-dealer) I insurance aoencv) customers: 

I I I I • Investment advice as a licensed 

I Investment adviser 

I John Doe - JAR . I IJohn Doe - RRI i I John Doe -Agent representative of RIA W (licensed investment (registered I (licensed insurance I adviser representative} representative) agent) • Broker for conducting securities I I 

Sally~milh- Sally mllh- I Sally~mlth- I transactions as a registered 

Customer Customer I Customer I representative for BD X 

• Insurance products as a licensed ·- ·-·-·-·- ·- · I insurance agent of Insurance I I - ·- _, Selling 1 

I AgencyY j · Agreements . Ap)loiritments . 1- ·- ·- ·- ·- · j I -·;::::/ / \~ .. :...~-- I -- --. .- - I \ ' - I -- - ' -- - .... :~~ ' ·- I .- ... .- -. I Insurance II Insurance II Insurance I Insurance r Insurance l r Insurance 

L) Company A Company B Company C Company D Company E Company F 

Various Insurance Companies 

(manufacturers of variable insurance products) 

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Office of Regulations and Interpretations 

September 24, 2015 

Appendix 2 

Office of Exemption Determinations 

Table of Contents for Appendix to ACLI Submission to the Department of Labor on the 

Fiduciary Rule 

FINRA Rule 2330: Suitability and Supervision in the Sale of Variable Annuity Contracts ... 1 

NAIC Suitability in Annuity Transactions Model Regulation: A Coordinated Approach to 

Suitabi lity and Su1)ervision in the Sal·e of Individual Annuity Contracts .... ......... .... .......... 8 

ACLIIssues Status Cl1art: NAIC Annuity Disclosure, Suitability in Annuity Transactions & 

Senior Specific Certifications Model Regulations ..... .............. .............. ... ................ ...... 15 

State Laws Governing Suitability in Variable Life Insurance Sales ...................... ...... ..... 53 

The NAJC Annuity Disclosme Model Regulation: Disclosure Standards in Annuity 

Distribution .......... ................ .............. ... ,. ..... ... ..................................... ...................... 59 

NAIC Buyer's Guide for Deferred Annuities ................. ... ........................................... 64 

NAIC Buyer's Guide for Fixed Deferred Annuities with Appendix for Equity-Indexed 

Annuities ................................ .... ......... ,. ........................ ... ............................ ...... ...... 75 

NAIC Insurance and Annuities Replacement Model Regulation .. ...... .......................... 1 04 

ACLi l aw Survey: Replacement of Life and Insurance and Annuities .......................... 119 

NAIC Model Regulation on the Use of Senior-Specific Certifications and Professional 

Designations in the Sale of life Insurance and Annuities .... ............... ................... .. .. 168 

The Impact of State Insurance Consulting Laws on Producers Perfom1ing Hnancial 

Planning Setvices ..... .. ....... .. ......... ............... ...... .......... ,. .... ...... ...... ,. .. .... ........... ,. ... . 171 

A Com1neher1tsive System of State Regulations Governs the Distribution of Insurance 

and Annuity Contracts ................................................... ..... ....... ........ ...... ................. 196 

AClllaw SuliVey: Free look/Right to Return Requirements .............. .. ... .... ................ 203 

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