January 3, 2011 

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 

Re: Definition of Fiduciary Proposed Rule 

Dear Sir or Madam: 

We are writing on behalf of the Committee of Annuity Insurers (the “Committee”) to 

comment on the proposed regulation published by the Department of Labor (the “Department”) 

on October 22, 2010, which would redefine the circumstances in which a person is considered an 

investment-adviser fiduciary under the Employee Retirement Income Security Act of 1974 

(“ERISA”) and section 4975 of the Internal Revenue Code of 1986. The Committee is a 

coalition of life insurance companies formed in 1982 to participate in the development of federal 

policy with respect to annuities. The Committee’s current 32 member companies represent more 

than 80% of the annuity business in the United States and are among the largest issuers of 

annuity contracts to IRAs and employer-sponsored retirement plans. A list of the Committee’s 

member companies is attached. 

The proposed regulation is arguably the Department’s most significant rulemaking in 

recent memory. The definition of an investment-adviser fiduciary is foundational to both ERISA 

and the prohibited transaction rules of the Internal Revenue Code. It determines the extent to 

which a person providing investment-related services is subject to fiduciary standards of conduct 

under ERISA and the extent to which the prohibited transaction rules are potentially applicable. 

The current regulation was one of the first regulations the Department published following 

enactment of ERISA and the regulation has been substantially unchanged for more than thirtyfive years. Existing practices associated with the sale and distribution of annuity contracts and 

other investment products, as well as retirement plan services to plans and IRAs have developed 

in light of the current regulation, and any changes will have potentially far sweeping 

consequences for interested stakeholders. 
2 

The proposed changes are also being made against a rapidly evolving landscape. The 

Department recently issued interim final disclosure rules for plan services arrangements under 

section 408(b)(2) of ERISA.1 As the Department is aware, these rules require advance disclosure 

of whether a service provider reasonably expects to provide services as a plan fiduciary, thereby 

greatly limiting the extent to which a person may, after the fact, take the position that it was not a 

fiduciary. These new rules also highlight potential conflicts of interest by requiring disclosure of 

both direct and indirect compensation arrangements. It is possible, even likely, that many of the 

concerns identified as the impetus behind the proposed redefinition of fiduciary, most notably the 

Department’s concern about undisclosed conflicts of interest on the part of persons who are not 

currently fiduciaries, will be assuaged through the enhanced transparency required under the new 

service provider disclosure regulations. 

Moreover, as the Department is also aware, the Securities and Exchange Commission 

(the “SEC”) is engaged in determining whether to extend the same fiduciary standard of care to 

broker-dealers that is currently imposed under the Investment Advisers Act on investment 

advisers who provide personalized investment advice. Broker-dealer representatives are perhaps 

the set of financial professionals who would be most affected by the Department’s proposed 

rules, and we question whether it makes sense for the SEC and the Department to develop 

independent standards for when a person is treated as a fiduciary. 

Accordingly, as an overarching comment, we urge the Department to proceed 

deliberately and cautiously, and evaluate the impact of the SEC’s rulemaking as well as the 

impact of the interim final section 408(b)(2) regulations before finalizing the proposed 

regulation. The proposed changes have potential consequences that reach far beyond the usual 

employee benefits guidance project, and it is critical that any changes be carefully considered 

and vetted before they are made effective. The Department’s decisions to hold a hearing and 

extend the comment letter deadline are a welcome first step along these lines. 

With respect to the substance of the regulation, the Committee recognizes the concern the 

Department articulated in proposing to substantially revise the existing definition, namely, that 

the existing rule may inappropriately limit the types of investment advice relationships that give 

rise to fiduciary status. We also appreciate and support a number of ideas in the proposed 

regulation, including the notion of an exception for selling activity, the continuing viability of 

Interpretive Bulletin 96-1, and confirmation that the offering of a platform of investment 

alternatives ordinarily does not constitute fiduciary investment advice. However, on the whole, 

we believe that very substantial changes to the proposed rule are needed and that it would be 

appropriate for the Department to fundamentally rethink the regulation in light of stakeholder 

comments and the pending hearing. 

Our specific comments on the proposed regulation are discussed below. 

                                                            1

 Interim Final DOL Reg. § 2550.408b-2(c). 
3 

1. The Department should consider the definition of “fiduciary” for purposes of the 

prohibited transaction rules applicable to IRAs separately. 

The proposed regulation would define the term “fiduciary” for purposes of the prohibited 

transaction rules of section 4975 of the Internal Revenue Code as well as ERISA. IRAs and 

certain other arrangements are exempt from ERISA but are subject to the Internal Revenue 

Code’s prohibited transaction rules. 

The Committee believes that the definition of fiduciary in the context of IRAs should not 

necessarily be the same as the definition used for employment-based plans, and we urge the 

Department to revise the proposed regulation to apply the new definition of an investmentadviser fiduciary solely to ERISA-covered plans.2

 To the extent the Department is concerned 

about the definition of fiduciary as applied to IRAs, the Department should separately consider 

whether a revision to the definition is appropriate for IRAs. Under the approach we suggest, the 

Department would explicitly except IRAs in the final regulation and would separately evaluate 

whether a rulemaking in the context of such arrangements is appropriate. Pending such a 

rulemaking, IRAs would continue to be governed by the current law definition of a fiduciary 

investment-adviser. 

There are a number of reasons for treating IRAs differently than employment-based 

plans. First, as the Department recognized in the preamble to the interim final 408(b)(2) 

regulations, IRAs generally are marketed alongside other individual investment vehicles, such as 

retail brokerage accounts and nonqualified annuities, and it is important that rules avoid creating 

a bias against IRAs.3 The existing definition of fiduciary already creates some limits on the 

types of investments and services that are available to IRAs relative to other savings vehicles. 

An expansion of the definition of fiduciary for IRAs would greatly expand the impact of the 

prohibited transaction rules and thereby exacerbate the differences. From the perspective of 

individuals, a different set of regulatory rules for IRAs and other individual savings vehicles is 

very difficult to appreciate. Individuals do not view their IRA and retail savings in dramatically 

different ways and the notion that certain services and investments are only available through a 

non-IRA account as a result of the prohibited transaction rules would make little sense to the 

typical IRA owner. This same dynamic is simply not present with employment-based plans, 

where the role of a third-party fiduciary creates an expectation that different rules are applicable 

and, therefore, that different investments are available.4

 

We realize that the prohibited transaction rules may mandate certain differences between 

IRAs and other savings vehicles. However, it makes sense to conform the applicable rules, 

                                                            2

 Keogh or HR-10 plans, i.e., plans exempt from ERISA because they cover self-employed individuals 

only, are among the arrangements that are subject only to the prohibited transaction rules of the Internal Revenue 

Code. These arrangements should also be exempt from the final regulation. Keogh plans are the effective 

equivalent of IRAs. 

3

 75 Fed. Reg. 41,600, 41,603 (July 16, 2010). 

4

 There are employment-based IRA arrangements, namely SEPs and SIMPLE IRAs. Internal Revenue 

Code §§ 408(k)(1) and 408(p). We express no view on the extent to which the proposed definition of fiduciary 

should apply to such arrangements. 
4 

including the definition of fiduciary, to the extent possible. The SEC’s pending rulemaking on 

the standard of care owed by broker-dealers presents an opportunity to closely conform the two 

standards. As the Department is aware, the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, enacted last July, deals with a similar issue by authorizing the SEC to impose the 

same fiduciary standard of care on broker-dealers as that imposed on investment advisers who 

provide personalized investment advice.5

 On January 21, 2011, the staff of the SEC issued a 

report to Congress on the effectiveness of the current standards of care. This standard will have 

an enormous impact on IRAs, and it makes little sense for the Department of Labor to proceed 

with new rules that are different than the rules created by the SEC. 

Second, IRAs and annuities are qualitatively different than employment-based plans. As 

the Department noted in the preamble to the interim final 408(b)(2) regulation,6

 there are 

fundamental differences between plans and IRAs. An IRA owner is responsible only for his or 

her own plan’s security and asset accumulation. The IRA owner is not acting in a fiduciary 

capacity with respect to a third-party participant. In this context, the IRA owner is much less 

likely to perceive a service provider as acting in a fiduciary capacity and, in fact, there is no 

notion under Internal Revenue Code section 4975 of a fiduciary relationship. The sole 

significance to fiduciary status under Internal Revenue Code section 4975 is the potential 

application of the prohibited transaction rules. The fact that a person is considered a fiduciary 

under Internal Revenue Code section 4975 does not mean that person is held to a fiduciary 

standard of conduct. Thus, simply extending the proposed definition of fiduciary to IRAs under 

Internal Revenue Code section 4975 is irrelevant to the basic standard of conduct. 

Third, from a process perspective, the concerns that the Department articulated in the 

preamble to the proposed rule as the basis for the proposed redefinition of fiduciary investmentadviser appear to be unique to employer-maintained plans. In this regard, the Department has 

cited its challenges in holding persons who are clearly fiduciaries to a fiduciary standard as well 

as concerns about undisclosed conflicts of interest.7

 The Department has interpretive authority 

for the prohibited transaction rules of section 4975 of the Internal Revenue Code but not 

enforcement authority.8 Thus, these experiences mentioned in the preamble presumably arise 

from the Department’s experience with employment-based plans, not IRAs. Presumably the 

Department has coordinated with the Internal Revenue Service, which has enforcement authority 

for the Internal Revenue Code section 4975 prohibited transaction rules. We believe, however, 

that the Department should work closely with the Internal Revenue Service to specifically 

determine whether there are areas where persons who should be subject to the self-dealing 

prohibited transaction rules in connection with IRAs have somehow fallen out of the existing 

definition. In this regard, the very legal structure calls for a different approach to IRAs. It 

makes little sense to develop rules that will be enforced by another agency without getting the 

benefit of that agency’s experience in enforcement and ensuring that the rules are appropriately 

tailored to the context. 

                                                            5

 Pub. L. No. 111-203, § 913(g), 124 Stat. 1376 (2010). 

6

 75 Fed. Reg. 41,600, 41,603 (July 16, 2010). 

7

 75 Fed. Reg. 65,263, 65,265 (Oct. 22, 2010). 

8

 Presidential Reorganization Plan No. 4 of 1978, 43 Fed. Reg. 47,713 (Oct. 17, 1978). 
5 

Finally, the approach to IRAs that we suggest is consistent with the Department’s longstanding approach. The Department has a history of issuing guidance that is unique to 

employment-based plans even when the guidance is interpreting a rule that is equally applicable 

to ERISA plans and IRAs. Most recently, for example, the Department’s interim final 408(b)(2) 

regulations are entirely inapplicable to IRAs, notwithstanding the virtually identical reasonable 

services exemption in Internal Revenue Code section 4975.9

 

2. The Department should permit persons who are selling investments to disclose that they 

are not providing impartial investment advice and act in a non-fiduciary capacity. 

 The proposed regulation’s avowed purpose is to expand the definition of fiduciary, and 

one consequence of this expansion would be to make it more likely that persons who sell 

retirement plan products will be considered fiduciaries. Under the existing regulation, persons 

are fiduciary investment-advisers only if any investment advice is provided on a regular basis 

and there is a mutual understanding that the advice will be a primary basis for investment 

decisions.10 The notion has long been that incidental advice provided in connection with sales 

activity is not provided on a regular basis and is not provided pursuant to a mutual agreement 

that the advice will serve as a primary basis for the investment decision. 

The proposed regulations would, however, eliminate the “regular basis” and “primary basis” 

requirements, and instead create an exception from the general definition of fiduciary investment 

advice for selling activity. The selling exception in the proposed regulation provides that a person 

will not be treated as a fiduciary only if he or she can demonstrate that the recipient of any 

advice knows or reasonably should know that the person providing the advice or making the 

recommendation is acting as a seller or a purchaser, or acting on behalf of a seller or purchaser, 

whose interests are adverse to the plan and the participants, and that the person is not 

undertaking to provide impartial advice to the plan or its participants.11 

The Committee agrees that a specific carve-out for selling activity is appropriate. Persons 

who sell financial products should be able to talk meaningfully about why particular products 

and investments are appropriate to a participant. It is inevitable that a part of this conversation 

will bear some similarity to investment advice. There are, however, two fundamental problems 

with the proposed selling exception. 

First, on its face, the selling exception in the proposed regulation appears to be limited to 

persons who are acting as counterparties, either directly or as agents. The exception does not 

appear to apply to intermediaries, such as brokers or even independent insurance agents, who 

broker a transaction or sell a non-proprietary investment product in other than a dealer capacity. 

In this regard, many financial intermediaries cannot be fairly characterized as agents of the 

financial institution. They are not acting on behalf of the product issuer but rather are facilitating 

                                                            9

 Interim Final DOL Reg. § 2550.408b-2(c)(1)(ii); Internal Revenue Code § 4975(d)(2). See, e.g., Class 

Prohibited Transaction Exemption 86-128, Section IV, 51 Fed. Reg. 41,686 (Nov. 18, 1986) (containing different 

standards for IRAs and plans). 

10 DOL Reg. § 2510.3-21(c)(ii)(B). 

11 Prop. DOL Reg. § 2510.3-21(c)(2). 
6 

a transaction. The notion that financial intermediaries cannot avail themselves of the selling 

exception if they are brokering a sale would be an enormous change from prevailing practices. It 

would also unfairly mandate that a financial intermediary either represent the plan as a fiduciary 

or represent the financial institution as its agent. There is, however, clearly a role for 

intermediaries between these two poles, and we strongly believe that such an intermediary 

should be able to work with a plan as neither a fiduciary nor an agent of the product issuer. 

Even in the context of products directly sold by the issuer or its agent, there is some 

question whether the proposed rule’s selling exception will be of much utility. It is very 

common for an insurer or other financial institution to make available a variety of different 

products. Within these product lines, there will be substantial decision points for which 

investment-related services are appropriate. Consider, for example, a plan that is funded through 

a variable annuity contract purchased directly from the insurer. The issuer consults with the plan 

fiduciary regarding which subaccount investments will be made available to participants. By 

way of another example, if the regulation applies to IRAs, consider an IRA owner who contacts 

an insurer to purchase a payout annuity. The issuer consults with the IRA owner to discuss 

whether a fixed or variable annuity contract is appropriate. Under the proposed regulation, it 

appears that the selling exception would not be applicable in either example because the insurer 

does not necessarily have an adverse interest with respect to the particular selection, i.e., the 

choice of subaccount investments or the choice between fixed or variable payout annuities. 

It is critical that the selling exception encompass recommendations provided within an 

issuer’s broader line of products. In this regard, it will be clear to a participant or IRA owner 

that the issuer or its agents are marketing its products and therefore that the issuer is not 

providing impartial investment advice. However, under the proposed rule, it may be difficult to 

conclude that the seller or its agents have an adverse interest with respect to consulting on the 

selection of a particular product among the issuer’s many products or, as in the example above, 

on the selection of subaccount investments in a variable annuity contract. Such an interpretation 

would undermine the exception since producers almost invariably have different offerings and 

options, and provide investment consulting incidental to selecting among these offerings and 

options. 

To address these issues, the Committee strongly believes that the final regulation should 

include a selling exception that allows an investment service provider to affirmatively disclaim 

fiduciary status. This disclosure could be integrated into the disclosure provided in connection 

with the interim final 408(b)(2) regulations, which would mean the disclosure would be provided 

at the start of the services arrangement and in the event of any modification to the arrangement. 

The Committee also believes that this exception should not depend on whether the 

provider discloses that it has an interest that is adverse to the plan or participants. A financial 

professional may have an economic interest in a particular product but that does not mean the 

professional’s interests are adverse to the plan or its participants. The professional has every 

interest in developing an ongoing relationship and selling other products to the plan or IRA. 

Rather, we believe the selling exception should require a disclosure that the provider’s 

compensation may vary based on the investments made by the participant as well as a statement 

that the professional is not providing impartial investment advice. 
7 

The approach we suggest is consistent with the fundamental principle that parties to an 

arrangement should be able to mutually agree to the nature of the arrangement. Service 

providers who offer investment services should be able to define the scope and nature of the 

services they are willing to provide, including the extent to which they are acting on behalf of the 

plan or a participant. 

We also note that the selling exception should apply to the sale of investment advisory 

services. The proposed regulation would treat recommendations as to the management of 

securities, including the selection of an investment manager, as a form of investment advice.12 

However, the selling exception is limited on its face to sales of securities or other property. It is 

not uncommon for a financial professional to sell an investment management program or 

managed account option. These are, in concept, recommendations with respect to investment 

managers which would be considered fiduciary investment advice under the proposed regulation, 

and we are not aware of any basis for limiting the exception to recommendations with respect to 

securities or other property. 

3. A recommendation to a participant to take a distribution should not be considered 

fiduciary investment advice. 

The preamble to the proposed regulation requests comments on whether and to what 

extent the final regulation should define the provision of investment advice to encompass 

recommendations related to the taking of a plan distribution. The Committee strongly believes 

that recommendations made to a participant to take a distribution should not be treated as 

fiduciary investment advice. 

As a conceptual matter, there is no inherent investment element in a plan distribution. 

Consider, for example, a plan that provides for in-kind distributions, such as, distributions of 

mutual fund shares or a distribution of an annuity contract. The investment made in the plan 

may be the exact same investment made outside the plan. In this sense, a distribution 

recommendation fundamentally involves a recommendation that a participant take his or her 

assets out of plan solution, rather than a recommendation that the participant sell a security. We 

appreciate that a recommendation to take a distribution has material ramifications, for example, 

loss of fiduciary oversight and perhaps access to institutional pricing and unique investments. 

There may, however, be advantages associated with investments outside of a plan, including 

access to different fee structures, other investment advisors and opportunities, and greater 

flexibility. But the key point is that a recommendation to take a distribution and forego the 

characteristics associated with plan asset status is not akin to an investment decision. Investment 

advice is appropriately limited to advice regarding securities and other property (and the related 

rights), not to the inchoate rights associated with plan solution.13 

                                                            12 Prop. DOL Reg. § 2510.3-21(c)(1)(i)(A)(3). 

13 We also note that there are already mandated disclosures that specifically address the impact associated 

with a participant’s decision not to defer a distribution. In this regard, Congress has directed the Treasury 

Department to modify the disclosures required under section 411(a)(11) of the Internal Revenue Code to include a 

description of the consequences of failing to defer. Pension Protection Act of 2006, Pub. L. No. 109-280, § 1102(b); 

Prop. Treas. Reg. § 1.411(a)-11(c). 
8 

The Committee recognizes that many plans do not provide for in-kind distributions and 

that advice to take a distribution will therefore implicitly involve a recommendation to liquidate 

the participant’s existing investments. However, the liquidation inherent in many plan 

distributions should not be viewed as causing distribution advice to somehow become investment 

advice. The liquidation is incidental to the transaction. In fact, the participant may be 

replicating the very investments he or she holds outside the plan, for example, through a rollover 

to an IRA maintained by the same provider who provides investments to the plan. 

Instead, the relevant transaction that is potentially subject to regulation is the 

reinvestment of the distribution proceeds. The particular regulatory regime that is applicable to a 

reinvestment depends on what the participant chooses to do with the proceeds of the distribution. 

For example, if the distribution is rolled to an IRA annuity, state insurance law would regulate 

the investment inherent in the rollover. To the extent a distribution is reinvested in an IRA and 

advice is provided with respect to such reinvestment, the prohibited transaction rules may also be 

relevant. If the person recommending the reinvestment is an investment adviser, then the advice 

could also be regulated under the Advisers Act. If the distribution is rolled to another plan, the 

reinvestment may be regulated by ERISA. Regardless, however, this is a question that is 

governed by the law applicable to the reinvestment, not to the recommendation to take a 

distribution. 

Broadly speaking, the analytic approach we recommend to distribution advice is the 

approach taken in Advisory Opinion 2005-23A.14 The Advisory Opinion, however, layers on an 

additional concept. Specifically, it treats distribution advice that is provided by a person who is 

otherwise a plan fiduciary as fiduciary investment advice. The apparent notion is that a person 

who is otherwise a fiduciary should be treated as such if they would be perceived as a fiduciary 

by a participant. We question whether this analysis is sound. ERISA imposes a functional 

definition of fiduciary.15 A person is only a fiduciary to the extent he or she is performing a 

fiduciary function. We struggle with the very notion that a fiduciary acting as such could 

recommend a distribution since such a distribution could be at odds with the interests of the plan, 

for example, by reducing plan assets and raising fixed costs or even simply by taking the assets 

out of the ambit of fiduciary oversight. We also note that this rule has been the source of some 

confusion, for example, does it depend on the particular fiduciary role played? Does it only 

apply where the person recommending the distribution is also providing participant-level 

investment advice? Does it apply where the person recommending the distribution is providing 

fiduciary advice to the plan’s named fiduciary but not to participants or beneficiaries? Thus, we 

urge the Department to clarify that recommendations made to a participant to take a distribution 

should not be treated as fiduciary investment advice, regardless of whether the recommendation 

is made by a person who is otherwise a plan fiduciary. 

4. The Department should narrow the rule treating valuation advice as fiduciary advice. 

                                                            14 ERISA Advisory Op. 2005-23A (Dec. 7, 2005). 

15 Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993).
9 

The proposed regulation would treat advice concerning the value of securities or other 

property as a type of investment advice.16 The proposed regulation clarifies that valuation advice 

does not include the preparation of a general report or statement that merely reflects the value of 

an investment if that report or statement was provided for purposes of compliance with the 

reporting and disclosure requirements of ERISA or the Internal Revenue Code.17 This clarifying 

exemption does not, however, apply if the report involves assets for which there is not a 

generally recognized market and the report serves as a basis on which a plan may make 

distributions to plan participants or beneficiaries.18 

The Committee strongly recommends that the Department reconsider this valuation rule 

and, at a minimum, clarify the scope of the rule to ensure that insurers are not treated as 

fiduciaries in performing the numerous valuations associated with annuity contracts that are 

necessary to plan administration. 

Insurers routinely provide plans with valuations of annuity contracts, which ordinarily do 

not have a generally recognized market value after issuance, and these valuations involve some 

measure of discretion, for example, in the selection of actuarial assumptions. These valuations 

are generally done for compliance purposes and include, among others, valuations for purposes 

of required minimum distribution rules of section 401(a)(9) of the Internal Revenue Code, 

reporting on the Form 5500, reporting for purposes of Roth conversions, and for purposes of 

determining distributions more generally.19 

Insurers also routinely perform valuations of separate account investments and engage 

independent appraisers to assist in certain valuations, for example, an independent real estate 

appraiser to value properties held in a real estate separate account investment. Some of these 

valuations involve investments for which there is no generally recognized market. For example, 

real estate property valuations ordinarily do not involve property with a generally recognized 

market. 

Treating valuations as fiduciary functions will increase the costs of plan administration 

and it may even close off some investment opportunities for plans. Fiduciary status would 

greatly expand potential liability for valuation services and we cannot discern any identifiable 

benefit associated with imposing fiduciary status on insurers and the independent appraisers they 

hire. In the absence of any identified problems, we do not see any basis for concluding that the 

benefits associated with fiduciary status would justify the costs of treating insurance contract 

valuations as a fiduciary function. 

We are also concerned about the potential collateral implications of fiduciary status, 

particularly prohibited transaction consequences. For many transactions involving fiduciaries, 

                                                            16 Prop. DOL Reg. § 2510.3-21(c)(1)(i)(A)(1). 

17 Prop. DOL Reg. § 2510.3-21(c)(2)(iii). 

18 Id. 

19 Treas. Reg. § 1.401(a)(9)-6, Q&A 12; 2010 Instructions for Form 5500; Treas. Reg. § 1.408A-4, Q&A 

14 (presumably this rule is equally applicable to in-plan Roth conversions under Internal Revenue Code § 

402A(c)(4)). 
10 

there are existing class prohibited transaction exemptions that facilitate transactions that are in 

the best interests of participants and beneficiaries. Obviously these exemptions have not been 

developed with an eye to fiduciary appraisals or valuations. Thus, the exemptions will likely be 

unavailable to valuation fiduciaries and it is possible that certain transactions that are highly 

beneficial to plans will be foreclosed by the prohibited transaction rules. 

We also struggle to understand how fiduciary status is consistent with the role that an 

appraiser or insurer performs when it provides a valuation. A fiduciary has a duty to act in the 

interests of the plan, rather than to act in a detached objective manner as does an appraiser or 

other person performing a valuation.20 Thus, the very notion that an objective valuation is an 

appropriate fiduciary function is questionable - it would seem to place an insurer in the untenable 

position of either performing an objective valuation or fulfilling its fiduciary obligations. In 

addition, unlike an appraiser of privately held securities in an ESOP, an insurer has an interest in 

an annuity contract that it has issued. This interest is arguably in tension with acting as a 

fiduciary. Taken to an extreme, this could suggest that third-party valuation of annuity contracts 

is necessary, which could dramatically increase the cost of plan administration, with very little 

benefit to plans and participants. 

Perhaps most fundamentally, we fail to see the statutory basis for treating valuation 

services as fiduciary investment advice. Many of the valuations that an insurer or its 

independent appraiser performs are not recommendations to buy or sell the property but rather 

are done for the purpose of informing participants and plan fiduciaries of the value of the 

property. This may be because ERISA or the tax law requires a valuation, for example, for 

purposes of computing required minimum distributions. It is often entirely unrelated to decisions 

about whether to buy or sell property or securities. 

The preamble to the proposed regulation reflects that the purpose of this provision is to 

make persons who value employer securities in an ESOP maintained by a privately-held 

company into investment-adviser fiduciaries.21 It also notes that the Department has frequently 

identified enforcement issues in which fiduciaries have reasonably relied on faulty ESOP 

valuations.22 We realize that the Department has also questioned whether appropriate valuations 

are being obtained by plans that invest in hard-to-value investments, such as private equity funds, 

and that the Department’s concerns are not limited to ESOPs. However, as mentioned above, we 

are not aware of any comparable problems or identified issues associated with annuity contracts 

or separate account investments. We submit that broadly extending fiduciary status to virtually 

all valuations is not appropriate. To the extent the Department believes that there are issues with 

ESOP or other types of valuations, the Department should consider more targeted solutions. 

For these reasons, the Committee urges the Department to reconsider whether valuation 

is appropriately a fiduciary function and, at a minimum, more narrowly tailor the proposed rule’s 

definition of valuation to ensure that a person’s valuation of an annuity contract or a separate 

account investment does not cause the person to be a fiduciary. 

                                                            20 ERISA § 404(a)(1); American Society of Appraisers Code of Ethics, Section 2.2.

21 75 Fed. Reg. 65,263, 65,265 (Oct. 22, 2010). 

22 Id.
11 

5. The final regulation should clarify the exception for provider platforms. 

The Committee greatly appreciates the platform provider exception in the proposed 

regulation. The platform provider exception makes clear that the provision of a platform of 

designated investment alternatives by a service provider is not investment advice, provided that 

(i) the platform is not individualized to the needs of the plan and its participants or beneficiaries, 

and (ii) the platform provider discloses in writing to the plan fiduciary that it is not undertaking 

to provide impartial investment advice.23 Similarly, the provision of general financial 

information and data to assist a plan fiduciary in the selection and monitoring of designated 

investment alternatives in connection with the provision of a menu of plan investment options is 

not investment advice if the platform provider discloses in writing that the provider is not 

undertaking to provide impartial investment advice.24

We do, however, recommend additional clarifications to this rule. First, plan service 

providers routinely engage in certain practices associated with platforms and investment menu 

selection that should not cause the provider to fall outside of the platform exception. It is not 

uncommon, for example, for a provider to offer to narrow down the provider’s platform by 

applying certain specified criteria, for example, narrowing the platform based on the Morningstar 

ratings for different investment options. It is also common to price plan services based on an 

assumed investment menu and to respond to a request for proposal utilizing a sample or initial 

investment menu that is a subset of the provider’s platform. Providers will sometimes furnish 

the plan fiduciaries with a gap analysis that identifies investment classes that may be missing or 

underrepresented on a plan’s investment menu. Each of these practices should not taint the 

platform exception. The use of criteria to narrow the platform is simply a mechanical tool made 

available to plan fiduciaries; it is not a recommendation. Also, the use of an assumed or initial 

investment menu is not a recommendation to use that menu. A gap analysis is also better 

thought of as investment education. Each of these services is valuable and helpful to plan 

fiduciaries, and it is important that the final regulations not discourage the offering of these tools 

to plan fiduciaries. 

Second, the platform exception appears to be limited to employment-based retirement 

plans. The exception itself is specific to a platform “from which a plan fiduciary may designate 

investment alternatives into which plan participants or beneficiaries may direct the investment of 

assets held in, or contributed to, their individual accounts”.25 To the extent the final regulations 

apply to IRAs and Keogh plans, the Committee firmly believes that the platform exception 

should also apply to IRAs and Keogh plans. Many IRA providers limit the investments that may 

be selected through the IRA to a specified universe of investments. These investments may be 

solely proprietary or may include both proprietary and non-proprietary investments. The mere 

offering of such an investment platform should not be viewed as investment advice to IRA 

owners. 

                                                            23 Prop. DOL Reg. § 2510.3-21(c)(2)(ii)(B). 

24 Prop. DOL Reg. § 2510.3-21(c)(2)(ii)(C). 

25 Prop. DOL Reg. § 2510.3-21(c)(2)(ii)(B). 
12 

6. The Department should conduct a comprehensive review of the existing class prohibited 

transaction exemptions before finalizing the proposed rules. 

The definition of fiduciary is closely tied to a number of class prohibited transaction 

exemptions, which provide relief from the prohibited transaction rules for certain plan and IRA 

transactions involving fiduciary advice. The current regulation defining fiduciary investment 

advice was released along with Class Prohibited Transaction Exemption (“CPTE”) 75-1.26 There 

are also a number of other exemptions that potentially apply to investment-related transactions, 

including CPTE 86-128 and, most notably for issuers of insurance contracts such as the 

Committee’s members, CPTE 84-24, which exempts the receipt of commissions in connection 

with the sale of an insurance contract if certain disclosure requirements are satisfied.27 

If finalized as proposed, the new regulations will place substantial pressure on the extent 

to which the existing class exemptions are applicable. Many insurers and financial professionals 

currently take a “belt-and-suspenders” approach to compliance. That is, the insurer or financial 

professional may take steps to ensure that it is not acting as a fiduciary and satisfies an 

exemption. The proposed regulation, if finalized, will remove one of the two grounds for 

concluding that there is no prohibited transaction and will therefore force affected persons to 

perform a closer analysis of the potentially applicable prohibited transaction exemption. There 

are numerous open and uncertain issues with respect to the existing class prohibited transaction 

exemptions. These issues have not been as significant as they might otherwise be simply 

because an exemption from the self-dealing prohibited transaction rules is not necessary if a 

person is not acting in a fiduciary capacity. 

If the regulations are finalized substantially as proposed and the existing class exemptions 

are left in place, we are deeply concerned about potential marketplace disruption. Many routine 

transactions which today are not subject to the prohibited transaction rules would suddenly be 

subject to those rules and there may be no potentially applicable exemption. Thus, entire classes 

of transaction may be foreclosed. This market disruption could be particularly significant if the 

final regulation is extended to IRAs, for which the web of existing transactions is less well 

developed. 

For life insurers, the most notable exemption is CPTE 84-24. Notwithstanding that 

insurers and financial professionals who distribute insurance contracts have relied upon CPTE 

84-24 for more than 25 years, there are numerous questions about its scope and the extent to 

which it exempts the receipt of certain types of compensation. Over the years, for example, 

questions have arisen whether CPTE 84-24 covers the sale of both proprietary and 

nonproprietary annuity contracts and we urge the Department to clarify that the exemption is 

broad enough to encompass both types of contracts. Another issue is the need for confirmation 

that compensation received by an affiliated insurance company and an affiliated money manager 

of a variable annuity contract subaccount is within the ambit of CPTE 84-24. Yet another 

question is the extent to which various payments made by an issuer to a broker-dealer in 

connection with the placement of contracts are considered commissions covered by CPTE 84-24. 

                                                            26 Class Prohibited Transaction Exemption 75-1, 40 Fed. Reg. 50,845 (Oct. 31, 1975). 

27 Class Prohibited Transaction Exemption 84-24, 49 Fed. Reg. 13,208 (April 3, 1984). 
13 

For these reasons, we strongly recommend that the Department review its existing class 

prohibited transaction exemptions and provide additional guidance before finalizing the proposed 

regulations to ensure that plans and participants are able to engage in beneficial transactions. 

7. The Department should issue additional guidance clarifying the distinction between 

investment advice and investment education. 

The Committee greatly appreciates that the proposed rule would not disturb the existing 

guidance delineating the line between non-fiduciary investment education and fiduciary 

investment advice at the participant level. The existing guidance – Interpretive Bulletin 96-1 – 

has been very helpful in facilitating the provision of information about generally accepted 

investment theory to plan participants.28 There is, however, a very substantial need for 

additional guidance on permitted non-fiduciary investment education. 

First, the Department should clarify that the exemption in the proposed regulation also 

applies to investment education materials provided to IRA owners. This clarification may be 

necessary even if IRAs are not covered by the final rule. Interpretive Bulletin 96-1 deals solely 

with investment education materials provided to participants in plans that permit participantinvestment direction. It does not apply on its face to IRA owners, although many financial 

institutions and professionals have relied on the Interpretive Bulletin to provide educational 

materials on investing to IRA owners. 

Second, the Department should provide additional guidance on investment education in 

two contexts. First, as we have previously recommended,29 the Department should develop 

guidance similar to Interpretive Bulletin 96-1 for investment education about decumulation. In 

addition, as mentioned above, the Department should develop guidance for investment education 

that may be provided to plan fiduciaries. Many of the issues arising about the scope of the 

regulation are attributable to the lack of guidance about the line between investment education 

and investment advice in the context of investment-related services that are provided to plan 

fiduciaries. This guidance should similarly be exempt from the definition of investment advice 

under the proposed regulation. 

8. The regulation appears to inappropriately create a presumption that investment-related 

services constitute fiduciary investment advice. 

 

As a final point, there are a number of aspects of the proposed regulation that appear to 

create a system under which financial professionals are effectively presumed to be investmentadviser fiduciaries, and we encourage the Department to carefully consider whether the 

cumulative effect of these aspects makes the regulation overly inclusive. 

                                                            28 Interpretive Bulletin 96-1, 61 Fed. Reg. 29,585 (June 11, 1996). 

29 Comment Letter submitted by the Committee of Annuity Insurers in response to the Request for 

Information Regarding Lifetime Income Options for Participants and Beneficiaries in Retirement Plans, RIN 1210-

AB33, page 7 (May 3, 2010). 
14 

First, the proposed regulation would treat a person who provides recommendations about 

the advisability of investing in securities or other property as a fiduciary if the person or an 

affiliate is otherwise a fiduciary of the plan, e.g., a directed trustee, or is an investment adviser 

under the Investment Advisers Act.30 This is apparently true even if the advice is not 

individualized and there is no mutual understanding that the advice will be considered in making 

investment decisions. This could greatly expand the universe of fiduciary activity in contexts 

where there does not appear to be a reasonable expectation that advice is in fact fiduciary in 

nature, including, for example, generalized reports and commentary provided by a person who is 

an RIA or has an RIA affiliate. By way of another example, a provider that serves as a plan 

fiduciary, for example, a directed trustee, would appear to have the type of status that would 

cause any advice to be fiduciary advice even if it is not individualized to any particular plan or 

participant. 

The Committee is concerned that this status-based rule could cause routine marketing and 

communications materials to be considered fiduciary investment advice. Insurers often have 

affiliates that are RIAs and may serve as directed trustees. As a result, under the proposed 

regulation, it appears that any recommendation could be considered fiduciary investment advice. 

This notion of a status-based definition is not consistent with the functional definition of 

fiduciary under ERISA. It is particularly troubling because of the many different roles that 

financial institutions play in plans, and we strongly recommend eliminating the status-based 

prongs of the proposed regulation. 

Second, the proposed regulation provides that advice may be investment advice if there is 

a mutual agreement that the advice will be considered in making investment decisions and the 

advice is individualized.31 The current regulation provides that advice is investment advice only 

if it will be a primary basis for investment decisions. This would appear to cause many 

conversations about individualized investment decisions to be fiduciary investment advice even 

if no particular recommendation is made and even if there is no shared understanding that the 

advice will be important to the investment decision. 

Third, the proposed rules would also appear to shift the burden of proof to an investment 

service provider to establish that it is not acting in a fiduciary capacity. In this regard, the selling 

exception is only available under the proposed rule if the service provider can demonstrate that 

the recipient of its services reasonably should know that the services fall within the exception.32 

This notion is not supported by the statute and we see little reason for presuming that all 

investment service providers are fiduciaries in the absence of a demonstration to the contrary. 

Taken as a whole, we view the proposed rule as creating something near to a presumption 

of fiduciary status in any situation in which an investment or investment-related service is 

involved. We urge the Department to carefully consider the appropriate balance in defining 

fiduciary investment adviser, and avoid the creation of a de facto presumption of fiduciary status. 

                                                            30 Prop. DOL Reg. § 2510.3-21(c)(1)(i)(2). 

31 Prop. DOL Reg. § 2510.3-21(c)(1)(ii)(D). 

32 Prop. DOL Reg. § 2510.3-21(c)(2)(i). 

January 6, 2011

The Committee of Annuity Insurers

The Willard Office Building

Suite 1200

1455 Pennsylvania Ave., NW

Washington, D.C. 20004

AEGON Group of Companies, Cedar Rapids, IA

Allstate Financial, Northbrook, IL

AmerUs Annuity Group Co., Topeka, KS

AXA Equitable Life Insurance Company, New York, NY

Commonwealth Annuity and Life Insurance Co.

(a Goldman Sachs Company), Southborough, MA

CNO Financial Group, Carmel, IN

Fidelity Investments Life Insurance Company, Boston, MA

Genworth Financial, Richmond, VA

Great American Life Insurance Co., Cincinnati, OH

Guardian Insurance & Annuity Co., Inc, New York, NY

Hartford Life Insurance Company, Hartford, CT

ING North America Insurance Corporation, Atlanta, GA

Jackson National Life Insurance Company, Lansing, MI

John Hancock Life Insurance Company, Boston, MA

Life Insurance Company of the Southwest, Dallas, TX

Lincoln Financial Group, Fort Wayne, IN

MassMutual Financial Group, Springfield, MA

Metropolitan Life Insurance Company, New York, NY

Nationwide Life Insurance Companies, Columbus, OH

New York Life Insurance Company, New York, NY

Northwestern Mutual Life Insurance Company, Milwaukee, WI

Ohio National Financial Services, Cincinnati, OH

Pacific Life Insurance Company, Newport Beach, CA

Phoenix Life Insurance Company, Hartford, CT

Protective Life Insurance Company, Birmingham, AL

Prudential Insurance Company of America, Newark, NJ

RiverSource Life Insurance Company (an

Ameriprise Financial Company), Minneapolis, MN

SunAmerica Financial Group, Los Angeles, CA

Sun Life of Canada, Wellesley Hills, MA

Symetra Financial, Bellevue, WA

TIAA-CREF, New York, NY

USAA Life Insurance Company, San Antonio, TX

The Committee of Annuity Insurers was formed in 1982 to participate in the development of 

federal tax and securities law policies with respect to annuities. The member companies of the 

Committee represent more than 80% of the annuity business in the United States.