Testimony of Karen Prange

Executive Director and Assistant General Counsel,

J.P. Morgan Chase and Co.

Before the U.S. Department of Labor

Related to Proposed Rule Regarding Definition of the Term “Fiduciary”

9 C.F.R. Part 2510, RIN 1210-AB32

 April 11, 2011

 ADDENDUM

J.P. Morgan would like to take this opportunity to provide further detail related to certain 

matters discussed during the hearing.

With respect to recordkeepers providing participants with information about their 

distribution options, we believe the inclusion of providing such information in the definition of 

“investment advice” may have unintended consequences to the retirement industry. Specifically, 

recordkeepers may be forced to eliminate or reduce the scope of the information they are able to 

provide to participants, thereby inhibiting the ability of participants to obtain this valuable 

information, if providing such information is considered a fiduciary function or it is uncertain 

whether the provision of such information would cause the recordkeeper to become a fiduciary.

Therefore, J.P. Morgan urges the Department to exclude from the definition of “investment 

advice” information provided by a recordkeeper regarding a participant’s distribution options. 

Alternatively, we would urge the Department to issue separate proposed regulations 

regarding the provision of distribution option information. Given the potential impact on 

services currently provided to plan sponsors and participants in accordance with Advisory 

Opinion 2003-23A, interested parties should be provided the opportunity to review the 

Department’s proposal regarding distribution information outside the context of the broader 

fiduciary definition. However, if the Department is compelled to include distribution 

information under the Proposed Regulations, we would urge the Department to include the 

provision of information regarding a participant’s distribution options under the sales exception,

subject to the recordkeeper disclosing to plan sponsors and participants that the recordkeeper is 

not acting in a fiduciary capacity when providing distribution information. 

Participants generally contact their recordkeeper’s call center to obtain basic factual 

information about the plan, including its distribution and investment options. Recordkeepers 

generally staff call centers with individuals looking to enter the retirement plan industry. In 

many firms, the individuals are trained in telephone procedures, retirement plan basics, plan 

design and investment basics for a period of time before taking calls. These individuals are not 

trained and do not have the breadth of knowledge and experience to qualify them to provide 
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investment advice to participants or to meet the high standard of fiduciary conduct. As 

recognized by the Department in Advisory Opinion 2003-23A, we must preserve the ability of 

service providers to continue to deliver fundamental plan information, including distribution 

information, to participants as a ministerial function so participants can make informed decisions 

about their retirement plan and assets without risking that every conversation may, after the fact,

be deemed to have resulted in the delivery of investment advice. 

There is a distinction between providing participants with information and providing 

advice. Plan sponsors engage recordkeepers to provide information to participants about their 

rights to receive or defer a plan distribution and related concerns, such as information about tax 

consequences and rollover vehicles (like IRAs), and expect recordkeepers to provide such 

information in the same manner as they are able to provide information regarding other plan 

features, such as contribution rights and the availability and related tax consequences of loans or 

hardship distributions. The plan sponsor’s engagement of the recordkeeper to provide such 

information is expected to be a ministerial function and not subject the recordkeeper to ERISA’s 

fiduciary requirements. Plan sponsors do not expect, and do not want to pay for, call centers to 

be staffed by representatives who are tax specialists, certified public accountants or certified 

financial planners and others who have the training and expertise to be held to a fiduciary 

standard of conduct. 

The type of distribution information provided by recordkeepers’ call centers generally 

include a review of the plan distribution options, including deferring the distribution and 

allowing the assets to remain in the plan, taking a lump sum distribution, and completing a 

rollover to an IRA or other retirement plan. In addition, the call center representative reviews the 

tax consequences associated with each distribution option with the participant. If a participant 

expresses interest in rolling plan assets to an IRA, the call center representative will inquire 

whether the participant has an existing relationship with an IRA provider, or a preferred 

provider. To the extent the participant does not have an IRA provider identified, the call center 

representative may offer the participant access to IRA services within their firm or an affiliate. 

However, as stated during the hearing, the call center representatives would not make 

recommendations to participants about how to invest their money, whether assets remain in the 

plan or are rolled over to an IRA. 

If the Department decides to include the provision of distribution option information 

under the final regulations as “investment advice”, J.P. Morgan would urge the Department to 

include the delivery of such information under the sales exception. Recordkeepers would be 

required to disclose to plan sponsors and participants that they are not acting in a fiduciary 
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capacity when providing distribution option information and any affiliation with an IRA provider 

for the sales exception to apply.

In our experience, plan sponsors and participants value these types of distribution 

services, in part, as it provides participants with information which results in participants 

reconsidering cash distributions that may lead to premature depletion of retirement assets. As a 

result, more participants are considering the benefits of preserving assets for retirement by 

rolling over distributions to an IRA. The inclusion of distribution services in the definition of 

“investment advice”, without the application of the sales exception, may result in the elimination 

of such services and reversion of participant behavior to taking cash distributions rather than 

preserving retirement assets. 

During the hearing, J.P. Morgan responded to questions about recordkeepers providing 

investment information to plan sponsors and when the provision of such information becomes 

investment advice. We would like to take this opportunity to expand upon our response. 

Plan sponsors often rely on their recordkeeper and other non-fiduciary service providers 

to make investment information available for the plan sponsor’s use in determining appropriate 

investment offerings for their plan. In many cases the plan sponsor is capable of making the 

fiduciary decision related to the plan’s investments, but requires access to information and 

evaluations of sample fund line ups to make an informed decision. Such information is generally 

readily available to and often maintained by the service provider. As a result, service providers 

can efficiently deliver the information to plan sponsors, often, at no additional fee. 

Alternatively, a plan sponsor may determine that they are not qualified to make the final 

decision regarding the plan’s investments and engage an investment advisor to make a 

recommendation or to select the plan’s investments on the plan sponsor’s behalf. In these 

circumstances, we believe the investment advisor is performing a fiduciary function and the

parties should document, in a written agreement, the fiduciary function to be performed by the 

investment advisor. 

However, we believe the provision of “investment advice” under the final regulations

should clearly allow for the application of the sales exception, as well as the platform and 

selecting or monitoring exceptions to a service provider delivering investment information to 

plan sponsors when the provision of such information does not include the service provider 

recommending or selecting investments for the plan. 
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In addition, we would like to add further clarification to our comments with respect to 

Section 2510.3-21(c)(2)(iii) of the Proposed Regulations that statements provided by a service 

provider, including directed trustees and custodians, should not be considered the provision of 

“investment advice”. 

Service providers may apply tolerance checks to prices received from pricing vendors, 

which consist of comparing prices to a percentage threshold, so that significant price movements 

are confirmed from a second pricing source or the original pricing vendor. Service providers 

may also confirm back to the pricing vendor in the event that an updated price has not been 

received within a fixed period of time. These types of activities do not involve discretion or a 

determination of the appropriate price but merely request confirmation from a third party pricing 

service and should not be deemed to be the provision of “investment advice”.

As stated during the hearing, it would not be J.P. Morgan’s intention that a disclaimer of 

fiduciary responsibility would supersede the actual performance or activities of a service 

provider. We believe the functional test applicable to fiduciary status is appropriate and should 

not be eliminated. However, we believe the Department should provide clear and objective 

guidance so that participants, plan sponsors, service providers and other interested parties can 

distinguish between the provision of information versus the provision of recommendations or

investment advice, and when the provision of information rises to a recommendation or 

investment advice. We are very concerned that recordkeepers and other service providers will 

intend to provide information that does not constitute a recommendation, while plan sponsor, 

participants, or their attorneys, will believe (or argue after the fact) that the information was a 

recommendation or investment advice. J.P. Morgan’s desire for a requirement that the 

“understanding” in the Proposed Regulation be “mutual” is grounded in the belief that a 

recordkeeper and other service providers should be entitled to provide their services in a manner 

such that the consequences of their actions are clear under the Department’s regulations. We 

believe that the Department’s Proposed Regulations are vague and fail to adequately distinguish 

between the provision of information and the provision of recommendations or investment 

advice so that recordkeepers and service providers do not have adequate notice of what 

communications may cause the recordkeepers and other service providers to become a fiduciary 

under ERISA. This lack of clarity in the Proposed Regulations also creates ambiguity for plan 

sponsors and participants who may falsely rely on incorrect assumptions about recordkeepers 

and other services providers performing fiduciary functions when they are not, defeating one of 

the Department’s stated objectives in issuing the Proposed Regulations. Therefore, we believe 

the scope of the Proposed Regulations creates so much uncertainty within the industry that if

they are adopted without clarification and elimination of certain provisions, the final regulations

will result in a significant increase in litigation and significant costs being incurred by the 
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industry, and, ultimately, the elimination or reduction of services deemed valuable by plan 

sponsor and participants. Alternatively, service providers may require additional fees for 

continuing to provide such services to offset the additional compliance structure and risk 

associated with continuing to provide the services. 

J.P. Morgan agrees that with the significant changes in the retirement industry and the 

increased focus on retirement readiness, a re-examination of the arrangements that give rise to 

fiduciary status is warranted. In addition, we agree that plan sponsors and participants need to 

understand whether a service provider is acting in a fiduciary capacity in delivering services. We 

believe this understanding can be achieved through clear communication and disclosure with 

respect to the service provider delivering information to assist plan sponsors and participants in 

making decisions and not making recommendations or decisions on the behalf of a plan sponsor 

or participant. We believe this approach is consistent with today’s disclosure regime and 

substantially achieves the objectives of the Department in addressing this issue in the retirement 

industry. 

J.P. Morgan appreciates the opportunity to provide these comments for the Department’s 

consideration in addition to our hearing testimony.