SHAPING AMERICA’S RETIREMENT

Testimony of 

Larry H. Goldbrum, Esq. 

General Counsel, The SPARK Institute 

Before the 

United States Department of Labor 

Employee Benefits Security Administration 

Regarding the 

Proposed Definition of Fiduciary 

March 1, 2011 
SHAPINGAMERICA’SRETIREMENT 2

The SPARK Institute1 appreciates this opportunity to present its views to the Employee Benefits 

Security Administration (“EBSA”) regarding the proposed definition of fiduciary (the “Proposal”), 

what activities constitute investment advice, and distribution counseling services. The SPARK 

Institute supports the concept of clarifying the definition of who is a fiduciary and appreciates EBSA’s 

need to address the challenges it has faced in litigation. We believe that it is vital that any changes to 

the definition meet certain principles that are summarized below. 

I. DEFINITION OF FIDUCIARY

A. Clear and Precise Guidance – Any change to the definition of fiduciary must be clear and 

precise. It is crucial that service providers are able to structure their products, services, and 

compensation arrangements with reasonable certainty about whether they will be a fiduciary with 

respect to a plan. Absent clear and precise guidance, service providers will be at substantial risk of 

unintentionally and unwillingly becoming fiduciaries and engaging in prohibited transactions. 

Unfortunately, the Proposal includes broad changes that are unclear and will result in substantial 

unintended consequences. Additionally, the availability and scope of the exceptions under the 

Proposal are unclear. As a result, unintentional fiduciary status will be a realistic possibility for

service providers in many situations. For example, we are concerned about investment platform 

providers’ ability to provide non-fiduciary information and assistance to plan sponsors to help them 

narrow down the investment choices available to the plan, for example from 1,000 funds available 

on a platform to 30 possible alternatives. We are also concerned about a provider’s ability to rely on 

the seller’s exception because of the complexities associated with the selling process and how and 

when plan sponsors make decisions about plan investments. For example, investment decisions 

may be resolved after a general services agreement is signed, but the plan sponsor will expect the 

seller to continue to provide the information and guidance about investments that was provided 

before the agreement was entered into. The stakes for service providers are very high because a 

misinterpretation of the rules or an unintentional violation could affect a provider’s entire line of 

products and services and all of its plan relationships. We urge EBSA to provide clear and precise 

guidance and to consider the value, importance, and complexity, of retirement plan products 

and services. 

 

B. Flexibility and Choice – Today, service providers have the ability to structure their products 

and services so that they can provide important and necessary fiduciary and non-fiduciary 

services that plans need and demand. We believe that service providers and plan sponsors should 

have flexibility and discretion in determining and agreeing on a service provider’s role and whether 

a fiduciary relationship is mutually expected. The Proposal substantially lowers the threshold for 

when a service provider will be considered a fiduciary, and in some instances treats some services as 

investment advice that in our view should not be treated as such. As a result, service providers will 

be forced to discontinue providing many services that plan sponsors and participants demand or to 

charge substantially higher fees in order to account for the higher risk and responsibility that comes

 

1

The SPARK Institute represents the interests of a broad based cross section of retirement plan service providers and 

investment managers, including banks, mutual fund companies, insurance companies, third party administrators, trade clearing 

firms and benefits consultants. Members include most of the largest firms that provide record keeping services to employersponsored retirement plans, ranging from one-participant programs to plans that cover tens of thousands of employees. The 

combined membership services approximately 70 million employer-sponsored plan participants. 
SHAPINGAMERICA’SRETIREMENT 3

with being a fiduciary. Many plan sponsors do not want, and cannot afford, to hire someone to 

serve in a fiduciary capacity to provide the limited non-fiduciary assistance and guidance that they 

are able to get today. If plans are forced to hire a fiduciary for many of the services that would have 

to be discontinued, plan participants will ultimately bear the burden of such higher fees. We believe

that this does not advance EBSA’s other goals of facilitating lower cost ways for American workers 

to save for retirement. 

Additionally, our comment letter included a safe-harbor recommendation that would allow service 

providers and responsible plan fiduciaries to determine and agree, in writing, on the service 

provider’s role and whether a fiduciary relationship is mutually expected. The service provider 

would have to disclose the financial interests it may have regarding any decisions that the plan may 

make in connection with the plan and plan assets. We also recognize that under certain 

circumstances EBSA would be unwilling to allow the service provider and plan representative to 

agree to non-fiduciary status for the service provider. For example, when the service provider 

exercises discretion or when the provider provides “individualized” investment advice to a plan that 

is clearly and mutually intended to be the primary basis for the plan representative’s investment 

option decisions. Those circumstances should be clearly defined in any final rule about fiduciary 

status. We urge EBSA to consider including the safe harbor in its final rule. 

C. Avoid Unintended Potential Harm – We are concerned that the Proposal is likely to cause 

unintended harm and be disruptive to the retirement plan community in at least two ways. First, as 

already discussed, under the Proposal service providers will be forced to discontinue providing 

certain services or charge substantially higher fees to account for being a fiduciary. Some 

organizations that represent financial advisors that typically provide fiduciary services will argue 

and try to convince EBSA that this is a good outcome. Others may urge EBSA to finalize the 

Proposal in its current form based on narrowly focused desired outcomes. Such views seemingly 

overlook, oversimplify or underestimate the issues, concerns and potential harm that are identified in

the vast majority of the comments submitted to EBSA. While the Proposal may be good for 

financial advisors who are willing to serve and charge for serving as a plan fiduciary, it will likely be 

harmful and disruptive to the vast majority of the retirement plan community, particularly small 

plans that cannot afford to hire outside fiduciaries. 

Second, service providers should not be subject to the significant risk that an arrangement to 

provide non-fiduciary products and services will be treated, after the fact, as a fiduciary services 

arrangement. Class action attorneys have discovered retirement plans as potentially fertile grounds 

for large settlements from perceived deep pocket defendants, typically large plan sponsors and 

service providers. Although these lawyers have had limited success on the merits of their cases, an 

increased threat of litigation, and the costs associated with defending against them, will have a 

significant chilling and negative effect on the retirement plan community. The greater risk of this 

hindsight recharacterization of relationships will likely cause service providers to discontinue 

providing many services that plan sponsors and participants demand or to charge substantially 

higher fees in order to account for the higher risk and responsibility that comes with being a 

fiduciary. 

D. Measured and Coordinated Changes – The proposed changes are significant and, as mentioned 

above, will have substantial unintended consequences. Additionally, the Securities and Exchange 
SHAPINGAMERICA’SRETIREMENT 4

Commission is also evaluating regulatory action that will have a direct impact on the standards of 

care and fiduciary obligations of brokers, dealers, and investment advisers that deal with investors, 

including retirement plans and participants. We urge EBSA to take measured steps in changing the 

definition of fiduciary and what constitutes investment advice for retirement plans. We also urge 

EBSA to continue to engage the retirement plan community, as it is doing today, as it evaluates the 

issues and concerns raised by many different organizations. We believe that significant changes to 

the Proposal are needed and that the retirement plan community would benefit greatly if EBSA reproposed a modified rule. This will ultimately result in a more harmonized set of rules and 

regulations governing these matters, and a more effective and cost efficient transition for everyone 

affected, including plan sponsors, plans and plan participants. Contrary to what has been suggested 

by the limited number of groups that submitted comments to EBSA encouraging them to move 

quickly to finalize the Proposal, uncertainty and inconsistencies in the fiduciary rules and regulations 

will not help or benefit anyone in the retirement plan community except for litigators and financial 

advisors who want to expand the number of plans for which they provide fiduciary services. 

E. Adequate Time for Compliance – The issues raised by a broad change to the definition of fiduciary 

and what activities constitute investment advice are very complex, raise substantial concerns about 

unintended consequences, will dramatically impact the products and services available to plans, plan 

sponsors and participants, and could have devastating consequences for any service provider who 

unintentionally and unwillingly becomes a fiduciary and unintentionally engages in a prohibited 

transaction. We urge EBSA to allow 18 months from the date that any final rule is published for the 

retirement plan community to evaluate the rules, determine how to comply with them, and for 

service providers to educate their customers about the rules and to modify their service 

arrangements.

II. DISTRIBUTION COUNSELING

The SPARK Institute supports EBSA’s efforts to safeguard the interests of participants and 

beneficiaries in connection with plan distributions, and encourages it to develop further guidance, 

but not in connection with the current effort to redefine who is a fiduciary. EBSA has received 

many comments on this topic with differing views. However, most agree that plan participants 

want and need assistance when deciding whether to take a distribution, what type of distribution to 

take and what to do with the proceeds. Groups will disagree over who a participant can trust when 

seeking help on these issues. We agree that a plan fiduciary should neither be able to act in its own

interest nor be able to influence its own compensation when helping a plan participant who is 

considering taking a distribution. We also believe that it is equally, if not more important, for 

EBSA to consider concerns about unknown advisers who make “cold calls” to plan participants 

and their ability to exercise greater influence when participants are unable to get the assistance that 

they need from plan sponsor representatives and the plan service providers. Moreover, we do not 

believe that the solution to this problem is to deem all distribution counseling to be fiduciary 

activities. That would have a chilling effect on the availability of help. Instead, we urge EBSA to 

issue additional guidance that is comparable to Interpretive Bulletin 96-1 that clearly defines 

acceptable distribution counseling, assistance and education that can be provided by the plan 

sponsor and service providers to the plan, including plan fiduciaries.