Finally, the Department, the Securities and Exchange Commission (SEC) and
FINRA should work together to ensure that any resulting rules do not result in
conflicting regulatory structures. I strongly urge the Department to solicit
meaningful input from the SEC and the FINRA, as they are the primary regulators
of Broker-Dealers and would provide valuable insight.

I fully support a best interest standard for investment advisers who provide
individualized investment advice to retirement savers. However, any proposed rule
should preserve the retirement savers’ ability to obtain general investment
education. Most importantly, we should advance policies that will help more
Americans plan, invest, and save for retirement in prudent ways.

Thank you for your attention to this issue and appreciate your consideration of

these issues.

Sincerely,

Kelhg. 0. get

Kelly A. Ayotte
United States Senator


KELLY A. AYOTTE
NEW HAMPSHIRE

anncn seaviess Wnited States Senate

HOMELAND SECURITY & WASHINGTON, DC 20510 14 MANCHESTER § Surre 140
GOVERNMENTAL AFFAIRS 202) 224-3324 ,

BUDGET

SMALL BUSINESS

September 21, 2015

The Honorable Thomas Perez
Secretary

United States Department of Labor
200 Constitution Avenue Northwest
Washington, DC 20210

Dear Secretary Perez:

Iam writing regarding the Department of Labor’s (DOL) proposed rule to expand
the definition of investment advice under the Employee Retirement Income Security
Act of 1974 (ERISA). I share the Department's belief that financial advisors should
adhere to a best interest standard when providing personalized investment advice
to retirement savers. However, I am concerned that the Department’s current
proposed rule would prevent retirement savers from receiving the assistance they
need to make educated investment decisions, even when their financial advisor is
committed to working in his or her clients’ best interest.

Today, few workers are covered by pension plans, and with the Social Security
Trust Fund’s solvency issues, workers are increasingly responsible for planning for
their own retirement. During a Senate hearing, the Department indicated that we
have a “retirement crisis” and that “not enough Americans are saving for
retirement.”! While I agree, I am concerned that the proposed rule could make it
more difficult for low and middle-income families and small business owners to
obtain financial advice.

Protecting Retirement Savers’ Access to Rollover Advice

According to the Bureau of Labor Statistics, workers change jobs frequently and the
median tenure at a job is 4.6 years.2 With job changes, workers are faced with a

1 Testimony of Thomas E. Perez, Secretary U.S. Department of Labor, Before the Employment and
Workplace Safety Subcommittee Committee on Health, Education, Labor and Pensions, United

States Senate, July 21, 2015 (“This Subcommittee knows too well that there is a retirement crisis in
America and that not enough Americans are saving for retirement.”)

2 Number Of Jobs Held, Labor Market Activity, And Earnings Growth Among The Youngest Baby
Boomers: Results From A Longitudinal Survey, Bureau of Labor Statistics (March 31, 2015), available at
http:/Avww.bls.gov/news.release/pdf/nlsoy.pdf, (“The average person born in the latter years of the baby
boom (1957-1964) held 11.7 jobs from age 18 to age 48, according to the U.S. Bureau of Labor Statistics.



decision to either distribute or rollover their retirement accounts during the
transition. However, I am concerned that the proposed rule could prohibit
investment advisers from assisting their clients in rolling over funds from a 401(k)
to an IRA.

According to a report released by Fidelity Investments, the nation’s largest 401(k)
provider, 35 percent of all participants who left jobs in 2013 cashed out their 401(k)
balances.3 Specifically, 41 percent of younger workers — those between 20 and 39 —
cashed out.4 Unfortunately, many retirement savers who choose to cash out when
they change jobs do so without understanding the tax consequences, or realizing
that they are forfeiting years of investment growth for their retirement. As many
workers are not saving enough for their retirement, any rule that the Department
adopts should ensure that retirement savers are provided with the education and
advice they need to make informed decisions at these critical junctures in their
careers.

Helping Small Business Owners

As I visit small businesses in New Hampshire, I often hear that Washington keeps
making it harder for small businesses to succeed. According to the Government
Accountability Office, only 14 percent of small businesses are able to offer a
retirement savings plan to their employees.5 And those small business owners who
are able to offer their employees some type of plan to save for retirement face
numerous challenges in establishing and maintaining a plan.®

Iam concerned that the seller’s exemption is so limited that it could prevent
financial professionals from being able to engage and advise small businesses
without triggering fiduciary duties. Specifically, the seller’s exemption applies only
to investment advice provided to retirement plans with 100 or more participants or

Nearly half of these jobs were held from ages 18 to 24.”); America's Young Adults At 27: Labor Market
Activity, Education, and Household Composition: Results From A Longitudinal Survey, Bureau of Labor
Statistics (March 26, 2014), available at http://www.bls.gov/news.release/pdf/nlsyth.pdf, (“Young adults
born in the early 1980s held an average of 6.2 jobs from age 18 through age 26, the U.S. Bureau of Labor
Statistics reported today.”); Employee Tenure in 2014; Bureau of Labor Statistics (September 18, 2014),
available at http://www.bls.gov/news.release/pdf/tenure.pdf (“The median number of years that wage and
salary workers had been with their current employer was 4.6 years in January 2014, unchanged from
January 2012, the U.S. Bureau of Labor Statistics reported today.)”

3 Fidelity Average 401(k) Balance Nearly Doubles Since Downturn, But Many Investors Stand to

Lose Out on Potentially Significant Gains by Cashing Out 401(k)s when leaving jobs (February 13,
2014), available at http://www.fidelity.com/inside-fidelity/employer-services/fidelity-average-401k-
balance-nearly-doubles

4 Id.

5 Retirement Security, Challenges and Prospects for Employees of Small Businesses, U.S.

Government Accountability Office (July 16, 2013), available at http://www.gao.gov/products/GAO-13-
7A8T



with at least $100 million in employee plan assets. With about 42 million
employees working for employers with less than 100 employees, this rule could
make it harder for employers of one third of private-sector employees to create or
maintain retirement plans for their employees.7 With no other exemption available
to small business owners, these employers could be unable to obtain advice for
selecting appropriate investment options for their employees, which could reduce
the number of small businesses that are able to offer their employees a retirement
plan.

Preserving Access to Education

I am also concerned that low and middle-income families may lose access to
affordable investment advice, even if the advice is in the retirement saver’s best
interest. Currently, investment advisers are able to discuss potential products and
services with their clients. While this practice is widely considered educational,
under the proposed rule, these conversations could be considered personalized
investment advice and would require a signed contract before a conversation could
take place. Even general descriptions of investment products, or the explanation of
the features of an investment product, could be classified as investment advice
under the proposed rule. Therefore, even conversations that are meant to be simply
informative, could not occur until the retirement saver signs a contract and the
fiduciary relationship is triggered. The proposed rule could limit educational
materials to abstract conversations that may be more frustrating than helpful to
the average investor.

In addition, the proposed rule requires broad, standardized disclosures that would
greatly expand the amount of information that must be disclosed to retirement
savers. Specifically, the proposed rule would require investment advisors to
disclose all direct and indirect compensation for financial products, as well as
alternative competing products, with projections of costs for 1, 5, and 10 year
intervals. While I fully support transparency, some of these disclosure
requirements conflict with existing Financial Industry Regulatory Authority
(FINRA) requirements.

Any rule that the Department adopts should ensure retirement savers are able to
access relevant information about specific products to help prepare them for
retirement, without onerous paperwork requirements. The Department’s final rule
should clarify that general investment education and information about
distributions falls within the education exemption and any disclosure requirements
should be tailored to ensure that retirement savers benefit from these disclosures.

Coordinating with Other Agencies

7 Id.