[Type text]

February 3, 2011

Filed Electronically

Office of Regulations and Interpretations

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Ave, NW

Washington DC 20210

RE: Proposed Rule on Definition of Fiduciary, 75 Fed. Reg. 65263

The Investment Company Institute, the national association of U.S. investment companies, 

submits regulation 2510.3-21 

covering the circumstances under which a person is an investment advice fiduciary under ERISA.

The current rule, adopted by the Department in 1975, effectively draws an important legal 

boundary i.e. the line between commonplace financial market interactions in which fiduciaries and 

participants of ERISA-governed plans can freely obtain information or suggestions to consider in 

making their investment decisions, on the one hand, and advisory relationships in which those 

fiduciaries or participants engage providers to act on their behalf in evaluating or making investment 

decisions, on the other. By restricting application of the ERISA definition of advice and the fiduciary 

duties it triggers to actual advisory relationships the rule gives the clarity to the regulated community 

necessary for retirement savers to gather a range of market input into their decision making process and 

for other parties in the marketplace to avoid crossing into fiduciary activities. 

We understand that after 35 years the Department might want to consider how to assure that 

the rule continues to delineate the relationships that Congress intended to subject to fiduciary 

responsibility under ERISA from other financial market interactions. We also understand that the 

Department believes it faces burden of proof issues in alleging fiduciary status under the current rule 

and would like problems. The Department, 

nevertheless, should proceed carefully in considering changes to the rule. While it is within the 
2

Department authority to revise its regulations, it cannot ease a burden of proof concern by 

ERISA to disrupt the functioning of the securities markets, prevent employee benefit plans from 

accessing investments, or turn

functions.1

Moreover, because the consequences and responsibilities of ERISA fiduciary status are 

considerable, any revised rule also must provide clarity to persons in the regulated community to keep 

them from unwittingly engaging in fiduciary acts.2 The current rule allows parties to offer plans and 

individuals investments they need and want and to provide financial and investment information to 

plans and IRA investors. Any revisions should not impede fiduciaries and participants from 

interacting in the marketplace.

Any revisions to the rule should reflect these principles: 

Persons who deal with plans and IRA investors must know whether or not they are 

fiduciaries. Fiduciary status is one of the highest burdens in the law and should be neither ambiguous 

by nature nor subject to second guessing. Moreover, because per se

rules, there is no relief for inadvertent violations. The rule should focus on situations where there is a 

mutual understanding that a real advisory relationship exists.

Simply selling an investment product cannot be a fiduciary act. Retirement plans and IRA 

investors need to have investment products available to them. The rules must recognize that while the 

process of selling an investment may involve an implicit recommendation by the seller, that does not 

mean a seller constitute ERISA investment advice. The rule must be workable for sellers.

 

1 See ERISA Conference Report, P.L. 93- functions of consultants and advisers (other than 

id. at 309 (some otherwise prohibited transactions 

directing the Secretaries of Labor and Treasury to grant an administrative exemption for brokerage services). The 

Department sugg

definition of investment advice from the plain language in section 3(21). 75 Fed. Reg. at 65264. We disagree. The purpose 

of all of the regulatory activity the Departments of Labor and Treasury engaged in shortly after the enactment of ERISA 

including what became the current rule and Class Exemption 75-1 

g with employee benefit plans, and the benefits flowing from these practices, were not 

disrupted.

2

In addition, the new 408(b)(2) regulation requires service providers to state whether they expect to provide services as a 

fiduciary.
3

Fiduciary status should not apply where a reasonable person would not believe a position 

of trust and confidence exists. As proposed the rule would trigger fiduciary status in several situations 

we believe the Department did not intend to reach because the 

protections are appropriate or necessary. 

Plan fiduciaries may receive some general assistance from recordkeepers engaged to 

administer plan accounts that help fiduciaries make prudent decisions abou

investment options. A often is the only or best entity to provide this general 

assistance. Amendments to the rule should not force plan fiduciaries to hire independent fiduciaries or 

forgo any assistance rather than obtaining input from recordkeepers. 

The Department should consider carefully the implications of the proposal for Americans 

saving for retirement in IRAs. Although IRAs held $4.2 trillion at the end of the second quarter of 

2010, the Department ignored them in its economic analysis.3 The ways that firms sell investments in 

IRAs are not always the same as employer-based plans, and any revisions to the advice rule that 

implicate IRAs should reflect that.

* * * *

The Institute urges the Department to reexamine its proposal so that any final rule provides 

clarity on the activities covered, sufficiently exempts ordinary practices like selling investments or 

executing securities transactions that do not warrant the strict prohibitions imposed on fiduciaries, and 

does not chill the provision of useful investment information and education for fear of crossing a 

regulatory line. In addition, the Department should not solve a burden of proof problem by swinging

too far in the other direction. Our comments explain where the Department must improve the 

proposed regulation to meet the principles we set out.

I. Framework of the proposal

Under the proposal, a person giving within the meaning of ERISA section 

3(21), by both giving advice or making a 

 

3 Brady, Holden, and Short, The U.S. Retirement Market, Second Quarter 2010, ICI Fundamentals, vol. 19, no. 3-Q2 (Oct. 

2010), available at http://www.ici.org/pdf/fm-v19n3-q2.pdf. 
4

recommendation as to the advisability of buying or selling securities or other property4and meeting one 

of four alternate status conditions, either directly or through an affiliate.

5

 The proposal goes on to 

exempt certain persons otherwise meeting the tests if they satisfy enumerated conditions. Our 

comments focus first on the recommendation and status tests and the exceptions. We next provide 

comments on rollovers and IRAs and finally recommend that the Department repropose the rule given 

the significance of the issues and the importance of getting a new rule right.

II. Recommendation

The recommendation part of the test should apply only to advice or recommendations 

individualized to the plan or participant. A person satisfies the recommendation test if the person 

provides advice to a plan or participant concerning the value of securities or other property or makes a 

recommendation as to the advisability of investing in, purchasing, holding, or selling securities or other 

property. The advice need not be individualized to the needs of the plan or participant or even aimed at 

a particular plan or participant.

As proposed, the provision sweeps too broadly. Any investment newsletter or expression of 

opinion and any column in a newspaper or financial publication, including one making general 

statements about classes of investments, could qualify.

6

 For example, an investment newsletter that 

makes any recommendations regarding the advisability of one or a class of investments would appear to

 

4 Specifically, the proposal would require the person (1) provide advice, or an appraisal or fairness opinion, concerning the 

value of securities or other property; (2) make recommendations as to the advisability of investing in, purchasing, holding, or 

selling securities or other property; or (3) provide advice or make recommendations as to the management of securities or 

other property, to a plan, a plan fiduciary or a plan participant or beneficiary.

5 The alternate status conditions, which can be satisfied either directly or indirectly through any affiliate, require that the 

person: (1) represents or acknowledges that it is acting as a fiduciary within the meaning of the ERISA with respect to 

providing advice or making recommendations; (2) is a fiduciary with respect to the plan within the meaning of section 

3(21)(A)(i) or (iii) of the Act (i.e. is otherwise a fiduciary with respect to the plan); (3) is an investment adviser within the 

meaning of section 202(a)(11) of the Investment Advisers Act of 1940; or (4) provides advice or makes recommendations 

pursuant to an agreement, arrangement or understanding, written or otherwise, between the person and the plan, a plan 

fiduciary, or a plan participant or beneficiary that the advice may be considered in connection with making investment or 

management decisions with respect to plan assets, and will be individualized to the needs of the plan, a plan fiduciary, or a 

participant or beneficiary.

6 This result would raise First Amendment concerns. In Lowe v. SEC, 472 U.S. 181 (1985), the Supreme Court held that 

the business of rendering personalized investment advice, including publishing 

activities that are a normal incident thereto. On the other hand, Congress, plainly sensitive to First Amendment concerns, 

wanted to make clear that it did not seek to regulate the press through the licensing of nonpersonalized publishing. Id. at 

204 (emphasis added).
5

, even if the investment newsletter is written for the general public and the 

author has no connection whatsoever to the plan or participant. 7 We note that this activity would not 

Requiring personalized investment advice in order to trigger ERISA fiduciary status will assure 

that the rule only applies where a reasonable person would believe a true advisory relationship exists. 

No reasonable person would believe that statements or recommendations written for the general public 

about investments or the financial markets createan advisory relationship of trust and confidence 

between the publisher and every plan fiduciary or participant that might consider the information in 

making decisions.

8

The proposal should expressly require that advice be given for a fee or other 

compensation. There is a technical issue with the way the proposal is drafted. Paragraph (c)(1) states 

that a person provides investment advice for a fee or other compensation to an employee benefit plan if 

the first and second tests are satisfied. But neither of these tests requires that there be a fee or other 

compensation. This glitch could not be intended because ERISA clearly requires there be a fee or other 

compensation for investment advice. The Department should fix this oversight with a technical

correction to the lead-in language of paragraph (c)(1).

9

III. Status

The Department should reconsider and modify the status test. In addition to concerns we 

discuss below about specific elements of the status test, we first question whether the rule should give 

participant interact. In determining whether someone is giving advice under ERISA, the inquiry

should look at the interaction itself and not whether that person (or an affiliate not even interacting 

with the fiduciary or participant) might be an adviser under the Advisers Act or an ERISA fiduciary for 

 

7 An investment newsletter is one example, but there are others. For example, fi sell/

lists. Firms also sponsor client conferences, and their employees speak at conferences, at which general market information 

is discussed before an audience.

8 For the same reason, we believe it is clear the proposal is not intended to and should not be read to apply to valuation 

services provided to a mutual fund and its adviser 

suggest DOL confirm this reading. A contrary reading would mean that simply investing in a mutual fund would create a 

fiduciary relationship, which ERISA makes clear is not the case. See ERISA section 3(21)(B).

9 Fixing the compensation oversight does not eliminate the need also to require individualized advice to trigger fiduciary 

status, as we urged above.
6

some other reason. C duciary definition as a 

10

 While it certainly could simplify 

somewhere in the enterprise there is an investment adviser or ERISA fiduciary, that simply does not 

transform any interaction between a plan and another part of the enterprise into an advisory 

relationship.

Fiduciary status particularly should not be triggered merely because any affiliate or 

employee of a firm meets the definition of investment adviser in the Advisers Act.

The status test of the proposal is met if the person is directly, or indirectly through an affiliate, an 

investment adviser within the meaning of section 202(a)(11) of the Advisers Act. Effectively this could 

be read to mean that any entity described in section 202(a)(11) and every affiliate and employee of that 

entity automatically satisfies the status test. This sweeps much too broadly. Substantially all financial 

services enterprises include an affiliate registered with the SEC as an investment adviser.

11

 The 

definition of investment adviser in section 202(a)(11) of the Advisers Act generally applies to any 

person engaged in the business of providing advice to others or issuing reports or analyses regarding 

securities for compensation.12 Thus, for example, every financial services firm and all its employees who 

interact with a plan or participant would find themselves to be fiduciaries under the rule if any affiliate 

in the enterprise serves as an adviser to a mutual fund.

The Department states that it included this broad provision because the courts and the SEC 

have determined that investment advisers owe an affirmative duty to their clients of utmost good faith, 

full and fair disclosure of all material facts, and an obligation to employ reasonable care to avoid 

misleading their clients. This duty, however, clients i.e. those 

institutions or individuals for whom the adviser has undertaken to provide investment advisory services 

for compensation.

13

 It does not apply to each and every person with whom the adviser, any of its 

 

10 he primary focus of the 

proposal is on function providing investment advice and recommendations and not labels such as lawyers, accountants 

and brokers.

11 Had Congress wanted every firm meeting the definition of investment adviser under the Advisers Act to be subject to 

ection 3(21). We know that 

Congress was aware of the Advisers Act in drafting ERISA because it incorporated the Advisers Act into the definition of 

12 The definition includes a series of exceptions the Department details in the preamble to this proposal.

13 See, e.g., 17 C.F.R. § 275.203(b)(3)-1 (defining client for purposes of section 203(b)(3) of the Investment Advisers Act).
7

affiliates, or any of its employees interacts.

14

 In addition, as a practical matter, compliance with the 

Advisers Act would not necessarily satisfy ERISA, nor would compliance with ERISA satisfy the 

Advisers Act. A firm subject to the Advisers Act would need another robust and ongoing compliance 

program if it were potentially subject to ERISA, even if it did not have to make any significant changes 

in the way it does business.

The overbreadth o

market interactions in which retirement savers seek information and ideas on investing. For example, a 

mutual fund company commonly receives calls from individuals interested in opening an IRA and 

investing either contributions or rollover amounts in 

may state that, while he or she cannot provide specific individualized advice, X fund is designed to meet 

a particular investment objective, or Y fund is a target date fund designed for individuals who expect to 

retire around a particular date. This very common and routine interaction in the market could be 

caught by the rule it includes a conversation about the advisability of purchasing an investment and is 

made by someone who is (or has an affiliate who is) an investment adviser under the Advisers Act. We 

believe the Department did not intend this result, and in any event we would urge that no fiduciary 

standard attach under these circumstances.

 The Department should delete paragraph (c)(1)(ii)(C) to fix this problem. The test in section 

202(a)(11) is largely duplicative of the aking 

recommendations, and accordingly the alternative condition is not necessary. At a minimum, if the 

Department retains thealternate condition, it must narrow it so that it applies only where a plan 

fiduciary or participant are clients within the meaning of the Advisers Act i.e. those with whom the 

entity has established a real and personalized advisory relationship.

ordinary business practices, eliminating the section 202(a)(11) alternative also makes sense in light of 

the Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). That law directed the 

SEC to study the standards of care applicable to broker-dealers and investment advisers giving 

personalized investment advice and then adopt any needed rules on standards of care including rules 

making the standard of conduct for all broker-dealers and investment advisers providing personalized 

 

14 For example, while the adviser of a mutual fund owes a fiduciary duty under the Advisers Act to the fund itself and 

each and every shareholder. It is not required, for 

s. Similarly, many brokerdealers are dually registered both as investment advisers and broker-dealers, while others are not. Just because a broker is 

dually registered does not mean it provides advisory services to every client and it should not be swept into the rule when 

another broker would not be, despite providing the same services to plans and IRA owners.
8

investment advice identical to the standard under the Advisers Act.15 Thus, until the SEC resolves the 

issues of who must meet the fiduciary standards under the Advisers Act, and what that standard means, 

the Department is not in a position to know, and commenters cannot provide views on, the policy and 

business implications of incorporating the Advisers Act definition in this rule.

The rule should not cover incidental fiduciaries who are not in a relationship of trust and 

confidence with plan fiduciaries or participants. The proposal also would cover any interactions if

the person is, directly or indirectly through an affiliate, a fiduciary under one of ERISA other fiduciary 

tests i.e., because the person or an affiliate either exercises discretionary authority or control over the 

management of the plan or its assets or has discretionary authority or responsibility for the 

administration of the plan. This aspect of the proposal conflicts with the long-settled ERISA principle

that a person is a fiduciary only with respect to those functions over which the person has the necessary 

authority or control or takes the actions ERISA designates for fiduciary status, and only for those plan 

assets to which the authority, control, or actions apply.

16

While the Department may have assumed that information on the advisability of buying, 

holding, or selling an investment seems more compelling when it comes from a person who otherwise 

occupies a fiduciary position with respect to the plan, that assumption is not correct. Persons can be 

fiduciaries with respect to a plan in ways that clearly do not suggest they are acting in a position of trust 

and confidence. For example, some plans use a directed trustee within the meaning of ERISA section 

403(a)(1) that is affiliated with a plan service provider such as t Traditionally 

plan recordkeepers do not charge a significant incremental fee for this service. Directed trustees by 

definition do not exercise independent authority and must follow the lawful directions of the other 

plan fiduciaries.

y as a custodian of plan assets, in 

So long as they do not represent 

 

15 The study mandated by Dodd-Frank was sent to Congress on January 21, 2011. See

http://sec.gov/news/studies/2011/913studyfinal.pdf. We are evaluating the recommendations in the study. The study 

reflects the view of the SEC staff only and it is unclear at this time which of the recommendations, if any, the SEC will 

adopt. 

16 See Beddall v. State 

St. Bank & Trust Co iduciary status is not an all or nothing proposition; the statutory 

language indicates that a p that he possesses or exercises the requisite discretion 

and control See paragraph 

(c)(5). 
9

themselves as providing fiduciary advice to participants or other plan fiduciaries, directed trustees 

occupy no greater position of trust or confidence than they would if they were acting solely as 

custodians of plan assets or simply as a recordkeeper or other service provider to the plan. Accordingly, 

the provision in the rule is overbroad.

The provision also is unnecessary because another element of the status test already prevents the 

problem the Department is trying to address i.e., the status test is satisfied if the person represents 

that it is a fiduciary with respect to the advice or recommendations being provided. The Department 

should retain this condition (paragraph (c)(1)(ii)(A)) and eliminate the

condition (paragraph (c)(1)(ii)(B)). 

The fourth alternative for satisfying the status test should make clear that the parties must 

have a mutual agreement concerning both the role of the advice in making decisions and its 

individualized character. The fourth alternate condition applies if the advice or recommendations are 

made n or otherwise, between such 

person and the plan, a plan fiduciary, or a plan participant or beneficiary that such advice may be 

considered in connection with making investment or management decisions with respect to plan assets, 

and will be individualized to the needs of the plan, a plan fiduciary, or 

The proposal removes the requirement for a mutual agreement between the parties in the 

current rule that the advice will be considered in making investment decisions. The Depa

intent in proposing the change is unclear.17

That there be a objectively determined is of critical importance if 

persons who deal with plans and IRAs are to know whether or not they are fiduciaries. Parties dealing 

with plan and IRA customers in good faith do not want to be in a position of being forever in doubt 

about their status, or open to a claim there was an undertaking to provide individualized investment 

recommendations that will be relied upon when in fact there was not. The Department should revise 

paragraph (c)(1)(ii)(D) to apply only when there is a mutual agreement, arrangement, or 

understanding.

IV. Exceptions

The Department should clarify the exception for selling an investment product. The 

proposal exempts transactions that might contain advice if it can be demonstrated the recipient knows, 

 

17
10

or under the circumstances should know, that the person is providing the advice 

purchaser or seller of a security or other property, or as an agent of, or appraiser for, such a purchaser or 

seller, whose interests are adverse to the interests of the plan or its participants or beneficiaries, and that 

 We strongly support the 

exemption but think it needs to be clarified.

If ERISA plans and IRA investors are to have access to investment products, it is critically 

important to ensure that selling an investment product is not a fiduciary act. Selling an investment 

almost always involves a recommendation that the seller believes the buyer should purchase the 

investment. Investment firms offer a product to the market believing the investment is a good one and 

believing the investment should be purchased when its objectives meet an Moreover, 

adults commonly understand fully that salespersons are not undertaking to and do not provide 

impartial advice. appears to recognize this but contains ambiguities in 

important respects.

First, the Department needs to make clear that the exception is available potentially to a broad 

range of sellers and agents. Department officials have stated informally that they intend this exception 

to cover a situation in which, for example, the owner of a piece of property communicates with a 

potential buyer. The exception should not be limited to that situation and the Department should 

make that clear.

For example, w (itself 

usually a broker-dealer) and independent broker- The

exception should cover both so- -sold mutual funds as well as those sold through 

independent broker-dealers. We see no reason a mutual fund sold directly by the fund company or its 

affiliated underwriter or distributor should qualify for the exception while a mutual fund sold through a 

broker-dealer acting solely in that capacity does not.

Second, we disagree that the exception should apply only when the seller is While a 

mutual fund adviser or underwriter earns fees for its services to the fund, the sale of a mutual fund is not 

a zero-sum game where one side benefits only at the expense of the other side.18 Although the interests 

of a mutual fund company are not adverse to the interests of its shareholders, the proposed rule 

effectively requires the company to so characterize itself to ensure it can rely on the exception.19

 

18 All mutual funds must be offered at net asset value with fees described in the prospectus.

19 The Department faced a similar issue with the 408(b)(2) regulation. The proposed rule required service providers to 
11

The relevant question is not whether the parties whether in 

the context of the transaction it would be clear to a reasonable person that the seller is acting as or on 

behalf of a seller and is not holding itself out as providing impartial investment advice. The 

Department should delete

The Department should clarify that the exception for information related to platform 

investments covers certain incidental assistance that recordkeepers provide to plan fiduciaries 

who are making decisions on plan menu investments. Paragraph (c)(2)(ii)(C) exempts the provision 

of general financial information and data in offering a platform of investments to assist a plan 

s, so long as the plan fiduciary is told 

in writing the person is not undertaking to provide impartial investment advice. This exception is 

essential because 401(k) recordkeepers routinely offer a range of services not involving impartial 

investment advice that assist fiduciaries in making decisions regarding plan menus.

Indeed, there are numerous ways in which recordkeepers provide assistance designed to help 

fiduciaries manage their decision making process. For example, 

Proposals, a 401(k) recordkeeper may provide a sample plan line-up not as a recommendation but 

rather as a way of giving the plan fiduciaries a sense of the overall cost of a recordkeeping arrangement 

. Recordkeepers also may work with 

the plans they serve to develop objective screens that the recordkeeper can use for the plan to narrow 

the universe of available funds for initial selection and monitor over time the funds fiduciaries select for 

the menu. While the recordkeeper might suggest a set of criteria (e.g., peer performance in top quartile, 

manager tenure over a certain number of years, a minimum Morningstar or similar rating) used by 

other clients, the decision on what criteria to use is for plan fiduciaries. Once established, these criteria 

are largely mechanical. Fiduciaries often look to the plan recordkeeper for screening assistance because 

the recordkeeper has experience in what other clients use and has all the necessary data on its platform 

investments.

Also, when a plan is replacing a fund on a plan menu, it may ask the recordkeeper to suggest 

funds that are reasonably similar to the one being removed, to assist the plan in replacing the fund or 

mapping the assets in accordance with ERISA section 404(c)(4). Our members report receiving these 

 

requirement to disclose the direct and indirect compensation that the service provider may receive. The Department 

removed the requirement in the interim final regulation. With the 408(b)(2) regulation in place, the Department has 

required certain key service providers to inform plans and participants about their compensation, and this disclosure will 
12

requests even if the fund company is not the platform provider. The decision to replace a fund, or how 

to map assets, always remains with plan fiduciaries and their advisers.

We believe the Department intended the exception in paragraph (c)(2)(ii)(C) to cover these 

situations. Because of the importance of the flow of this information to plan fiduciaries as they select 

and monitor plan investments, the Department should clarify that these situations are indeed

encompassed in the exception. Many plan fiduciaries would not have the tools to perform these tasks

themselves. Were recordkeepers to withdraw from providing assistance because of uncertainty about

the rule, plans would have to forgo this information or hire an independent fiduciary at considerable 

cost.

The exceptions in the proposal for individual account plans should be extended to IRAs.

20

 

The proposal sets out three exceptions providing investment education under Interpretative Bulletin 

96-1, marketing or making available a platform of investments, and providing general financial 

information and data in connection with the platform for activities in connection with individual 

account plans defined in section 3(34) of ERISA. Because the 3(34) definition does not include nonemployment based IRAs, 21 the proposed exception would not cover IRAs. It should. The same types 

of activities routinely occur in connection with IRAs and there is no policy reason they should not be 

covered also by the exceptions.

IRA custodians, for example, often provide investors with the types of information and 

education described in Interpretative Bulletin 96-1, including general investment information on risk 

and return, diversification, dollar cost averaging and the like, as well as asset allocation models and 

interactive materials similar to those provided to 401(k) participants. The Department has not 

articulated any policy reason, and we submit there is none, that providing this type of information and 

education should trigger fiduciary status only in the context of an IRA.22

Similarly, just as 401(k) recordkeepers offer a platform of investments from which plan 

IRA 

 

20 Code section 4975 applies to IRAs and certain other individual accounts, including Archer medical savings accounts, 

health savings accounts, and Coverdell education savings accounts. In this letter any references to IRAs should be deemed 

to include all the savings vehicles described in Code section 4975(e)(1) that are not governed by ERISA.

21 Section , section 3(2)(A) defines to mean a plan established or 

maintained by an employer or employee organization, or both.

22 IB 96-1 by its terms applies only to participant-directed individual account plans. This oversight needs to be remedied 

s for purposes of Code section 4975.
13

products with a described number of investments, such as the f

23

 

Although the provider may view the funds offered as presenting an appropriate range of investments for 

most retirement savers, the platform is not individualized to each IRA investor.

Finally, IRA providers often make general financial information and data available to assist IRA 

investors in selecting their investments among those offered in the IRA product. The exception in 

paragraph (c)(2)(ii)(C) should apply to this information and data as it would for an employer-based 

individual account plan.

V. Issues related to rollovers and IRAs

The Department should retain its position that a recommendation to take a distribution 

does not constitute investment advice. In Advisory Opinion 2005-23A, the Department concluded 

that a recommendation to take an otherwise permissible distribution, even when combined with a 

recommendation as to how to invest distributed funds, is not investment advice with respect to the

distributing plan. The Department asked whether it should overturn that conclusion in the final rule. 

The Department should not alter its views.

A recommendation to take a distribution from a plan, like a recommendation to contribute to 

the plan in the first place, is not investment advice.24 A participant terminating employment may decide 

to take a distribution from the 401(k) plan for a variety of reasons having nothing to do with the 

specific investments in the plan most commonly to consolidate savings and avoid leaving an account 

with an employer with which the individual no longer has any connection. 25

If simply recommending that a participant take a distribution from his or her plan and invest it 

elsewhere is ERISA investment advice, then the Federal Thrift Savings Plan is an ERISA fiduciary to 

 

23 As an initial matter, we question whether any exception is needed for the creation of a platform either in the plan or IRA 

context. Creating a product that is brought to market, even one that offers less than a full universe of possible investments,

could not reasonably be thought to be a fiduciary act. We acknowledge, however, that because of the breadth of the 

ed as a 

recommendation regarding the investments on (and not on) the platform.

24 It might be tax advice or financial planning advice. For example, the statutory notice given to participants under Internal 

Revenue Code section 402(f) contains information about the options available to participants and the tax implications of 

various distribution decisions, but it could not be considered investment advice. In fact, IRA providers who assist individuals 

with their rollovers often do not know what investments individuals have in their 401(k) plans.

25 In addition, the recommendation on how to invest a distribution is subject to a variety of protections in addition to Code 

section 4975. The SEC and FINRA routinely bring actions against advisers and brokers who mislead their clients.
14

many private 401(k) plansand IRAs. On its website,26 If you 

have a TSP account and you also have money in a traditional IRA, 401(k), or other eligible employer 

plan, there are benefits to consolidating your accounts with the TSP. states that consolidating 

retirement accounts with TSP leads to simplification and that the TSP investments are advantageous 

because of their low fees in fact the TSP sends agencies a poster to display advising federal workers to 

27

 TSP is not purporting to provide a recommendation on the value of 

any particular investment option in any particular private 401(k) plan or IRA. What TSP is doing is 

opining on the benefits of a distribution and consolidation of accounts and explaining the value, in its 

view, of its investments just as any IRA provider would do.

The Department should revise its economic analysis to account for the effect of the 

proposal on IRA investors. Although the proposal by its terms applies to non-employer based IRAs, 

the Department s economic analysis does not consider the costs of the proposal on IRA investors and 

providers. The data the Department uses comes solely from Form 5500, which is not filed for IRAs.

rationale for the proposal, the Department notes no 

widespread problems in the IRA market, nor does it make any attempt to recognize the non-ERISA 

laws that apply to investors in retail accounts like IRAs. We recommend that the Department consider 

the costs and benefits of the proposal with respect to IRAs, and that it do so with a few basic principles 

in mind.

While IRAs are not subject to the ERISA fiduciary rules, they are subject to the prohibited 

transaction rules in Code section 4975. The Department should analyze whether the proposed rule 

will change how advisers in the IRA market are compensated and whether this will ultimately harm or 

benefit IRA investors. For example, while it is uncommon for front-end commissions to be charged in 

401(k) plans, they are used routinely in retail accounts. If the Department rule requires financial 

advisers to move from a commission structure to a wrap fee in the IRA market, this may, in many cases,

result in higher fees to IRA investors, especially given the long-term nature of their IRA investments.

Congress, the SEC, state agencies, and self-regulatory bodies have a range of laws, regulations, 

and rules that protect investors in retail accounts, including IRAs, and that regulate investment advisers 

and broker-dealers.

28

 These laws, regulations, and rules are too numerous to list here. Before the 

 

26 See https://www.tsp.gov/planparticipation/transfers/benefits.shtml (visited Jan. 28, 2011). 

27 See https://www.tsp.gov/PDF/bulletins/10-5.pdf. 

28

-Frank Act shows that Congress is active in ensuring there are 

laws that protect individuals who save outside ERISA-governed plans. Congress enhanced legislation affecting nearly every 

financial product available in the market, in one way or another. For information on the various protections that apply 
15

Department comes to the conclusion that investors are unprotected when investing in their IRA or 

other retail account, the Department should seek the views of the SEC, FINRA, state securities 

regulators, state insurance commissions, and federal banking regulators and discuss its concern, analysis 

and conclusions.

In addition, although most U.S. households are eligible to make IRA contributions, few do so. 

Only 15 percent of U.S. households contributed to any type of IRA in tax year 2009, as was the case in 

tax year 2008.29 This suggests there is a need to continue to explain the benefits of contributing to an 

IRA, and financial services firms are on the front lines in doing so. The Department should consider 

whether this proposal will discourage firms from marketing IRAs and providing robust education and 

assistance to savers and if so, what effect this will have on the use of IRAs and Americans retirement 

preparedness.

Finally, we are concerned the Department made no attempt to gauge the effect of its proposal 

on Americans who use financial advisors for a range of financial planning services that may include 

incidental recommendations about an IRA. If these financial planners refuse to provide any assistance 

related to IRAs because of the associated compliance and monitoring burden, there will be some cost to 

individuals who must make decisions without this assistance.

Before adopting any final rule that affects IRAs, the Department should complete and publish 

an analysis of the costs of the proposal on IRA investors and providers so that interested parties can 

provide meaningful comment to the Department.30 The Department should publish and explain its 

IRA economic analysis when it reproposes the rule, as we urge below. 

VI. Need for reproposal

Because the entire ERISA compliance structure turns in large part on fiduciary status, getting 

the advice regulation right is crucial. The problems we have identified with the proposal require the 

 

under IRS, SEC, banking, and FINRA rules, see Statement of Sarah Holden, Senior Director, Retirement Research, Before 

the ERISA Advisory Council Working Group on Approaches for Retirement Security in the United States (Sept. 17, 2009), 

available at http://www.ici.org/pressroom/speeches/09_erisa_tmny. 

29 Holden and Schrass, , ICI Fundamentals, vol. 19, no. 8 

(Dec. 2010), available at http://www.ici.org/pdf/fm-v19n8.pdf. 

30 President Obama an opportunity for public comment 

on all pertinent parts of the rulemaking docket, including relevant scientific and technical findings.

Improving Regulation and Regulatory Review (Jan. 18, 2011).
16

Department to take a step back and make sure the proposal adequately provides certainty so that 

persons who deal with ERISA plans and IRA investors can know whether or not they are fiduciaries. 

The Department will have to make significant changes to the proposal to address the concerns we have 

detailed and those of other commenters. The Department also will have to consider and allow the 

regulated community to comment on 

with forthcoming actions by the SEC and other regulators to implement the Dodd-Frank Act.

Accordingly, the Department should repropose a new version of the rule in order to assure that 

the final rule is clear and workable. The current rules have worked well for 35 years

goal should be to assure that they also work well for the next 35 years. 

* * * *

Weappreciate that the Department has stated it will take comments on the proposal seriously. 

Please feel free to contact the undersigned at 202.326.5826 (podesta@ici.org) or Michael Hadley at 

202.326.5810 (mhadley@ici.org) with any questions.

Sincerely,

Mary Podesta

Senior Counsel Pension Regulation