FILED ELECTRONICALLY 

e-ORI@dol.gov

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

February 3, 2011 

Re: Definition of Fiduciary Proposed Rule 

The Pension Rights Center (the Center) and the National Employment Lawyers Association 

(NELA) submit the following comments on the Department of Labor’s proposed regulations on 

the definition of fiduciary. The Center is a nonprofit consumer organization that has been 

working since 1976 to protect and promote the retirement security of American workers and their 

families. NELA has been advancing employee rights and serving lawyers who advocate for 

equality and justice in the American workplace since 1985.

 

The proposed regulations would replace current regulations, adopted in 1975, that tightly 

circumscribe the circumstances under which a person or entity becomes a fiduciary when 

providing investment advice to a plan or participant for a fee. The regulations would also 

reverse a 1976 advisory opinion holding that a firm valuing employer stock for an ESOP was not 

a fiduciary. 

The 1975 regulation and 1976 advisory opinion were not compelled by the statute and, in our 

view, reflected an improper narrowing of the congressional definition of fiduciary. In addition, 

as the Department suggests in its preamble to the proposed regulations, economic and legal 

developments in the fields of investments and employee benefit plans have rendered the earlier 

positions anachronistic and, at times, at cross-purposes with the statute. The proposed 

regulations are much-needed and long-overdue. 

Background 

When Congress passed ERISA in 1974, it included rules governing the conduct of fiduciaries. 

Senator Harrison Williams, Chair of the Senate Labor Committee and a key co-sponsor of 

ERISA in the Senate, explained the need for these rules when he presented the ERISA 

Conference Committee resolution reconciling the House and Senate versions of pension reform 

legislation: “Despite the value of full reporting and disclosure, it has become clear that such 

provisions are not in themselves sufficient to safeguard employee benefit plan assets from such 
 2

abuses as self-dealing, imprudent investing, and misappropriation of plan funds.”1 In other 

words, fiduciary standards were essential for the protection of participants in employee benefit 

plans. Congress crafted rules applying fiduciary standards not only to plan trustees, but to a 

range of individuals and entities whose actions affect the security and use of plan funds and the 

benefits of participants. These rules of conduct applied to “fiduciaries,” which Congress defined 

as any person who fits one of the following categories: 

(1) exercises any discretionary authority or discretionary control respecting management 

of a plan;2

(2) exercises any authority or control respecting management or disposition of a plan’s 

assets;3

 

(3) renders investment advice for a fee or other compensation, direct or indirect, with 

respect to any monies or other property of a plan, or has any authority or responsibility to do so4

; 

or 

 (4) has any discretionary authority or discretionary responsibility in the administration of 

a plan.5

The 1975 regulations addressed the third aspect of the definition – a person who renders 

investment advice for a fee. The regulations narrowed the statutory language (which broadly 

provided that a person is a fiduciary if he renders investment advice “for a fee or other 

compensation, direct or indirect, with respect to any moneys or other property of” a plan) to two 

narrow circumstances: first, if a person has discretionary authority or control with respect to 

purchasing or selling securities or other property for a plan;6 and second, if a person renders 

investment advice to a plan on a regular basis, pursuant to an agreement or understanding that 

the advice will be a primary basis for the plan’s investment decisions, and that the advice is 

individualized to the particular needs of the plan.7 In the preamble to the presently proposed 

regulations, the Department describes this as a five-part test, with a person found to be a 

fiduciary only if all five parts of the test are met. 

The regulations also provided, in effect, a definition of the type of advice that concerned plan 

investments: advice concerning the value of securities or property, or advice concerning the 

advisability of investing in, purchasing, or selling securities or other property. 

 

1

Comments of Senator Harrison Williams, Legislative History of the Employee Retirement Income Security Act of 

1974, Vol. III, at 4741(Aug 22, 1974)(comments concerning the Committee of Conference on H.R. 2). 

2

ERISA § 3(21)(A)(i). 

3

ERISA § 3(21)(A)(i) 

4

ERISA § 3(21)(A)(ii) 

5

ERISA § 3(21)(A)(iii). 

6

We note that a person who has such authority would be an investment adviser even without the “investment advice 

for a fee” component of the statutory definition, since the person would be exercising discretionary control of a plan 

asset. 

7

29 C.F.R. § 2510.3-21(c)(1)(ii)(B). 
 3

A year after the 1975 regulations were promulgated, the Department held that a consultant that 

provided an evaluation of employer securities for an ESOP was not a fiduciary under the 

regulatory definition, because the valuation would not “involve an opinion as to the relative 

merits of purchasing the particular employer securities in question as opposed to other 

securities,” and would thus not serve as a “primary basis” for plan investment decisions nor 

“constitute advice as to the value of securities.” 

The newly proposed regulations would substitute a simpler and more easily understood, 

enforced, and administered test that bears greater fidelity to the statutory language and is 

appropriate to developments over the intervening 35 years in the areas of retirement plans and 

investments. The new test would provide that a person renders investment advice for a fee under 

ERISA if the person gives certain types of advice to a plan, plan fiduciary, or plan participant or 

beneficiary, and also falls within one of four categories of persons. 

The types of advice covered by the proposed regulation are: (1) advice, appraisal, or fairness 

opinion concerning the value of securities or other property; (2) advice or recommendation as to 

the advisability of purchasing, holding, or selling securities or other property; and (3) advice or 

recommendations as to the management of securities or other property. The new regulations 

thus expand the ambit of covered investment advice from the 1975 regulations to fairness letters 

and appraisals of property, and eliminates the cumbersome five-part test that depends on the 

proof of the details of the relationship between advisor and advised and eliminates from the 

realm of investment advice much that any layperson would understand to be such advice. 

By including advice as to the management of securities or other property in the definition of 

investment advice (not just advice as to valuation or the advisability of purchasing or selling 

securities), the Department makes explicit in the text of the regulation, its longstanding 

interpretation of the existing regulation, which included advice as to the selection of managers 

and investment options. DOL Adv. Op. 84-04A, 1984 WL 23419, *1-3 (Jan. 4, 1984). The 

regulations also make clear that advice as to the management of a particular asset, e.g. advice as 

to proxy voting or how to maximize the income incident to a piece of real property, is also 

fiduciary advice. In addition, they make explicit that investment advice gives rise to fiduciary 

status if it is furnished to a plan participant or beneficiary. 

To be considered a fiduciary under the proposed regulations, a person who gives such advice 

meets the requirement of the regulations if the person: (1) represents or acknowledges that it is 

acting as a fiduciary; (2) is already a fiduciary under the other legs of the statutory definition of 

fiduciary; (3) is an investment adviser under the Investment Advisers Act of 1940; or (4) 

provides advice or makes recommendations pursuant to an agreement, arrangement, or 

understanding between such person and the plan, plan fiduciary, 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. The proposed regulations’ most important 

departure from the 1975 regulations is that under the fourth category, the advice does not have to 

be rendered on a regular basis and need not be provided pursuant to an agreement or 

understanding that it will serve as a “primary” basis for investment. 
 4

As discussed below, however, the advice must be provided pursuant to an agreement or 

understanding that such advice may be considered in connection with making investment 

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

participant or beneficiary. The existing regulations provide that advice be individualized to the 

needs of the plan. The new regulations, in what we understand is clarification of the 

Department’s existing interpretation, make clear that the advice may be individualized to the 

needs of the plan, plan fiduciary, plan participant, or beneficiary, i.e. to the needs of the recipient 

of the advice, to distinguish such advice from the generalized buy recommendation that a broker 

might issue to all of its clients on a given publicly traded stock. 

The regulations also include a number of limitations on the regulations’ coverage. One of the 

limitations provides that a person offering advice or recommendations is not an investmentadviser fiduciary if such person can demonstrate that the recipient of the advice knew, or should 

have known, that the person is providing the advice in its capacity as a purchaser or seller (or 

agent for a purchaser or seller) of securities or other property, whose interest are adverse to the 

plan or its participants or beneficiaries, and that the person is not undertaking to provide 

impartial investment advice. 

The regulations also do not apply to persons who provide only investment education or persons 

who make available to a plan a group of investment options from which a plan fiduciary will 

decide which options to offer. The term investment advice also does not include advice or an 

appraisal or fairness opinion for purposes of complying with reporting and disclosure 

requirements of ERISA or the Internal Revenue Code unless such report involves assets for 

which there is not a generally recognized market and which serves as a basis on which a plan 

may make distributions to plan participants and beneficiaries. 

The Preamble to the Regulations also invites comments on the question of whether a person who 

gives advice to participants with respect to distributions is providing investment advice. 

Revision of the 1975 Regulations is Warranted 

Developments in Retirement Plans and Investments Since 1975 

The existing regulations were promulgated in 1975, at the dawn of the ERISA era. Since then, 

there have been significant changes in the retirement plan and investment universe that have 

undermined whatever justification there might have been for the regulations’ cramped scope. As 

the preamble to the proposed regulations notes, there has been a seismic shift in the retirement 

plan world from defined benefit plans – in which investment advice was generally rendered to 

sophisticated plan fiduciaries – to self-directed defined contribution plans – in which investment 

advice is issued to individual participants, many of whom have only rudimentary financial 

literacy. Mutual funds, and sellers and brokers for mutual funds, who played a relatively small 

role in retirement plans at the time ERISA was enacted, have become dominant players in the 

new order. The variety and complexity of investment products has also changed markedly over 

the last three decades. 
 5

At the time of the 1976 advisory opinion on valuations of employer stock for ESOPs, there were 

only 250,000 participants in 1,600 ESOPs. Today ESOPs cover more than 12 million 

participants in over 10,000 plans, which hold almost 1 trillion dollars in employer securities.8

 

The exponential growth of ESOPs has been accompanied by numerous cases involving improper 

valuations of employer stock purchased or sold by ESOPs.9 Yet, the 1976 opinion letter 

effectively shields these plans’ valuation advisers from fiduciary liability. 

There have also been significant legal developments since the time the regulations were 

promulgated. The Supreme Court ruled in Mertens v. Hewitt Associates, 508 U.S. 248 (1993),

that a participant generally is entitled to legal relief under ERISA only if the defendant is a 

fiduciary who caused monetary loss to a plan.10 A participant can sue a person other than a 

fiduciary only for equitable relief, and the Supreme Court has narrowly circumscribed the extent 

to which such equitable relief is available. Great West Life & Annuity Ins. Co. v. Knudson, 534 

U.S. 204 (2002). The Labor Department, which filed amicus curiae briefs arguing against these 

positions, could not have known in 1975 that its narrowly drawn regulations and ERISA 

preemption would effectively create an unregulated playing field for so many actors who have a 

direct and substantial impact on plan investments. 

Finally, in the period since 1975, the Department has determined that voting of proxies and 

similar issues are part of investment management and has concluded that investment advice as 

defined in the regulations includes advice regarding the selection of investment managers. This 

last point has caused controversy see Cohrs v. Salomon Smith Barney, 2010 WL 2104535 (D.Or., 

Aug. 31, 2005). and recently required the DOL to file an amicus brief to defend its interpretation 

of the old regulations. See DOL amicus brief in In Re Beacon Securities Litigation, 09-CV-077 

(LBS), 2010 WL 3895582 S.D.N.Y. Although the Department’s position prevailed in district 

court, the issue remains hotly contested and will likely be the subject of an appeal by defendants 

in Beacon if plaintiffs prevail on the merits. It is therefore appropriate for the Department to 

revise the regulations to address investment advice concerning such issues to eliminate any doubt 

in the courts that such advice should give rise to fiduciary status. 

We have heard it argued that this view, that investment advice should include advice regarding 

the selection of fiduciaries to manage assets, will have the baneful effect of discouraging 

informal advice about, for example, the selection of independent fiduciaries from trusted 

advisors such as plan counsel. We disagree. Advice as to the selection of an independent 

fiduciary is not legal advice if it goes beyond evaluating whether a particular firm meets the legal 

requirements to act as an independent fiduciary or advising as to the nature of a prudent selection 

process. If lawyers choose to go beyond providing legal advice and provide advice as to whom a 

plan should select to manage plan assets, then there is no reason why those lawyers should 

receive a special dispensation from fiduciary status as compared to a consultant who habitually 

 

8

The National Center for Employee Ownership, “A Statistical Profile of Employee Ownership,” 

http://www.nceo.org/main/article.php/id/2. These figures do not include 401(k) plans with employee stock funds. 

9

See, e.g., Keach v. U.S. Trust Co., N.A., 239 F. Supp. 2d 820 (C.D. Ill. 2002)(appraiser not a fiduciary); Clark v. 

Ameritas Investment Cor., 408 F.Supp. 2d 819, (D. Neb. 2005)(appraiser not a fiduciary). 10ERISA §409(a). A fiduciary who breaches its responsibilities under the statute is also obligated to return to the 

plan any profits the fiduciary made through the use by the fiduciary of plan assets. Id. In Mertens, the Court 

specifically held that a non-fiduciary who knowingly participated in a breach of trust was not subject to section 

409(a) 
 6

makes recommendations about asset allocations and asset manager selections, unless we adopt 

the too-convenient fiction that no one heeds the advice of lawyers who exceed the ambit of their 

professional competence. The concern that plans will be deprived of the unique perspective of 

lawyers who have experience working with independent fiduciaries is overblown. Lawyers can 

identify the independent fiduciaries with whom they have worked and describe factually their 

experiences with them without purporting to make a recommendation. Alternatively, they can 

make a recommendation and lawyers, more than anyone, understand that the implicit claim of 

competence in giving such advice will give rise to fiduciary responsibility. 

The 1975 Regulations Improperly Narrowed the Meaning of Investment Advice 

ERISA § 3(21)(A) provides straightforwardly that a person is a fiduciary if he “renders 

investment advice for a fee or other compensation, direct or indirect, with respect to any moneys 

or other property of such plan, or has any authority or responsibility to do so.” The 1975 

regulations narrowed the scope of this language by limiting it to investment advice that was 

“regular,” rather than one-time or episodic; advice that was rendered pursuant to an agreement or 

understanding that it would be a “primary basis” for investment; and advice that is 

“individualized” to the particular needs of the plan.11 These limitations are not consistent with 

the plain meaning of the term “investment advice,” and at least in retrospect can be said to 

impede rather than advance the congressional goals of limiting self-dealing and of assuring 

prudent investment of plan assets.12 As the Preamble to the Proposed Regulations notes, people 

providing investment advice not covered by the regulations have considerable influence on the 

decisions of plan fiduciaries and sometimes have conflicts of interest that result in lower returns 

and less retirement income for plan participants and their beneficiaries. The regulatory definition 

 

11The Preambles to the proposed and final 1975 regulations include virtually no explanation for the Department’s 

introduction of these extra-statutory conditions on the meaning of investment advice. The few comments noted in 

the Preamble to the 1975 final regulations asked that the definition of investment advice be narrowed (the 

Department responded to these comments by adding to the final regulations additional limitations on the meaning of 

investment advice); asked that the meaning of “fee or other compensation” be clarified (the Department responded 

to these comments by indicating that it was still studying this issue); asked that the applicability of the regulations to 

investment companies subject to the Investment Company Act of 1940 be limited (the Department responded to 

these comments by adding to the final regulations some conditions and limitations related to the purchase and sale 

of securities by investment companies); and asked for clarification of certain issues involving broker-dealers and 

investment advice (the Department responded to these comments with a discussion of these issues in the Preamble to 

the final regulations). The Preamble to the final regulations is silent as to whether it received any comments 

suggesting that the regulations defined investment advice too narrowly, suggesting that it did not. From 

conversations we have had with other groups representing interests of participants, it does not appear that such 

groups submitted comments on the 1975 proposed regulations (neither the Center nor NELA existed in 1975). In 

any event, the Department, in response to a FOIA request, has indicated that it cannot locate the comments 

submitted on the proposed regulations. 

12We also note that the Supreme Court had not yet decided Chevron U.S.A., Inc. v. Natural Resources Defense 

Counsel, Inc., 467 U.S. 837 (1984). In Chevron, the Court wrote that in determining what deference to give to an 

agency decision, the first question “always, is the question whether Congress has directly spoken to the precise 

question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, 

must give effect to the unambiguously expressed intent of Congress.” There is no ambiguity about the meaning of 

the term “investment advice” and the only limitation that Congress placed on whether a person becomes a fiduciary 

because it rendered investment advice is that the investment advice was rendered for a fee or other compensation. 

Yet the regulations substituted a unique definition of investment advice by providing that the advice had to be 

offered on a regular basis, had to be a primary basis for a plan’s investment decisions, and had to be part of an 

agreement to provide individualized advice. 
 7

is also inconsistent with judicial language indicating that Congress generally intended the term 

fiduciary to be “broadly” construed.13 

The problems of the regulatory definition are illustrated in judicial decisions. In Farm King 

Supply, Inc. Integrated Profit Sharing Plan and Trust v. Edward D. Jones & Company, 884 F.2d 

288 (7th Cir. 1989), a plan followed a brokerage firm’s conflicted investment advice and 

suffered a loss, but the court held that the brokerage firm was not a fiduciary because “there was 

no mutual understanding that Jones' advice would be a primary basis for Plan investments.” 

In a recent district court case, Bhatia v. Dischino, 2010 WL 1236406 (N.D. Tex. March 30, 

2010), the trial court held that the actuarial consulting firm was not a fiduciary under the 

regulations, because the plaintiffs did not plead adequate facts to show that the firm “rendered 

advice on a regular basis as part of a mutual agreement that such advice serve as the primary 

basis of investment decisions.” 

The Department has explained that developing proof of the elements of the regulations, even 

where proof exists, has slowed and impeded enforcement of ERISA for the Department of Labor. 

The lack of support in the statute for the conditions in the regulation and the difficulties for 

enforcement are reasons enough for the regulation. But the Center and NELA would like to 

point out that Congress intended that ERISA would be enforceable by ordinary participants and 

beneficiaries who, unlike the Department of Labor, do not have subpoena power and have no 

ready access to the documents and testimony that would demonstrate fiduciary status under the 

detailed existing regulation. This has always been a severe impediment to enforcement of 

fiduciary responsibility by private plaintiffs, but it has been greatly exacerbated in recent years 

because the Supreme Court has adopted a “plausibility” standard for the evaluation of complaints 

on a motion to dismiss. As a consequence, complaints alleging fiduciary status may be 

dismissed if they fail to allege factual support for some element of the regulation, and factual 

support will typically be unavailable or limited without discovery. See e.g. Glen Ridge 

Surgicenter, LLC v. Horizon Blue Cross Blue Shield of New Jersey, Inc., No. 08-6160 (JAG), 

2009 WL 3233427, at *6 (D.N.J. Sept. 30, 2009) (“[P]roof of [defendant]’s fiduciary status is an 

element of the fiduciary duty claim, and ‘a formulaic recitation [in the complaint] of the elements 

of a cause of action will not do.’” (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ); 

see also Braden v. Walmart Stores, Inc., 588 F.3d 585, 598 (8th Cir. 2009) (discussing the 

problem that participants are often without access to information that would allow them to plead 

factual support for each element of a claim). 

The new regulations recognize that investment advice is no less important merely because it is 

rendered on a one-time basis. An individual who advises on the purchase of employer stock with 

all of the assets of an ESOP on a one-time basis is not less worthy of regulation than an 

individual who advises quarterly on asset allocation in a defined benefit plan. Moreover, the 

regular basis requirement finds no support in the statute or the legislative history. 

Similarly, the requirement that advice be offered pursuant to an agreement or understanding that 

the advice will be a primary basis for making a decision is and always has been unsupported by 

the statute and extremely difficult to prove. As a practical matter, contracts with investment 

 

13See, e.g., LoPresti v. Terwilliger, 126 F.3d 34, 40 (2nd Cir. 1997). 
 8

advisors are simply not written this way. An advisor agrees to provide advice of a particular sort 

in exchange for some form of compensation. There is no reason why the contract should specify 

how the advice may be used by the plan fiduciary. So while the advice may be the only real 

basis for an investment decision by the plan fiduciary, there will be no written agreement that the 

advice will be primary or even significant. Almost invariably, such an agreement or 

understanding will have to be inferred and will be rebutted by an integration clause in any 

written agreement providing for the advice. This hurdle, which the new regulations eliminate, 

seems to have been designed to give almost all advisors who did not specifically seek to be 

treated as fiduciaries a good faith argument that they are not fiduciaries. Consequently, this 

requirement in the old regulations is profoundly destructive of ERISA’s purpose to protect 

participants and beneficiaries. The elimination of this requirement in the new regulations is not 

merely warranted, it is of critical importance. 

The new regulations do not eliminate the requirement that advice be individualized, but clarify 

that advice should be individualized to the needs of the plan, a plan fiduciary, or a participant or 

beneficiary. This reflects the Department’s interpretation of the existing regulations but it is an 

important clarification. An enormous percentage of plan assets are managed in pooled vehicles 

holding plan assets of many plans. These may be master trusts, insurance separate accounts, 

fund-of-funds, and hedge funds usually organized as LLC’s and operating pursuant to private 

placement memoranda. Advice that is “individualized” for the fiduciaries of these pooled 

vehicles is not individualized for a particular plan, and yet such advice is no less worthy of 

regulation than advice provided to one plan at a time. If anything, regulation of such advice is 

more critical than advice given to a single plan with the needs of that plan in mind. Similarly, 

many investment decisions are made by participants in 401(k) plans, and the advice given to 

them should not escape regulation because individual participants are uniquely vulnerable to 

self-interested investment pitches. 

The decision in the new regulations to cover appraisals is warranted. As a practical matter, 

appraisers set the price of assets that are purchased or sold by plans, including and especially the 

closely-held employer stock that plans purchase or sell. To suggest that this advice is not 

investment advice defies common sense. Often an appraiser is the only outside advisor a 

fiduciary relies on in deciding to purchase an asset at a particular price. 

In an ESOP, price is the critical concern, since diversification is excused and the courts have 

been skeptical of claims that employer stock may be “too risky” to be a prudent investment. We 

anticipate that appraisers will argue that they should not be held to fiduciary standards when their 

appraisals are only used for compliance and distributions. We think the proposal as it stands is 

appropriate. Note that the courts seem to provide a more deferential review of decisions (and by 

extension advice) involving only distributions. See Armstrong v. LaSalle National Bank, 446 

F.3d 728(7th Cir. 2006) (fiduciary setting a value for ESOP distributions is entitled to deference 

because he must balance the interests of those taking a distribution with the interest of those who 

stay in the plan). 

Equally important, the Department’s longstanding interpretation of its regulation to exclude 

appraisals is difficult to defend. The opinions of appraisers are at least “a primary basis” for a 

typical plan’s decision to buy or sell a hard-to-value asset at a particular price, and this is 
 9

certainly understood by appraisers hired to value stock or other assets for a transaction. At best it 

might be argued that an appraiser is often hired for one transaction or one appraisal at a time, so 

an appraiser’s opinion may well not be provided on a regular basis. Following the plain meaning 

of the statute, if not the old regulations, the advice given by appraisers that guides the fiduciary’s 

decision to purchase or sell a particular asset at a particular price certainly falls within the plain 

meaning of “investment advice.” 

The Current Regulations Create Legal Uncertainty 

The 1975 regulations also introduce inherently vague definitional concepts into the definition of 

investment advice. The regulations do not define what is meant by providing advice on a 

“regular basis,” what is meant by advice that will be “a primary basis” for the plan’s investment 

decisions, nor what is meant by advice that is “individualized to the plan’s” needs. These must 

be determined on a case-by-case basis. The inherent ambiguity and subjectivity of these 

concepts creates uncertainty in the law and strains Departmental, judicial, and private resources 

in litigation of issues not related to the core concept of investment advice. 

Comments on the Proposed Regulations 

As we earlier indicated, we strongly support the Department’s initiative to redefine the meaning 

of investment advice, although we offer the following comments that would strengthen the 

proposed regulation and more faithfully implement Congressional intent. 

1. Section 2510-3-21(c)(ii)(D) makes a person who issues investment advice a fiduciary if, 

among other requirements, the advice “will be individualized to the needs of the plan, a plan 

fiduciary, or a participant or beneficiary.” At least in cases of individual participants and 

beneficiaries, we are not certain why a person would be a fiduciary only if their advice was 

sufficiently individualized (and the regulations do not discuss when advice is sufficiently 

individualized to meet the proposed regulatory requirement). We have doubts that a typical 

participant or beneficiary will be able to discern a difference between individualized and nonindividualized advice. 

We are also concerned that some advisers who do not have the interests of participants at heart 

may be focused on selling a particular investment, rather than providing individualized advice 

about a variety of investments or strategies. In such instance, if the advice is directed to an 

individual, that advice might influence that individual’s investment choices within a plan just as 

surely as advice that is individualized. 

Finally, this aspect of the regulation might provide a perverse incentive to some providers of 

investment advice to not tailor the advice to the particular needs of the individual in order to 

avoid fiduciary status. Our concern for advice given to individual participants is heightened 

when the person giving the advice has been given an aura of legitimacy by virtue of having been 

appointed to provide advice by a plan fiduciary or who otherwise has the imprimatur of the plan, 

e.g., a custodian or contract administrator. At least with respect to participants, we would prefer 
 10

that the regulations provide that the advice be directed to a particular participant rather than that 

it be “individualized.”14

As to advice given to plans and plan fiduciaries, the regulation should be modified to eliminate 

the requirement that there be an agreement to provide individualized advice. 

It should be sufficient that there is an agreement to provide investment advice and that the 

service provider performs the agreement by the providing individualized advice. Agreements 

generally do not specify that advice will be individualized, even when individualized advice is 

contemplated. For example, when a consultant is hired to recommend investment managers for a 

particular fund, the agreement to provide individualized advice may be unspoken or assumed by 

the parties - generally such a consultant will take into account the needs of the fund by providing 

more than a generic ranking of manager performance. Consequently, some of the very proof and 

investigational difficulties that inspired the new regulations will still be present unless this 

requirement is modified. 

Moreover, the definition of “individualized” should be clarified further. The Center and NELA 

understand that the Department does not wish to encompass within the definition of fiduciary 

mere brokers or others who provide “research” on stocks, bonds, and other investments, rating 

them as buys, sells or holds, calculating betas or other risk measures or predicting returns. But it 

should be clear that when an advisor tells a fiduciary with control of plan assets (pooled or not) 

or a participant to buy or sell a particular investment, or that an investment without a ready 

market that the fiduciary is considering purchasing or selling has a particular value, then that 

advice is sufficiently individualized. The distinction should be between saying “you should 

consider buying Xerox” and “our firm rates Xerox a buy;” the first statement should be 

considered “individualized,” regardless of the thinking or specific intent behind it. A focus on 

portfolio composition and diversification fails to capture this concept. Further clarification, 

perhaps with examples, should be undertaken in the final regulations. 

2. Section 2510-3-21(c)(2)(i) provides that a person shall not be considered to be a fiduciary 

investment adviser if such person can demonstrate “that the recipient of the advice knows or, 

under the circumstances, should have known, that the person is providing the advice or making 

the recommendations in its capacity as a purchaser or seller of a security or other property, or as 

an agent of, appraiser for, such a purchaser or seller, whose interests are adverse to the interests 

of the plan or its participants or beneficiaries, and that the person is not undertaking to provide 

impartial investment advice.” 

While we believe that this limitation may be appropriate when such advice is provided to a 

sophisticated plan fiduciary, it is not appropriate when the advice is given to individual 

participants or their beneficiaries. The Center and NELA have worked with participants for 35 

and 26 years respectively, and it is our experience that most plan participants will not be able to 

discern when advice is impartial or conflicted. In addition, even if there is disclosure, in a oneto-one meeting, whether in person or by phone, an unsophisticated investor will often regard the 

 

14Non-individualized advice on asset allocation and the like, however, will generally be characterized as investment 

education rather than investment advice. 
 11

adviser as acting in his interest. This is particularly true if the participant does not have access to 

other advisers. Indeed, an adviser’s success may depend on a client’s belief that the adviser is 

interested primarily in the customer’s welfare, despite a declaration of self-interest. There is the 

further fact that most participants will not be knowledgeable about the types of fees and benefits 

that can accrue to the purchaser or seller of securities. Thus, we strongly urge the Department to 

revise this limitation so that it only applies to advice and recommendations given to plan 

fiduciaries.15

3. Section 2510-3-21(c)(2(iii) of the proposed regulations provides that investment advice does 

not include an appraisal or fairness opinion that reflects the value of an investment of a plan or 

participant or beneficiary, provided for purposes of reporting and compliance under ERISA or 

the Internal Revenue Code, unless such report involves assets for which there is not a generally 

recognized market and serves as a basis on which a plan may make distributions to plan 

participants and beneficiaries. We believe that the Department should consider revising the 

limitation so that it would not apply to situations when an appraisal of property for which there is 

not a generally recognized market would have a material effect on the funding status of a defined 

benefit plan. 

The Center and NELA recognize that appraisers will typically include scope limitations in their 

appraisals. For example they will say that they are relying on management projections in 

preparing a discounted cash flow. In such cases, it is up to the user of the appraisal to assure 

himself that the projections relied upon are reasonable. The Department should be able to 

address the concerns of appraisers by indicating that scope limitations will be respected, and 

appraisers will be held responsible only for the opinions that they express (complete with 

limitations), subject to section 405 of ERISA, so that an appraiser who knew that he was being 

provided with unreliable information would have a duty to take steps to remedy the situation. 

4. The Department asked for comment on whether and to what extent the final regulation should 

define the provision of investment advice to encompass recommendations related to taking a 

plan distribution. The Department has taken the position that a person providing investment 

advice to a participant in an individual account plan is a fiduciary, even if the person is chosen 

by the participant and has no other connection to the plan.16 The Department has also held that if 

a plan fiduciary responds to participant questions about the advisability of taking a distribution or 

the investment of amounts drawn from the fund, that fiduciary must act for the sole and 

exclusive benefit of the participant. Moreover, a fiduciary that advises the participant to invest in 

an IRA managed by the fiduciary may be in violation of the prohibited transaction rules of 

ERISA and the Internal Revenue Code. 

However, the Department has also opined that, if the person providing such advice on 

distributions is not connected with the plan, that person can recommend that the participant take 

 

15We also note an additional concern: the proposed rule appears to undercut the prohibited transaction exemptions 

that apply when fiduciaries provide investment advice under certain limitations designed to protect plan participants 

from conflicts of interest. See ERISA § 408(g). Under the proposed regulations, an investment adviser could claim 

that it did not become a fiduciary under the “sale or purchaser” limitation and thus was free to give investment 

advice without complying with section 408(g). 

16DOL Advisory Opinion 2005-23A. 
 12

a distribution and invest in a fund managed by that person and that does not constitute 

investment advice under the current regulations.17 We see no reason for this distinction and 

believe that the regulations should be changed. 

A recommendation to remove assets from the plan and invest them elsewhere is, in effect, a 

judgment about the relative merits of the plan options and the other investment(s). The person 

making the recommendation can have interests adverse to the plan participant and the 

recommendation can have a substantial effect on a participant’s retirement security, both in terms 

of future investment performance, the loss of an economically efficient means of taking 

retirement income in annuity form, and tax considerations. Moreover, under the current 

interpretation, the person giving advice in these circumstances has no obligation under ERISA to 

reveal their conflict of interest. Such advice should be considered investment advice under the 

new regulations. 

We are especially concerned about the problem of advice given by plan custodians and nonfiduciary administrators. We are aware of participants and beneficiaries who call plans to 

arrange for or inquire about a distribution who are then solicited to invest in products offered by 

the plan service provider. At a minimum the regulations should address this concern by making 

the entities that provide this “advice” fiduciaries. Participants and beneficiaries are inclined to 

believe that the persons assigned to address their inquiries regarding their rights in the plan have 

their interests at heart. In truth, they are unknowingly exposed to salesmen with a financial 

interest, whether disclosed or not. Persons using their privileged access to plan participants and 

beneficiaries gained through their positions (even ministerial positions) with a plan to steer 

participants and beneficiaries into their investment products should be held to fiduciary 

standards. 

5. Section (c)(ii)(B) of the regulations should be clarified by adding “a plan fiduciary” after 

“individualized needs of the plan” and “managers” after “securities.” More importantly, we are 

concerned that such menus that are excluded from investment advice be limited to those that give 

the fiduciary a broad choice to select from. At one extreme, if fiduciaries are presented with a 

specific or very limited lineup, it is hard to see why the individual promoting that lineup should 

be excused from being deemed a fiduciary, even if he discloses that he is selling a product and is 

not disinterested. In addition, such disclosure should specify the nature of the individual’s 

financial interest—i.e., how is he being paid and how much he is being paid to recommend these 

alternatives. 

6. The Preamble to the Regulations should be revised to indicate that the Department has taken 

litigation and administrative positions prior to the issuance of the proposed regulations 

interpreting the existing regulations that investment advice to a plan encompasses; a) advice to 

plan fiduciaries, including fiduciaries of pooled vehicles; b) advice with regard to the selection of 

managers; and c) advice paid for by third parties, e.g., commissions. Likewise, the Department 

should clarify in the Preamble that it does not view its interpretation of the existing regulations’ 

requirement of individualized advice as precluding advice individualized to the needs of plan 

fiduciaries of pooled vehicles rather than a particular plan. Without such clarification, 

 

17Id. See also Walsh v. Principal Life Insurance Co., 49 EBC 1344 (S.D. Iowa 2010). 
 13

defendants will argue that the new regulations implicitly recognize that such advice would not 

give rise to fiduciary status under the existing regulations. 

Conclusion 

In sum, this is a much needed regulatory change that will better protect plans and participants 

and facilitate more effective enforcement when misconduct is uncovered. The Pension Rights 

Center and NELA applaud the Department for pursuing this initiative that will benefit both 

retirement plans and their participants and beneficiaries. 

Respectfully submitted, 

 

Norman Stein Eric Loi 

Senior Policy Adviser Staff Attorney 

Pension Rights Center Pension Rights Center 

 

Marc I. Machiz Terisa E. Chaw 

Cohen Milstein Sellers & Toll PLLC Executive Director 

Consultant to the Pension Rights Center National Employment Lawyers Association