Aon Hewitt Statement 

Introduction 

As one of the world’s premier human resources services companies, Aon Hewitt has extensive experience 

in both designing and administering retirement plans for mid- to large-sized employers, including helping 

employers to communicate with their participants about this increasingly important benefit. We 

are the largest independent provider of administration services for retirement plans, serving more than 

11 million plan participants. 

My name is Ted Novy, and I am the lead attorney of the Retirement Outsourcing team in Aon Hewitt’s legal 

department. We are honored to provide comments to the Department of Labor today on its proposed 

regulations concerning the definition of the term “Fiduciary” under 29 CFR 2510.3-21(c). 

Today many Americans face serious challenges concerning retirement. Americans are living longer today 

than in the past. Many rely solely on a 401(k) plan for their employer-provided retirement income, which 

can place them at greater risk of prematurely depleting their existing retirement assets. The overwhelming 

majority of Americans receive lump sum distributions of their retirement savings when they retire. These 

participants who take a lump sum are subject to serious risks--inflation, longevity and market. It is no 

wonder that many Americans are looking for assistance with their retirement challenges. 

Too few are equipped to manage their retirement challenges alone, so they rely upon others for assistance. 

Within the mid-sized to large-sized qualified plan environment, many participants have access to unbiased 

advice, guidance, and education. Fiduciary protections are in place to help make sure the plan decisionmakers are focused on the best interests of plan participants. 

The individual retail market also offers a host of options to help address these retirement needs, but the 

choices can be overwhelming to even an informed consumer. No one is filtering through the options to 

make sure individuals are receiving appropriate information and advice that is in their best interest. 

Furthermore, retail fees are generally higher than what mid- to large-sized retirement plans can offer 

through their collective leverage. Consequently, when participants move from the qualified plan to the 

individual retail market, fees can erode savings, and confused participants are at greater risk of buying 

products that are inappropriate for their needs or making decisions without unbiased support. In some 

cases, there may be benefits to the retail market that make a move outside the plan worthwhile – but 

participants must be fully informed about the advantages and disadvantages, and conflicted advice about 

moving from qualified plan to retail can have a detrimental impact on the future financial security of 

American workers. 

With Americans’ retirement income needs in mind, we applaud the Department for moving to update the 

definition of fiduciary. In particular, Aon Hewitt wishes to focus its testimony this afternoon on the question 

that the Department posed in the preamble to the proposed regulation: 

 “Whether and to what extent the final regulation should define the provision of investment advice to 

encompass recommendations related to taking a plan distribution?” 

As I will explain in this testimony, we recommend that the Department answer this question in the 

affirmative--namely that the final regulation should include recommendations to participants to take plan 

distributions from their plan accounts. We base this recommendation upon the following: 
Inclusion of Recommendations to take a Plan Distribution in the Definition of Investment Advice 

As discussed in our comment letter, we believe that the Department should include in the definition of 

investment advice any recommendation made to a participant to take a plan distribution of the assets in his 

or her account because: 

 A participant’s decision to take a plan distribution is comprised of two significant decisions affecting a 

participant’s plan assets, namely: (1) whether to liquidate current investments, and (2) how to manage 

the distribution of the funds; and 

 Failure to include distribution advice under the final regulation may result in the unintended 

consequence of creating a bias towards a recommendation to take a distribution because an advisor 

could both avoid ERISA fiduciary status and also recommend an investment in which the advisor has a 

financial interest. 

A decision to take a plan distribution is comprised of two smaller but significant decisions. First, the 

participant must decide whether to liquidate current investments. Investment decisions to buy or sell a 

particular plan investment option are at the core of a participant’s management of his or her plan account. 

This is true whether the sale of an investment is merely the prelude to investing in another plan investment 

option or the precursor to taking a plan distribution. Furthermore, the decision becomes even more 

complicated when the distribution recommendation does not encompass a total distribution of the 

participant’s account. In such a situation the participant must decide which (or how much of each) 

investment to liquidate. In other words, the participant must decide on the suitability of which investments 

to liquidate and which investments in which to retain a position. 

Second, a participant must decide how to manage the distribution of the funds from his or her plan account, 

including the time, manner, form, and future custody of the plan distribution. The decision of where to invest 

assets outside of the plan and to whom a participant should entrust with custody of those assets is a critical 

component of the participant’s decision. A participant must make this decision, prior to the actual 

distribution, while the funds are still plan assets. 

When an advisor provides advice with respect to either or both of these decisions such advice is provided 

while the assets in question remain within the plan. Together these two important and interrelated 

decisions regarding the investment of plan assets can play a significant role in a participant’s future 

retirement savings. 

In Advisory Opinion 2005-23A (December 7, 2005), the Department decided that a recommendation to take 

a distribution does not constitute investment advice because the assets will be invested outside of the plan. 

However, at the time the advisor provides a distribution recommendation the assets in question are still plan 

assets. Therefore, differentiating between a recommendation to invest in plan options or to invest outside of 

the plan creates an inconsistency in the application of the ERISA fiduciary rules. Why should the advice to 

liquidate an investment position and reinvest in another investment option within the plan be treated any 

differently than a recommendation to liquidate an investment position and then take a distribution to be 

invested outside of the plan? This inconsistent position appears to create a potential bias toward a 

recommendation to take a distribution because an advisor could both avoid ERISA fiduciary status and also 

recommend an investment in which it has a financial interest. 

One might well suggest that the recommendation to take a distribution should be more closely scrutinized 

because not only is the participant making an investment decision, but the participant may be sacrificing the 

benefits of participating in an ERISA plan. We do not make such a suggestion here, but rather recommend 

that any advice to sell a plan investment be subject to the same standard of care, no matter the following 

disposition of the liquidated funds. 
We submit that while a participant has assets invested in the plan any recommendation is a 

recommendation as to the management of a participant’s securities in the plan. Such advice should 

therefore constitute investment advice under ERISA. In short, we view the application of fiduciary standards 

to advisors who recommend plan distributions as a logical application of ERISA’s fiduciary rules, and 

certainly in the best interests of participants and beneficiaries. 

Costs and Benefits Related to a Comprehensive Definition of Investment Advice 

By extending the regulation to include the recommendations to take a distribution from the plan, we believe 

the associated costs would be minimal and that the benefits to participants and beneficiaries would greatly 

outweigh those costs. We also anticipate that treating all recommendations relating to the application and 

management of plan assets consistently may result in more participants retaining their assets in their 

employer-sponsored plans because the level of steerage and inappropriate advice will be reduced. 

Retention of assets within a plan provides a participant or beneficiary with a number of rights and 

protections that they may not receive outside of the plan. Examples include: 

 Protective oversight of a plan fiduciary that must exercise its obligations and duties under a prudent 

expert standard, in the best interests of participants and beneficiaries; 

 Access to unbiased advice and other decision support tools designed and operated with the best 

interests of plan participants in mind, often at prices significantly discounted from individual investment 

advice available in the retail market; 

 More highly personalized and tailored plan communications, including account statements, educational 

material, and fee disclosure information; and 

 Leveraged bargaining power of employer plans, resulting in lower investment costs within the plan 

when compared to similar investments outside the plan. 

Any recommendations to participants and beneficiaries to take a distribution from their qualified plan should 

be considered in the context of these potential advantages. Including such recommendations in the 

definition of investment advice will result in more balanced and unbiased recommendations that consider all 

options. That said, we do believe the provision of general education and information about the advantages 

and disadvantages of taking a distribution should continue to be allowed without invoking fiduciary status. 

Conclusion 

We support the Department’s goal of updating this rule for changes in the financial industry and the 

expectations of plan participants and beneficiaries, as well as the intent to better protect participants and 

beneficiaries from conflicts of interest and self-dealing. As I have explained we believe that these goals can 

best be achieved, in part, by expanding the definition of investment advice to include recommendations to a 

participant to take a plan distribution. We appreciate this opportunity to share our thoughts with the 

Department.