September 24, 2015

Delivered electronically by E-mail to: e-ORI@dol.gov

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule

Room N5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Reference: RIN 1210-AB32 Definition of the term “Fiduciary;” Conflict of Interest 

proposed rule and associated Prohibited Transaction Exemption proposals

Ladies and Gentlemen:

The U.S. Chamber of Commerce (the “Chamber”) submits these further 

comments in response to the U.S. Department of Labor’s solicitation of comments 

regarding the Department’s Employee Benefits Security Administration (EBSA)’s notice 

of proposed rulemaking regarding “Definition of the Term ‘Fiduciary’; Conflict of 

Interest Rule—Retirement Investment Advice” (RIN 1210-AB32) and associated notices 

of proposed Prohibited Transactions Exemptions (PTEs) published at 80 Federal 

Register 75 (pps.21928, 21960, 21989, 22004, 22010, and 22021). This letter reiterates 

and expands matters regarding the Department’s regulatory economic impact analysis 

discussed in our July 20, 2015, comment letter in light of testimony presented during 

the August 10-13, 2015, administrative hearings. 

The Chamber is the world’s largest business federation, representing the interests 

of more than three million businesses and organizations of every size, sector and region, 

with substantial membership in all 50 states. More than 96 percent of the Chamber’s 

members are small businesses with 100 or fewer employees, 70 percent of which have 

10 or fewer employees. Yet, virtually all of the nation’s largest companies are also active 

members. Therefore, we are particularly cognizant of the problems of smaller 

businesses, as well as issues facing the business community at large. Besides 

representing a cross-section of the American business community in terms of number of 

employees, the Chamber represents a wide management spectrum by type of business 

and location. Each major classification of American business – manufacturing, retailing, 

services, construction, wholesaling, and finance – is represented. 

These comments and our previous comments have been developed with the input 

of member companies who are interested that regulations protect their employee’s 
retirement savings while avoiding unnecessary costs that could be passed to savers and 

reduce their investment returns. Our members also are interested to ensure that all 

Federal rulemaking proposals and final decisions are informed by a thorough, accurate, 

and objective economic impact analysis as required under Executive Orders 12866 and 

13563 and under the Regulatory Flexibility Act. The Chamber and its members are 

committed to the principle that regulatory decisions should be based on sound 

scientific, statistical and economic evidence.

In light of testimony presented during the EBSA administrative hearings, three 

topics are important to reiterate and expand: (1) EBSA’s economic impact analysis of the 

impact on small entities, as required under the Regulatory Flexibility Act, is inadequate 

and incomplete; (2) EBSA has not adequately considered the risks of unanticipated 

adverse impacts of its proposal; and (3) EBSA should explicitly and systematically 

include in its proposal a plan for monitoring and evaluating the impact and effectiveness 

of any final regulation that it promulgates. Each of these topics is discussed below.

Inadequate and Incomplete Regulatory Flexibility Analysis

EBSA’s Initial Regulatory Flexibility Analysis fails to meet the full requirements 

of the Regulatory Flexibility Act. The statute requires1

(1) a description of the reasons why action by the 

agency is being considered;

(2) a succinct statement of the objectives of, and legal 

basis for, the proposed rule;

(3) a description of and, where feasible, an estimate of 

the number of small entities to which the proposed rule 

will apply;

(4) a description of the projected reporting, 

recordkeeping and other compliance requirements of the 

proposed rule, including an estimate of the classes of 

small entities which will be subject to the requirement and 

the type of professional skills necessary for preparation of 

the report or record;

(5) an identification, to the extent practicable, of all 

relevant Federal rules which may duplicate, overlap or 

conflict with the proposed rule.

(c) Each initial regulatory flexibility analysis shall also 

contain a description of any significant alternatives to the 

proposed rule which accomplish the stated objectives of 

applicable statutes and which minimize any significant 

 

1 5 USC 603, accessed at http://www.gpo.gov/fdsys/pkg/USCODE-2010-title5/html/USCODE2010-title5-partI-chap6-sec603.htm
economic impact of the proposed rule on small entities. 

Consistent with the stated objectives of applicable 

statutes, the analysis shall discuss significant alternatives 

such as—

(1) the establishment of differing compliance or 

reporting requirements or timetables that take into 

account the resources available to small entities;

(2) the clarification, consolidation, or simplification of 

compliance and reporting requirements under the rule for 

such small entities;

(3) the use of performance rather than design 

standards; and

(4) an exemption from coverage of the rule, or any part 

thereof, for such small entities.

EBSA’s initial regulatory flexibility analysis is incomplete and inadequate in 

terms of identifying the small entities affected and assessing the cost impacts. EBSA’s 

analysis did not include any consideration of feasible regulatory flexibility alternatives 

to mitigate impacts on small entities. Each of these three elements of inadequacy is 

discussed in detail below.

Identification of Affected Small Entities. EBSA identified affected small 

entities cursorily and ambiguously as comprising two categories: (1) small retirement 

savings/pension plan sponsors and individual IRA investors; and (2) small service 

providers, including small broker/dealers and small Registered Investment Advisor 

companies. 

Small plan sponsors and IRA investors are not identified numerically. EBSA’s 

assertion2 that affected small plan sponsors and IRA investors only benefit does not 

obviate the requirement to identify this category of affected small entities in some 

quantitative detail. It is not clear how EBSA’s concept of “small pension plans” relates 

to categories of small businesses or other entities as defined by the Small Business 

Administration. Our concern on this point is similar to that expressed by the U.S. Small 

Business Administration, Office of Advocacy in a letter to EBSA:

“Based on input from small business stakeholders, Advocacy is concerned 

that the Initial Regulatory Flexibility Analysis (IRFA) contained in the 

proposed rule lacks essential information required under the Regulatory 

Flexibility Act (RFA). Specifically, the IRFA does not adequately estimate 

the costs of the proposal or the number of small entities that would be 

impacted by it.”3

 

2 EBSA Regulatory impact Analysis, p. 181.

3 See docket for this rulemaking at www.regulations.gov, file:///C:/Users/rbird/Downloads/1210-

AB32_comment_403_US_Small_Business_Administration_Office_of_Advocacy_071715.pdf.
At the very least, EBSA should identify the number of affected small plan sponsors by 

industry and by gradation of number of plan participants. Within the scope of EBSA’s 

arbitrary definition of a “small pension plan” as one with 100 or fewer members, it may 

be that the impacts (benefits, costs or both) may vary significantly within that range. 

For the purposes of regulatory flexibility analysis, it may be meaningful to distinguish 

the numbers of plans with 10 or fewer participants from those with 50 to 100 

participants, for example. It is not sufficient for EBSA to dismiss its obligation with the 

claim that data is not available. EBSA has the authority, resources, and time available at 

its disposal to do field research, surveys, records sampling and other data collection 

activities to determine the numbers and characteristics of affected entities, including 

those deemed to be small by various definitions.

For the second category of affected small entities, “small service providers 

rendering investment advice to plan or IRA investors”4 EBSA first cites the Small 

Business Administration’s standard for small businesses in the “Financial Investments 

and Related Activities Sector,” which is comprised of firms with annual receipts up to 

$38.5 million. Paradoxically, EBSA then shifts to an arbitrary and inadequately 

explained alternative of firms with receipts of $10 million or less, potentially ignoring 

many firms that should have been included in the regulatory flexibility analysis based on 

the SBA standard of $38.5 million annual revenue. The Chamber agrees with the 

conclusion of the Small Business Administration Office of Advocacy that “EBSA does not

clearly state what constitutes a small business in the analysis for this rulemaking....[and] 

it is uncertain whether the IRFA contained in the proposed rule accurately takes into 

account all of the potential small business impacts of the proposal.”5

In its analysis of small service providers, EBSA again cites the lack of available 

data. Again, this is not a credible excuse for the lack of an adequate analysis as required 

by the Regulatory Flexibility Act. EBSA had at its disposal the authority, resources and 

time to undertake research and data collection to obtain the needed data. This point 

was made by the SBA Office of Advocacy in its letter to EBSA: “EBSA should consider 

both obtaining additional information on small entities as well as providing cost 

estimates in ranges and running multiple sensitivity analyses to see how the costs of the 

rule might change if some of the factors considered by EBSA are different than its 

assumptions.”6

Economic Impacts on Small Entities. As noted by the Small Business 

Administration Office of Advocacy in its letter to EBSA quoted above, the EBSA 

regulatory flexibility analysis does not adequately estimate the costs of the proposal.7 Of 

the two categories of small entities potentially affected by the proposed rule, EBSA 

effectively ignores cost impacts on one (small plan sponsors and IRA investors) and 

seriously miscalculates the costs for the other (small service providers). 

 

4 RIA, p. 181. 

5 Claudia Rodgers, Acting Chive Counsel for Advocacy, U.S. Small Business Administration, Letter 

to The Honorable Phyllis C. Borzi dated July 17, 2015, p. 4. Accessed from the docket for RIN1210-AB32 

at www.regulations.gov as http://www.regulations.gov/#!documentDetail;D=EBSA-2010-0050-0608. 

6 Ibid, p. 5.

7 Ibid, p. 1
For the small plan sponsors/IRA investors category, EBSA summarily dismisses 

the impact of the proposed rule by the unsupported claim that this group will only 

benefit: “The proposed rule and the accompanying exemptions will provide benefits to 

small plan sponsors, and IRA investors...”8 Apparently EBSA means to suggest that this 

category of small entities experiences both costs and benefits, but that the net benefits 

are positive on average for affected small plan sponsors or IRA investors.9 However, 

EBSA does not present any empirical evidence, calculations or other basis to 

establishing this conclusion. A credible and useful regulatory flexibility analysis should 

provide specific estimates of the average costs and average gross benefits from which a 

claim of positive net benefit average is calculated. 

Furthermore, it is not sufficient for the regulatory flexibility analysis only to show 

that average net benefits are positive. The average is a composite of diverse members, 

and for some affected small entities there may be a net cost rather than a net benefit. A 

thorough regulatory flexibility analysis that complies with the intent of the Regulatory 

Flexibility Act should provide sufficient data detail to reveal whether or not those small 

entities that will experience costs in excess of benefits are an identifiable subcategory. If 

any significant subcategory of affected small entities should be found to be exposed to 

net costs, then EBSA’s duty under the Regulatory Flexibility Act is to identify those costs 

and to consider how they may be mitigated.

Even if all small entities obtain some net benefit from the proposed rule, it is 

arguable that the regulatory flexibility analysis should consider how those net benefits 

could be made larger by reducing the included cost elements.

Flexibility Alternatives. EBSA failed to address one necessary element of an 

adequate regulatory flexibility analysis: identifying and considering alternatives to 

mitigate impacts on small entities.10 Nowhere in the IRFA section of EBSA’s RIA 

document is there any discussion of alternatives that EBSA has considered to mitigate 

cost impacts of the proposed rule on affected small entities. It may not be necessary that 

EBSA adopt any mitigating alternative, but it is necessary, to comply with the 

Regulatory Flexibility Act, that EBSA identify such alternatives, consider them, and if 

rejecting them, explain why. 

In a separate section (Section 8) of the RIA, EBSA does discuss certain general 

regulatory alternatives, but, as noted in our previous (July 20, 2015) comment letter, 

EBSA does not examine the listed alternatives in the full benefit/cost analysis context 

prescribed by OMB guidance and the relevant Executive Orders. The alternatives that 

EBSA discusses are only tangentially related to mitigation of small entity impacts. EBSA 

should include in the section of its regulatory analysis specifically addressed to 

 

8 EBSA Regulatory impact Analysis, p. 181.

9 The alternatives, asserting that there are no costs or that net benefits are positive for every 

affected entity, are not credible. EBSA estimates that positive costs will be imposed on service providers 

and EBSA has not presented any evidence to support a claim that all such costs would be absorbed by the 

service providers. Therefore, it is reasonable to assume that at least some of service providers’ increased 

costs will be passed to the clients to whom the services are provided, and for at least some of the client 

plan sponsors or IRA investors the passed on cost may exceed the benefit accrued.

10 EBSA RIA, p. 185
regulatory flexibility analysis a detailed discussion demonstrating its compliance with 

the statutory requirement to identify and consider alternatives for mitigating small 

entity impacts of the proposed rule.

These concerns are mirrored in the Small Business Administration Office of 

Advocacy letter submitted to the regulatory docket for this rulemaking:11

As the proposal contains an IRFA with inadequate cost and small 

business estimates, the public will not be fully informed as to the 

possible impact of the proposed rule on small entities. Moreover, 

because the estimates provided by the IRFA appear to be flawed, it 

is uncertain how EBSA could accurately evaluate alternatives to 

the proposed rule which would reduce the burdens on small 

businesses. As an example, a number of small business owners 

and representatives have been in contact with Advocacy to express 

concern that the proposed rule underestimates the burdens it 

would impose and that the proposal could even limit their ability 

to offer savings and investment advice to client. Without a more 

accurate understanding of the regulatory burden on small 

businesses, EBSA will not be able to understand both the extent of 

the costs of the rule as well as the efficiency and effectiveness of 

potential alternatives to help small entities. As described in more 

detail below, small business stakeholders report to Advocacy that 

BSA does not fully consider and evaluate certain alternatives in 

the proposal that could help reduce these costs and burdens on 

small entities.

The Chamber concurs in the recommendation of the Small Business 

Administration Office of Advocacy that EBSA should postpone further consideration of 

the proposed rule until after it has republished a Supplemental IRFA that remedies the 

errors and omissions identified in the inadequate current version, and receives and 

considers fully public comments on the republished IRFA. We hope that EBSA will also 

avail itself of the assistance that the SBA Office of Advocacy has offered toward 

preparation of a more adequate IRFA.

Advocacy recommends that EBSA republish a Supplemental IRF A 

for additional public comment before proceeding with this 

rulemaking. The Supplemental IRFA should provide a more 

accurate estimate of the small entities impacted by the proposal. 

Specifically, EBSA should be more transparent about its process 

for allocating firms into various size categories based on 

distribution percentages derived from previous reports. EBSA 

should also better explain, and provide evidence to justify, its 

approach for dividing ERISA plan service providers into small, 

medium, and large size categories. Advocacy also suggests that 

EBSA provide in its Supplemental IRFA a more accurate estimate 

of the costs of the proposal. Because of the lack of clarity and small 

 

11 Ibid. p. 5.
entity data, Advocacy recommends that EBSA conduct multiple 

sensitivity analyses on its assumptions and use ranges as

opposed to point estimates wherever possible. Advocacy also 

recommends that the Supplemental IRFA also take into account 

the suggestions of small business owners and representatives to 

expand the scope of the best interest contract exemption and the 

seller's carve-out. Advocacy encourages EBSA to continue to 

conduct outreach with small business stakeholders to help develop 

additional alternatives and exemptions in the proposed rule that 

would make it less burdensome and costly for small businesses. By 

republishing a Supplemental IRFA and giving full consideration to 

additional regulatory alternatives, EBSA will gain further valuable 

insight into the effects of the proposed rule on small business and 

be more transparent in explaining and justifying the choices that it 

made in the proposal. Advocacy stands ready to assist 

EBSA in these efforts.

12 [Emphasis added]

Risks of Unanticipated Adverse Consequences

EBSA has not adequately considered the risks of unanticipated adverse impacts 

of its proposal. In particular, EBSA should consider the risks that anticipated benefits 

of the proposed rule will be diminished by the effect of higher costs of obtaining advice, 

or the scarcity of the supply of advisers able to comply with the proposed rule results in 

retirement savings investors making decisions without adequate information and 

advice. This risk is particularly significant in the event of an equities market downturn 

when, experience shows, investors without the support of experienced advisers are likely 

to sell in a “panic” and experience loss of unrealized gains and of principal. 

Often the unexpected or unlikely adverse outcome of a decision can be mitigated 

by reversing course and starting over, but some public policy mistakes cannot be easily 

undone. This non-reversibility risk is an important concern that EBSA should explicitly 

address. The proposed rule will impose major change on a large and long-established 

segment of the financial market. Even if the risk is small that the proposed change will 

have adverse consequences, the change may not be amenable to reversal. The change 

will fundamentally alter ways of doing business and client relationships. Some 

institutions will undergo significant restructuring, employees will be laid off or retrained 

for new duties, and some established companies may find it necessary to merge with 

others or even to go out of business. Even if the likelihood is small, the magnitude of 

impact may make the risk unacceptable. 

Consideration of irreversibility risk adds a new dimension to the regulatory 

decision. In particular, it suggests that initial steps and gradual changes that would 

reveal the likely effects of change, that could be reversed or that would inflict less harm 

in the worst event may be preferable to a full scale regulatory change. The government 

has the potential to wield enormous power and influence over markets. Wise 

 

12 Ibid, p. 6.
governance requires wielding that power with discretion and care to avoid unanticipated 

or unintentional consequences.

Need Follow-up Impact Evaluation 

An important strategy that EBSA can adopt to mitigate the risks inherent in the 

proposed rule would be to include in any final rule explicit provisions for monitoring 

implementation, data collection, surveys and related research activities to evaluate the 

effectiveness and impact (costs, benefits and transfers) of the regulation. EBSA should 

explicitly define metrics and targets by which the effectiveness and impacts of a rule 

would be judged. 

E.O. 13563 instructs agencies to undertake retrospective evaluations of the 

benefits, costs and effectiveness of regulations. Such ex post regulatory impact analyses 

are useful for identifying obsolete regulations as candidates for elimination, but such 

studies are also important for newly implemented rules to gauge whether the forecast 

benefits and costs are accurate and whether unforeseen effects may require that a 

regulation be revised or adjusted before irreparable harm occurs. 

Retrospective evaluations are often hindered by lack of sufficient data on 

program outcomes and impacts. The regulatory planning and proposal stage for a new 

rule is the ideal time to identify the performance measures and other data that will be 

needed for future retrospective evaluation and to build into the regulatory design 

information collection requirements and other mechanisms to facilitate future 

evaluation research. The need for retrospective evaluation is especially great in the case 

of a regulation like the EBSA proposal, which relies on extensive assumptions and 

uncertain effects. 

For retrospective evaluation of the proposed rule, the primary regulatory 

performance measure should focus on whether or not the regulation achieves the 

objective of improving the long-term return on investment enjoyed by retirement 

savers. Any positive or negative impact on the per capita level of retirement savings 

contributions should also be assessed. The costs of regulatory compliance, also, should 

be tracked and compared to the values forecast during the rulemaking decision process.

The Department of Labor is fortunate to have within its Office of the Assistant 

Secretary for Policy a group of experienced and expert program evaluation research 

professionals. EBSA should seek their advice and recommendations regarding 

strategies to incorporate plans for evaluation into any regulation design.

Conclusion

The Regulatory Flexibility Act obligates regulatory agencies to exercise due 

diligence to enumerate affected small entities and to credibly analyze the impacts of 

regulations on such small entities. Executive Orders 12866 and 13563 direct agencies to 

conduct full benefit cost analyses of all available alternatives and to select the most 

efficient (least cost relative to benefit) regulatory approach. EBSA has not performed its 
duty with regard to either the Regulatory Flexibility Act nor the relevant Executive 

Orders. EBSA should not proceed to a final regulatory action until it has adequately 

demonstrated full compliance with these requirements by publishing corrected and 

completed regulatory impact and initial regulatory flexibility analysis, receiving further 

public comment, and reconsidering any subsequent regulatory proposal in response to 

an adequate opportunity for the public to submit data and information.

Sincerely,

 

Randel K. Johnson Ronald Bird, Ph.D

Senior Vice President Senior Economist, Regulatory Affairs

Labor, Immigration & Employee Benefits Economic Policy Division

U.S. Chamber of Commerce U.S. Chamber of Commerce