American Council of Life Insurers 

101 Constitution Avenue, NW, Washington, DC 20001-2133 

www.acli.com 

Walter Welsh 

Executive Vice President, Taxes & Retirement Security 

(202) 624-2157 t (866) 953-4149 f 

walterwelsh@acli.com 

James Szostek 

Vice President, Taxes & Retirement Security 

(202) 624-2378 t (866) 953-4149 f 

jimszostek@acli.com 

Shannon Salinas 

Counsel 

(202) 624-2028 t (866) 953-4149 f 

ShannonSalinas@acli.com 

Mailed Electronically

February 3, 2011 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

Attention: Definition of Fiduciary Proposed Rule (RIN 1210-AB32) 

Greetings: 

On behalf of the American Council of Life Insurers (“ACLI”), we are writing to comment on the 

proposed rule promulgated under Section 3(21)(A)(ii) of the Employee Retirement Income Security Act 

(“ERISA”), which was published at 75 Fed. Reg. 65263 (October 22, 2010) (“Proposed Rule” or “Rule”). 

The Proposed Rule would dramatically enlarge the universe of persons who owe duties of undivided 

loyalty to ERISA plans and to whom the prohibited transaction restrictions of ERISA and the Internal 

Revenue Code would apply1, by re-defining and substantially broadening the concept of rendering 

“investment advice for a fee” within the meaning of ERISA Section 3(21)(a)(ii). 

The American Council of Life Insurers is a national trade organization with more than 300 

members that represent more than 90% of the assets and premiums of the U.S. life insurance and 

annuity industry. ACLI member companies offer insurance contracts and other investment products and 

services to qualified retirement plans, including defined benefit pension, 401(k) and 403(b) 

arrangements, and to individuals through individual retirement arrangements (IRAs) or on a nonqualified basis. ACLI member companies also are employer sponsors of retirement plans for their own 

employees. 

 

1 Although not covered under Title I of ERISA, individual retirement accounts and annuities (“IRAs”) fall within the scope of the

prohibited transaction excise tax provisions of Code Section 4975. The Proposed Rule would similarly enlarge the universe of 

persons defined as fiduciaries for purposes of applying Section 4975 to transactions involving IRAs.
ACLI appreciates the Department’s concern that under some circumstances the current rule 

impinges the Department’s ability to bring enforcement actions in situations that are clearly abusive. We 

share the Department’s interest in seeing that plans and participants who seek out and are promised 

advice that is impartial and disinterested ultimately receive advice that adheres to the rigorous 

standards imposed by ERISA. At the same time, we are concerned that the Proposed Rule’s pursuit of 

this objective interferes with investment sales and distribution practices that are customary in the 

marketplace, well understood, and commonly relied upon by financial services providers, plans and 

participants alike. We are concerned that these changes will result in plans, plan participants, and IRA 

owners having less access to investment information. Our comments seek to preserve the Department’s 

enforcement objective while avoiding unnecessary disruption and negative impacts to plans, participants 

and individuals. 

Persons engaged in the sale and distribution of investment product and services need to have 

confidence that ordinary course sales recommendations will not, in hindsight, be subjected to a fiduciary 

standard that disallows the payment of sales commissions and other traditional forms of distributionrelated compensation. Please note that regulatory efforts are underway by the Securities and Exchange 

Commission (“SEC”) regarding the standard of care under the securities laws for broker-dealers and 

investment advisers that provide investment advice about securities to retail customers. On January 21, 

2011, the SEC issued a study on broker-dealers and investment advisers. We are reviewing this study 

which may lead to additional comments on the Proposed Rule. We urge the Department to provide the 

public sufficient opportunity to consider the SEC’s regulatory efforts and offer additional comments on 

the Proposed Rule. 

Parties engaged in transactions with ERISA plans and IRAs need clear, unambiguous rules by 

which to determine their duties and obligations in order for the marketplace to function efficiently and to 

ensure that plans, plan participants and IRA owners continue to have a broad range of investment 

products and services available to them, including investment advice and educational services. We offer 

these comments to assist in the development of such rules. 

1. Recommendations Made by Sellers 

Firms seeking to sell investments and investment products to plans and plan participants should 

be able to both (1) promote their products and recommend them to prospective purchasers,2 and (2) 

benefit financially from the successful sale of those products. Without a financial interest, economic 

activity is stifled and opportunities for buyers and sellers to meet and transact are lost. 

Sales activities naturally include recommendations to purchase and invest in products and 

services offered by the seller. For that reason, the seller’s limitation provided by paragraph (c)(2)(i) (the 

“seller’s limitation”) recognizes financial institutions such as life insurers and their sales representatives 

should not be categorized as fiduciaries under ERISA or Code section 4975(e)(3)(B) when they are 

engaged in selling activities and are clear that they are acting in a sales capacity. The seller’s limitation 

is a critical component of the Department’s Proposed Rule. 

Sales Activites. We believe it is absolutely critical to make sure that the wording of the seller’s 

limitation be sufficiently inclusive to encompass the full scope of ordinary course selling and distribution 

activity. As written, the wording of the seller’s limitation, which describes sellers and their agents, raises 

some uncertainties about the availability of the seller’s limitation for other distribution channels, such as 

independent insurance agents, insurance affiliated and unaffiliated broker-dealers and registered 

investment advisers that offer life insurer products, whether exclusively or as one of many other 

products from a variety of different product manufacturers. 

 

2 Subject, of course, to any limitations on marketing and promotional practices imposed on sales of financial products generally.

- 2 - 
Impartial, not “Adverse.” Our membership is deeply troubled by the wording of the paragraph 

requiring that the recipient of the advice know or have a basis for knowing that the interests of the 

selling firm and its distributors are “adverse” to the interests of the plan and its participants. While the 

seller of a financial product has a financial interest in the outcome of a transaction, we think it is 

inappropriate to describe that financial interest as necessarily entailing broad adversity of interest. As 

responsible providers, we have an interest in seeing that our customers are well served, are happy with 

our products and services, and that our customers found those products and services useful to the 

attainment of their financial goals. 

The process whereby purchasers and sellers bargain for and agree upon the terms of a proposed 

transaction is fundamental to the efficient operation of a market transaction. Adversity of interests 

exists in the area of price negotiation, where the seller of a product or service has an interest in 

maximizing profit and the purchaser has in interest in minimizing cost. 

We believe the seller’s limitation needs to parse this key distinction. It should make the point 

that a seller of an investment or an investment product has a financial interest in the transaction it is 

recommending and, if applicable, that less costly versions of an investment product may be available. So 

long as purchasers are provided with that information, they will have the requisite basis for evaluating 

the recommended transaction in light of the seller’s financial interest, and will be in a position to 

understand that the selling firm’s recommendation is not impartial. 

Illustrate with Examples. The rule should provide an example or examples of circumstances in 

which a person would reasonably demonstrate that the recipient of information knows that a 

recommendation is being made by someone in a capacity as a seller. For example, a written 

representation would suffice if it clearly notes that the person is a seller of products and services, that 

the person and, if applicable, its affiliates, will receive compensation in the event the plan, plan fiduciary 

or participant/individual selects the product and services, and that such compensation may vary 

depending upon which product is purchased or which investments under a product or products are 

selected. This type of representation would provide a clear indication to the plan, plan fiduciary or 

participant/individual that the person is a non-impartial seller of products and services. It would also 

address the Department’s stated concern about undisclosed conflicts of interest. Again, ACLI urges the 

Department to adopt a rule that leaves the nature of the relationship unambiguous to all parties. 

Ongoing Sales Relationship. The Department should clarify that the seller’s limitation covers all 

aspects of both an initial sale and the subsequent ongoing relationship between a plan, plan fiduciary or 

individual and an investment provider or any agent, broker, and/or registered investment adviser 

involved with the sale of the investment provider’s products and services. This would include information 

and recommendations regarding the use of a product, e.g., advice regarding the choice of investments 

available under a product’s menu of investments. It is common for defined contribution plans to request 

of potential investment providers a sample menu of investments from among a provider’s available 

investments which, in the opinion of the provider, best match the plan’s current investment options. 

There should be no expectation that any such recommendation is impartial or that the plan seeks advice 

upon which it will rely for its investment decisions. The nature of this relationship should not change 

after a sale. A product provider, agent, broker, and/or registered investment adviser may continue to 

make recommendations regarding products and services. There should be no expectation that these 

recommendations differ in nature following the initial sale. 

- 3 - 
2. Representations of ERISA Fiduciary Status Should be Written 

 

 In its preamble, the Department expresses the belief that explicitly claiming ERISA fiduciary 

status, orally or in writing, enhances the adviser’s influence and forms a basis for the advice recipient’s 

expectation that the advice rendered will be impartial. The Proposed Rule reflects that view by applying 

fiduciary status to all persons affording those acknowledgments and disallowing the availability of the 

paragraph (c)(2)(i) seller’s limitation to such persons. 

We are concerned about the potential proof issues inherent in claims that an adviser provided 

oral representations of fiduciary status. Advisers may be hard put to dispute erroneous or otherwise 

fictitious claims by plans that oral assurances of fiduciary status were provided. At the same time we 

think prudence dictates that where a plan, plan participant or individual seeks out impartial, 

disinterested advice delivered in a manner consistent with ERISA’s fiduciary standard of conduct, then 

the plan, plan participant or individual should obtain the appropriate acknowledgment in writing in order 

to secure the acknowledgement in a permanent form. 

For these reasons, we strongly suggest that paragraph (c)(1)(ii)(A) be modified to apply only to 

persons who represent or acknowledge in writing (electronic or otherwise) that they are acting as a 

fiduciary within the meaning of ERISA with respect to the advice they are providing to the person or 

persons for whom they are so acting. This concept is consistent with the recently promulgated section 

408(b)(2) regulations which require that a service provider acting in a fiduciary capacity acknowledge 

such in writing. 

 

3. Separately Consider a Rule for Individual Retirement Arrangements 

ACLI requests that the Department take additional time to study the IRA and Keogh/oneparticipant plan markets and carefully consider the economic impact of the Proposed Rule on both 

individuals and providers of products and services. We ask the Department to consider IRAs and these 

Keogh plans apart from the scope of a final rule for time to consider the IRA and Keogh market place, 

changes in its regulatory environment, the economic impact of a change to the current rules to the nonERISA marketplace, a meaningful investment education safe harbor tailored to this marketplace, and to 

clarify the application of existing exemptions and/or issued new exemptions tailored to this marketplace. 

We believe that this would be similar to the Department’s decision to separately consider welfare benefit 

plans under the recently issued 408(b)(2) regulations. The Department has held hearings and is close to 

issuing newly proposed regulations governing fee disclosure for welfare benefit plans. We urge the 

Department to consider a similar approach for IRAs and Keogh plans. 

Unlike employer sponsored 401(k) plans that generally provide a limited number of investment 

options selected by a plan fiduciary, IRAs and Keogh plans offer individuals a practically unlimited 

number of options. Brokers and registered investment advisers who prefer to offer a wide range of 

options find it impossible to create a level sales compensation structure. Because that universe of 

investments is virtually unlimited, it is nearly impossible to design a computer model to take into the 

account every possible option. The rights of IRA owners are protected by way of their individual 

agreements and direct relationships with financial institutions. 

Seller’s limitation. We believe that the Department should confirm that the seller’s limitation 

applies to IRAs. It is common for advisors and agents to engage clients and prospective client on their 

particular goals and objectives to better understand their product and service needs. Based on these 

conversations, an advisor might explain the pros and cons of various investment vehicles including 

variable annuities, mutual funds, brokerage accounts, banking products, fixed annuities, alternative 

investments and several types of advisory accounts. Within each of these types of securities and 

- 4 - 
property, advisors/agents can usually recommend several different specific securities that may have 

different features. It is extremely difficult to design different product types so that the product pays the 

advisor the same compensation regardless of the investment allocation within the product. It is virtually 

impossible to do so across product types. For instance, compensation charged for executing a stock 

trade will differ from compensation received for selling a variable annuity. Absent a seller’s limitation, it 

would be next to impossible to provide recommendations as to products and services because generally 

fees are not level. 

For example, a broker may receive 50 bps if the individual invests in Product A (a large cap 

growth fund), 25 bps if the individual invests in Product B (a bond fund) or 0 bps if the individual invests 

in Product C (a money market account). For an individual with $10,000 in her account, a 

recommendation to put all assets into Product A would result in compensation of $50. A 

recommendation to use two products, 60% to Product A and 40% to Product B would result in 

compensation of $40. If the seller’s limitation is too narrow, a broker may avoid making a 

recommendation, thereby leaving the individual without any professional assistance. The individual 

could instead pay a fee-only advisor (typically $500) to get the recommendations that may well be 

identical to the recommendations the broker would otherwise have provided at a far lower cost. The 

economics of small plans and small accounts make it so that the only advice available is often the 

incidental advice provided by brokers. Absent a broad seller’s limitation, the average individual may 

receive no advice at all. 

Other Limitations – The limitations provided at Section 2510.3-21(c)(2)(ii) should be available to 

IRAs. The Proposed Rule carves out from the definition specific acts related to the dissemination of 

investment information and defined contribution plan “platforms.” However, these carve outs are 

limited to individual account plans as defined in ERISA §3(34). ACLI urges the Department to explicitly 

extend these carve outs to include IRAs. 

Insurers issue variable IRAs (IRC § 408(b) Individual Retirement Annuities) that invest in 

insurance company separate accounts. These accounts may offer a variety of investment options in 

different asset classes to address a range of possible investment objectives or asset allocations of 

different annuity owners all within a single separate account. The limited number of the funds in the 

separate account is similar to the “platform” of funds available to a defined contribution plan participant. 

The principal of the “platform” limitations described in 2510.3-21(c)(2)(ii)(B) & (C) should be equally 

applicable to IRAs. 

Regarding education, the Department has provided considerable guidance regarding the line 

between activities that would result in fiduciary investment advice as opposed to activities that would be 

deemed non-fiduciary investment education. The Proposed Rule specifically references Interpretive 

Bulletin 96-1 (29 CFR 2509.96-1) to preserve this guidance for ERISA individual account plans, but does 

not provide a limitation for these activities to IRAs. Interpretive Bulletin 96-1 assumes that the 

investment education being provided relates to an ERISA individual account plan with a limited number 

of investment options. It addresses asset allocation models, but does not address the range of choices 

available for IRAs or Keogh plans such as annuity products, mutual funds, REITs, brokerage accounts, or 

an advisory wrap program to name just a few. Information that models the use of these various 

arrangements by hypothetical individuals should be viewed as “investment education” rather than 

investment advice. 

Furthermore, the educational activities that apply to individual account plans are even more 

important with regard to IRAs. As indicated above, the investment options available to IRA owners could 

almost be limitless, as compared to employer sponsored plans which generally have limited options. The 

typical IRA owner needs help in picking the investment options needed to achieve their retirement goals 

- 5 - 
and the concepts of IB 96-1 are therefore very important to IRA owners. We request that prior to issuing 

a final rule applicable to the IRA and Keogh plan marketplace, the Department issue a Field Bulletin that 

addresses investment education in IRAs and Keogh plans and make it clear that the “education 

limitation” applies to model information regarding the use of these various types of investment 

arrangements and asset allocation models for IRAs and Keogh plans. 

Consumer Impacts - ACLI is extremely concerned that the Rule, if adopted as proposed, will 

negatively impact the very people the Department seeks to protect. We believe that the Rule may lead 

to less choice, reduced access and increased costs for products and services. Compensation structures 

vary by investment products for a variety of reasons, for example, to account for the increased time 

needed to explain a product that is not well understood or more complex than another. Sales agents 

must be able to address the needs of their customers. The Rule must permit this or, we fear, there will 

be fewer opportunities for IRA customers to learn about and consider a range of products and services. 

We are not aware of a computer model that would advise an individual as to choices among 

different IRA product types. If typical sales activities, including recommendations regarding one or more 

IRA products under varied compensation structures, are not permitted by the final rule, IRA customers 

may find that advice is only available under a “wrap program.” Under these arrangements, a set fee, 

either on a dollar or percentage formula basis, is paid for advice on the assets within the arrangement. 

Wrap programs are generally not available to individuals with small accounts. In many instances, wrap 

programs are more expensive than commission-based accounts, yet may be appropriate for certain IRA 

account holders. However, they are not necessarily as suitable a choice for other IRA account holders, 

such as buy and hold investors. Guaranteed lifetime income products are a “buy and hold” investment 

on which an ongoing wrap fee would not be a good fit. As annuities are sold on a commission basis, they 

are generally not available under a wrap program. 

Individuals should not be limited in making IRA rollover decisions. A provider should be able to 

sell and an individual should be able to purchase an IRA insurance product even when the provider’s 

products are used to fund the plan from which a rollover will be made. Fiduciary status should not be 

applied in a way that would restrict the options available to the participant seeking to purchase a rollover 

product. As we noted in section 1 above, so long as it is clear that the provider seeks to sell products, 

the seller’s limitation in the Proposed Rule must apply here. 

4. Recommendations to Take Distributions Not Investment Advice

The Department has requested comment on whether and to what extent the final rule should 

define "investment advice" to include recommendations related to the taking of a plan distribution. A 

decision by the participant to effect a distribution cannot be assumed to be an investment decision with 

respect to the plan as the Department noted in Advisory Opinion 2005-23A. A recommendation 

regarding whether to take a distribution from a plan might include advice which results in a new 

investment outside the plan (e.g., “you should rollover your benefit to your new employer’s plan) or on 

what such distribution should be spent (e.g., “you may be eligible to take a hardship distribution to cover 

our repair to your home”), but it should not be construed to be advice “with respect to any moneys or 

other property of the plan.”3 While a plan may need to liquidate various investments to make the 

distribution, liquidation of plan assets is merely incidental to the primary transaction which is a 

distribution from the plan. In addition, a distribution will not necessarily result in a liquidation of assets if 

the plan distributes cash or other investments in-kind, i.e., no change in investment. To the extent that a 

recommendation to effect a distribution is also accompanied by specific advice regarding the plan’s 

investments (e.g., to liquidate certain plan investments but retain others), the provision of such 

 

3 ERISA §3(21)(A)(ii)

- 6 - 
investment advice would be subject to the Proposed Rule. However, a recommendation regarding 

whether to contribute to or take a distribution from a plan is not investment advice and should not be 

considered investment advice regardless of the fiduciary status of the financial professional making the 

contribution or distribution recommendation. 

Fiduciary Responsibilities can be Limited by Agreement. In the preamble, the Department cited 

Advisory Opinion 2005-23A and noted its position that a recommendation to a participant to take a 

distribution does not constitute investment advice within the meaning of the regulation. We urge the 

Department to use the preamble to the final regulation to clarify an important issue raised by question 2 

of the advisory opinion, i.e., the extent to which responses by a party who is “already a fiduciary” to 

participant questions regarding distributions are the exercise of discretionary authority regarding 

management of the plan which is subject to ERISA fiduciary restrictions. Specifically, we ask the 

Department to clarify that responding to a participant’s question regarding plan distribution is not 

subject to fiduciary standards merely because the party responding to the question or its affiliate 

provides fiduciary services under a written agreement with the plan that are separate and unrelated to 

participant distributions. Such a clarification would be consistent with the understanding that fiduciary 

responsibilities can be limited by agreement and that no party is an all-purpose fiduciary merely because 

it or its affiliate has entered into an agreement to perform specific fiduciary services. More specifically, 

ERISA uses a functional definition of fiduciary. Therefore a person is only a fiduciary to the extent the 

person performs a specific fiduciary function. For example, an agent is a fiduciary due to an arrangement 

to provide plan participants with investment advice regarding designated plan investments. If that agent 

recommends that a participant take a distribution from the plan, this action is separate and apart from 

the scope of the fiduciary’s duties under the arrangement. We urge the Department to confirm this 

functional definition of fiduciary and clarify that activities such as a recommendation to contribute to a 

plan or take a distribution from the plan, whether directly or via an IRA roll-over, do not fall within the 

scope of a fiduciary’s duties merely because the person is a fiduciary for other purposes, e.g., participant 

level investment advice. We also urge the Department to confirm that the seller’s limitation is available 

to persons recommending IRA arrangements to a plan participant or individual to receive a rollover from 

a plan or another IRA. 

5. Status as RIA Alone Should Not Give Rise to Fiduciary Duty 

Absent the application of the limitations in paragraph (2), section 2510.3-21(c)(1)(ii)(C) of the 

Proposed Rule provides that all registered investment advisors (“RIA”) are ERISA fiduciaries. ACLI 

believes that this provision is both unnecessary and unworkable. We find the provision unnecessary as 

paragraph (D) of that subsection already includes any person that provides advice or makes 

recommendations to plans and plan participants as described. The provision is unworkable as its 

application in conjunction with the affiliate rule leads to fiduciary status even when no advice or 

recommendations have been made to the plan or plan participants. 

Should the final rule include the provisions of section 2510.3-21(c)(1)(ii)(C), ACLI requests that 

the rule limit the application of the affiliate provision to only those instances in which an affiliate 

engages in actions or has authority with respect to the plan that is sufficient to cause a reasonable plan 

fiduciary to believe it is receiving fiduciary-level investment advice. Under the Proposed Rule, the mere 

affiliation with an RIA would result in fiduciary status. Specifically, the Proposed Rule says that a person 

may attain this status “directly or indirectly (e.g., through or together with any affiliate).” Affiliation with 

an RIA should not trigger ERISA fiduciary status unless the RIA is providing advice services to the plan. If 

the RIA is not providing advice services to the plan, the affiliate should be able to rely on the multi-factor 

test in section 2510.3-21(c)(1)(ii)(D) of the Proposed Rule in determining its fiduciary status. 

- 7 - 
Similarly, affiliation with, or even direct status as, an ERISA fiduciary other than by providing 

investment advice should not trigger the presumption that a person is an investment advice fiduciary 

unless such status would give plans and participants a reasonable expectation of impartial investment 

advice and the person is in a position to influence investment decisions. Thus, for example, status as an 

ERISA fiduciary for a limited purpose unrelated to investment decisions (e.g., directed trustee, 

investment manager of a "plan asset" investment vehicle in which a plan invests such as an insurance 

company separate account or collective trust), either directly or through an affiliate, should not trigger 

the presumption of investment advice fiduciary status because the fiduciary's limited status alone would 

not give rise to a reasonable expectation that the fiduciary should provide impartial investment advice 

and does not put the fiduciary in a position to influence investment decisions. To impose investment 

advice fiduciary status on these persons solely because of these other limited and unrelated functions 

would be contrary to the functional nature of fiduciary status under ERISA, which generally only imposes 

fiduciary responsibility on persons to the extent of their fiduciary activities with respect to the plan. 

ACLI understands that the language assigning fiduciary status through an affiliate relationship is 

in the existing rule today so it may seem reasonable to continue this concept in the Proposed Rule. 

However, the difference between the existing rule and the Proposed Rule is that the existing rule is 

primarily focused on activity, not status. For example, under the current rule, the mere affiliation of a 

person with an RIA or a directed trustee would not trigger fiduciary status. Instead, the affiliate would 

have to engage in actions or have authority with respect to the plan that is sufficient to cause a 

reasonable plan fiduciary to believe it is receiving fiduciary-level investment advice. Because the 

Proposed Rule would presume fiduciary status based on status alone in some cases, extending that 

presumption based solely on the status of an affiliate is inappropriate. 

 

6. Reasonable Expectations for Fiduciary Status 

 The Department should revise section 2510.3-21(c)(1)(ii)(D) to provide greater clarity as to which 

arrangements lead to fiduciary status. ACLI believes that fiduciary status should not apply when advice 

merely “may be considered.” The current rule provides that a person will be a fiduciary when the person 

and the plan agree that the advice “will serve as a primary basis” for investment decisions with respect 

to plan assets. ACLI believes that this is reasonable and in keeping with the intent of ERISA. The 

fiduciary standards of ERISA should only apply when the parties reasonably expect that the advice given 

and received will serve as a basis for a decision. That reasonable expectation should be evidenced by a 

written agreement between the parties or a written disclosure from the provider. Due to the nature of 

such a relationship, this advice should be subject to the fiduciary duties and responsibilities of ERISA. 

However, the Proposed Rule would subject such duties and responsibilities to persons whose advice or 

opinions hold no such import. A plan may solicit advice from a number of persons without engaging any 

one to serve as an advisor. When a plan’s interest in the advice is cursory at best, there is clearly not a 

relationship which would warrant the extension of ERISA obligations to the advisor. 

7. Platform Provider Limitation 

The Department should provide greater clarity on the “platform provider” limitation in section 

2510.3-21(c)(2)(ii)(B) as it pertains to “individualization” in the context of the sales, marketing and 

retention activities of platform providers. In particular, we believe the platform provider limitation should 

be clear that platform providers are not providing investment advice for a fee when they suggest to plans 

sample menus, or otherwise, when the platform provider (1) does not hold itself out as a plan fiduciary, 

(2) discloses that its recommendations are not intended to be impartial advice, and (3) discloses that it 

has a financial interest in the transaction, which may include indirect compensation paid to the platform 

provider or its affiliates from investment fund complexes. 

- 8 - 
This is important to platform providers because in the ordinary course of selecting a platform 

provider, or determining whether to continue a contract with a platform provider, plan sponsors often 

require, either through a formal request for proposal or by means of an informal request by an 

intermediary acting for the plan such as a broker or consultant, that a platform provider supply a sample 

menu of investment funds (e.g., a subset of funds available from the provider’s investment platform) for 

consideration by the plan sponsor and its advisers. Platform providers that fail to respond to such 

requests are often excluded from the sales opportunity, or fail to retain an existing plan customer. 

In some cases, such requests may be accompanied by certain criteria or parameters supplied by 

the plan sponsor or its intermediary, to guide the platform provider such as the plan’s investment policy, 

fund performance history requirements, Morningstar classifications and other similar criteria. Often, 

however, the plan sponsor’s (or its intermediary’s) request may be simply that the platform provider 

supply a suggested list of funds from the provider’s platform that are substantially identical or closely 

comparable to the plan’s existing designated investment funds. 

In responding to these requests, platform providers engage in non-fiduciary sales activity. 

Platform providers strive to suggest sample menus that are consistent with the goals and objectives 

communicated to the platform provider by the plan sponsor, and consistent with the economic needs of 

the platform provider’s non-fiduciary business model. Therefore, similar to the activity described in the 

seller’s limitation at section 2510.3-21(c)(2)(i), the platform provider will typically attempt to respond to 

these requests by suggesting a sample menu or suggested list of funds that both (1) attempts to 

reasonably satisfy any criteria accompanying the request and (2) meets the platform provider’s target 

revenue needs. Accordingly, we believe it is important that the limitation in section 2510.3-

21(c)(2)(ii)(B) be clarified to include these types of sales activities. 

8. Investment Product Offerings are not Investment Advice 

The Department should clarify in a final rule or its preamble that the development and offer of an 

investment product with a limited investment menu, e.g., a bond fund, a stock fund and a balanced 

fund, is not a provision of investment advice. Investment providers such as insurers should have the 

flexibility to offer a range of products with varied investment menus. 

 

9. Confirm Status of Existing Exemptions

The last time a new fiduciary standard was created to govern sales of products by brokers and 

other investment advisers, the Department responded immediately issuing a number of exemptions 

applicable to broker-dealer activity to protect certain activities. Creating a bright-line test to determine 

who is an advice fiduciary is a laudable goal. However, the bright-line test should not end at the 

determination of who is a fiduciary, but rather extend to the determination as to whether such advice 

creates a prohibited transaction when the broker or other financial professional receives fully disclosed 

direct or indirect compensation from such sale or service. 

It is difficult to assess the impact of the Proposed Rule without a clear understanding of whether 

prior exemptions would continue to apply and whether new exemptions are contemplated. The 

Department has provided a broad exemption for the sale of annuities (PTE 84-24). We would appreciate 

the Department’s confirmation that this exemption is still available and would cover sales of affiliated 

and unaffiliated annuities as well as any compensation, direct or indirect, received by an affiliated 

insurance company, affiliated money managers of variable annuity subaccounts, and any revenue 

sharing paid to the broker. Further, we seek the Department's confirmation that if the requirements of 

PTE 84-24 are met that the exemption covers the provision of investment advice. The Department 

should also confirm the status of exemptions such as PTE 75-1 and 86-128. In particular, it should 

- 9 - 
confirm that these exemptions apply to the provision of investment advice. Product providers, agents 

and brokers need to know that these exemptions still apply, and cover advisory programs which meet 

the requirements of the exemption. 

Finally, the Department has issued Advisory Opinions to investment providers that also provide 

investment advice to ERISA plan participants on whether the receipt of compensation under the 

arrangements in question result in prohibited transactions. In both Advisory Opinion 97-15A (the “Frost” 

letter) and Advisory Opinion 2001-09A (“the SunAmerica” letter), the Department concluded that, based 

upon the facts, the receipt of compensation described under these arrangements did not result in a 

prohibited transaction under ERISA §406(b). ACLI members agree with the Department’s conclusions in 

these Opinions. We ask that Department continue to support these conclusions and leave no doubt as 

to the status of these Opinions under a final rule. 

 

10. Valuations are not Investment Advice 

ACLI requests that the Department remove the provision of appraisal services from the rule. 

ERISA section 3(21)(A)(ii) provides that a person is a fiduciary if he or she “renders investment advice for 

a fee...” The determination of the current price of an asset is not “investment advice,” i.e., it is not a 

recommendation to purchase or sell property or securities nor an opinion regarding the merits or value 

of investing in such property or security. The Department elaborated on the matter shortly after it issued 

the current rule in Advisory Opinion 76–65A, clarifying that the provision of valuation services is not 

“investment advice.” The Department noted, absent an opinion as to the relative merits of purchasing a 

particular asset as opposed to some other asset or assets, the valuation of securities is neither 

investment advice, nor advice as to the value of securities. 

There are good reasons for not treating appraisal services as investment advice. When a plan 

fiduciary directly engages an appraiser to obtain current prices on property or securities that are under 

consideration for purchase or sale or for assets already held by the plan, the fiduciary must act prudently 

in selecting and monitoring the appraiser. A plan’s service arrangement with an appraiser is subject to 

the provisions of ERISA §408(b)(2). As for the Department’s concerns regarding undisclosed conflicts of 

interests, the interim final rule under ERISA §408(b)(2) makes clear that to satisfy the prohibited 

transaction exemption under ERISA §408(b)(2), an appraiser who provides services for indirect 

compensation must disclose to the fiduciary any and all indirect compensation it expects to receive for 

services rendered to the plan. Thus, with respect to appraisals, there already is a plan fiduciary to 

ensure that appraisal activities are performed under an arrangement and in a manner that protects the 

interests of the plan and its participants and beneficiaries. 

Extending fiduciary status to appraisers under this Proposed Rule would, at the very least, 

substantially raise the costs of what are already objective independent valuations for no discernible 

purpose. For appraisal work performed for insurance company separate accounts, it would make such 

appraisers fiduciaries to all ERISA covered plans that invest in these separate accounts. In general, 

these appraisers would have no direct relationship with or knowledge of these ERISA plans. ACLI 

members expect many appraisers to avoid ERISA plans and investment vehicles in which plans invest 

altogether if this Proposed Rule take effect. In that event, there would be severe market disruption for 

both plans seeking to invest in separate accounts and other non-publicly traded securities. At best, we 

anticipate fewer appraisers and increased valuation fees due to the reduction in the number of willing 

appraisers and the need for willing appraisers to insure against potential law suits, all of which are costs 

that will ultimately be borne by plans and their participants. 

 If the Department extends the definition to include appraisal services, we note that the 

limitation on the application of the Proposed Rule at (c)(2)(iii) raises two key concerns. First, the scope of 

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the exclusion for “general reports...provided for purposes of compliance with the reporting and 

disclosure requirements” is too narrow. It is common for insurers to prepare and provide reports and 

statements more frequently than ERISA’s minimum reporting requirements. For example, it is common 

to provide access to daily online account values to plan participants. It is also common for interim 

reports to be prepared for a plan’s investment committee. Second, and more importantly to insurers, 

the rule’s exclusion for reports on assets for which there is “not a generally recognized market” is quite 

problematic. 

Both a plan’s equity investment in an insurer’s separate account (units of the separate account) 

and an undivided interest in the separate account’s investment in other vehicles (e.g., units of the 

separate accounts investments in real estate funds, hedge funds, private equity funds) are “plan 

assets.” Accordingly, any party passing along information to the separate account investment manager 

(the insurer or its affiliate) on the value of the separate account’s investment in the underlying 

investment vehicles (units in the underlying fund) or on assets of that vehicle that are used in computing 

unit values of that vehicle is potentially a fiduciary under the Proposed Rule because it is giving advice 

on the value of securities or other property owned or to be purchased by a plan. This would be true 

whether the underlying investment vehicle invests in publicly offered securities or in non-public assets 

(with values determined by appraisal). The parties swept into the fiduciary definition include investment 

managers of underlying investment vehicles, custodians or sub-custodians and appraisers. 

Many insurers offer real estate separate accounts and hire appraisers to determine the values of 

separate account holdings. Those values are used for client reporting purposes and to set unit values 

used for a plan’s purchase or sale of separate account units. The Proposed Rule would impose fiduciary 

status and liability on real estate appraisers to separate accounts in which ERISA plans invest. By 

valuing the underlying properties of a real estate fund, an appraiser would be advising the real estate 

fund manager on the value of fund units, an ERISA “plan asset,” because the appraisal is for an 

underlying asset of the insurer’s separate account. 

Units of a non-registered separate account are not publicly offered securities. This is true even 

when the underlying assets of the separate accounts are registered securities. Under the Proposed 

Rule, establishing separate account unit values would be a fiduciary act of “advice,” leading an insurer 

to become a fiduciary for purposes of the valuation. Insurers typically hire sub-custodians who have no 

direct contact with any plan investor to handle recordkeeping as well as the calculation of separate 

account unit values. The Proposed Rule would make these sub-custodians ERISA fiduciaries. 

The Department should not use this proposed rule to attempt to extend the definition of fiduciary 

under ERISA 3(21)(A)(ii) to persons providing appraisal services because such services do not constitute 

the rendering of investment advice. This portion of the proposal along with the “limitation” in the 

Proposed Rule at (c)(2)(iii) should be dropped. If the Department finds it necessary to study valuation 

issues more broadly, ACLI suggests that Department issue a Request for Information. 

11. Effective Date 

ACLI believes that an effective date of at least one year following the publication of a final rule is 

necessary and reasonable. The Proposed Rule states that final rule would be effective 180 days 

following publication. As indicated in our comments above, the implications of the new rule would 

require significant changes. Our members will need sufficient time to fully understand and address a 

new regulatory regime, particularly given that any violations would result in a prohibited transaction. 

Should the Rule be implemented as proposed, in addition to time required for compliance review, there 

may be significant changes required to information technology infrastructure, sales processes and 

compensation arrangements and other agreements. 

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***** 

On behalf of the ACLI member companies, thank you for consideration of these comments. We 

welcome the opportunity to discuss these comments and engage in a productive dialogue with the 

Department on these important issues. 

Sincerely yours, 

Walter C. Welsh James H. Szostek 

Executive Vice President, Vice President, 

Taxes & Retirement Security Taxes & Retirement Security 

 

Shannon Salinas 

Counsel 

Taxes & Retirement Security 

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