We recommend the following changes:

 

 

Unworkable Rules on Provision of Investment Advice:  The requirements of the Best Interest Contract (BIC) and other proposed prohibited transaction exemptions are complex and could burden a retirement plan seeking to provide participants with access to investment advice.  

The volume of required disclosure by financial institutions wishing to utilize the BIC exemption is unprecedented; even small errors could result in prohibited transactions and potential litigation. 

 

For investment advice provided to ERISA plans maintained by employers, many of the conditions and limitations of the BIC exemption are particularly concerning.  For example, the exemption’s requirement of a detailed written contract is unworkable in the context of communications and advice provided to plan participants.  Moreover, the proposed requirements would create state law causes of action that could draw plan sponsors into unwarranted litigation as co-fiduciaries as a result of small errors by an investment advice provider hired by the plan sponsor.  This result was not anticipated under ERISA, where Congress expressly determined those acts that would be subject to private rights of action and available remedies.  For the above reasons, we recommend a separate prohibited transaction exemption for investment advice with respect to ERISA plans.  Similar to other proposed exemptions, the new exemption would ensure that investment advice provided to plan participants by investment advice fiduciaries is prudent and in the advice recipient’s best interest.  However, the contractual requirements of the proposed BIC and other exemptions (including private rights of action) would not be incorporated.  Any additional disclosure beyond that already required under EBSA regulations should be minimal. 

 

Protecting Plan Sponsor Employees:  The proposed regulations provide a helpful carve-out from fiduciary status for plan sponsor employees who provide investment advice to plan fiduciaries, as long as they receive no compensation for the advice beyond their normal compensation as employees.  However, the exception is inadequate to protect all plan sponsor employees who are merely communicating with or otherwise assisting plan participants.  In order to protect those employees from potential fiduciary liability, we suggest that the existing carve-out be broadened to make it clear that plan sponsor employees (other than those acting as plan fiduciaries) would not be deemed to be providing investment advice “for a fee or other compensation,” as long as they receive no compensation for the advice beyond their normal compensation as employees.  

 

Application to Health Savings Accounts (HSAs):  The proposed regulations’ application to HSAs was not taken into account in the Regulatory Impact Analysis.  HSAs are different from individual retirement accounts (IRAs), with different goals, different parties and different relationships.  The revised investment advice fiduciary standards (which were crafted for retirement plans) should not be applied to HSAs.  At a minimum, changes in the rules governing HSAs should be delayed and addressed in a separate notice and comment regulation.

 

Application to Welfare Benefit Plans:  In the case of an ERISA welfare benefit plan, it appears that employer-provided health, long-term care, life and disability insurance contracts may, in certain cases, be covered by the broadened definition of investment advice.  We understand that their inclusion may have been unintentional, as it is not discussed in the preamble to the proposed regulations or addressed in the Regulatory Impact Analysis.  To eliminate any ambiguity, we recommend that the proposed regulations make it clear that discussions with and recommendations to a plan sponsor or plan participant regarding the establishment of, maintenance, or participation in a welfare benefit plan (including discussions regarding insurance contracts supporting the plan) are not investment advice under ERISA, unless the advice relates to a specific asset investment.