SPARK Recommends Safe Harbor for New Definition of Fiduciary

February 2, 2011 ( - The SPARK Institute has urged the Employee Benefit Security Administration (EBSA) to take a more measured and restrained approach in changing the definition of investment advice and fiduciary so that the agency and the entire regulated community can evaluate the implications for everyone affected.

In its comment letter on the proposed change in the definition of fiduciary, the institute also recommended that EBSA consider adding a safe harbor under any final rule.  

According to a news release, the key features of The SPARK Institute’s proposed safe harbor are: 

  • Unless a service provider has or exercises discretion with respect to plan assets, the service provider and a plan, plan sponsor, plan participant or beneficiary should be permitted to agree upon and define, in writing, the service provider’s role and whether a fiduciary relationship is intended or expected and, if so, the scope of that fiduciary relationship. 
  • Any written agreement regarding a service provider’s role as a fiduciary or non-fiduciary should include an express statement that the products and services are not investment advice or fiduciary service, except as specifically provided otherwise in the agreement. 
  • The service provider should disclose in any such agreement and consistent with the regulations under Section 408(b)(2) of ERISA, the financial interests it may have regarding any decisions that the plan, plan sponsor, plan participant or beneficiary may make in connection with the plan and plan assets. 
  • A service provider should be permitted to provide advice, recommendations, and information to a potential customer during the sales process if the selling party expressly discloses that the seller is providing such in a non-fiduciary capacity as a seller and that it has a financial interest regarding any decisions that the potential customer may make in connection with the plan and plan assets. 


The institute also urged EBSA to maintain its current position that distribution counseling services and recommendations that a person take a distribution are not investment advice under ERISA.  “We also asked EBSA to issue additional guidance that clearly defines distribution counseling, assistance and education that can be provided by the plan sponsor and service providers to the plan, including plan fiduciaries,” said SPARK General Counsel Larry H. Goldbrum, in the news release.

Unintended Consequences  

Goldbrum said the SPARK Institute is concerned that the scope of the EBSA’s proposed redefinition of fiducairy is very broad and the availability and scope of the exceptions are unclear. He added that if the proposal is finalized as written, it is likely that plan sponsors will be unable to cost effectively get the information and support they need with respect to their plan investment options.    

Specific concerns raised by The SPARK Institute in its comment letter include the potential unintentional fiduciary status of investment adviser affiliates, the scope and clarity of the platform provider and seller exceptions, and the scope of the valuation services provisions and limitations on the exception included in the proposal.     

With regard to the platform provider exception, The SPARK Institute recommended that EBSA clarify or modify the proposal to allow for service providers to provide assistance and information to a plan, plan sponsor, participant and beneficiary about plan investment options in a non-fiduciary capacity provided that any such assistance is based on “objective criteria” including criteria recommended by the service provider.    

Regarding the seller’s exception, the Institute recommended that EBSA clarify that the exception is intended to cover the advice and recommendations of the seller until the recipient makes a decision with respect to an unresolved matter, even if an agreement has been signed or decisions have been made by the recipient with respect to other matters.    

Regarding the scope of valuation services, The SPARK Institute asked EBSA to withdraw the sections of the proposed rule that define valuation services as investment advice and that provide exceptions.  Additionally, The SPARK Institute requested that the agency study these issues and their impact on the retirement plan community before issuing a final rule and offered modified language to the proposal in the event that EBSA does not accept its request.  

The comment letter is posted on The SPARK Institute website at