More information regarding the issue of brokerage windows in 401(k) plans - designed to allow more investment-savvy participants the option to self-manage more of their retirement savings - was released Monday by the Department of Labor's Employee Benefits Security Administration.
On May 7, 2012, the Department issued Field Assistance Bulletin No. 2012-02, which provided guidance to its field enforcement personnel in question and answer format on the obligations of plan administrators under a final regulation to improve transparency of fees and expenses to workers with 401(k)–type retirement plans.
The regulation requires plan administrators to give workers improved disclosures regarding administrative and investment fees and expenses in their 401(k) type plans.
Plan sponsors and service providers had questions about one of the Bulletin's entries on brokerage windows and other arrangements for plan participants to get involved with investments outside of those designated by their plan.
The new Field Assistance Bulletin provides a little more clarity on the issue and also allows interested parties more time to talk to the DOL about ways that participants can still receive ERISA fiduciary protection, even if they choose non-standard investment vehicles.
The new material is as follows, from the Bulletin:
Question: A plan offers an investment platform that includes a brokerage window, self-directed brokerage account, or similar plan arrangement. The fiduciary did not designate any of the funds on the platform or available through the brokerage window, self-directed brokerage account, or similar plan arrangement as "designated investment alternatives" under the plan. Is the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement a designated investment alternative for purposes of the regulation?
Answer: No. Whether an investment alternative is a "designated investment alternative" (DIA) for purposes of the regulation depends on whether it is specifically identified as available under the plan. The regulation does not require that a plan have a particular number of DIAs, and nothing in this Bulletin prohibits the use of a platform or a brokerage window, self-directed brokerage account, or similar plan arrangement in an individual account plan. The Bulletin also does not change the 404(c) regulation or the requirements for relief from fiduciary liability under section 404(c) of ERISA or address the application of ERISA's general fiduciary requirements to SEPs or SIMPLE IRA plans. Nonetheless, in the case of a 401(k) or other individual account plan covered under the regulation, a plan fiduciary's failure to designate investment alternatives, for example, to avoid investment disclosures under the regulation, raises questions under ERISA section 404(a)'s general statutory fiduciary duties of prudence and loyalty. Also, fiduciaries of such plans with platforms or brokerage windows, self-directed brokerage accounts, or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan are still bound by ERISA section 404(a)'s statutory duties of prudence and loyalty to participants and beneficiaries who use the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement, including taking into account the nature and quality of services provided in connection with the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement.
The Department understands plan fiduciaries and service providers may have questions regarding the situations in which fiduciaries may have duties under ERISA's general fiduciary standards apart from those in the regulation. The Department intends to engage in discussions with interested parties to help determine how best to assure compliance with these duties in a practical and cost effective manner, including, if appropriate, through amendments of relevant regulatory provisions.