DOL Revises FAQs Clarifying Treatment of Brokerage Windows | Practical Law

DOL Revises FAQs Clarifying Treatment of Brokerage Windows | Practical Law

The Department of Labor (DOL) issued revised guidance clarifying that brokerage windows, self-directed brokerage accounts or similar arrangements offered by participant-directed plans are not designated investment alternatives (DIAs) that require disclosures by plan fiduciaries where the underlying investments are not otherwise DIAs under the plan. This guidance assists plan administrators and service providers in complying with retirement plan fee and expense disclosures under Section 404 of the Employee Retirement Income Security Act of 1974 (ERISA).

DOL Revises FAQs Clarifying Treatment of Brokerage Windows

Practical Law Legal Update 8-520-6600 (Approx. 4 pages)

DOL Revises FAQs Clarifying Treatment of Brokerage Windows

by PLC Employee Benefits & Executive Compensation
Published on 30 Jul 2012 • USA (National/Federal)
The Department of Labor (DOL) issued revised guidance clarifying that brokerage windows, self-directed brokerage accounts or similar arrangements offered by participant-directed plans are not designated investment alternatives (DIAs) that require disclosures by plan fiduciaries where the underlying investments are not otherwise DIAs under the plan. This guidance assists plan administrators and service providers in complying with retirement plan fee and expense disclosures under Section 404 of the Employee Retirement Income Security Act of 1974 (ERISA).
On July 30, 2012, the DOL's Employee Benefits Security Administrative (EBSA) released a revised set of frequently asked questions and answers (FAQs) intended to help plan administrators and service providers comply with the retirement plan fee disclosure rules under Section 404 of ERISA. Field Assistance Bulletin No. 2012-02R supersedes an earlier set of FAQs released on May 7, 2012, which provided that investments within brokerage windows, self-directed brokerage accounts or other similar arrangements could be designated investment alternatives (DIAs) requiring plan administrators to disclose information under ERISA (see Legal Update, DOL Issues FAQs on Retirement Plan Fee and Expense Disclosure Rules).
To clarify the treatment of these arrangements, EBSA released revised FAQs providing instead that an investment platform offered under a plan that includes a brokerage window, self-directed brokerage account or similar plan arrangement is not a DIA for purposes of the required participant-level fee disclosures under ERISA (DOL Reg. § 2550.404a-5 (2011)) where the plan has not previously designated any of the underlying investments in the arrangement as a DIA. Therefore, in this case, plan fiduciaries are not required to make disclosures under the regulation for these investment platforms.
However, the FAQs caution that these plan fiduciaries:
  • May breach their fiduciary duty if they do not offer DIAs to avoid making any investment disclosures required under the regulation.
  • Continue to be bound by ERISA Section 404(a)'s statutory duties of prudence and loyalty to participants and beneficiaries who use the platform or brokerage window, self-directed brokerage account or similar arrangement, including monitoring the "nature and quality of services provided in connection with the [arrangement]."
The FAQs also provide that EBSA will discuss with interested parties situations in which fiduciaries could have fiduciary duties under ERISA Section 404(a) apart from those required by the fee disclosure regulation and how to assure compliance with these duties in a practical and cost-effective manner. For more information on these disclosure requirements under the regulation, see Practice Notes, Fee and Investment Disclosure Requirements for Participant-Directed Plans and Service Provider Disclosure Requirements for Pension Plans.