On August 20, 2014, the U.S. Department of Labor (DOL) released a request for information (RFI) about the use of brokerage windows, self-directed brokerage accounts, and similar arrangements in participant-directed defined contribution plans, as part of a process to determine whether further regulation of these arrangements is warranted. This process comes out of the FAQ guidance DOL initially issued in 2012 under its participant-level fee disclosure regulation. This guidance suggested that responsible plan fiduciaries had both disclosure and substantive obligations:

  • To designate “a manageable number” of designated investment options (DIAs) among which participants might elect,
  • To monitor investments selected by “significant” numbers of participants through self-directed brokerage windows, and
  • In some cases to treat, pursuant to a new safe harbor test, those “significant” investments selected through a brokerage window as DIAs for which investment-level disclosure was required under the regulation.

While DOL at that time was persuaded to revise that guidance, it committed to a further review of considerations under the Employee Retirement Income Security Act of 1974, as amended (ERISA) related to brokerage windows.

The RFI requests information on thirty-eight questions relating to the following topics:

  • The scope and definition of brokerage windows.
  • The characteristics and role of brokerage windows, including in relation to the presence and number of DIAs. The RFI suggests some concern that plans may have discontinued the availability of DIAs, and are offering only a brokerage window, to avoid disclosure obligations.
  • Participation and investment outcomes in brokerage windows.
  • Selection and monitoring of brokerage windows and providers.
  • Fiduciary access to information about investments acquired through brokerage windows.
  • Brokerage window costs.
  • Disclosures concerning brokerage windows and investments acquired through those windows. The RFI makes specific reference to recommendations in the recent U.S. Government Accountability Office (GAO) report on these arrangements.
  • The role of advisers both for responsible plan fiduciaries and for participants.
  • The need for guidance on the duties of fiduciaries with respect to brokerage windows.
  • Annual reporting and periodic pension benefit statements.

Policy commentators have argued in the literature both for and against the use of brokerage windows in retirement plans. Any additional regulation DOL issues could materially affect the legal consequences and practical feasibility of making brokerage windows available. Responses to the RFI are due November 19, 2014.

Published In: Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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