DOL Requests Information Regarding Use of Brokerage Windows and Similar Arrangements in Participant-Directed Defined Contribution Plans

by Goodwin

The U.S. Department of Labor (“DOL”) published a request for information (the “RFI”) regarding the use of brokerage windows, self-directed brokerage accounts, and similar arrangements (collectively referred to in this article as “Brokerage Windows”) in 401(k) plans and other participant-directed defined contribution plans that are subject to the fiduciary duty rules of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  The DOL indicated that its goal in issuing the RFI is to obtain information that will assist it in determining whether, and to what extent, regulatory standards or other guidance concerning the use of Brokerage Windows may be necessary to protect participants.  Comments responding to the RFI are due November 19, 2014.


Defined contribution plans that permit participants to direct investments typically designate a specific set of investment options (“Designated Investment Alternatives” or “DIAs”) from which participants may select investments for their plan accounts.  Some plans make investments available through Brokerage Windows in addition to, or in lieu of, Designated Investment Alternatives. 

Investments made available through a Brokerage Window are treated differently from Designated Investment Alternatives under DOL regulations.  For example, plan fiduciaries are subject to ERISA fiduciary duties in selecting and monitoring DIAs, but those obligations do not apply with respect to investments made available through a Brokerage Window.  Further, investments made available through a Brokerage Window are not subject to detailed rules concerning disclosures to participants that apply to DIAs.

In Field Assistant Bulletin (“FAB”) 2012-02 (May 7, 2012), the DOL stated that if an investment made available through a Brokerage Window were selected by a significant number of participants, the relevant plan fiduciary would have an affirmative obligation to examine that investment and determine whether it should be treated as a Designated Investment Alternative for purposes of disclosure requirements.  The DOL also indicted that, in its view, the failure to designate a “manageable number” of investment alternatives would “raise[ ] questions” regarding whether the relevant fiduciaries had satisfied their fiduciary duties under ERISA. 

In response to a substantial reaction from groups representing plan sponsors and service providers, the DOL subsequently revised the FAB to eliminate the statement that heavily utilized investments made available through a Brokerage Window may need to be treated as Designated Investment Alternatives, but emphasized that, in its view, the failure to specify any DIAs under a plan—e.g., in order to avoid compliance with the disclosure obligations applicable to DIAs – raises questions under ERISA’s fiduciary duties of prudence and loyalty.  See FAB 2012-02R (July 30, 2012).  In revising the FAB, the DOL stated that it intended to engage in a process of discussion with interested parties about the potential need to revise regulations to address the use of Brokerage Windows in participant-directed plans.  The RFI is part of that process.

Information Requested in the RFI

The RFI requests a wide range of information regarding a number of topics, including (among others) the following:

  • The appropriate definition and scope of the term “Brokerage Window” for this purpose;
  • The number of DIAs a plan typically designates and the number of plans offering Brokerage Windows;
  • The number of participants that utilize Brokerage Windows and the benefits Brokerage Windows provide to plans;
  • The process fiduciaries use in selecting a Brokerage Window for their plan; and
  • The types of disclosures made to participants regarding Brokerage Windows and the investments made available through Brokerage Windows.

The RFI also encourages interested parties to address any other matters they believe are relevant to Brokerage Windows and participant-directed plans.


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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