[authors: Thomas R. Hoecker and Kevin J. Hogan]
The Department of Labor (DOL) recently released new guidance, retracting its prior guidance, regarding participant fee disclosure rules for plans that offer brokerage windows, self-directed brokerage accounts or similar arrangements.
On May 7, 2012, the DOL released Field Assistance Bulletin (FAB) 2012-02, which contained a set of Questions and Answers (Q&A) that seemingly imposed a new obligation on fiduciaries of plans that offer brokerage windows. In Q&A 30, the DOL stated that if a “significant” number of participants choose a non-designated investment alternative through a brokerage window, the plan fiduciary has an affirmative obligation to determine whether one or more of the investment alternatives should be treated as a designated investment alternative (DIA). The DOL then set participation requirement thresholds to determine what constituted a “significant” number of participants. This obligation went well beyond the long-held, common understanding of what is required of plan fiduciaries with respect to brokerage windows. It also created a number of questions on how fiduciaries would handle this new requirement.
Alleviating the concerns of plan fiduciaries, the DOL released FAB 2012-02R on July 30, 2012, withdrawing Q&A 30 and replacing it with Q&A 39. The latest guidance provides that a fiduciary of a plan that offers a brokerage window is bound by the general fiduciary statutory duties of prudence and loyalty to the participants of the plan, “including taking into account the nature and quality of services provided in connection with the…brokerage window.” The DOL’s new Q&A 39 is more in line with the common understanding of a fiduciary’s duties where a plan offers a brokerage window. This new guidance relieves fiduciaries of the additional obligation imposed by Q&A 30 to monitor participants’ individual investments through the brokerage window. Accordingly, plan fiduciaries do not have to provide participant fee disclosures for an investment alternative selected through a brokerage window unless the plan specifically designates such investment alternative as a DIA.