DOL Preparing to Clean the Brokerage Windows
Chris Allesee

Self-directed brokerage accounts (“SDBAs”) have been offered in retirement plans for years, and are grounded in the principal that some participants are sophisticated enough to manage their account’s investments and outgain a plan’s designated investment alternatives. However, the Department of Labor has been watching SDBAs with an ever-increasing level of interest since it rolled out new participant-level disclosure requirements and trained its sights on the activities of investment advisors.  With a world of investment opportunities open to participants (and investment advisors eager to assist them), concerns relating to the extent of required participant disclosures and the influence of advisors are no more apparent than in SDBAs. They create a host of questions about a plan administrator’s responsibility to disclose information to participants that elect to maintain an SDBA, monitor the investment activity in the accounts, and to ensure that participants working with their own brokers and advisors are not being overcharged.    

In 2012, the DOL issued a revised Field Assistance Bulletin that did little to affect the status quo, aside from clarifying the new participant-level reporting requirements for plans offering brokerage windows. However, the DOL included a notable caveat. Specifically, fiduciaries of plans offering brokerage windows are still bound by ERISA’s prudence and loyalty requirements in accounting for the nature and quality of services offered to participants. Not earth-shattering, but it was a stark indicator that the DOL still had an eye on regulating SDBAs and exercising its enforcement authority over SDBAs within plans. Regardless, it did little to clarify the DOL’s position regarding the extent of a plan fiduciary’s responsibility for monitoring brokerage account activity.  

That all may change in 2015, as the Department of Labor published a list of topics and questions  in August and requested comment from the retirement plan industry relating to brokerage windows offered by employer-sponsored retirement plans. If you currently offer SDBAs to your participants (or are considering SDBAs for your plan), please stay tuned for updates should the DOL finally take the leap and issue new guidance. 

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