DOL Revises Disclosure FAQs, Clarifies Position on Brokerage Windows

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The Department of Labor's Employee Benefits Security Administration July 30 clarified its position on the treatment of brokerage windows in Field Assistance Bulletin 2012-02R, superseding FAB 2012-02.

The new field assistance bulletin modifies the hotly debated Question 30 , which dealt with brokerage windows and “designated investment alternatives,” and replaces it with a new Question 39.

DOL originally put forth its position on brokerage windows in Field Assistance Bulletin 2012-02, which contained frequently-asked-questions and answers regarding the participant-level fee disclosure rule under Section 404 of the Employee Retirement Income Security Act(88 PBD, 5/8/12; 39 BPR 921, 5/15/12). Many in the retirement community were surprised by Question 30 and said it was a new regulatory interpretation (115 PBD, 6/15/12; 39 BPR 1157, 6/19/12).

Question 39.

In the new Question 39, DOL said: “Whether an investment alternative is a 'designated investment alternative' (DIA) for purposes of the regulation depends on whether it is specifically identified as available under the plan. The regulation does not require that a plan have a particular number of DIAs, and nothing in this Bulletin prohibits the use of a platform or a brokerage window, self-directed brokerage account, or similar plan arrangement in an individual account plan.”

Question 39 goes on to say, “In the case of a 401(k) or other individual account plan covered under the regulation, a plan fiduciary's failure to designate investment alternatives, for example, to avoid investment disclosures under the regulation, raises questions under ERISA section 404(a)'s general statutory fiduciary duties of prudence and loyalty.”

DOL will “give interested parties more time to engage in discussions with the Department on practical and cost effective ways to ensure participants and beneficiaries receive all the fiduciary protections afforded to them under ERISA when they use brokerage windows and other similar arrangements, including, if appropriate, through amendment of relevant regulatory provisions,” it said in a news release.

DOL also revised Questions 13 and 29, which included cross-references to Question 30.

Welcome Clarification.

Jan Jacobson, senior counsel for retirement policy at the American Benefits Council, told BNA July 30 that the revision is a positive one. “I think many of our members will rest easy about their brokerage accounts, because it appears to eliminate the need to look through and see what participants are investing in,” she said.

“The new guidance makes clear that the brokerage account itself is not a designated investment alternative and just because somebody invests through the brokerage window doesn't make something they invest in a designated investment alternative,” Jacobson said, which is good news for plans that have designated investment alternatives and also offer a brokerage window.

Jacobson said concern may arise for plans that only offer open brokerage windows.

“There will at least be a concern among employers who only have a open brokerage window or only have an open mutual fund window of whether there is potential for breach of fiduciary duty based on” Question 39's language, she said.

By Kristen Ricaurte Knebel