More DOL Guidance on Brokerage Windows Could Cause Problems, Organizations Say


The general consensus among a slew of comment letters on the Department of Labor's request for information on standards for brokerage windows in participant-directed individual account plans is: More guidance isn't necessary.

Existing guidance from the DOL's Employee Benefits Security Administration already is sufficient, and any more guidance could re-introduce concerns that the agency has already addressed, financial organizations and business groups said in letters submitted by the Nov. 19 comment deadline.

Groups offered suggestions on how the DOL could proceed with guidance if it decides to do so, such as by providing safe harbors, offering clearer definitions of the term brokerage window as used in defined contribution plans and establishing small plan exceptions for self-directed-only brokerage accounts. 

The DOL issued its request for information (RIN 1210-AB59) in August, and asked for information on the prevalence and role of brokerage windows in participant-directed individual account plans, and whether regulatory standards or other guidance concerning the use of brokerage windows would be necessary to adequately protect participants' retirement savings.

Brokerage Window Definition

The term “brokerage window” has a broad definition. For example, the Financial Services Roundtable said, “While the term brokerage window refers to a program or procedure whereby the participants” in a defined contribution plan (DCP) “are afforded access to investment options that are not ‘designated investment alternatives'—that is, core investment funds offered under a DCP to afford participants investment choices that offer a mix of alternatives with divergent risk profiles, there is no standard program or process associated with such term.”

The DOL also said in 2012 in a revised field assistance bulletin on brokerage windows and similar arrangements that plan fiduciaries are still bound by the Employee Retirement Income Security Act's fiduciary requirements of prudence and loyalty to participants and beneficiaries.  

The Securities Industry and Financial Markets Association suggested a definition of “open brokerage window” if the DOL decides one is needed: “An investment option under an individual account plan that generally permits a participant to invest in any investment option available on the brokerage window provider's platform; provided that the investment options which participants are permitted to invest in may be limited by the plan sponsor.”

Charles Schwab & Co. said that there are two distinct models from which employers can choose when using a self-directed brokerage window in defined contribution plans.

The first is when employers offer the brokerage window as a plan feature, and the second is where plan sponsors adopt a brokerage window-only approach for plan investments.

“The DOL should consider reviewing and defining ‘brokerage window' in a bifurcated manner,” the investment firm said. “The first would be defining brokerage window as a feature added to a plan following review and a determination by the plan sponsor. Schwab encourages the DOL to review the obligations that are in place today for plan sponsors in making this feature available.”

Regarding the second type of window, the firm said that the DOL should review and analyze the use of brokerage windows as an overall plan design rather than as an optional feature elected by plans.

Schwab further said that the DOL should work closely with service providers and plan sponsors to identify obligations that wouldn't be overly burdensome and costly.

Fidelity Investments said that ERISA excludes brokerage windows, self-directed brokerage accounts and similar plan arrangements from its participant disclosure requirements applicable to designated investment alternatives, but doesn't define those terms. If the DOL decides to develop more regulations in this area, it will need to provide a more specific definition of the types of arrangements that are treated as brokerage windows, the brokerage firm said.