Disclaimer

The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.

 Skip to Content

Labor Department Modifies Disclosure Regarding Brokerage Windows in Participant-Directed Plans
August 01, 2012

August 1, 2012 -- Yesterday, the Department of Labor issued Field Assistance Bulletin ("FAB") No. 2012-02R supplementing the disclosure required to be given to participants in participant-directed individual account plans (e.g. 401(k) plans) by the recently issued participant disclosure regulation (29 CFR 2550.404a-5).  Service providers who are required to furnish certain specified information to plan administrators so that they can comply with the participant disclosure regulation can also rely on the guidance provided by FAB No. 2012-02R. 

The recently issued guidance supersedes the guidance previously issued in FAB No. 2012-02 by specifically modifying and replacing the question dealing with plans that provide a "brokerage window" or similar arrangements as an investment alternative.  Specifically, the new guidance replaces old Frequently Asked Question ("FAQ") 30 with new FAQ 39 and makes correlative changes to FAQ 13 and 29.

 FAQ 30 stated that "the failure to designate a manageable number of investment alternatives raises questions as to whether the plan fiduciary has satisfied its obligations under section 404 of ERISA."  Many practitioners thought that this requirement exceeded the regulatory requirements the FAQ was implementing.

FAQ 30 also imposed an affirmative obligation on plan fiduciaries to examine non-designated investment alternatives available under the plan that are selected by a significant number of participants and determine whether one or more of such alternatives should be treated as a designated investment alternative. 

Finally, FAQ 30 contained a safe harbor for plans that offered more than 25 investment alternatives, if certain requirements were met. 

 All three of these requirements were eliminated in FAQ 39.  Specifically, FAQ 39 states:

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.

The Labor Department does caution, however, that fiduciaries of plans with brokerage windows, self-directed brokerage accounts or similar arrangements are still bound by ERISA’s general fiduciary responsibilities under ERISA Section 404(a).  The Labor Department also warns that a fiduciary’s failure to designate investment alternatives to avoid investment disclosures under the participant disclosure regulation will raise questions under ERISA’s general fiduciary responsibility provisions.
Authored By
Image: Stephen W. Kraus
Stephen W. Kraus
Related Practices
Labor & Employment
©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.