Jul 31, 2012

DOL Modifies Position Regarding Brokerage Windows

On July 30, 2012, the Department of Labor (the “DOL”) released updated guidance regarding the participant-level fee disclosure rules under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), in the form of revised FAQs. The revised FAQs modify the DOL’s previous position regarding the duty of plan sponsors and fiduciaries to monitor and provide disclosures for investments in brokerage windows, as stated in Q&A 30 of the FAQs issued by the DOL in May. The SGR Client Alert addressing the May FAQs is available here.

A brokerage window allows 401(k) plan participants to invest a portion of their accounts outside of the specified investment funds offered by the plan. In the May FAQs, the DOL suggested that plan sponsors and fiduciaries have a duty to monitor the investment selections that participants make through a brokerage window, not just the plan’s “designated investment alternatives.” The May FAQs also suggested that a non-designated investment alternative selected by participants through a brokerage window could be treated as a designated investment alternative (triggering disclosure obligations under the participant-level fee disclosure rules) if a sufficient number of participants selected the investment.

In announcing the DOL’s revised guidance, the DOL acknowledged the many questions which were raised regarding Q&A 30 and indicated that it will allow more time for discussions on practical and cost effective ways to ensure that participants are protected when they invest funds through brokerage windows.

The revised FAQs now provide that an investment alternative is only a designated investment alternative if it is specifically identified as available under the plan. However, the guidance also contains a statement that plan sponsors and fiduciaries of plans with brokerage windows are still bound by the ERISA Section 404(a) duties of prudence and loyalty to participants and beneficiaries who use the brokerage windows, including taking into account the nature and quality of services provided in connection with the brokerage windows. Plan sponsors and fiduciaries should continue to monitor investments through their plans’ brokerage windows and await further guidance from the DOL.

A copy of the revised FAQs (which were issued in DOL Field Assistance Bulletin No. 2012-02R) can be obtained by clicking here.

For more information, please contact your SGR Executive Compensation and Employee Benefits Counsel.

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