Here's the Department of Labor's new guidance, issued July 30, on brokerage accounts.
Whether an investment alternative is a “designated investment alternative” 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 bulletin also does not change the 404(c) regulation or the requirements for relief from fiduciary liability under Section 404(c) of ERISA or address the application of ERISA's general fiduciary requirements to simplified employee pension plans or SIMPLE IRA plans.
Nonetheless, 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.
Also, fiduciaries of such plans with platforms or brokerage windows, self-directed brokerage accounts, or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan are still bound by ERISA Section 404(a)'s statutory duties of prudence and loyalty to participants and beneficiaries who use the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement, including taking into account the nature and quality of services provided in connection with the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement.
The department understands plan fiduciaries and service providers may have questions regarding the situations in which fiduciaries may have duties under ERISA's general fiduciary standards apart from those in the regulation. The department intends to engage in discussions with interested parties to help determine how best to assure compliance with these duties in a practical and cost-effective manner, including, if appropriate, through amendments of relevant regulatory provisions.
This article originally appeared in the August 6, 2012 print issue as, "DOL'S NEW BROKERAGE GUIDANCE".