Defined contribution plan executives are reluctant to pull the plug on self-directed brokerage accounts, even though they are underutilized and often ineffective.
"It's within the power of the plan sponsor to terminate the account and require those participants to map over or redirect their funds, but it's something we rarely see," said Mike Francis, president and consultant at Francis Investment Counsel LLC, Hartland, Wis.
The option allows participants to open an account with a brokerage firm through their 401(k) plans, giving them access to a much wider universe of investment selections than their plans offer, usually including mutual funds and sometimes including individual stocks and bonds.
Most plans want to maintain the flexibility a brokerage account offers, even if a small number of investors use it, Mr. Francis said.
Julian Regan, executive director at the New York State Deferred Compensation Board, Albany, said the fund's brokerage account, which offers strictly mutual funds, holds only 0.1% of the plan's $7.3 billion in assets. "There has been modest interest in the option," said Mr. Regan. "It is not considered to be part of the plan's core options and therefore is designed for those that are expert investors."
Lori Lucas, consultant at Hewitt Associates, Lincolnshire, Ill., said 16% of 401(k) plans offer a brokerage account now, up just four percentage points from 2001. Participants are simply not requesting the feature, she said.