Field Assistance Bulletin Regarding 404a-5


Posted on July 31, 2012, by Fred Reish in 404a-5. Comments Off on Field Assistance Bulletin Regarding 404a-5

In May 2012, the Department of Labor issued a Field Assistance Bulletin that clarified some of the requirements for participant disclosures under the 404a-5 regulation. However, that Field Assistance Bulletin, or FAB, did more than explain. In some cases, it confused and in others, it shocked.

Perhaps the biggest shock was found in Q&A 30 where the DOL took the position that, in some cases, plan fiduciaries have a duty to investigate how participants were investing in individual brokerage accounts. That was the first that the private sector had heard that the DOL was thinking in that way, much less issuing guidance. In effect, the DOL said that, if there are similar investment patterns among participant individual brokerage accounts, it was possible that those similar investments would need to be treated as designated investment alternatives and, therefore, a variety of disclosures would need to be made to all participants, including the performance history of those investments, expense ratios, appropriate benchmarks, turnover ratios, and so on.

As might be expected, the private sector immediately and vigorously opposed that view. Fortunately, because of that opposition—and perhaps because of cool heads prevailing, the Department has modified its positions. Based on guidance just issued, the DOL has “clarified” its position as follows:

  • Plan fiduciaries do not have an obligation to investigate and/or monitor and/or disclose the investments within individual brokerage accounts.
  • Plan fiduciaries do have a fiduciary duty, under the Prudent Man Rule, to prudently select and monitor the providers of brokerage accounts and to provide the 404a-5 disclosures to participants about the operation and availability of the brokerage accounts and about the fees associated with utilization of those accounts.

Fortunately, the Department has changed its position on these issues and has reached conclusions that are consistent with common sense and common practices.

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