Participant Disclosures about Brokerage Accounts

Posted on November 26, 2012, by Fred Reish in 404a-5, Broker-Dealers, DOL Activity, fiduciary, Plan Sponsors. Comments Off on Participant Disclosures about Brokerage Accounts

The DOL’s 404a-5 regulation places a fiduciary obligation on plan sponsors—in their roles as ERISA plan administrators—to make certain disclosures to participants. In the rush to comply with the 408(b)(2) disclosures, some broker-dealers may have overlooked the participant disclosure guidance about brokerage accounts in Field Assistance Bulletin (FAB) 2012-02.

While the legal obligation is imposed on plan sponsors, the obligation will, as a practical matter, be on broker-dealers, since plan sponsors do not have the information or capability of making these disclosures. As a result, they will turn to their broker-dealers to satisfy the compliance requirements. 

There are several questions and answers in the FAB about brokerage accounts, but for the moment, I want to focus on Q&A-13, which discusses the requirement for quarterly disclosures of dollar amounts to participants. Generally stated, the 404a-5 regulation requires that plan sponsors provide participants with statements of the dollar amounts of certain charges to their accounts during the preceding quarter. That requirement applies expenses to brokerage accounts, as well as for other costs. While most people think of the requirement in terms of a quarterly statement, the regulation permits compliance through interim statements, for example, confirmation statements or monthly statements. In addition to the dollar amount of the fees, the statement must also include a brief description of the services. The example given in Q&A-13 is: “The description of the services must clearly explain the charges (e.g., $19.99 brokerage trades, $25 brokerage account minimum balance fee, $13 brokerage account wire transfer fee, $44 front-end sales load.”

As a result, broker-dealers need to determine if and how they can satisfy these disclosure requirements. For example, some of my clients have told me that it will be difficult for them to disclose the front-end sales loads for mutual funds as a dollar amount. Stated slightly differently, those broker-dealers are not providing the information in that form at this time and it will take some work to be able to do it. Unfortunately, the quarterly statement requirement applies beginning November 14 of this year. As a result, broker-dealers need to be focusing on this issue.


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