Plan Brokerage Account

Posted on January 5, 2012, by Fred Reish in 404a-5, Broker-Dealers, DOL Activity, Plan Sponsors. Comments Off on Plan Brokerage Account

This is another in a series of articles about interesting issues related to plan and participant disclosures.

The DOL disclosure regulations for both plan sponsor and participant disclosures are not clear about the treatment of brokerage accounts for a plan (for example, a small profit sharing plan) or for a participant-directed plan (for example, a self-directed brokerage account in a 401(k) plan).

For participant disclosures, the DOL has given informal guidance about the disclosures that must be made to participants . . . and those disclosures are minimal.

However, where a 401(k) plan consists exclusively of individual brokerage accounts, there are practical issues about how to comply with the 404a-5 disclosures generally. Since the brokerage accounts are not “designated investment options,” there are only minimal disclosures which must be made concerning the brokerage accounts. However, where only brokerage accounts are offered, the structure will not ordinarily include a recordkeeper. As a result, the plan sponsor (perhaps in conjunction with a compliance-only third party administrator) must make the non-investment participant disclosures, which includes the general disclosures, the administrative expense disclosures, and the individual expense disclosures – as well as the quarterly statements.

Based on our discussions with broker-dealers, there is a lack of awareness of the requirements for the non-investment disclosures under the 404a-5 participant disclosure regulation. As a result, there will be compliance issues in this scenario.


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