Plans With Only Brokerage Accounts

Posted on January 23, 2013, by Fred Reish in 404a-5, DOL Activity, fiduciary, Uncategorized. Comments Off on Plans With Only Brokerage Accounts

On July 30, the DOL reissued its Field Assistant Bulletin (FAB) concerning participant disclosures. The FAB was reissued because of the controversy about the DOL’s position on individual brokerage accounts.

The new FAB deletes the old, and controversial, Q&A 30 and replaces it with a new Q&A 39.

While some of the controversial provisions were removed, some remain. For example, the DOL states:

“…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, raising questions under ERISA section 404(a)’s general statutory fiduciary duties of prudence and loyalty.”

In other words, the DOL is saying that it has concerns about participant-directed plans that offer only brokerage accounts, mutual fund windows, and similar vehicles. The DOL’s concern is that many participants may not have the investment experience or knowledge needed to select from among hundreds or even thousands of investment choices (for example, in a brokerage account). In effect, the DOL is saying that it is reserving the right to challenge that arrangement.

That raises the obvious question of…what should fiduciaries do about plans that are structured that way? That is not an easy question to answer. On the one hand, conservative fiduciaries should consider adding a line-up of core, or designated, investment alternatives. On the other hand, fiduciaries who are willing to take some risk may view this as an inappropriate effort from the DOL to create regulations through informal guidance, such as Field Assistant Bulletins.

Regardless of the outcome, every fiduciary of a plan that utilizes the structure should be educated on the issue.

Are you on the mailing lists to receive the Drinker Biddle & Reath newsletters?  If not, you may want to subscribe at: In case you missed it, you may want to take a look at our Retirement Income Team newsletter from October 2012: This newsletter has several articles on legal and ERISA issues related to retirement income for participants in retirement plans.


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