Category Archives: DOL

Brokerage Windows and Retirement Plans


DOL, fiduciary

When the Department of Labor issued Field Assistant Bulletin (FAB) 2012-02, the private sector was “shocked” by the DOL’s position on fiduciary responsibilities for brokerage windows in defined contribution plans, such as 401(k) plans. The Department subsequently partially reversed part of its guidance. However, significant portions of that guidance remain, and it continues to be a DOL position that plan sponsors have fiduciary responsibilities for brokerage windows in retirement plans.

My partner, Bruce Ashton, and I recently wrote an article about brokerage windows for TD Ameritrade. As explained in the introduction to the article:

“The first topic of this article, and its principal focus, is the fiduciary process for deciding whether to offer a brokerage window and selecting the provider of the window. The second covers the requirements under the new participant disclosure rules. Finally, we consider the implications of the fiduciaries or a participant selecting an RIA to serve as an investment manager or advisor for a participant’s individual brokerage window.” Continue reading Brokerage Windows and Retirement Plans →

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Participant Disclosures about Brokerage Accounts


404a-5, broker-dealers, DOL, fiduciary, plan sponsors

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.  Continue reading Participant Disclosures about Brokerage Accounts →

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Disclosures for Individual Brokerage Accounts


404a-5, 408(b)(2), broker-dealers, DOL

In DOL Field Assistance Bulletin (FAB) 2012-02R, the Department of Labor explained the disclosures for individual brokerage accounts in participant-directed plans. I am concerned that many broker-dealers have not focused on these new “requirements.” That is true for several reasons, including:

  • So much money and energy have been devoted to complying with the plan disclosure requirements, that is, the 408(b)(2) disclosures.
  • The 404a-5, or participant, disclosure requirements are imposed on plan sponsors, in their fiduciary capacity. Stating this slightly differently, the participant disclosures for brokerage accounts are not imposed on broker-dealers, but instead are placed on the shoulders of the plan sponsors. Since it is not a legal responsibility for broker-dealers, it has not received the same attention as the 408(b)(2) disclosures. However, as a practical matter, plan sponsors will turn to the broker-dealers and insist that they satisfy those disclosure requirements. That seems like a reasonable position, since the information is in the control of the broker-dealers.

The FAB provides detailed information about the requirements. To name a few, there is a requirement for a written description of the brokerage account; there must also be an explanation of any fees and expenses that are likely to be incurred in the brokerage account; and, participants must be provided with statements, at least quarterly, describing the fees and charges, both as dollar amounts and in a narrative form.

My sense is that few broker-dealers are prepared to offer assistance at that level of detail. However, I expect that will change now that the work on the 408(b)(2) disclosures is behind us.

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Asset Allocation Models


404a-5, 408(b)(2), DOL

Based on the DOL guidance in FAB 2012-02, many advisers have concluded that asset allocation models (AAMs) can be offered to plans without the need to treat them as designated investment alternatives (DIAs) and, therefore, without the need to report the performance history, expense ratios, etc., of the AAMs.

Unfortunately, that is an oversimplification and may inadvertently lead to problems under both the 408(b)(2) and 404a-5 regulations.  Continue reading Asset Allocation Models →

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Adequacy of Disclosures


408(b)(2), broker-dealers, DOL, fiduciary, prohibited transaction, registered investment advisers

As we get closer to the July 1, 2012 deadline for 408(b)(2) disclosures, more issues emerge concerning the adequacy of disclosures. Of particular concern is the requirement that the disclosures include both monetary and non-monetary compensation. For example, where a mutual fund family or insurance company subsidizes broker-dealer or RIA conferences for plan sponsors or advisers, there is at least an issue of whether those subsidies should be disclosed to the plan sponsor clients of those RIAs or broker-dealers. Another example is where a mutual fund complex or insurance company pays for advisers to attend conferences.

Continue reading Adequacy of Disclosures →

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Fiduciary Investment Advice for Participants


403(b), DOL, fiduciary, prohibited transaction, prudent

The DOL recently issued its final regulation on conflicted investment advice to participants. Unfortunately, the scope of the regulation is not well understood. For example, if an adviser does not have any conflicts (that is, if the adviser cannot vary its revenue or that of any affiliates based on the recommended investments), then the adviser does not need to comply with the new regulation. For example, the adviser would not need to comply with the certification or audit requirements. However, if the adviser has financial conflicts of interest and can affect its own revenues (or those of an affiliate), then the adviser must comply with those requirements in order to give fiduciary investment advice to participants.

Together with other attorneys from my law firm, I have written a bulletin on the subject. If you are interested in having further information, please click on the linke below to see a copy of the bulletin:

https://www.faegredrinker.com/en/insights/publications/2011/12/fiduciary-investment-advice-for-participants

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What the 408(b)(2) Changes Mean to RIAs


404a-5, 408(b)(2), broker-dealers, DOL, fiduciary, plan sponsors, recordkeeper, registered investment advisers

Two other Drinker Biddle attorneys (Bruce Ashton and Joan Neri) and I just released a bulletin discussing what changes in the 408(b)(2) final regulation mean to registered investment advisers (RIAs). You can obtain a copy of the bulletin at:

http://www.drinkerbiddle.com/resources/publications/2012/the-final-408b2-regulation-impact-on-rias

While the final regulation clarifies a number of issues and grants an extension of time to comply, it also raises two issues which may come as a surprise to RIAs. The first is that asset allocation models (AAMs) may be treated as designated investment alternatives (DIAs), resulting in a number of disclosure requirements (both under 408(b)(2) and the participant disclosure regulation). The second is that the DOL has interpreted “indirect compensation” very broadly in a way that could require additional disclosures from RIAs. That would apply, for example, where investment providers (like mutual funds) or service providers (like independent recordkeepers or bundled providers) provide financial assistance to RIAs. Once specific example would be a conference put on by an RIA for its plan sponsor clients. Another example would be where an investment provider or a service provider offers “free” services to RIAs for their plan sponsor clients. Both of those issues, and others, are discussed in some detail in the bulletin.

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Finally the Final … 408(b)(2) Regulation


403(b), 408(b)(2), DOL, fiduciary, service providers

The DOL issued the final 408(b)(2) regulation on February 2, 2012.

Key points are:

  • The extension of the effective date to July 1, 2012;
  • The fact that service providers are not required to provide a summary of the disclosures, though the DOL provided a sample “guide” that is not mandatory;
  • The addition of a requirement to describe the arrangement between a covered service provider and the payer of indirect compensation;
  • Clarification that electronic transmission of the disclosures is permitted;
  • Relief from the disclosure requirements for “frozen” 403(b) contracts;
  • A new requirement that plan sponsors terminate the relationship with a service provider who fails or refuses to provide information on request;
  • Limited relief for disclosures for brokerage accounts and similar arrangements.

Bruce Ashton and I have drafted a more detailed Alert for our law firm, Drinker Biddle & Reath LLP.  That Alert is located at:

http://www.drinkerbiddle.com/resources/publications/2012/finally-the-final-408b2-regulation

 

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