November 26, 2021

Volume XI, Number 330

Advertisement
Advertisement

November 24, 2021

Subscribe to Latest Legal News and Analysis
Advertisement

DOL Revises Guidance on Participant Fee Disclosures for Brokerage Window Investments

The U.S. Department of Labor (DOL) recently issued new and welcome guidance for fiduciaries of account-based retirement plans by withdrawing its controversial guidance on fee disclosures for brokerage windows, self-directed brokerage accounts and similar arrangements (SDBAs).  For now, the DOL has reverted to its prior regulatory guidance that fee disclosures with respect to particular investment options that participants select through an SDBA are not required, unless the SDBA option is specifically identified as available under the retirement plan.  This new guidance removes the burden of monitoring the number of participants invested in a particular option through the SDBA and of making fee disclosures with respect to certain SDBA options.

Background

As described in our June 12, 2012, newsletter, the DOL issued Field Assistance Bulletin (FAB) 2012-02 on May 7, 2012, to provide additional guidance on the participant fee disclosure requirements for defined contribution plans with participant-directed investments.  Historically plan fiduciaries have taken the position that they are not responsible for monitoring the particular investment options participants select though an SDBA.  However, in Q&A-30 of FAB 2012-02, the DOL indicated that plan fiduciaries may need to make participant fee disclosures with respect to an investment option that is only available through the SDBA if a significant number of participants elected to invest in that option.  This position surprised many plan administrators because it was inconsistent with prevailing interpretations of prior DOL guidance.  In addition, the DOL was criticized for issuing their position in an FAB rather than through a rulemaking process that would have given interested parties notice and an opportunity to comment. 

New Guidance

In response to requests from benefits industry groups and other interested parties, the DOL issued FAB 2012-02R, which withdraws the prior Q&A-30 and replaces it with a new Q&A-39.  Under Q&A-39, an investment option is a designated investment alternative for purposes of the participant fee disclosure rules only if it has been specifically identified as available under the plan.  Thus, fee disclosures generally will not be required for investment options that participants select through an SDBA.

Q&A-39 is welcome guidance for fiduciaries of plans with SDBAs, as it removes the burden of monitoring the number of participants invested in a particular option through the SDBA and of making fee disclosures with respect to certain SDBA options.  Fiduciaries are still bound by the general ERISA fiduciary duties of prudence and loyalty to participants who use SDBAs, including taking into account the nature and quality of services provided in connection with the SDBA.  The DOL also noted that while plans are not required to have a particular number of designated investment alternatives, the failure to designate any investment alternatives (for example, to avoid fee disclosure obligations) would raise questions under the general fiduciary duties of prudence and loyalty.

© 2021 McDermott Will & EmeryNational Law Review, Volume II, Number 221
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Diane M. Morgenthaler, Corporate Tax Planning Attorney, Retirement Plans for Companies, McDermott Will Emery, Chicago Law Firm
Partner

Diane M. Morgenthaler focuses her practice on employee benefits and executive compensation. She represents clients in matters before the US Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Corporation.

Diane serves as employee benefit counsel to Fortune 500 corporations and other global corporations, and represents both public and private clients. She regularly designs and implements a variety of employee benefit plans and programs. Diane has extensive experience in employee benefit issues involved in...

312-984-7676
Advertisement
Advertisement
Advertisement