The Department of Labor (DOL) continues to revise its stance on the disclosures plan sponsors must make to participants about brokerage windows. DOL regulations require sponsors of participant directed retirement plans to issue statements about the fees paid and the investment returns for investment options under participant-directed plans (such as the typical 401(k) plan). For most plans, the first disclosure is due August 30, 2012.
According to the DOL regulations issued in 2010, sponsors need to disclose fee and investment information only on “designated investment alternatives” (DIAs). A DIA is a core investment offered by the plan, but the regulations specify that a brokerage window is not a DIA. (A "brokerage window" is an option that allows a plan participant to open a brokerage account for some or all of his or her account, and access investments other than DIAs.) So, instead of having to report information on all of the investments available through the brokerage window, the plan sponsor was required to describe the brokerage windows and any plan level fees associated with it.
In May of this year, the DOL issued Field Assistance Bulletin (FAB) 2012-2, which seemed to reverse the regulation's rule that a brokerage window was not a DIA. Under this FAB, if the greater of 5 participants or 1% of the plan's participants invest (on a date that is not more than 90 days before the date the annual disclosure is due) in the same investment option through the brokerage window, the plan sponsor must treat that investment option as a DIA and provide the same disclosures as the disclosures on the Plan’s core funds.
This means that a plan sponsor would have to pick a date during the period beginning June 1, 2012 and August 30, 2012 and take a snapshot of the investments in the brokerage window. If 1% or more of the plan participants invest in the same investment through the brokerage window, the plan sponsor must gather fee and performance information from these investments and report it to participants.
The DOL reversed its position again on July 30 by issuing FAB 2012-2R, which revises the earlier guidance. The new FAB provides that sponsors are not required to describe the fees associated with investments offered solely through a brokerage window.
The DOL did not specify why it has modified its position on brokerage windows. Presumably, the statement in the original FAB was in response to certain advice provided by some commentators after the DOL issued its 2010 participant fee disclosure regulations. These commentators noted that plan sponsors could circumvent the fee disclosure rules by offering only brokerage windows. Presumably, the revised FAB was due to the backlash of the financial services and employee plan community, including the challenge of the DOL’s authority to use a FAB to revise its regulations so materially without a comment period.
A copy of the revised Field Assistance Bulletin can be found here.