More Oversight for 401(k) Brokerage Windows

Many plan sponsors have indulged some of their employees by offering a brokerage window. Some sponsors believe that with the help of their broker they can beat the market with a brokerage window. This option like all others must be available to all with exclusivity allowed. This opens the plan sponsor to fidcuairy risks they may or may not be aware. The plan sponsor has a duty to monitor the accounts and avoid any imprudent investments.

NEW YORK, NY - NOVEMBER 01:  A man walks throu...
NEW YORK, NY - NOVEMBER 01: A man walks through the office building where MF Global Holdings Ltd have offices in Manhattan on November 1, 2011 in New York City. The brokerage firm, run by former New Jersey governor and Goldman Sachs boss Jon Corzine, has filed for bankruptcy in another developing financial scandal. (Image credit: Getty Images via @daylife)

The DOL’s recent guidance discussing brokerage windows also suggests that failing to designate a “manageable” number of alternatives may be imprudent and raises questions about the extent to which an employer must monitor window alternatives to fulfill its legal obligations. This has ignited a debate over whether employers must monitor only the availability of a brokerage window or some actual investment alternatives available through the window. For now, the DOL simply says, you can’t “set it and forget it.”Given the practical challenges of obtaining information about window alternatives, it’s questionable whether employers can continue to offer a brokerage window without substantial risk unless the DOL changes or clarifies its position. Until then, if you have a brokerage window it’s important to consult your ERISA counsel to determine how and when to start collecting fee information and to understand the fiduciary implications of continuing to offer the window.In many cases, it will be appropriate to start gathering information now and formulating a plan for the eventual additional disclosures required. If you’re contemplating adding a brokerage window arrangement, you may want to consider delaying that decision until the DOL position on these issues becomes more clear.

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