DOL official says plan sponsors have duty to monitor investment menu, even self-directed accounts
Assistant Labor Secretary Phyllis Borzi fired back at retirement plan industry members who claim the agency's attempt to clarify fee-disclosure rules on 401(k) options amounts to formulating new rules for brokerage windows.
“We've heard of a lot of people overreading and overreacting to this provision,” she said.
Speaking at the Society of Professional Asset Managers and Record Keepers' national conference in Washington on Monday, Ms. Borzi addressed the field assistance bulletin issued by the Labor Department on May 7 regarding the retirement plan fee disclosure rule.
The rule, which will require service providers to spell out their fees and services to plan sponsors, will take effect July 1. A participant fee disclosure rule is slated to kick in Aug. 30.
The May 7 guidance from the Labor Department included a segment on brokerage windows in plans. In it, the DOL reminded plan fiduciaries that they have to monitor the investment menu.
The DOL also said that it won't treat brokerage windows that hold more than 25 fund options as "designated investment alternatives" if the plan administrator makes required disclosures on funds in which at least five employees have invested. In the case of a plan with more than 500 participants, that threshold changes to at least 1% of the workers. Under the Employee Retirement Income Security Act, a "designated investment alternative" is a fund that has been identified by the plan fiduciary as an appropriate investment vehicle.
In addition, administrators also need to make disclosures for at least three of the investment alternatives on the platform “that collectively meet the broad range requirements” under ERISA law.
Critics in the retirement plan industry had asserted that this guidance imposes a fiduciary duty onto plan sponsors when retirement plan participants are essentially the ones making choices in self-directed brokerage windows.
Ms. Borzi, in her comments, said that while brokerage accounts aren't considered designated investment alternatives, plan sponsors shouldn't be surprised that they still have responsibility over the options available.
“What seems to get lost in the counseling and advice relationship is that a plan fiduciary needs to prudently select and monitor service providers," she said. “We wanted to make sure that people understood the fiduciary's duty extends to and includes the decision as to whether you have this brokerage account and do you monitor what's happening with it.”
She also added that plan sponsors are not necessarily expected to provide disclosure on every brokerage account option.
“If you're going to fulfill your duty to prudently select and monitor the investment options, you need to be aware of whether there are some choices that most people are making,” she added. “If you see patterns begin to emerge, you need to consider whether it makes sense to designate some or all of the choices people make as a designated investment alternative.”
