Defined contribution industry representatives are resuming
efforts to convince Labor Department officials that more extensive regulation
of self-directed brokerage accounts is unnecessary and burdensome. Officials
from organizations representing large plans, record keepers and other providers
said in interviews and in comments filed with the DOL that existing rules
already protect participants and enable fiduciaries to follow the requirements
of prudence of the Employee Retirement Income Security Act of 1974.
They warn that more rules — similar to ideas floated and then
quickly withdrawn by the DOL in 2012 — would raise costs, increase fiduciary
risk, discourage plans from offering brokerage accounts and encourage plans
with such options to drop them.
Industry participants were reacting to the Labor
Department's request for information in August, asking 39 questions about the
costs, administration and disclosure policies of self-directed brokerage
options. The RFI noted the department's concern that some DC plan executives might
offer brokerage-account-only investment menus to dodge some fiduciary duties.
Current regulations governing the use and administration of
brokerage windows among larger plans — the ones that offer brokerage accounts
as a supplement to core menus — are “working well.” Survey results released
this month by the Plan Sponsor Council of America, Chicago, show brokerage
accounts represented an average 2.3% of total assets last year among 613 plans
with combined $832 billion in assets.
For a “typical” DC plan offering a self-directed brokerage
account, 1% to 2% of participants invest in the option, representing 3% to 5%
of total plan assets, Edmund Murphy III, the Denver-based president of
retirement services for Empower Retirement.
Two years ago, DOL officials issued a field assistance
bulletin — a formal guidance document — on fee-disclosure rules that also
outlined DOL's views on how plans should monitor and administer
brokerage-account windows. It said if the number of participants choosing a
specific investment in a brokerage-account exceeded a certain threshold, that
investment could be subject to the same fiduciary standards as investments in a
plan's core menu.
The industry erupted in protest, saying the document was an
attempt at back-door regulation. They said it would create an enormous expense
and said record keepers lacked the technology to enable such monitoring. Now,
industry participants want to make sure the RFI doesn't lead to a replay of
2012.
Ms. Borzi believes plan sponsors should “take a measured
approach to managing brokerage windows,” Robert Benish, executive director of
the PSCA, said if enhanced monitoring of brokerage accounts is enacted, plan
sponsors might drop the option for fear of taking on additional fiduciary risk,
cost and administrative responsibilities. The liquidation process could create
its own set of fiduciary risks and uncertainty, he said.
Some DC industry participants said Labor Department
officials should distinguish between plans that offer brokerage accounts as a
supplement to their investment lineups and plans for which the brokerage
account is the sole investment option.
Charles Schwab & Co. officials want the DOL to look at
self-directed brokerage accounts in a “bifurcated manner,” making a distinction
between plans for which brokerage accounts are supplemental options and those
for which brokerage accounts are the sole option, Lawrence Bohrer, the
Denver-based vice president of corporate brokerage retirement services, said in
an interview.
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