DOL To Review Brokerage Windows In 401(k) Plans

The Department of Labor is planning to review the use of self-directed brokerage account windows in retirement plans that allow a participant to go beyond the plan’s investment menu options.  The department is scheduled to release a request for comment in April on brokerage windows in 401(k) plans.

Despite the attention from the DOL, brokerage windows are not widespread. In 2012, they were offered in 17.1% of 686 401(k) plans surveyed by the Plan Sponsor Council of America.

In 2012, the DOL addressed concerns about brokerage windows in two Field Assistance Bulletins. But the answers to the frequently-asked-questions posed in the documents generated more questions in the financial industry.

The request for comment process is the first step in the rule-making process and will focus on “fiduciary obligations and regulatory safeguards” surrounding brokerage windows.  Plan sponsors are looking for more guidance on the use of brokerage windows and there are questions about disclosures as well as whether a registered investment adviser has to be hired to help participants.

The benefit of a brokerage window is that it can provide a participant more choice and control than the limited investment options in their 401(k) plans. But the focus on brokerage windows also reflects the DOL's concern that plan participants are on their own if they opt to use the mechanism.

“It allows the person to go out, especially working with a good adviser, and build a portfolio that's really adapted to their needs and risk tolerance,” said Harold Anderson, president of Parkshore Wealth Management. “It's more custom to them.”