Brokerage Windows in Retirement Plans

In 2010, the DOL issued further regulations clarifying exactly what information is to be provided in order for fiduciaries to be able to avail themselves of the relief from liability granted under Section 404(c) of ERISA (the 404a-5 Rules). The stated purpose of the 404a-5 Rules was “to ensure that all plan participants and beneficiaries in participant-directed individual retirement account plans have the information they need to make informed decisions about the management of their individual accounts and the investment of their retirement savings.” The 404a-5 Rules require plan administrators to provide to plan participants certain investment-related information, including performance data and benchmarking results, and certain fee disclosures relating to investment alternatives under participant-directed retirement plans. The disclosures required by the 404a-5 Rules apply only to “designated investment alternatives” (DIAs), which generally are investment options selected by plan fiduciaries to comprise the investment options offered to participants under the plan.

Field Assistance Bulletin 2012-02

On May 7, 2012, in an effort to provide further clarification of the then-recent 404a-5 Rules, the DOL issued Field Assistance Bulletin 2012-02 (the Original FAB), which provided responses to a number of “frequently asked questions” relating to the 404a-5 Rules. Q&A 30 of the Original FAB, relating to brokerage windows, raised particular controversy. (Q&A 19, relating to the manner in which certain performance data for DIAs should be disclosed, also generated some substantial controversy, as outlined, for example, in the May 21, 2012 story by Emile Hallez in Financial Times' Ignites, “DOL Rewriting Fee Disclosure Rules on Fly: Lawyers.”)

In Q&A 30, the DOL took the position that, if “through a brokerage window or similar arrangement, non-[DIAs] available under [an ERISA] plan are selected by significant numbers of participants and beneficiaries, an affirmative obligation arises on the part of the plan fiduciary to examine these alternatives and determine whether one or more such alternatives should be treated as [DIAs].” The DOL had earlier expressed concern regarding brokerage windows in the preamble to the final version of the 404a-5 Rules, stating that “it is important that participants and beneficiaries understand how brokerage windows operate and the expenses attendant thereto when they are offered as part of the investment platform of a plan.”

Under the reasoning of Q&A 30, options offered through a brokerage window could have been considered DIAs and thereby be subject to the disclosure requirements under the 404a-5 Rules. Although Field Assistance Bulletins don't have the force of law, they can indicate the DOL's then-current views of the issues being addressed, and can have the effect of constraining market behavior or otherwise guiding the market regarding attempts to comply with rules that may be unclear.

In the case of Q&A 30, the DOL's position, if followed, could have materially increased the administrative responsibilities of plan administrators, in arguably unworkable ways. For example, the administrative burden of preparing disclosures compliant with the 404a-5 Rules for a potentially wide range of investment options may itself be daunting. In this regard, it is possible that recordkeepers may not have the practical ability to link all possible options a participant may choose (or may have chosen) through a brokerage window, and thus could effectively be incapable of providing required fee disclosure. As another example, it may be difficult to determine what performance and benchmark data should be disclosed with respect to certain investment alternatives, and how that data should be presented.

As addressed further below, a key reason that the DOL has expressed concern with brokerage windows appears to be its perception that, by offering a brokerage window, a plan fiduciary can effectively abrogate its responsibility to contour and otherwise choose an investment menu, by making available to plan participants an extremely wide range of unspecified investments. Arguably, the DOL's concerns with the potential appropriateness of brokerage windows generally led to a disclosure-related approach that could have had the effect of making windows costly and difficult to administer and otherwise implement, or even completely unworkable in a number of cases.

One relatively high-profile comment on the Original FAB, submitted by the Securities Industry and Financial Markets Association (SIFMA), took issue not only with the substantive approach taken by the DOL in the original FAB, but also with the process adopted by the DOL. SIFMA made the point that, by not proposing actual regulations, the DOL was avoiding the federal notice-and-comment process applicable where an administrative agency issues regulations. The notice and comments process ordinarily applicable to the issuance of regulations can frequently lead to a more fulsome dialogue between the regulators and members of the public. Reports highlighting the controversy surrounding these developments include the May 18, 2012 story by Emile Hallez in Financial Times' Ignites, “DOL's 11th-Hour Fee-Disclosure Provision Sets Off Alarms.”

Field Assistance Bulletin 2012-02R

In response to broad criticism of Q&A 30, the DOL took the unusual step of removing an FAQ in response to objections from the market. On July 30, 2012, the DOL released Field Assistance Bulletin 2012-02R (Revised FAB), in which it deleted Q&A 30 and replaced it with new Q&A 39. In Q&A 39, the DOL reversed its position and expressly adopted an approach contrary to that taken in the Original FAB, stating that “whether an investment alternative is a '[DIA]' for purposes of the [404a-5 Rules] depends on whether it is specifically identified as available [as an investment alternative] under the plan.” According to the Revised FAB, because investment options available through brokerage windows are not “specifically identified” as DIAs, they would not be subject to the 404a-5 Rules.

The Effect of Brokerage Windows on Fiduciary Duties

In the Revised FAB, the DOL foreshadowed that its decision to withdraw Q&A 30 of the Original FAB might not be its last word regarding brokerage windows. In particular, in Q&A 39, the DOL stated that a plan fiduciary's “failure to designate investment alternatives, for example, to avoid investment disclosures under the [404a-5 Rules], raises questions under [ERISA's] general statutory fiduciary duties of prudence and loyalty.” While the DOL in the Revised FAB chose not to identify additional requirements regarding brokerage windows, it stated that “plan fiduciaries and service providers may have questions regarding situations in which fiduciaries may have duties under ERISA's general fiduciary standards apart from those in the [404a-5 Rules].”

In addition to expressing concern that plan sponsors might try to avoid certain administrative burdens and fiduciary liability by providing a brokerage window in lieu of DIAs, the DOL also stated in Q&A 39 that a plan fiduciary that provides options under a brokerage window is “still bound by [ERISA's] statutory duties of prudence and loyalty to the participants and beneficiaries, including taking into account the nature and quality of services provided in connection with the [brokerage window].” In light of certain judicial developments, the DOL appeared to be concerned with the possibility that a plan sponsor might be able to avoid responsibility for offering sub-optimal investment options by simply offering a very large number of options. Notably, in Q&A 30 of the Original FAB, the DOL cited to the case of Hecker v. Deere & Co., 556 F.3d 575 (7th Cir.), reh'g denied, supplemented by 569 F.3d 708 (2009) (narrowing the earlier decision so as expressly not to rule on whether Section 404(c) of ERISA applies to shield a fiduciary regarding the selection of the investment menu), cert. denied, 558 U.S. 1148 (2010).

In Hecker, the Seventh Circuit affirmed the district court's dismissal of the plaintiffs' claim that the plan fiduciaries breached ERISA's fiduciary duty of prudence by offering investment options with “unreasonable and excessive” fees and expenses. The district court had concluded that because a wide selection of investment options was available under the plan, including a brokerage window, any losses must have resulted from the participants' exercise of control over their individual accounts.

The Seventh Circuit in Hecker, in affirming the district court, concluded that the plan sponsor did not violate its fiduciary duty because plan participants were offered at least some appropriate investment options. One of the facts identified by the Seventh Circuit as being relevant to its holding was that the plan included a brokerage window that offered over 2,500 funds. The Seventh Circuit reasoned that, because investments offered through the brokerage window are “set against the backdrop of market competition,” the Hecker plan could not have failed to offer at least some appropriate investment alternatives with appropriate levels of fees. See also Spano v. Boeing Co., 633 F.3d 574, 590 (7th Cir. 2011) (noting that the plan included a brokerage window that offered over 11,000 publicly traded mutual funds); Renfro v. Unisys Corp., 671 F.3d 314, 327 (3rd Cir. 2011) (holding that plan fiduciaries satisfied their obligation to offer “a reasonable range of investment options with a variety of risk profiles and fee rates” when the plan offered 73 different investment options).

The DOL seems to be concerned that the reasoning in cases like Hecker could be read to encourage plan fiduciaries to provide an extremely large number of investment alternatives in an attempt to avoid fiduciary responsibility relating to the selection of a more traditional menu of identified funds. (In a later decision (at 569 F.3d 708 (2009)) denying rehearing in Hecker, the Seventh Circuit attempted to diffuse such concerns by specifically indicating that there was no intent on its part to approve a strategy whereby a fiduciary would attempt to insulate itself from liability by providing for a very large number of investment alternatives.) In this regard, while it does seem obvious that in the appropriate case the use of a brokerage window under a plan can be both appropriate and advantageous, it can also be argued that a fiduciary of a participant-directed plan should not be discouraged from presenting participants (and beneficiaries) with a more circumscribed universe of investment alternatives from which to choose, if that is the path the fiduciary prefers. Is it necessarily always desirable to have a menu from The Cheesecake Factory, with what seems like boundless dining choices? Or is it the case that, sometimes, depending on the facts, less may really be more?

In light of its concerns regarding brokerage windows, the DOL expressed an intention “to engage in discussions with interested parties.” Ultimately, it seems as though the DOL may be struggling to administer ERISA so that ERISA does not inexorably push fiduciaries to provide for an ever-increasing universe of potential investment selections. On the other hand, it would arguably be perverse if the rules under Section 404(a) and (c) of ERISA, which in so many ways encourage flexibility and choice, were to be interpreted in a way that would have the practical effect of unduly constraining the use of brokerage windows, which by their nature offer extensive freedom of choice.

The Request for Information Relating to Brokerage Windows

The RFI is the latest salvo in the DOL's efforts to address the use of brokerage windows under participant-directed retirement plans. In its Aug. 20, 2014 press release, Release Number 14-1523-NAT, relating to the RFI, the DOL noted that window arrangements “can enable or require individual participants to choose for themselves from a broad range of investments.” The release then quotes a senior DOL official as saying, “We promised employers and other plan sponsors and fiduciaries that we would look into the use of brokerage window features. Our goal in issuing this RFI is to determine whether, and to what extent, regulatory standards or other guidance concerning the use of brokerage windows may be necessary to adequately protect participants' retirement savings.” The DOL stated in the RFI itself that the purpose of the RFI “is to increase the [DOL's] understanding of the prevalence and role of brokerage windows in participant-directed plans '; why, under what circumstances and how often these brokerage windows are offered and used; and the legal and policy issues that relate to such usage.”

According to the RFI, since the issuance of the Revised FAB, the DOL “has reviewed literature, articles and other commentary available on the use of brokerage windows in 401(k) plans.” The DOL has read the arguments favoring brokerage windows by sophisticated investors, who, using their more advanced knowledge of markets and investing, may benefit from the ability to customize their investments through brokerage windows. The DOL, however, indicated its awareness of the contrary argument that brokerage windows may present undue risks for many retirement plan participants. The DOL identified the concern that, because plan fiduciaries do not engage in a deliberative process to affirmatively review and select each of the investment options available through brokerage windows, participants may not have adequate or any protections against potentially costly or unsuitable investments made through the brokerage window.

The RFI presented 39 questions organized into 10 categories. The topics covered include, for example, the scope of investment options typically available through a window; demographic and other information about participants who commonly use brokerage windows; the process of selecting a brokerage window and provider for a plan; the costs of brokerage windows; and what kind of information about brokerage windows and underlying investment options typically is available and disclosed to participants. The RFI also solicited views regarding the need for further regulation or other guidance on such matters.

Many interested parties, including industry groups representing the investment industry, submitted comments by the Nov. 19, 2014 comment deadline. A recurring theme in many of these comments was that no further regulation or guidance is necessary regarding the use of brokerage windows in retirement plans. SIFMA, for example, stated in a letter dated Nov. 19, 2014, that “the [DOL] has already addressed any ambiguity surrounding what constitutes a brokerage window or similar arrangement through its clarification of what constitutes a DIA in Q&A 39 of [the Revised FAB].” In response to whether additional guidance is needed in relation to brokerage windows and ERISA's fiduciary provision, SIMFA stated that “the [DOL] adequately addressed most issues in its issuance of [the Revised] FAB ' .”

Conclusion

If the DOL does issue further guidance with respect to brokerage windows, such regulations or guidance could have a wide-ranging effect. Among those potentially affected are: 1) those participants who stand to benefit from the investment flexibility that brokerage windows offer, could be: 2) plan sponsors, 3) brokers who offer or facilitate the use of brokerage windows, 4) recordkeepers that promote or liaise with brokers in making windows available, 5) sponsors of funds offered through brokerage windows, and 6) sponsors of privately offered or other alternative investments that may be offered through a brokerage window. For those who are interested in whether the use of brokerage windows may be constrained or perhaps even shut down as a result of additional guidance, any further progress from the DOL on this issue should be watched carefully.

Andrew L. Oringer is a partner in the New York office of Dechert LLP, where he serves as chair of the firm's ERISA and Executive Compensation group. Reach him at [email protected]. Andrew H. Braid is an associate and Aaron S. Cha a law clerk, resident in the Philadelphia and New York offices, respectively.

On Aug. 21, 2014, the U.S. Department of Labor (DOL) published a request for information (RFI) regarding the use of so-called “brokerage windows” under retirement plans, such as many “Section 401(k)” plans, that allow participants (and beneficiaries) to direct the investment of their retirement accounts. In general terms, a brokerage window under a participant-directed retirement plan allows a participant to direct trading in a potentially wide variety of investments. While plan fiduciaries frequently craft a list of pre-selected investment options to be offered under the plan, a brokerage window can be designed to allow plan participants to invest in, among other things, individual stocks, bonds, numerous exchange-traded, index and mutual funds, and alternative investments. The RFI is one of the more recent developments surrounding what has become an increasingly controversial topic regarding the investment of Section 401(k) plans and other participant-direct retirement plans.

Background

Under Section 404(c) of the Employee Retirement Income Security Act of 1974 (ERISA), plan fiduciaries may be relieved from fiduciary liability associated with poor performance of plan investments if a participant (or beneficiary) exercises control over the assets in his or her account. However, under Section 2550.404c-1(b) of the DOL regulations, Section 404(c) relief only applies if, among other things, “the participant or beneficiary is provided ' sufficient information to make informed decisions with regard to investment alternatives under the plan.”

In 2010, the DOL issued further regulations clarifying exactly what information is to be provided in order for fiduciaries to be able to avail themselves of the relief from liability granted under Section 404(c) of ERISA (the 404a-5 Rules). The stated purpose of the 404a-5 Rules was “to ensure that all plan participants and beneficiaries in participant-directed individual retirement account plans have the information they need to make informed decisions about the management of their individual accounts and the investment of their retirement savings.” The 404a-5 Rules require plan administrators to provide to plan participants certain investment-related information, including performance data and benchmarking results, and certain fee disclosures relating to investment alternatives under participant-directed retirement plans. The disclosures required by the 404a-5 Rules apply only to “designated investment alternatives” (DIAs), which generally are investment options selected by plan fiduciaries to comprise the investment options offered to participants under the plan.

Field Assistance Bulletin 2012-02

On May 7, 2012, in an effort to provide further clarification of the then-recent 404a-5 Rules, the DOL issued Field Assistance Bulletin 2012-02 (the Original FAB), which provided responses to a number of “frequently asked questions” relating to the 404a-5 Rules. Q&A 30 of the Original FAB, relating to brokerage windows, raised particular controversy. (Q&A 19, relating to the manner in which certain performance data for DIAs should be disclosed, also generated some substantial controversy, as outlined, for example, in the May 21, 2012 story by Emile Hallez in Financial Times' Ignites, “DOL Rewriting Fee Disclosure Rules on Fly: Lawyers.”)

In Q&A 30, the DOL took the position that, if “through a brokerage window or similar arrangement, non-[DIAs] available under [an ERISA] plan are selected by significant numbers of participants and beneficiaries, an affirmative obligation arises on the part of the plan fiduciary to examine these alternatives and determine whether one or more such alternatives should be treated as [DIAs].” The DOL had earlier expressed concern regarding brokerage windows in the preamble to the final version of the 404a-5 Rules, stating that “it is important that participants and beneficiaries understand how brokerage windows operate and the expenses attendant thereto when they are offered as part of the investment platform of a plan.”

Under the reasoning of Q&A 30, options offered through a brokerage window could have been considered DIAs and thereby be subject to the disclosure requirements under the 404a-5 Rules. Although Field Assistance Bulletins don't have the force of law, they can indicate the DOL's then-current views of the issues being addressed, and can have the effect of constraining market behavior or otherwise guiding the market regarding attempts to comply with rules that may be unclear.

In the case of Q&A 30, the DOL's position, if followed, could have materially increased the administrative responsibilities of plan administrators, in arguably unworkable ways. For example, the administrative burden of preparing disclosures compliant with the 404a-5 Rules for a potentially wide range of investment options may itself be daunting. In this regard, it is possible that recordkeepers may not have the practical ability to link all possible options a participant may choose (or may have chosen) through a brokerage window, and thus could effectively be incapable of providing required fee disclosure. As another example, it may be difficult to determine what performance and benchmark data should be disclosed with respect to certain investment alternatives, and how that data should be presented.

As addressed further below, a key reason that the DOL has expressed concern with brokerage windows appears to be its perception that, by offering a brokerage window, a plan fiduciary can effectively abrogate its responsibility to contour and otherwise choose an investment menu, by making available to plan participants an extremely wide range of unspecified investments. Arguably, the DOL's concerns with the potential appropriateness of brokerage windows generally led to a disclosure-related approach that could have had the effect of making windows costly and difficult to administer and otherwise implement, or even completely unworkable in a number of cases.

One relatively high-profile comment on the Original FAB, submitted by the Securities Industry and Financial Markets Association (SIFMA), took issue not only with the substantive approach taken by the DOL in the original FAB, but also with the process adopted by the DOL. SIFMA made the point that, by not proposing actual regulations, the DOL was avoiding the federal notice-and-comment process applicable where an administrative agency issues regulations. The notice and comments process ordinarily applicable to the issuance of regulations can frequently lead to a more fulsome dialogue between the regulators and members of the public. Reports highlighting the controversy surrounding these developments include the May 18, 2012 story by Emile Hallez in Financial Times' Ignites, “DOL's 11th-Hour Fee-Disclosure Provision Sets Off Alarms.”

Field Assistance Bulletin 2012-02R

In response to broad criticism of Q&A 30, the DOL took the unusual step of removing an FAQ in response to objections from the market. On July 30, 2012, the DOL released Field Assistance Bulletin 2012-02R (Revised FAB), in which it deleted Q&A 30 and replaced it with new Q&A 39. In Q&A 39, the DOL reversed its position and expressly adopted an approach contrary to that taken in the Original FAB, stating that “whether an investment alternative is a '[DIA]' for purposes of the [404a-5 Rules] depends on whether it is specifically identified as available [as an investment alternative] under the plan.” According to the Revised FAB, because investment options available through brokerage windows are not “specifically identified” as DIAs, they would not be subject to the 404a-5 Rules.

The Effect of Brokerage Windows on Fiduciary Duties

In the Revised FAB, the DOL foreshadowed that its decision to withdraw Q&A 30 of the Original FAB might not be its last word regarding brokerage windows. In particular, in Q&A 39, the DOL stated that a plan fiduciary's “failure to designate investment alternatives, for example, to avoid investment disclosures under the [404a-5 Rules], raises questions under [ERISA's] general statutory fiduciary duties of prudence and loyalty.” While the DOL in the Revised FAB chose not to identify additional requirements regarding brokerage windows, it stated that “plan fiduciaries and service providers may have questions regarding situations in which fiduciaries may have duties under ERISA's general fiduciary standards apart from those in the [404a-5 Rules].”

In addition to expressing concern that plan sponsors might try to avoid certain administrative burdens and fiduciary liability by providing a brokerage window in lieu of DIAs, the DOL also stated in Q&A 39 that a plan fiduciary that provides options under a brokerage window is “still bound by [ERISA's] statutory duties of prudence and loyalty to the participants and beneficiaries, including taking into account the nature and quality of services provided in connection with the [brokerage window].” In light of certain judicial developments, the DOL appeared to be concerned with the possibility that a plan sponsor might be able to avoid responsibility for offering sub-optimal investment options by simply offering a very large number of options. Notably, in Q&A 30 of the Original FAB, the DOL cited to the case of Hecker v. Deere & Co. , 556 F.3d 575 (7th Cir.), reh'g denied, supplemented by 569 F.3d 708 (2009) (narrowing the earlier decision so as expressly not to rule on whether Section 404(c) of ERISA applies to shield a fiduciary regarding the selection of the investment menu), cert. denied, 558 U.S. 1148 (2010).

In Hecker, the Seventh Circuit affirmed the district court's dismissal of the plaintiffs' claim that the plan fiduciaries breached ERISA's fiduciary duty of prudence by offering investment options with “unreasonable and excessive” fees and expenses. The district court had concluded that because a wide selection of investment options was available under the plan, including a brokerage window, any losses must have resulted from the participants' exercise of control over their individual accounts.

The Seventh Circuit in Hecker, in affirming the district court, concluded that the plan sponsor did not violate its fiduciary duty because plan participants were offered at least some appropriate investment options. One of the facts identified by the Seventh Circuit as being relevant to its holding was that the plan included a brokerage window that offered over 2,500 funds. The Seventh Circuit reasoned that, because investments offered through the brokerage window are “set against the backdrop of market competition,” the Hecker plan could not have failed to offer at least some appropriate investment alternatives with appropriate levels of fees. See also Spano v. Boeing Co ., 633 F.3d 574, 590 (7th Cir. 2011) (noting that the plan included a brokerage window that offered over 11,000 publicly traded mutual funds); Renfro v. Unisys Corp. , 671 F.3d 314, 327 (3rd Cir. 2011) (holding that plan fiduciaries satisfied their obligation to offer “a reasonable range of investment options with a variety of risk profiles and fee rates” when the plan offered 73 different investment options).

The DOL seems to be concerned that the reasoning in cases like Hecker could be read to encourage plan fiduciaries to provide an extremely large number of investment alternatives in an attempt to avoid fiduciary responsibility relating to the selection of a more traditional menu of identified funds. (In a later decision (at 569 F.3d 708 (2009)) denying rehearing in Hecker, the Seventh Circuit attempted to diffuse such concerns by specifically indicating that there was no intent on its part to approve a strategy whereby a fiduciary would attempt to insulate itself from liability by providing for a very large number of investment alternatives.) In this regard, while it does seem obvious that in the appropriate case the use of a brokerage window under a plan can be both appropriate and advantageous, it can also be argued that a fiduciary of a participant-directed plan should not be discouraged from presenting participants (and beneficiaries) with a more circumscribed universe of investment alternatives from which to choose, if that is the path the fiduciary prefers. Is it necessarily always desirable to have a menu from The Cheesecake Factory, with what seems like boundless dining choices? Or is it the case that, sometimes, depending on the facts, less may really be more?

In light of its concerns regarding brokerage windows, the DOL expressed an intention “to engage in discussions with interested parties.” Ultimately, it seems as though the DOL may be struggling to administer ERISA so that ERISA does not inexorably push fiduciaries to provide for an ever-increasing universe of potential investment selections. On the other hand, it would arguably be perverse if the rules under Section 404(a) and (c) of ERISA, which in so many ways encourage flexibility and choice, were to be interpreted in a way that would have the practical effect of unduly constraining the use of brokerage windows, which by their nature offer extensive freedom of choice.

The Request for Information Relating to Brokerage Windows

The RFI is the latest salvo in the DOL's efforts to address the use of brokerage windows under participant-directed retirement plans. In its Aug. 20, 2014 press release, Release Number 14-1523-NAT, relating to the RFI, the DOL noted that window arrangements “can enable or require individual participants to choose for themselves from a broad range of investments.” The release then quotes a senior DOL official as saying, “We promised employers and other plan sponsors and fiduciaries that we would look into the use of brokerage window features. Our goal in issuing this RFI is to determine whether, and to what extent, regulatory standards or other guidance concerning the use of brokerage windows may be necessary to adequately protect participants' retirement savings.” The DOL stated in the RFI itself that the purpose of the RFI “is to increase the [DOL's] understanding of the prevalence and role of brokerage windows in participant-directed plans '; why, under what circumstances and how often these brokerage windows are offered and used; and the legal and policy issues that relate to such usage.”

According to the RFI, since the issuance of the Revised FAB, the DOL “has reviewed literature, articles and other commentary available on the use of brokerage windows in 401(k) plans.” The DOL has read the arguments favoring brokerage windows by sophisticated investors, who, using their more advanced knowledge of markets and investing, may benefit from the ability to customize their investments through brokerage windows. The DOL, however, indicated its awareness of the contrary argument that brokerage windows may present undue risks for many retirement plan participants. The DOL identified the concern that, because plan fiduciaries do not engage in a deliberative process to affirmatively review and select each of the investment options available through brokerage windows, participants may not have adequate or any protections against potentially costly or unsuitable investments made through the brokerage window.

The RFI presented 39 questions organized into 10 categories. The topics covered include, for example, the scope of investment options typically available through a window; demographic and other information about participants who commonly use brokerage windows; the process of selecting a brokerage window and provider for a plan; the costs of brokerage windows; and what kind of information about brokerage windows and underlying investment options typically is available and disclosed to participants. The RFI also solicited views regarding the need for further regulation or other guidance on such matters.

Many interested parties, including industry groups representing the investment industry, submitted comments by the Nov. 19, 2014 comment deadline. A recurring theme in many of these comments was that no further regulation or guidance is necessary regarding the use of brokerage windows in retirement plans. SIFMA, for example, stated in a letter dated Nov. 19, 2014, that “the [DOL] has already addressed any ambiguity surrounding what constitutes a brokerage window or similar arrangement through its clarification of what constitutes a DIA in Q&A 39 of [the Revised FAB].” In response to whether additional guidance is needed in relation to brokerage windows and ERISA's fiduciary provision, SIMFA stated that “the [DOL] adequately addressed most issues in its issuance of [the Revised] FAB ' .”

Conclusion

If the DOL does issue further guidance with respect to brokerage windows, such regulations or guidance could have a wide-ranging effect. Among those potentially affected are: 1) those participants who stand to benefit from the investment flexibility that brokerage windows offer, could be: 2) plan sponsors, 3) brokers who offer or facilitate the use of brokerage windows, 4) recordkeepers that promote or liaise with brokers in making windows available, 5) sponsors of funds offered through brokerage windows, and 6) sponsors of privately offered or other alternative investments that may be offered through a brokerage window. For those who are interested in whether the use of brokerage windows may be constrained or perhaps even shut down as a result of additional guidance, any further progress from the DOL on this issue should be watched carefully.

Andrew L. Oringer is a partner in the New York office of Dechert LLP, where he serves as chair of the firm's ERISA and Executive Compensation group. Reach him at [email protected]. Andrew H. Braid is an associate and Aaron S. Cha a law clerk, resident in the Philadelphia and New York offices, respectively.