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Brokerage Windows in Retirement Plans

By Andrew L. Oringer, Andrew H. Braid and Aaron S. Cha
July 02, 2015

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.” See, http://1.usa.gov/1eFWp6i.

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