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A Better Partnership


Aug 2012
August 13, 2012

Revised Guidance on Plan Brokerage Windows: A Glass Half-Empty or Half-Full?

Good news for ERISA retirement plans that allow participant investment direction through brokerage windows or similar arrangements (referred to here as brokerage windows) - the Department of Labor (DOL) has revised its May guidance that suggested greater disclosure and monitoring is necessary for brokerage window investment alternatives.

As our recent e-bulletin explained, the DOL's original guidance suggested fees for some brokerage window investment alternatives should be disclosed in the participant fee disclosure notices first due August 30 in a manner similar to the plan's general investment menu alternatives. The revised guidance withdraws this suggestion, alleviating the need for plan fiduciaries to compile all of this information.

However, other brokerage window disclosure obligations for plan fiduciaries remain in the revised guidance. Part of what is left is easy - give a general description of the mechanics of the window and of the fees (establishment, access, ongoing commissions, trading or wire transfer fees and front and back end sales loads) that may be charged against a participant's account in connection with the brokerage window.

The other part is more challenging - on the quarterly fee disclosure statements that are generally due to begin by November 14 - disclose and describe some of the fees from the above list actually charged against the account identified by the amount and specific type of fee. Plan fiduciaries, and even participants, often lack access to this information and most service providers are not yet equipped to provide it. The DOL has indicated that in some cases extra time is available to implement a procedure to comply if the plan fiduciary has made a reasonable good faith attempt to comply with a reasonable interpretation of the regulations, but how reasonable it is to rely on this rule should be discussed very carefully with your ERISA attorney.

The DOL also did not back down from its position that plan fiduciaries must engage in some monitoring of brokerage windows. The revised guidance states that plan fiduciaries are bound by their legal duties of prudence and loyalty to monitor brokerage windows, including overseeing "the nature and quality of the services provided" through them. Further, the revised guidance warns it would be imprudent and disloyal to use brokerage windows to avoid having any investment alternatives subject to fee disclosure in a plan. The guidance also announces that the DOL will initiate a discussion to tighten the oversight of brokerage windows and possibly pursue amending the applicable rules to further that goal.

The DOL reversed its position on increased fee disclosure of brokerage window investment alternatives within three months. Given the strong forces opposed to greater oversight of brokerage windows and the swiftness of the DOL’s reversal, it remains to be seen what will come of the DOL's efforts and how courts will respond to the DOL's position in litigation against plan fiduciaries. So, while plan fiduciaries can relax when it comes to increased fee disclosure of brokerage window alternatives, they should remain sensitive to the extent to which they need to monitor brokerage windows. What's appropriate will vary for different plans.

If you have questions about what's appropriate for your plan or on any other aspect of this development, please contact a member of the Warner Norcross & Judd LLP Employee Benefits/Executive Compensation Group.

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