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COLLECTED WISDOM™ on Self Directed Brokerage Accounts

Self Directed Brokerage Accounts were very popular during the bull market of the 1990's, but today only about one in five employers offer them. As a result, you don't find them being discussed much in the press or in retirement industry publications.

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.

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Understanding Self-Directed Brokerage Accounts

Abstract: A recent article published by the Wall Street Journal suggests more plan sponsors are adding self-directed brokerage accounts to their corporate retirement plans. But what exactly is a self-directed brokerage account, and is adding one to your plan a good idea?

Source: Francisinvco.com, December 2016

SEC Guidance on Registration of 401k Plan Interests When Brokerage Windows are Offered

Abstract: On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401k plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window. Open brokerage windows typically allow plan participants to invest their 401k accounts in publicly traded securities, including, in the case of a public company employer, company stock.

Source: Benefitsbryancave.com, November 2016

A Potential Impact of the 403(b) University Lawsuits on 401k Self Directed Brokerage Accounts

Abstract: 403(b) plans, with their wide variety of investments which are subject only to the control of the participants, are essentially structured in the same manner as SBDAs in 401k plans. Should the plaintiffs succeed in their calms that it was imprudent to permit employees the ability to invest in a wide range of securities without fiduciary oversight, it may well be the death knell of SBDAs.

Source: Businessofbenefits.com, November 2016

Brokerage Account Windows in Your 401k Plan: Company Stock Issues

Abstract: The SEC recently published a new interpretation discussing the requirements for registering an offering of employer stock on a Form S-8. Question 139.33 discusses whether an employer must file a Form S-8 registration statement for employer stock if the stock may be purchased by 401k plan participants through a brokerage account window.

Source: Wifilawgroup.com, October 2016

Limits on 401k Plan Brokerage Windows

Abstract: Companies that allow employees to purchase employer stock through their 401k plans are already well aware of the securities law requirements and restrictions related to that plan feature. However, what if a plan with no employer stock investment alternative is modified to include a brokerage window that does not prohibit employee contributions from being invested in employer stock? Could this constitute an offer of employer stock requiring Securities Act registration?

Source: Jdsupra.com, September 2016

Does Brokerage Window Require Company Stock Offering Registration?

Abstract: The SEC recently weighed in on whether offering a brokerage window in a 401k through which investments in employer securities can be made involves an offer of employer securities requiring Securities Act registration.

Source: Planadviser.com, September 2016

401k Self-Directed Brokerage Accounts: A Cautionary Tale

Abstract: A recently filed lawsuit rekindled some old concerns about self-directed brokerage accounts. The lawsuit in question is Fleming v Fidelity Management Trust Company which was filed by a group of participants in the Delta Airlines retirement plan against Fidelity alleging breach of fiduciary responsibility for excessive fees charged to their brokerage accounts.

Source: Retirementplanblog.com, June 2016

SDBAs: Undesired Elements for Plan Fiduciaries

Abstract: Some retirement plans are utilizing Self-Directed Brokerage Accounts as the primary investment vehicle for plan participants, but using this element instead of a recordkeeping platform is potentially formulating undesired results. There are numerous fiduciary and participant related considerations that typically outweigh the investment flexibility benefit that SDBAs offer.

Source: Bpp401k.com, June 2016

Fidelity Faces ERISA Lawsuit Over 401k Brokerage Window

Abstract: A proposed class action accuses Fidelity Management Trust Co. of breaching its ERISA fiduciary duties for allegedly receiving unreasonable compensation through its brokerage window feature and a kickback scheme with an investment advice company.

Source: Bna.com, May 2016

Practical Considerations on Brokerage Windows in 401k Plans

Abstract: Plan committees need to ask questions, and get answers, before offering a brokerage window. Should the committee offer one at all? If it does, what is the process for selecting and monitoring the window and its provider? This column by Fred Reish looks at these and other questions about brokerage windows in participant-directed plans.

Source: Drinkerbiddle.com, April 2016

The Bad Bet of Offering Self Directed Brokerage Accounts in 401k Plans

Abstract: Plan sponsor, with self-directed brokerage accounts in their plans, may unknowingly expose themselves to liability. This article is about the hidden dangers of 401k plans in offering self-directed brokerage accounts to plan participants.

Source: Jdsupra.com, November 2015

The Brokerage Option in DC Plans

Abstract: This paper examines the self-directed brokerage feature in defined contribution plans at Vanguard where 16% of DC plans offered a self-directed brokerage option. Larger plans were somewhat more likely to offer the feature and 28% of plan participants had access to the option. Twenty-two percent of plans with a brokerage option were law firms, and on average 7% of law firm plan assets were invested in brokerage.

Source: Vanguard.com, June 2015

Brokerage Windows in Retirement Plans

Abstract: If the DOL does issue further guidance with respect to brokerage windows, such regulations or guidance could have a wide-ranging effect. This article reviews the regulator history and the effect of brokerage windows on fiduciary duties.

Source: Lawjournalnewsletters.com, March 2015

Industry Groups Urge No Further Rules for Brokerage Windows

Abstract: Responding to a request for information from the DOL, most industry groups said they believe no further regulation is necessary to govern use of brokerage windows in retirement plans.

Source: Plansponsor.com, December 2014

Information on Brokerage Windows Requested by DOL

Abstract: The DOL recently released a request for information concerning brokerage windows in 401k plans. The RFI includes 39 questions covering definitional issues, plan offerings, participation, selection, information available to fiduciaries, costs, disclosure, the role of advisors, fiduciary duties and reporting. This article begins by reviewing the brokerage window issue and then discusses the DOL's RFI.

Source: Octoberthree.com, October 2014

Brokerage Windows in 401k Plans: Nope. Not Even If They Say Pretty Please.

Abstract: Author writes, "I know the argument for brokerage accounts in retirement plans. Sophisticated investors want the choice to invest in whatever they want, whenever they want. By eliminating the brokerage option we are punishing the knowledgeable investor. Good philosophy, but poor logic. Allow me to retort."

Source: Employeefiduciary.com, September 2014

DOL Requests Comments on Brokerage Windows in 401k Plans

Abstract: On August 20, 2014, the DOL published a request for information on the use of these brokerage windows 401k plans. The DOL's goal in issuing the request for information is to assist the DOL in determining whether, and to what extent, regulatory standards or other guidance concerning the use of brokerage windows may be necessary to protect plan participants.

Source: Winston.com, August 2014

Brokerage Account Windows Shutting in 401k Plans

Abstract: Recently the Department of Labor indicated they intend to provide additional guidance on the use of brokerage account windows. Experts believe it is likely to be unfavorable for brokerage window proponents.

Source: Lawtonrpc.com, March 2014

Considering a Self-Directed Brokerage Account Option?

Abstract: Choosing to offer an SDBA option should not be a scary ordeal. However, plan sponsors need to be aware of their fiduciary obligations. Do not fall victim to claims that offering an SDBA shifts more liability away from the plan sponsor as opposed to a traditional 404(c) plan. Article lays out issues to consider before implementing an SDBA.

Source: Ifebp.org, December 2013

Offering Self-Directed Brokerage Accounts in a 401k Plan is a Bad Bet

Abstract: 401k plans with self-directed brokerage accounts that allows participants to choose almost any type of investment is another form of gambling and a plan sponsor may unknowingly expose themselves to liability by offering this feature. This article is about the hidden dangers of 401k plans in offering self-directed brokerage accounts to plan participants.

Source: Jdsupra.com, December 2013

Brokerage Window Issues Still Open

Abstract: Offering a brokerage window investment option in a defined contribution (DC) retirement plan allows plan participants to set up retail accounts with investment brokers of their choice and they can access a wide variety of investment vehicles. The idea is to give plan participants ultimate investment control. Concerns have arisen though, because, under ERISA, all retirement plan investment options must be monitored and evaluated. Therefore, how do plan fiduciaries monitor and evaluate all the investments selected by participants who use these accounts?

Source: Plansponsor.com, December 2013

Is the Fiduciary Liability of Self-Directed Brokerage Options Too Great for 401k Plan Sponsors?

Abstract: Brokerage windows on 401k plans really give investors unlimited investment choice. But the verdict is still out on whether a plan sponsor is fulfilling their fiduciary duty with a brokerage window: it gives them cover because the plan is not limited to two dozen pre-selected assets, but opens them up to exposure if their participants are buying risky assets.

Source: Fiduciarynews.com, June 2013

Individual Brokerage Accounts: What Plan Sponsors Must Disclose to Participants

Abstract: It may be easy to assume that a plan's providers will automatically make proper fee disclosures in self directed brokerage arrangements. However, the Participant Disclosure Regulation places the legal burden squarely on the shoulders of the plan fiduciaries and some broker-dealers providing brokerage accounts say they are unable to provide the information. While fiduciaries can rely -- to a degree -- on qualified providers, they should at least take the steps to form a reasonable belief that the requirements are being satisfied.

Source: Drinkerbiddle.com, January 2013

Fiduciary Considerations in Offering a Brokerage Window

Abstract: White paper discusses the fiduciary process for deciding whether to offer a brokerage window and selecting the provider of the window; the requirements under the new participant disclosure rules; and the implications of the fiduciaries or a participant selecting an RIA to serve as an investment manager or advisor for a participant's individual brokerage window.

Source: TDAinstitutional.com, November 2012

Fiduciary Responsibilities for a Plan With Self-directed Brokerage Accounts Only

Abstract: Many small self-directed retirement plans provide each participant with his/her own self-directed brokerage account (SDBA) rather than a platform of funds from which to choose. The approach is particularly popular in small professional practices. This article addresses the specific issues that apply to a plan that provides the SDBA as the only investment option.

Source: Sungard/Relius, October 2012

Are Self-Directed Brokerage Accounts Subject to Participant Fee Disclosure Regulations?

Abstract: The reasons for the confusion are manifold as practitioners are struggling to absorb and understand two difficult sets of fee disclosure regulations and a complicated Form 5500, Schedule C. In this Technical Update, Sungard will address how the participant fee disclosure regulations apply to a plan with self-directed brokerage accounts.

Source: Sungard/Relius, October 2012

Questions and Answers on Brokerage Accounts

Abstract: This article focuses on plans which provide participants the option to direct their investments through brokerage accounts, and do not otherwise provide a set of designated investment alternatives (DIAs) for participant selection.

Source: Sungard/Relius, August 2012

DOL Backs Off Controversial Brokerage Window Plan

Abstract: The industry had complained that the DOL had ushered in a new requirement on brokerage windows in its original Field Assistance Bulletin, but the EBSA issued a revised Field Assistance Bulletin which is a turnaround from its position in the old FAB under Q&A number 30 that plan fiduciaries have a duty to look at the investing patterns inside individual brokerage accounts and possibly designate some of the commonly held investments.

Source: Advisorone.com, August 2012

Labor Department Drops Brokerage Window Provisions

Abstract: The DOL clarified that brokerage windows are not considered designated investment alternatives and that the regulation doesn't prohibit the use of these brokerage accounts. The agency said that plan fiduciaries, however, still have a duty of prudence and loyalty to participants who use the brokerage window -- including taking into account the nature and quality of services provided.

Source: Pensions & Investments, July 2012

DOL Revises FAQs Clarifying Treatment of Brokerage Windows

Abstract: Field Assistance Bulletin No. 2012-02R clarifies that fiduciaries of plans covered by these rules that offer brokerage windows, self-directed brokerage accounts or similar arrangements are not required to treat these arrangements as designated investment alternatives.

Source: Practicallaw.com, July 2012

More Oversight for 401k Brokerage Windows

Abstract: If you have a plan with a brokerage window or are contemplating one, it's very important to consider Department of Labor guidance issued in May and subsequent statements that raise new questions about what is a prudent level of disclosure and monitoring for brokerage window investment alternatives.

Source: Warner Norcross & Judd LLP, July 2012

DOL Fiduciary Alert: 401k Plan Brokerage Windows

Abstract: What has caught plan advisers off guard is that the DOL is appearing to take the position that plan sponsors and fiduciaries have a duty under ERISA to monitor and review the investment selections that participants are making through brokerage windows in their 401k plans-not just the investment funds offered by the plan.

Source: Smith, Gambrell & Russell LLP, June 2012

401k Plan Brokerage Windows and Participant Fee Disclosures

Abstract: The DOL's Field Assistance Bulletin 2012-02 issued on May 7, 2012 included new participant fee disclosure requirements for brokerage windows and other self-directed brokerage arrangements. These new surprise requirements may pose a challenge for plan administrators and service providers.

Source: Kelly, Hannaford & Battles PA, June 2012.

Using Brokerage Windows to Expand 401k Options

Abstract: Using the brokerage option offered through some employers' 401k plans could be a good way to maximize asset class diversification and integrate the highest quality funds into your portfolio. The brokerage window isn't for everyone, though.

Source: U.S.News & World Report, February 2012.

Are Self-Directed Brokerage Accounts Making a Comeback?

Abstract: It appears, according to recent survey data, that self-directed brokerage accounts are being rediscovered by a whole new generation of 401k participants.

Source: Employee Benefit News, December 2010.

A Dangerous Leap Through the Brokerage Window

Abstract: In its survey, Trends and Experience in 401k Plans for 2009, Hewitt Associates noted that more plan sponsors were offering employees the option of a self-directed brokerage window. But, letting 401k plan participants jump through the brokerage window is tantamount to giving the inmates run of the asylum.

Source: Workforce.com, June 2010.

Self-Directed Brokerage Accounts -- What You Should Consider

Abstract: Covers the pros and cons, plan sponsor fiduciary responsibilities regarding self-directed brokerage accounts, steps to take if the plan has self-directed brokerage accounts and other issues.

Source: FiduciaryX Expert Blogs, March 2010.

As Fund Menus Tighten, Interest in Self-Directed Accounts Grow

Abstract: When the market takes a nosedive participants grow grumpy and start complaining about investment performance and the options available on their retirement plan menus. That is why now might be a good time for plan sponsors to at least consider the idea of offering their employees a self-directed brokerage account window.

Source: Plansponsor.com, December 2009.

LaRue Heightens Liability of Self-Directed Plans

Abstract: A dividend of LaRue is that it may cause employers to step back and reconsider the current, expensive, and dangerous fad of self-direction.

Source: Theworkplace.biz, February 2008.

Self-Directed Brokerage Accounts Tend to Reduce Retirement Success and May Not Decrease Plan Sponsor Liability

Abstract: Plan participants often expect that self-directed brokerage accounts offer more choices and wealthier retirement prospects than do managed model portfolios; plan sponsors might expect less liability. But the substantial under performance, restrictions, costs, and liabilities of such plans dictate that caution is in order.

Source: Unified Trust, June 2005.

The Fairy Tale of Fiduciary Liability and Self-Directed Brokerage Accounts

Abstract: Self-directed brokerage accounts can be offered to 401k plan participants without compromising protections under ERISA Section 404(c). This column explains why and how.

Source: Drinker Biddle, March 2005.

Individually Directed Accounts in Defined Contribution Plans

Abstract: Individual directed brokerage accounts (IDAs) are increasingly popular with both plan participants and plan sponsors. However, offering IDA`s introduces numerous fiduciary issues, operational concerns and potential tax problems for plan sponsors. Fortunately, there are several practical approaches that a sponsor can adopt to more effectively manage liability, operational and cost issues. In addition, the article illustrates a transition plan for moving from a less effective to a more effective brokerage account structure. Located on: Advisorsquare.com .


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