Eligible Investment In Sdb Accounts? Options

[Guest btooz]

I'm trying to determine if there are any specific ERISA restrictions/guidelines that prevent sponsors from allowing participants to purchase options (including covered calls); in this case within self-directed brokerage accounts.

[mbozek]

Some option programs require the use of a margin account which would result in the imposition of UBIT tax if used in a retirement plan or IRA. Other accounts could require the account holder to make additional contributions which would violate the 402(g)/ADP maximums. However some options such as covered calls are perfectly permissible in a retirement plan.

[Jon Chambers]

ERISA generally precludes investments in individual account plans that could create a loss larger than the participant's account balance--such as naked options and excessive leverage. For this reason, most SDBA providers do not permit margin purchases or naked options. Some SDBA providers do not permit ANY options, but this is a business decision, not a regulatory requirement. I agree with mbozek that covered calls are perfectly permissible.