May a plan restrict the brokerage window to those who hold the CFA designation?

[Peter Gulia]

My client is considering the following plan design. A "brokerage-window" account is an available investment alternative for ALL non-highly-compensated employees, and for those highly-compensated employees who hold the CFA (Chartered Financial Analyst) designation. Although it seems strange to look for a knowledge indicator but not require it for non-highly-compensated employees, the employer believes that this is necessary to avoid non-discrimination problems.

Leaving aside any questions about the wisdom of this plan design, am I right in guessing that it does not raise a 401(a)(4) nondiscrimination problem because the only persons discriminated against are highly-compensated employees?

Do you agree with the employer's view that 401(a)(4) constrains it not to impose the CFA condition on non-highly-compensated employees? Assume that in this employer's workforce about 40% of NCEs hold the CFA designation, and about 60% of HCEs hold the CFA designation.

[ETA Consulting LLC]

I agree. Without something stating it must be made available on all participants on an equivalent basis. It 'may' bring an additional risk element to the plan sponsor for those HCEs who are not CFA under the argument that they were not afforded the investment opportunities that other's in the plan (many of whom where clearly less equipped to handle investment matters) were allowed that option. What prudent man would do that to himself?

Good Luck!

[Peter Gulia]

Thanks for the help. By plan design, this employer means that the provisions about who may or cannot chosse the "brokerage-window" account are "hard-wired" in the plan document. Although a plan's administrator must act with prudence, a fiduciary does so in the course of administering the plan that it is given. And usually an administrator must administer the plan according to its documents unless a provision is contrary to ERISA.

Although I don't like what this employer wants to do, I'm unlikely to persuade them unless I can describe a real risk of monetary liability.

If an HCE who was denied the opportunity to direct investment using a "brokerage-window" account sues, what is her theory about why the plan's administrator (or any plan fiduciary) had a duty to disobey the plan's written provisions?

[ETA Consulting LLC]

I see you point on 'by plan design' but do believe it is a fiduciary function to make decisions on how the plans are designed. When you 'signal out' a group for whatever reason, then you set a precendent and then bring into question why other's weren't signaled out. If I am an NHCE who used the brokerage window and lost dearly, I may then question why you never required me to obtain my CFA as you did for the HCEs. That protection to the HCEs (protecting them from their own ignorance) should've been afforded to me.

You can see I am merely playing devil's advocate and do not prescribe to any argument. I am merely saying that, in todays environment, people can sue for anything. They may not win, but they can still sue. So, the question would be what is to gain by opening that door and creating an unnecessary precedent.

Good Luck!

[Peter Gulia]

I hadn't fully focused on the idea that someone who was INcluded might ground on a claim on the harm that results from getting more choice. Thanks again for helping me think about this.