DOL Relents on De Facto DIA's in Brokerage Windows

[austin3515]

http://www.dol.gov/ebsa/regs/fab2012-2R.html

From Today's Benefits Link. And just after I talked about this for half an hour in a training, and just after I finished my paragrpah in my cover-letters explaning how this was a big problem.

From BL:

The DOL has withdrawn Q&A-30 from Field Assistance Bulletin 2012-02, replacing the FAB with another bulletin that contains new Q&A-39, which does not include the former Q&A-30's requirement that the plan provide disclosure of costs for investments through brokerage windows that were not designated as "designated investment alternatives" but that were chosen in fact by specified minimum numbers of participants.

Here is the text of new Q&A-39:

"A plan offers an investment platform that includes a brokerage window, self-directed brokerage account, or similar plan arrangement. The fiduciary did not designate any of the funds on the platform or available through the brokerage window, self-directed brokerage account, or similar plan arrangement as 'designated investment alternatives' under the plan. Is the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement a designated investment alternative for purposes of the regulation?

"A39. No. Whether an investment alternative is a 'designated investment alternative' (DIA) for purposes of the regulation depends on whether it is specifically identified as available under the plan. The regulation does not require that a plan have a particular number of DIAs, and nothing in this Bulletin prohibits the use of a platform or a brokerage window, self-directed brokerage account, or similar plan arrangement in an individual account plan. The Bulletin also does not change the 404© regulation or the requirements for relief from fiduciary liability under section 404© of ERISA or address the application of ERISA's general fiduciary requirements to SEPs or SIMPLE IRA plans. Nonetheless, in the case of a 401(k) or other individual account plan covered under the regulation, a plan fiduciary's failure to designate investment alternatives, for example, to avoid investment disclosures under the regulation, raises questions under ERISA section 404(a)'s general statutory fiduciary duties of prudence and loyalty. Also, fiduciaries of such plans with platforms or brokerage windows, self-directed brokerage accounts, or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan are still bound by ERISA section 404(a)'s statutory duties of prudence and loyalty to participants and beneficiaries who use the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement, including taking into account the nature and quality of services provided in connection with the platform or the brokerage window, self-directed brokerage account, or similar plan arrangement."

[Belgarath]

Wow, this just made my day! Even though it isn't our responsibility, I've been calling brokers on the plans we administer (because everything ALWAYS falls back on the TPA anyway, as y'all know!) to let them know about the fee disclosure requirements, and Q&A-30, and it has been a struggle. I've been frankly shocked about how many brokers knew NOTHING about the fee disclosure requirements. What is also interesting is the response of different brokers for the SAME company. For example, I might have talked to 4 different brokers from (pick a company - Morgan Stanley for instance) and three brokers have heard nothing about any of this, and the 4th says, "Oh yes, we are well aware of it, MS has made us well aware of it, and we are all set on the disclosures - we don't need any assistance from you, etc.

[Bird]

This definitely caught me by surprise! I almost wish they left it alone; I spent a lot of time on it with some clients and was making some progress in getting them to think about moving to platforms, which would be better for everyone in the long run anyway. And maybe I have some government worker in me (shudder) but I was seeing their point that just letting everyone do whatever they want isn't necessarily enough. Oh well.

What is also interesting is the response of different brokers for the SAME company. For example, I might have talked to 4 different brokers from (pick a company - Morgan Stanley for instance) and three brokers have heard nothing about any of this, and the 4th says, "Oh yes, we are well aware of it, MS has made us well aware of it, and we are all set on the disclosures - we don't need any assistance from you, etc.

I'll bet anything that 4th broker is talking about 408b2. I may have ranted about this already, but trying to explain this (former problem w/Q&A 30 relating to the 404a5 regs) was a nightmare. The first couple of times, I explained it carefully and they said "oh yeah, we've got that covered" and spit the 408b2 stuff at me. So I learned to say "oh and I am not talking about 408b2 so don't give me that stuff" and they gave it to me anyway. They can't focus any more than a gnat can and hear "disclosure" and do whatever they can to get rid of the issue, whether it's right or not.

[Belgarath]

Hi Bird - actually, in the situation I was talking about, they weren't talking about 408b2. Actually understood the difference, and supposedly knew what to do and were doing it before the end of August. But that is the rare exception!

[austin3515]

Accoridng Fidelity's web-site (for small business Non-Prototype FBO product--NOT their real platform) they are still evaluating what their response to 404a-5 will be.

I still think there is a big problem with these, since the Plan Sponsor needs to provide an explanation of how the arrangement works, and how the participant can provide investment directions, and a listing of the account maintenance charges, etc.. I just think that the brokerage houses need to come up with something, and it just seems to me that it would not be very difficult for thm to do so. The disclosures for the DIA's, of course that would have been out of the question. But telling participants the 800 number for investment trades and what the annual maintenance charges would be, there's just no excuse. It should fit on half a page what is required. [i'm sure there legal counsel will make it 10 pages, but it should be the same for every single plan, so let's go Fidelity! Get it done!!].

[Bird]

Interesting link in the BenefitsLink newsletter yesterday...apparently Fidelity has a lot of these accounts, and somehow John Kerry got involved with writing a letter to the DOL suggesting they back off. Sort of an "aha" moment in understanding why the sudden change.

Phil Chiricotti: The DOL went off the reservation...They backed off and damaged their credibility. Phil Chiricotti: The DOL went off the reservation...They backed off and damaged their credibility. EMAIL // SUBSCRIBE // PRINT // REPRINT What to make of DOL's backtrack after John Kerry, Fidelity Investments and the rest of the riled 401(k) industry cried foul