trustee directed question and brokerage account question

[Santo Gold]

(1) A 401(k) Plan offers participants the option of (a) not self-directling their contributions, in which case the deposits are made to a pooled account and directed by the trusteees, or (b) self-directed into a mutual fund account menu.

Do the 404(a) participant disclosure regs apply to those in (a) above? No fees are being deducted from the pooled account but I assume that there are still asset fees. That would trigger the notice, correct?

(2) Who provides the notice on brokerage accounts? For example, if a plan has 20 participants and everyone has a Schwab account, Does Schwab provide the 404(a) notice? Would it detail every dollar spent on trades or other purchases or would the notice simply be one stating what the fees are if trades are made?

Thanks

[Peter Gulia]

On #1, while I don't give advice, let me suggest a way that you and your lawyer might think about it.

If the menu of mutual funds has 17 funds, the plan you've described has 18 investment alternatives. The one investment alternative that is not a registered investment company happens to have the plan trustees as its manager.

The "pooled account" seems to be within the rule's definition: "Designated investment alternative means any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts."

[QDROphile]

Peter, I agree with your conclusion but if the conclusion is correct I also note the rather uninformed and unintelligent inconsistent references in the regulation, such as to the "issuer" of the investment alternative. Who is the "issuer" of a fiduciary-managed pooled investment fund? The DOL evidently gets a lot of its understanding of retirement plan investment management from Money magazine, and then the rest of us have to make sense of the shallow regulations in a more diverse and complex world.

[Bill Presson]

Peter, I agree with your conclusion but if the conclusion is correct I also note the rather uninformed and unintelligent inconsistent references in the regulation, such as to the "issuer" of the investment alternative. Who is the "issuer" of a fiduciary-managed pooled investment fund? The DOL evidently gets a lot of its understanding of retirement plan investment management from Money magazine, and then the rest of us have to make sense of the shallow regulations in a more diverse and complex world.

Like

[Peter Gulia]

I consider unwise some of the choices that EBSA made about which pieces of information to present (for all investment alternatives). And the rule's analysis and writing quality isn't 'A' work in very respect.

But the reg writers did consider differences between SEC-registered and unregistered investments. For a few of these points, the rule includes specific provisions, and others show clear recognition of differences for unregistered funds. The rule's preamble explains the Labor department's reasoning for seeking symmetry between registered and unregistered investments. Moreover, the ERISA rule doesn't always give in to the securities-law way of doing things, sometimes requiring (for all investment alternatives, including registered investments) that information be presented differently than what securities law calls for.

It might be work for trustees who are not in the business of being trustees to pull together the information to be disclosed. But if a plan asks a participant to choose between a trustees-managed fund and other funds, shouldn't a participant get the same base information on every investment alternative so that one could make an informed choice?

[Bird]

If the menu of mutual funds has 17 funds, the plan you've described has 18 investment alternatives. The one investment alternative that is not a registered investment company happens to have the plan trustees as its manager.

Logically I think you are correct, there are 18 options. But technically, I believe there is a distinction and the participant truly has 17 "investment alternatives", and another choice of "you invest for me" which is a (legitimate) black box, not subject to the disclosure rules. I'm not quite sure how to put that in the notice, but will have to take a stab at it in the next couple of weeks.

[Bird]

I think this part got overlooked.

(2) Who provides the notice on brokerage accounts? For example, if a plan has 20 participants and everyone has a Schwab account, Does Schwab provide the 404(a) notice? Would it detail every dollar spent on trades or other purchases or would the notice simply be one stating what the fees are if trades are made?

I am skeptical of Schwab's ability or willingness to provide anything other than a standard schedule for the prospective (annual notice) listing, but that should actually be good enough. And I think that if actual fees charged show up on their monthly statements, that's good enough for the after-the-fact disclosure.

[Peter Gulia]

On #2, the rule puts the duty on the plan's administrator. (That was a change that commenters on the proposed rule requested.)

Paragraph © recognize that a plan's administrator may designate a person to act on its behalf in furnishing the information.

However, if such an agent doesn't do what's required, the plan's administrator remains responsible.

[Guest roseH3251]

This is really great advice that I have thoroughly read through. Peter thank you so much for explaining it all in layman's term!