Self Directed Brokerage Accounts

[khn]

If a plan adds a self-directed brokerage account feature, can it be offered to only certain classes of employees or does it need to be available to all participants in the plan? The plan wants to add it so their management employees can use it, but is afraid to make it available to lower-level employees who have less investment experience.

[Bill Presson]

The availability has to meet the BRF testing so it kind of depends on the definition of management employees. If they are all HCEs, you likely won't pass. If they are paid well, but below the HCE definition, you might be okay.

[Peter Gulia]

Beyond Bill Presson's good point about tax-Code non-discrimination, the plan sponsor might think carefully about how each of the plan document and the summary plan description describes the class of participants whose investment alternatives include the thing that is not available to other participants.

Consider too whether the extra thing is or isn't an investment alternative for a beneficiary or an alternate payee.

Consider whether a classification is vulnerable to a challenge that it indirectly discriminates regarding race, national origin, sex, or in some other way precluded by Federal law.

[401king]

And believe me, the assumption that "Management" can't lose more money than lower ranking employees is not based in reality. On the contrary, I think rank & file EEs are more likely to use a pre-allocated fund, whereas higher paid employees tend to believe they can manage their account better than a professional.

[khn]

Agreed...

So it sounds like it may be technically permissible, but not advisable. Thanks to all.

[Peter Gulia]

Please understand that my observation is not necessarily a suggestion against allowing securities accounts, but rather a caution about some difficulties in making it an investment alternative for less than all participants.