“We don’t like the idea that people might be using brokerage windows as a way to evade the rule,” Michael Davis, deputy assistant secretary for the DOL, told attendees at the 2012 PLANADVISER National Conference. Davis cautioned those who may be advising clients to add brokerage windows to retirement plans in order to avoid having designated investment alternatives (DIAs) and thus avoid fee disclosure.
The DOL’s guidance about brokerage windows appears to be a warning shot for plans trying to do just that. In July, the DOL’s Employee Benefits Security Administration (EBSA) issued Field Assistance Bulletin (FAB) No. 2012-02R, which superseded Field Assistance Bulletin No. 2012-02. The DOL issued its original FAB to provide guidance to its field enforcement personnel in question-and-answer format about the obligations of plan administrators under a final regulation to improve transparency of fees and expenses to workers with 401(k)-type retirement plans (see “DOL Issues Additional Guidance for Participant Fee Disclosures”).
While the revised FAB does not prohibit brokerage-window only plans, Davis stressed that not having any DIAs raises concerns. “We think that it is better to have designated a suite of options,” he added.
Those who want to continue using only brokerage windows should give it serious thought, Davis said, adding that plan sponsors should determine the reason they have only a self-directed brokerage window option. If the reason is to evade disclosure rules, the DOL “certainly has issues with that,” Davis said.
Davis also addressed fee disclosure regulations in a general sense. “The fee disclosure rules are a centerpiece on what this administration has been working on, and the administration prior to us,” he said.
Davis emphasized the “good faith” compliance, saying that although both the 404(a)(5) and 408(b)(2) disclosure deadlines have passed, the DOL understands that new rules take some adjusting. “If people are trying to comply, we certainly take that into consideration,” he added.
Regarding 404(a)(5), Davis said the DOL is open to feedback about whether participants understand the disclosure information on their retirement plan statements. “Policy objective was to help people make better decisions, and if 404(a)(5) isn’t doing that, we will absolutely look at that,” he added.
In addition to fee disclosure, Davis addressed the re-definition of fiduciary. “[We knew] this was going to be a very engaged conversation and a very engaged debate,” he said. The DOL received comments that are helping to shape the redrafting of the fiduciary definition (see “PSNC 2012: The New Fiduciary”). “We think the rule is better as a result of this process, but it’s not quite ready,” he said.
After the revised rule is submitted to the Office of Management and Budget (OMB), the OMB has 90 days to review it. Once the rule is submitted to the OMB, it is a “public event” and can be viewed online, Davis added.