On July 30, 2012, the Department of Labor issued FAB 2012-02R as a revised version of FAB 2012-02 (issued May 7, 2012), which supplements the participant-level fee disclosure regulation and how it may be implemented. (See our prior post regarding FAB 2012-02.)
Q&A 30 of FAB 2012-02 generated significant controversy as it appeared to introduce new rules without following established rulemaking procedures (i.e., including a new requirement in a proposed regulation with an opportunity for interested parties to comment). Q&A 30 stated, in part, that:
If, through a brokerage window or similar arrangement, non-designated investment alternatives available under a plan are selected by significant numbers of participants and beneficiaries, an affirmative obligation arises on the part of the plan fiduciary to examine these alternatives and determine whether one or more such alternatives should be treated as designated for purposes of the regulation. (emphasis added)
Many industry trade organizations went “wild” in response to this requirement as recordkeeping systems currently do not collect this information with respect to participants who invest through open brokerage windows. Creating such a system would take a significant amount of time and most certainly could not be completed by the August 30, 2012 deadline to distribute annual disclosures to participants.
In the revised FAB 2012-02R, Q&A 30 has been replaced by Q&A 39. Q&A 39 does not include the affirmative obligation to determine if one or more investments available under a brokerage window or similar arrangement is a designated investment alternative. Q&A 39 indicates that (i) a brokerage window or similar arrangement is not a designated investment alternative, (ii) a plan is not required to have a particular number of designated investment alternatives, (iii) the FAB does not prohibit the use of a platform or a brokerage window, self-directed brokerage account, or similar plan arrangement in an individual account plan, and (iv) the FAB does not change the 404(c) regulation or the requirements for relief from fiduciary liability under section 404(c) of ERISA.
However, Q&A 39 concludes with a promise from the Department of Labor that it intends to “engage in discussions with interested parties to help determine how best to assure compliance” by fiduciaries with ERISA’s general fiduciary standards “in a practical and cost effective manner, including, if appropriate, through amendments of relevant regulatory provisions.” Thus, although Q&A 39 has temporarily relieved plan administrators from certain fee disclosure obligations with respect to brokerage windows and similar arrangements for now, things may change in the future.
Take away – If your plan includes a brokerage window or similar arrangement, you do not have to consider eliminating it now to avoid compliance problems. However, you should keep abreast of changes in the rules as the Department of Labor may issue regulations in the future implementing the guidance that was originally included in Q&A 30.