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Brokerage Window Fiduciary Issues

There are several fiduciary issues that a plan sponsor should consider when adding a brokerage window to their 401(k) or 403(b) plan.


The brokerage account fees would be deducted from the participant’s account.


There are some fiduciary considerations under ERISA for plan sponsors. Fiduciaries have an ongoing duty to monitor the financial strength of the brokerage provider, reasonableness of fees, and its compliance with limitations and restrictions placed on the brokerage window by the plan sponsor.


Plan fiduciaries should conduct a due diligence review of the provider if any substantial changes occur to the management and financial condition of the firm. In this case, the provider has merged, and the services delivered may be re-organized under a new combined entity.


The Department of Labor (DOL) outlines that certain disclosures about the brokerage window must be distributed to all eligible participants and those former employees with an account balance remaining in the plan. Eligible participants include those who are actually making elective deferrals and must include sufficient information to enable participants to understand how the self-directed brokerage window works. Eligible participants should receive an explanation of any fees and expenses that may be charged against their account, minimum account balance requirements, if any, and any restrictions or limitations. There should also be a disclosure on how the self-directed brokerage window differs from the plan’s menu of investment funds.


Plan fiduciaries sometimes try to reduce their fiduciary risk associated with a brokerage account by limiting the percentage of the participants’ accounts that may be invested in the brokerage window. Some plan sponsors may limit the specific sources of money to be invested in the brokerage window by allowing only the participant’s elective deferrals.


Currently, the plan sponsor is not required by the DOL to monitor the investment choices of the participants, it is a good practice for the plan sponsor to review the list of investments being used through the brokerage window to ensure compliance with the acceptable types of investments as described in the provider contract.

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