The ERISA Advisory Council released a detailed report on its recent examination of brokerage windows in defined contribution (DC) plans, previously an area of controversy due to shifting guidance from the Department of Labor (DOL). Though the council considered several topics, its sole recommendation is for DOL to conduct additional fact-finding on “brokerage window only” (BWO) plans — DC plans that offer one or more brokerage windows but no designated investment alternatives (DIAs). The DOL-appointed council can’t issue guidance, but these findings may help alleviate concerns for plan fiduciaries currently offering — or looking to offer — a brokerage window by making the case for DOL to preserve the status quo.
Brokerage windows allow DC plan participants to invest their account balances in a variety of investment offerings beyond their plans’ selection of DIAs. In guidance issued a decade ago, DOL confirmed that a brokerage window isn’t a DIA under the participant disclosure rules. However, the agency controversially suggested that some investments available through a brokerage window may need to be treated as DIAs — and be subject to associated fiduciary oversight and investment-related disclosures — if enough participants invest in those products.
After significant outcry from the regulated community, revised DOL guidance withdrew this interpretation. In its report, the council acknowledged the lack of DOL guidance on the application of ERISA’s fiduciary standards to brokerage windows and noted that plan fiduciaries don't routinely monitor the underlying investments. In 2014, DOL published a request for information (RFI) on the need for more brokerage window guidance but has never taken further action.
The council’s report discusses the availability and utilization of brokerage windows in DC plans, drawing on testimony from a variety of constituencies, including plan sponsor representatives, consultants and recordkeepers. The report also presents recent data on the prevalence of brokerage windows and participant demographics from several major recordkeepers.
The report’s sole recommendation was that DOL conduct further fact-finding for BWO plans. The council was concerned that a lack of a default provider in some BWO plans could discourage employees with less financial experience from participating. The lack of a default provider also raises questions about the extent to which plan fiduciaries are evaluating the cost and quality of brokerage services. The council also expressed concerns about the lack of certain plan features — like loans and automatic enrollment — in BWO plans.
The council considered several other potential actions DOL could take, but ultimately determined they weren’t necessary: