DOL Asked To Forego Brokerage Rules

by | Feb 4, 2015 | Institutional Services

Defined contribution (DC) industry representatives have resumed efforts to convince the Labor Department (DOL) that more extensive regulation of self-directed brokerage accounts is unnecessary and burdensome, Pensions & Investments reported recently. Existing rules protect participants and enable fiduciaries to follow the requirements of prudence of the Employee Retirement Income Security Act of 1974, officials maintain. They argue that the rules, similar to ideas floated and then quickly withdrawn by the DOL in 2012 would raise costs, increase fiduciary risk, discourage plans from offering brokerage accounts and encourage plans with such options to drop them. Industry participants have reacted to the DOL’s request for information (RFI) in August, which included 39 questions about the costs, administration and disclosure policies of self-directed brokerage options. The RFI noted the department’s concern that some DC plan executives might offer brokerage-account-only investment menus to dodge some fiduciary duties. Survey results released by the Plan Sponsor Council of America, Chicago, show brokerage accounts represented an average 2.3% of total assets last year among 613 plans with a combined $832 billion in assets. Two years ago, DOL officials issued a field assistance bulletin that said if the number of participants choosing a specific investment in a brokerage-account exceeded a certain threshold, that investment could be subject to the same fiduciary standards as investments in a plan’s core menu. The industry erupted in protest, saying the document was an attempt at back-door regulation. Although Phyllis Borzi, assistant secretary of labor for the Employee Benefits Security Administration, subsequently withdrew the controversial passage, industry representatives want to make sure the RFI doesn’t lead to a replay of 2012.

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