Interpretation of Fee Disclosure Rules May Greatly Affect Plan Brokerage Windows

In some defined contribution plans, some investors have the option to set up a ‘window’ that allows them to invest and trade outside the limited investment options within the sponsored plan. These may also be known as a self-directed account, where an investor can trade most listed stocks, mutual funds and exchange-traded funds.

However, with the fee disclosure rule changes coming from the Department of Labor (DOL), many of the defined contribution plan attorneys asked for guidance on how to handle brokerage windows. In the DOL’s response, they essentially rewrote the rules, as opposed to just providing clarification on the rules that have been passed, reviewed and interpreted over the past few years.

Now some companies are considering dropping their brokerage window option if they have to monitor how people invest in these windows, which provide a viable option for investors who understand the increased risks of individual security selection and asset allocation.

The attorneys and the DOL are in the process of working out the details, but it is possible you may no longer see this feature in your plans.

These changes stem from the fee disclosure rules that go into effect over the next few months. On July 1, 2012, vendors and service providers are required to disclose the costs and services they provide to plan sponsors. It is the plan sponsor’s fiduciary duty to make sure the fees they are paying are reasonable for the services they are being provided.

On August 30, 2012, plan participants will receive disclosure on the fees they are paying inside the plan, including both administrative fees and fund expenses. Following that, participants will receive more information on their quarterly statements. Participants will see the hard costs of what they were charged for administrative fees as a line item on their statements. Of course, it is up to the plan sponsors to assure participants that these fees are reasonable.

At Henssler Financial we believe you should Live Ready, which includes understanding your 401(k) plan, whether you are a participant or sponsor.  If you have questions about the fee disclosure changes, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.              

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