The Department of Labor has issued a revised Field Assistance Bulletin 2012-12R, involving retirement plan participant disclosures. The revised guidance replaces Q&A 30 with Q&A 39, which emphasizes that nothing in the Bulletin prohibits the use of a brokerage window or self-directed brokerage account. In the view of SIFMA, the original answer to Q. 30 would have changed well-established law and policy regarding plan fiduciaries’ duties and impose new requirements with respect to investment selection and monitoring in individual brokerage accounts. The revised guidance replaces Q. 30 with Q 39, which, according to SIFMA, emphasizes that nothing in the Bulletin prohibits the use of a brokerage window or self-directed brokerage account.
After the initial issuance of Field Assistance Bulletin 2012-12, Senator John Kerry (D-MA) and the securities industry asked DOL to withdraw Q&A 30 and pursue this issue through a formal rulemaking, which would allow for the appropriate level of public comment and notice with respect to this element of the guidance. Their main concern was that Q&A 30 did not provide interpretative guidance regarding the disclosure obligations but rather set forth new rules that were not previously contained in any previous DOL guidance. Specifically, Q&A 30 stated that plan fiduciaries may have liability if they do not designate a manageable number of investment alternatives and if they do not provide the regulatory disclosures with respect to investments in which a significant number of participants are invested through a brokerage window available under the plan.
While not expressing any position regarding the substance of Q&A 30, Senator Kerry feared that the lack of advanced warning and the inability of the regulated community to comment will have serious unintended consequences for plans. With respect to brokerage window investments, the general due date for disclosures may technically be August 30. Senator Kerry noted that, due to the lack of advance notice, a vast number of employers will not be able to comply in any way by the August 30 deadline. The Senator had also become aware that many experts on small business plans were concerned that these rules and potential liabilities could result in the termination of many small business plans.
In its earlier letter, SIFMA said that Q&A 30 would have created fiduciary consequences for plan sponsors through the challenge they would have faced in identifying or not identifying securities in brokerage windows as designated investment alternatives. In this regard, SIFMA noted that, heretofore, the fiduciary obligations associated with the construction of an investment menu for a 401(k) plan have been viewed by most as limited to ensuring that designated investment options are prudent, not whether they include too many or too few choices.