Participant Fee Disclosures for Brokerage Accounts in 401(k) Plans

Guidelines for 404(a)(5) Compliance on Brokerage Window Accounts in Retirement Plans

Until now, Plan Administrators have had few federal guidelines for complying with the new 404(a)(5) participant fee disclosures in cases of "brokerage windows" or self-directed brokerage accounts in 401Ks. These are sometimes used outside of the Plan’s menu of funds, or sometimes in lieu of a menu of funds. Clarification is now available to help Plan Administrators in the Department of Labor's Field Assistance Bulletin No. 2012-0238.

This valuable DOL bulletin answers 38 Frequently Asked Questions from plan administrators. The answer to Question no. 13 concerning participant disclosures for self-directed brokerage accounts is one of the longest and most detailed answers in the entire bulletin. I've summarized these DOL clarifications below:

Writing Participant Plan Disclosures for Brokerage or Self-Directed Accounts

The Department's rule of thumb for descriptions is to provide enough information to "enable participants and beneficiaries to understand how the window, account or arrangement works."

1. Minimum Plan-Related Information to Include:

  • how participants can give instructions for their investment choices.
  • to whom to give these instructions.
  • any requirements for maintaining an account balance.
  • any restrictions or limitations on trading.
  • how the brokerage window account differs from your Plan's designated investment alternatives (DIA).
  • whom to contact for questions.

2. Explain Individual Fees and Expenses

The DOL Bulletin adds that satisfactory descriptions for these brokerage accounts should explain the fees and expenses that could be charged to a participant or beneficiary's account on an individual basis rather than a plan-wide basis. Explanations should include:

  • any fee or expense needed to start, open or initially access the account, such as enrollment fees.
  • any fee or expense required to stop, close or terminate access to the account.
  • any expense required to maintain account access, such as inactivity fees or minimum balance fees.
  • any commissions or fees connected with purchasing or selling a security, such as a per trade fee, or front or back end sales loads, if known. (However, these disclosures would not include fees or expenses that will be reflected in the investment's total annual operating expenses.)

When You Can't Know the Trade/Buy/Sell Fees in Advance

There are cases where you cannot know specific fee amounts, such as:

  • the provider of your window account is a mutual fund, and the purchase/sale fees vary across the investments.
  • the plan provider does not know, or you can't know, what those fees will be in advance of a participant's purchase or sale of a security.

In these cases, the DOL allows for a general statement that will "ordinarily" satisfy the requirements of paragraph (c)(3)(i)(A) . Participants should know that fees for buying or selling exist and those fees may be charged against them. Plan administrators should also inform participants to seek information from the plan provider about such fees, including undisclosed fees, before they sell or purchase a security; and also provide directions on how to obtain the information.

Avoid Information Dumps

The DOL's rationale for allowing a general statement is that inundating participants with details about the cost of buying or selling all of the various securities available to them could be more confusing than informative, especially if your participants do not have the sophistication, interest or expertise to purchase or sell any of the available securities.

3. Disclose Past Charges

Plan administrators must also provide a statement of the fees and expenses that were charged during the preceding quarter against individual accounts. Include a description of the services and clearly explain the charges --for example, a $19.99 brokerage trade fee, or a $44.00 front end sales load.


Historically, the clarifications in this bulletin make sense. The original regulations in ERISA Sec. 404(c) said you could reduce your fiduciary liability by offering participants a broad range of investment alternatives, which consists of at least three diversified investment alternatives (typically a Cash, Equity and Bond -like investment). These latest guidelines reaffirm that you still have to offer a mix of funds or designated investment alternatives, plus provide specific disclosures for those plans that go beyond your DIAs, in order to achieve the reduced Fiduciary Liability.

These guidelines were also intended to be general, with the Department noting that complying with the participant fee disclosure regulations may vary by specific situations and plans. If you have any questions, it is best to seek expert consultation.

We hope this summary was helpful. If you have any questions or comments, we would like to hear from you. Contact us today

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