Jenner & Block

Client Alert: Reopening the Brokerage Window – DOL Revises its Controversial Position on Brokerage Windows and Eliminates Its 1% Look-Through Test

On July 30, 2012, the Department of Labor (“DOL”) announced it has withdrawn Q&A 30 from Field Assistance Bulletin 2012-02 and replaced it with a new Q&A 39 in its revised Field Assistance Bulletin 2012-02R.  See text of Q&A 39 below.  The revised version (FAB 2012-02R) can be found at EBSA’s website.

While continuing to maintain that adding a brokerage window to a plan is subject to ERISA’s fiduciary duties, the DOL withdraws the “1% of participants”(1% of participants if the plan has more than 500 participants.  For smaller plans, the requirement would have applied to investments held by 5 or more participants) test that conceivably could have required plan fiduciaries to “look through” plan brokerage windows and treat any investments held by a certain number of plan participants as a “designated investment alternative” of the plan.

Q&A 39 is a welcome revision for plan fiduciaries, as the language is much more in keeping with long-standing principles regarding brokerage windows, namely that: (1) fiduciaries cannot set up brokerage windows in plans simply to avoid other ERISA duties; and (2) fiduciaries must carefully select and monitor the providers of brokerage windows in order to protect the best interests of participants.  While the DOL has revised its guidance on this issue for now, it may address the issue in the future, saying that it will “engage in discussions with interested parties to help determine how best to assure compliance with [ERISA fiduciary duties related to brokerage windows] in a practical and cost effective manner, including, if appropriate, through amendments of relevant regulatory provisions.”