Updates

DOL Withdraws Controversial Investment Disclosure Position

07/30/2012


July 30, 2012  – The Department of Labor, Employee Benefits Security Administration (EBSA), has revised guidance previously issued concerning required investment disclosures to participants and beneficiaries in participant-directed individual account plans. In Field Assistance Bulletin (FAB) 2012-02, issued in May of 2012, the EBSA mandated an investment disclosure requirement that was widely criticized as going beyond the agency’s authority. FAB 2012-02 consisted of 38 question-and-answer (Q&A) items intended to help plans comply with the “404(a)(5) regulations” that govern certain investment disclosures to plan participants and beneficiaries. There are very specific disclosures required under these regulations for investments that are identified as “designated investment alternatives” (DIA) under an ERISA-governed retirement plan. The EBSA took a very unexpected position on the investment option known in the industry as “brokerage windows,” an option that could potentially open up an almost unlimited array of investments. Q&A 30 of FAB 2012-02 stipulated that plans would be required to track the many underlying investments that could be chosen within a brokerage windows option, and at such time that a threshold number of participants and beneficiaries chose a particular investment, then the more comprehensive DIA investment disclosure requirements would take effect. This would include such things as investment performance history, expense ratios, and risk-and-return characteristics. Industry representatives countered that not only is such information generally unavailable to plan administrators in a brokerage windows investment environment, but there is no provision of the EBSA 404(a)(5) regulations that calls for such tracking and subsequent disclosure.

On Monday, July 30, under pressure from the industry and from members of Congress of both political parties, the EBSA revised FAB 2012-02 and re-released it as FAB 2012-02R, withdrawing the requirements found in Q&A 30. In its place the agency substituted new guidance (Q&A 39), which emphasizes more general requirements. Rather than track and react to specific investment selections within a brokerage windows option, plans that offer this choice are reminded that they must follow the principles of fiduciary prudence and loyalty to plan participants and beneficiaries, in all investment decisions they make.

Revised FAB 2012-02R can be found at this URL: http://www.dol.gov/ebsa/pdf/fab2012-2R.pdf.


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