Compliance July 12, 2021

Potential for SDBA Regulations Getting Renewed Attention

Brokerage windows are useful tools to meet specific participants’ investing needs and the DOL should make it easier, not harder, for plan sponsors to offer them, commenters told the ERISA Advisory Council.

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The 2021 Advisory Council on Employee Welfare and Pension Benefit Plans, also called the ERISA [Employee Retirement Income Security Act] Advisory Council, recently held a meeting in which it received testimony about brokerage windows in defined contribution (DC) retirement plans, which are often referred to as self-directed brokerage accounts (SDBAs).

The council said it will examine brokerage windows to gain a better understanding of their design, prevalence and usage. In 2012, the Department of Labor (DOL) issued a revised Field Assistance Bulletin that clarified what information related to a brokerage window needs to be disclosed under the participant level fee disclosure regulation and that a brokerage window is not in and of itself a designated investment alternative. The guidance did not address ERISA’s fiduciary standards for brokerage windows.

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In 2014, the DOL issued a Request for Information (RFI) focused on why and how often brokerage windows are offered and used in ERISA-covered plans. The ERISA Advisory Council said the agency was interested in whether guidance would be appropriate and necessary to ensure that plan participants and beneficiaries with access to a brokerage window are adequately informed and protected under ERISA. The council said its examination is intended to assist in the DOL’s effort.

Responding to the DOL’s 2014 RFI, most industry groups said they believe no further regulation is necessary to govern use of brokerage windows in retirement plans. The ERISA Advisory Council heard similar sentiments during its meeting last month.

Aliya Robinson, senior vice president of retirement and compensation policy at the ERISA Industry Committee (ERIC), provided testimony at the meeting as a representative for large plan sponsors. She told the council that large employers are confident in their abilities to include brokerage windows as an option under the current guidance provided under ERISA and do not need any further guidance on the issue.

“ERIC believes that comprehensive guidance issued under ERISA and by the Department of Labor already protects participants in large retirement plans that include brokerage windows. Therefore, any additional protections for participants are unnecessary and would be redundant,” said Robinson.

An ERIC survey found 61% of member companies provide a brokerage window as part of their plans’ investment lineups. Three-quarters said they do so to expand available investment options under the plan. In addition to the survey, ERIC met individually with about 10 respondents who offer brokerage windows to get additional perspectives. All of those respondents emphasized that they make clear disclosures that the brokerage window is not subject to the fiduciary protections of the other in-plan investment options and that investments within the brokerage window are the complete liability of the participant. About half allow personal financial advisers access to the brokerage window to provide advice to those participants.

“Overall, our strong sense from the survey and the additional discussions with respondents is that the large plan sponsors that include a brokerage window as an investment option consider it an important part of the investment lineup and make concerted efforts to ensure that participants who invest in the brokerage window are aware of the risks,” Robinson said.

Robinson went on to note that fiduciaries of large plans already prudently select and monitor their plans’ designated investment alternatives, spending “significant time and resources to determine appropriate investment options for participants.” She said some plans include brokerage windows for their more sophisticated investors who have the resources available to them to evaluate the investments that are available through the brokerage window. She urged the DOL to support the efforts of these plans and their fiduciaries who strive to comply with the intent of ERISA and its specific requirements.

“Any guidance from the DOL that would seek to impose fiduciary responsibilities over specific brokerage window investments would be unwieldy, if not impossible, to satisfy, potentially putting plan fiduciaries in the position of having to evaluate the thousands of investments and their appropriateness with respect to the investing plan participant and the plan,” Robinson said. “The benchmarks available for the designated investment alternatives are not appropriate and cannot be applied to the evaluation of individual stocks and many of the other investments available through brokerage windows. Placing these burdens and risks on plan fiduciaries could have the result of plans dropping brokerage windows, which could very well cause those participants who rely upon these windows to abandon the employer retirement system in favor of IRAs [individual retirement accounts] or even non-retirement funds in which an open investment arena would remain available.”

Chantel Sheaks, vice president, retirement policy, U.S. Chamber of Commerce, submitted a written statement that said brokerage windows are likely used by more sophisticated retirement plan investors. She also said they are important tools for plan sponsors to use to respond to unique participant investing needs. “Based on member input, such requests include wanting more varied investment options beyond the core lineup or requesting a specific type of investment, such as Shariah investing, funds that do not include specific investments or overall ESG [environmental, social and governance] investing,” Sheaks said.

“More disclosure is not needed, rather better disclosures are needed,” Sheaks added. She said the Chamber of Commerce believes the DOL should make it easier for plan sponsors to offer brokerage windows by clarifying the application of ERISA Section 404(c) protection; by issuing tip sheets to help plan sponsors understand what is involved from selecting to monitoring to terminating a brokerage window option; and by providing model language and a checklist of suggested participant disclosures.

Specifically, Sheaks said the DOL should clarify that if a fiduciary otherwise meets the requirements under ERISA Section 404(c) and the applicable regulation, including the required fee disclosures, the fiduciary is not liable for any losses that a participant or beneficiary may incur from investing in a brokerage account. In addition, she recommended that the DOL clarify that the duty to monitor applies to monitoring the brokerage account service provider, but not to each underlying investment.

Sheaks also said the DOL could assist plan sponsors by issuing model disclosures for them to use to inform participants. Her written testimony included sample language and a list of other useful pieces of information plan sponsors could consider disclosing.

Reader Responses July 12, 2021

SURVEY SAYS: Virtual Vs. In-Person Conferences

PLANSPONSOR NewsDash readers share their list of pros and cons for virtual conferences.

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I recently asked NewsDash readers, “Have you attended a virtual conference, what did you like most and what did you like least?”

Nearly three-quarters of respondents (74%) work in a plan sponsor role, 13% work for recordkeepers/TPAs/investment consultants, and 4% each are advisers/consultants, attorneys or CPAs.

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Eighty-seven percent of responding readers indicated they have attended a virtual conference.

Commonly cited “pros” of a virtual conference versus an in-person conference are the comfort of attending at home or in the office, no need to travel (which could allow more to attend a conference) and less work missed. However, less obvious perks were also cited—no need to wear makeup, less distractions from attendees and the ability to stay true to an introverted personality, for example.

Asked what they like most about virtual versus in-person conferences, respondents said:

I was in a comfortable environment (home).

Being able to choose which sessions to attend without having to commit to a full day of attendance.

No travel. Ease of being able to participate from the office/home.

When I can’t attend in person, the ability to attend virtually still allows me to gain more knowledge (and it is easier to continue performing work too.

For me, there were no other distractions while the speakers were talking. At an in-person conference, there is always someone on a laptop, phone, fidgeting, talking to their neighbor, etc.

Could attend the virtual conference at my desk and get some much needed work done at the same time.

No travel, format and delivery, more accessible

Being an introvert, I like NOT being around lots of people and networking. Just teach me without making me play games.

Flexibility around scheduling and no traveling.

Didn’t have to pack or put on make-up.

Being able to stay at home or office and carry my mobile device with me wherever I needed to go and still catch the plenary sessions, president’s message, educations, virtual parade.

More flexibility on timing of sessions vs. regular workday. In a hotel, we would be stuck and less able to do routine daily work. At home, we just get right back on our computer between sessions.

I could attend more than one conference and get different info. Also, I could drop in and out of the conference if a work problem popped up

Comfort of being at home or in my office

Less time away from work

Able to keep up on work. No travel.

No need to travel, less expensive and let me attend more conferences.

I didn’t have to pick up my things and run from meeting room to meeting room. Plus, travel.

No time lost for travel days.

I could get work done during the disinteresting sessions.

As for “cons” of virtual conferences versus in-person conferences, there were the extremes of liking everything about it and liking nothing about it. Responding readers who weighed in on the cons mentioned being unable to focus and distracted by work, not being able to get away, not being able to network with peers or to interact in-person with exhibitors, among other things.

Asked what they liked least about a virtual conference versus an in-person conference, respondents said:

No opportunities to network after hours.

Nothing – I’m a big fan.

More difficult to interact. You can lose focus.

In person is more satisfying. It is better for networking and it is nice to have a break from the office and see another city/state. Unfortunately, I probably miss more virtually because I end up working through some of the presentations.

Since some of them were free, I felt like I didn’t have to fully participate or maybe do something else while certain sessions were going on.

Don’t like vendor halls to be virtual. Enjoyed walking around and talking to the various vendors individually and seeing what services/products they offer.

A little harder to connect with others, sometimes I am too distracted with other work and do not focus on the presentations

Not a thing!

Not enough breaks between sessions! Even when viewing a conference on-line it would be nice to have more breaks for lunch, stretch legs, etc.

You don’t get the chance to chat with other attendees and share notes about what is working and not working.

Distractions of everyday life sometimes made me miss a couple sessions. The good thing is I can go back in and see the recorded sessions.

Technical glitches causing delays in sessions, forcing presenters to rush through or eliminate material. (On the plus side, being virtual could allow for extending a session more easily than in a physical location.)

I didn’t get a trip to somewhere out of it

Distractions from being on my computer. Multi-tasking is nearly guaranteed

Too many distractions from normal routines of job to focus on conference.

There are definitely benefits to being there in person and networking/ meeting people.

Still in the office, had to deal with things that came in… not really a break to attend a conference. Also, some conferences did not think out of the box… each session was the exact same format which is hard to take for long periods without the in-person interactions to make that more engaging.

Constant work interruptions. Pressure to skip some meetings to work on quasi-urgent items.

Several things come to mind. It’s hard to “turn off” and really focus when you’re not onsite. Business continues to run and if you’re there, you usually get pulled into it, so I don’t feel like I get as much from virtual programs. It’s my own fault but I guess I know my limits. 😉 Additionally, engagement is drastically lower. The people you meet at breaks, meals, moving from room to room – those are the unexpected opportunities to build new relationships that you just can’t get on a screen.

Absolutely everything else – I can’t stand virtual conferences.

Similar pros and cons were expressed in general comments left by respondents. However, there were also tips for what could make a virtual conference better. Editor’s Choice goes to the reader who said: “Of course, it is more fun to be with people and share meals, drinks and conversation.”

A big thank you to all who participated in our survey!

Verbatim

Virtual offers more access. Much easier to attend than traveling to site for an all-day or multi-day event. You need to treat it as a commitment though and focus on the sessions when attending.

I like virtual conferences as long as the sessions or days are kept to a reasonable amount of time. No one wants to be on a virtual conference for 6 or 8 hours. Some of my vendors are offering their conferences over a period of four weeks – one day per week, one hour per day. Easy to work that into my schedule and keep my attention!

I like the opportunity to get away, but unfortunately, this is less likely to happen going forward because the purpose is education, which if you can get virtually, we may no longer be allowed to travel to conferences. Bummer!

Due to the small size of our firm, we are only allowed 1 in-person conference per year. With so many of the bigger conferences being free over the past year, it allowed me to attend multiple ones that I would not have been able to attend previously.

I actually prefer virtual conferences. In-person conferences require a lot of dedicated time, not only at the conference but the travel to get there. Virtual conferences allow me to multi-task, I can listen intently to parts of a session that I’m interested in and kind of listen to parts that don’t pertain to me/ don’t interest me.

Overall, I like the format and hope that they continue to be offered.

I hope this trend continues!

I think it is too easy to get distracted at a virtual conference. In person, I can focus on the presenter and not have emails or phone calls interrupt me.

I like having a virtual option and hope that continues even when in-person conferences return.

I prefer in-person, but I do like the fact that the virtual ones can be done more easily—no traveling, no interruption of routine. However, the best part of the conferences is usually the people that you meet, and Zoom hasn’t figured out how to do that yet.

The question is are you fully engaged when you are not in-person? I suspect not (like me).

Of course, it is more fun to be with people and share meals, drinks and conversation.

I thought the three I have participated in went well. They did get better as the year progressed. I would normally, have only had time and a budget to attend one, but by having virtual, I was able to attend three and I felt like the last one was the best.

I do think virtual can work for presentations of an hour or a few hours but not a whole day or multiple days. it is just impossible not to work while sitting at the laptop in the same conditions that you do your normal job. I prefer in-person when it’s longer sessions.

Some topics, in short presentations, can easily be done virtually. However, longer presentations and opportunities to meet with peers cannot easily be done virtually.

I’m a home body so I will always prefer virtual. However, every time I’ve traveled to a conference, I’ve been happy I went. Not sure what my future travel would look like but if the conference is at least 50% relevant for me I’d be willing to travel. Anything less I’d prefer virtual.

I really like the option of virtual attendance…there are so many conferences that I’d like to attend, but the expense of travel limits me to choose between conferences. Several of my vendors put on really good ones which lets me build knowledge, network with other sponsors, and build my vendor relationships. I also belong to a several professional organizations who put on great conferences as well and guarantee my CE credits are accepted for my credentials through those organizations. Due to the pandemic and the necessity of virtual conferences, I was able to attend several conferences this year and took away good information from each. However, it would be good to attend an in-person conference as well. I think hybrid would be difficult.

I like the convenience of not having to travel, but I miss the interaction with other attendees. Plus, the fun swag.

As much as I love the idea of conducting business from the comfort of my own home or office, I know that it can be a poor substitute for in-person events. Day to day functions, standups and other meetings are fine but if I invest the time to attend a conference, I want to make the most of it by rekindling friendships, building new ones, hearing frank discussions and focusing on what I came to learn for the day or two that I committed to.

In-person conferences add the human element into the equation. Without in-person conferences, networks would break down. Virtual conferences – I hate ’em.

 

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.

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