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Self-Directed Brokerage Accounts (SDBAs) inside 401(k) plans offer participants a brokerage window where they can trade investments (stocks, bonds, mutual funds, etc) that aren’t in a plan’s official investment line up. In a 401(k) plan, each participant is responsible for directing the investments inside his or her account. The plan sponsor may also choose to include an SDBA in addition to or in lieu of the fund line-up. Sometimes the broker will tell plan sponsors that, as long as they meet ERISA section 404(c) disclosure requirements, they are free from liability if the participant’s investment account performs poorly. ERISA requires that plan fiduciaries act prudently and in the best interest of their plan participants. I can easily imagine the employee or a beneficiary suing the fiduciaries for plan restoration on the logical argument that the fiduciaries didn’t provide the education necessary for the participant to avoid the investing mistake. A number of retirement plans offer a self-directed brokerage account window option for plan participants.
Most of the interest in self-directed brokerage accounts tends to come from executives who can afford to purchase solid investment advice. These executives are often convinced of the merits of a brokerage account window by their financial adviser, who may benefit financially from the use of a brokerage account window but not from investments in the plan. An employers fiduciary liability would appear to be much higher in a plan that offers brokerage account windows.
Last year the Department of Labor opined that retirement plan fiduciaries must prudently select the providers of participant brokerage accounts (the broker-dealers).

Lawton Retirement Plan Consultants, LLC (LRPC) is an independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to retirement plan sponsors. This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. TopCopyright Lawton Retirement Plan Consultants, LLC • Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations.
In fact the number of plans offering an SDBA more than doubled from 12% in 2001 to 29% in 2011 according to Aon Hewitt, Lincolnshire Ill.
In my experience, the broker will suggest to the plan sponsor that liability is reduced by offering an SDBA. In order to be legal, the brokerage window option has to be offered to all participants within the plan on a non-discriminatory basis. These individuals could just as easily execute similar investment strategies more effectively using outside brokerage accounts, avoiding the limitations and restrictions imposed by retirement plans. One of the benefits of investing in a 401(k) plan is the rigorous nature of the analysis applied to the investment options, the fiduciary procedure for selecting them and the types of investments allowed. In doctor or dental practice groups where the majority of the plan participants are either doctors or dentists able to purchase competent investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In 2011, for plans offering an SDBA, the option accounted for an average 6% of total plan assets.

In practice, few participants (less than 1% in most plans) tend to access brokerage window options. None of this exists in a brokerage window situation where a participant could be receiving less than competent investment advice or investing on their own.
This would seem to make the practice of offering brokerage account windows much less appealing to the employer plan sponsor. Not only is fiduciary liability increased for the sponsor, the participants historically invest poorly inside their brokerage accounts. If plan participants have access to 50,000 stocks, bonds and funds via an SDBA, this requirement must be met. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Then any “stock-drop” issue a participant experiences can come back to haunt the fiduciary for allowing the investment inside the plan in the first place.

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Author: admin | 14.08.2015 | Category: Best Site For Trading Stocks

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