investment-oriented | PLANADVISER March/April 2017

Window Guard

By Judy Ward | March/April 2017

• Prohibit access to company stock. After participant lawsuits arose, in recent years, over companies offering their own stock as an investment option in their 401(k), many plans eliminated such stock from their core menu. Some have made the same choice for company stock in their brokerage window. “There is less fiduciary protection on employer stock as an investment option, and that opens up a whole other class of potential difficulties for sponsors,” says attorney Andrew Oringer, a partner at law firm Dechert LLP in New York City.

Oringer generally sees sponsors that are concerned about access to employer stock within their brokerage window simply prohibit it altogether, rather than establishing limits for participants on what percentage of their account they may invest in it through the brokerage window.

• Require an indemnification agreement. DPS plan clients with a brokerage window require that participants who want to use it must sign an indemnification agreement beforehand, a one-page document put together for the firm by an Employee Retirement Income Security Act (ERISA) attorney. “It spells out that the participant confirms he understands the risks and the fees associated with a self-directed brokerage account,” Hessert says. “It also says the participant understands that the investments available in the brokerage window have not been reviewed by the sponsor or plan trustees and that it is solely [his] responsibility to review those investments. And it says [he] understands that we highly encourage participants to work with an adviser in using the brokerage window, and that the participant confirms he understands how to pick an adviser.”

• Provide appropriate education. Francis Investment Counsel recommends requiring participants who want to invest in a plan’s brokerage window to both sign an indemnification letter and attend a three-hour education session, which the advisory firm conducts for its plan clients. “If a sponsor is going to allow participants to invest in individual stocks, it’s important to educate those participants on the risks of investing in individual stocks,” Dunteman says.