This is where things get tricky—and untested. Who's responsible for buying an investment that doesn't pass due diligence—the employee who has the ultimate freedom or the plan sponsor who gave the employee the ultimate freedom?

Some believe the plan sponsor will be held responsible. After all, an ERISA retirement plan isn't designed to be a “free-for-all” when it comes to investing. For better or worse, ERISA assumes the plan sponsor has the patriarchal role, with plan participants being treated as “minors” regarding their investment sophistication. As a result, the buck for improper investments stops on the shoulders of the plan sponsor.

Still, the existence of this liability hasn't been tested in any consistently reliable way. However, the DOL did provide a hint on how it might interpret matters when, in regard to 401(k) fee disclosure, it required the plan sponsor to treat every investment made through a self-directed brokerage option as a separate option. This elevates the plan sponsor's responsibility for unapproved investments to the same level as approved investments.

According to DOL provided data, the growth in the number of plans offering self-directed brokerage options has been dramatic. The data is only available through 2011, however, so the impact of the 2012 fee disclosure rule has yet to be measured. While we've seen double-digit growth, the number of actual users remains small. Given the liability potential, that may generate a sigh of relief—a sigh of relief which soon withers when one realizes the potential size of the liability remains the same whether one participant uses a self-directed brokerage option or one hundred participants do.

And that's a freedom some just prefer not to handle.