Offering brokerage windows as the lone option, and doing so as a way of avoiding disclosure requirements, raises compliance issues with ERISA's statutory requirements of prudence and loyalty, according to comments the DOL made in its request for information from the retirement industry. 

In its response letter, ERIC explained it doesn't represent clients that offer only brokerage windows, but it does represent plenty of large plan sponsors that offer access to the accounts in accord with standard, compliant 401(K) plans and qualified default investments. 

Typically, those windows are accessed by a small percentage of plan participants, who have the experience and expertise to utilize brokerage windows, which offer access to a universe of investment options not available in standard investment lineups. 

"These investors usually prefer to construct their own portfolio of individual equities, bond or mutual funds," wrote Richard. "Large plans often accommodate the needs of these investors by including brokerage windows rather than adding additional investment options to the core lineup, which would confuse other plan participants and overwhelm them with too much choice." 

About half of ERIC's large-plan members offer access to brokerage windows. 

As is, the DOL requires sponsors that offer the windows in conjunction with standard investment menus to provide participants with information on how brokerage windows work, explanations of fees and expenses, and a statement on the fees charged for accessing the windows. 

To insist further regulation on ERISA-compliant plans, like disclosing information on all of the investments offered through the windows, is an improbable expectation that would overwhelm employers and participants, argues ERIC. 

By law, participants receive information about their plans' qualified default investment alternatives. By requiring such information on all investments offered through brokerage windows, participants would not only be overwhelmed by a flood of information, but they may be led to believe investments through the brokerage window are sanctioned by the sponsor, when they are not. 

As the DOL sets out to regulate brokerage windows when they are offered as the lone plan option, a clear safe harbor should be established for those plans that include access to the windows along with at least three designated investment alternatives, says ERIC. 

Clear language within the safe harbor would educate participants on the nature of brokerage windows, and make clear the reality that investments available through brokerage windows are not selected and monitored by sponsors. 

Doing so, ERIC believes, will preserve the value of brokerage windows for the minority of participants that benefit from them, and will provide clear oversight without overwhelming employers or participants. 

And along the way, leave the baby to enjoy its bath.