BRF & Brokerage Window

Plan is a 401(k) PSP, with elective deferrals, profit sharing contributions, and rollover contributions. Participants direct investments of all contributions choosing from a mutual fund menu. Consideration is being given to adding a participant directed brokerage window for rollover contributions only. Consideration is also being given to requiring use of the brokerage window for large rollover contributions because of fiduciary concerns (and not providing access to the mutual fund menu). Raises some questions:

1. Is the participant directed brokerage window a separate benefit right or feature?

2. Is a participant directed brokerage window provided only for the rollover contribution accounts a discriminatory benefit right or feature if only HCEs have made a rollover contribution? Can testing be limited to rollover accounts, or must it consider all accounts? Can the brokerage window BRF be aggregated with the mutual fund menu BRF?

3. Is providing the participant directed brokerage window to rollover contribution accounts in excess of $500,000 a discriminatory benefit right or feature if only HCEs have accounts in excess of $500,000? Can the dollar limit be justified on fiduciary grounds?

1. right to direct investment is a BRF

2. brf must be made available on a nondiscriminatory basis, e.g. avalable only for rollovers.

3. limiting brokerage windon to account over 500K would most likely be a discriminatory brf since nonHCE are not likely to have such amounts. I dont know what you mean by Fiduciary grounds since directed brokerage will be investment responsibility of employee not fiduciary.

1. The right to direct investments is listed in Treas. Reg. 1.401(a)(4)-4(e)(3)(iii)(B) as an example of a benefit, right, or feature. The right to invest in a self-directed account instead of being restricted to the core funds selected by the plan sponsor very likely is a benefit, right, or feature.

2. Restricting the right to invest in the self-directed account to rollover accounts could be discriminatory if a significantly greater percentage of HCEs have rollover accounts than non-HCEs. Treas. Reg. 1.401(a)(4)-4(B)(2)(ii) lists various conditions that may be disregarded when testing the current availability of a BRF and no where does it authorize ignoring the fact that a plan extends a BRF only to one contribution source.

3. Almost certainly limiting the right to invest in the self-directed account to those who have $500,000 or greater account balances would be discriminatory because that group likely will contain a disproportionately high concentration of HCEs. If there are concerns as a fiduciary about offering self-directed brokerage accounts to participants, then one may refrain from offering them altogether, but the IRS regulations don't allow these concerns to affect the discrimination testing.

Thanks for the replies. For the record, I agree with your comments, but not all of those who are involved with this issue here do, and the corroboration is helpful.

The reference to fiduciary grounds was one person's argument to support the dollar threshold on the basis that the plan fiduciary would not want the responsibility of limiting mega rollover accounts to the selected core investments, particularly if the plan allows an in kind rollover. Thanks again.