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Retirement Planning > Saving for Retirement > 401(k) Plans

New Retirement Bill Calls for Brokerage Window Warning

By Melanie Waddell

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Rep. Jim Banks, R-Ind., has introduced legislation, the Providing Complete Information To Retirement Investors Act, to warn participants before making “potentially risky investment decisions.”

While Banks said in a statement that the bill is aimed at warning investors about the risks of environmental, social and governance focused investing, the bill itself does not actually mention ESG.

“When it comes to making smart investment decisions, American retirees and workers deserve to be armed with the fullest information possible,” he said. “My bill would ensure that ERISA participants are fully aware of the financial risks associated with ESG before they choose how to invest their hard-earned savings.”

More broadly, “the concept of the bill may be helpful” to investors who may not understand the risks of investing their 401(k) savings outside of their plan’s investment menu, Fred Reish, partner at Faegre Drinker, said in an email to ThinkAdvisor.

While he hopes “participants know that they’re on their own when investing through the brokerage accounts, I suspect that is not the case,” he said. “While some plan sponsors educate participants to that fact, I don’t think that all do.”

Reish explained that the bill “requires a warning to participants that investments in a brokerage account offered by a participant-directed plan, for example, a 401(k) plan, are not prudently selected and monitored by fiduciaries.”

The bill, Reish explained, “would mandate language that tells participants that they are taking more responsibility and risk when they invest through the brokerage account.”

As Banks noted in the statement, some ERISA plans offer brokerage windows or self-directed brokerage accounts, which allow participants to invest based on “nonpecuniary factors,” like ESG.

Banks’ bill would require the following “four-part pop-up warning” to be displayed to retirement plan participants before investing in a brokerage window:

  • The participant may choose to construct a retirement savings portfolio from designated investment alternatives prudently selected and monitored by a plan fiduciary.
  • The plan’s brokerage window is not a designated investment alternative, and the investments available within the window have not been prudently selected and are not monitored by any plan fiduciary.
  • Depending on the investment selected, a participant may experience diminished returns, higher fees, or greater investment risk through the brokerage window.
  • The participant should be presented with comparative hypothetical balances of the participant’s balance projected to age 70 based on different net returns of 4%, 6% and 8%.

Republicans have fought to curb ESG investments in pensions and retirement plans. Democrats argue that allowing retirement plans to weigh climate change and other environmental, social and governance issues in their investment decisions benefits investors — an argument Republicans dismiss as “woke” capitalism and an attempt to force political views on plan participants.

Photo: Bloomberg

Melanie Waddell

@Think_MelanieW

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