PLANSPONSOR - December 2009

That makes it easier not only for participants but also for the sponsor, which does not have to spend a great deal of time adding and subtracting funds in an effort to maintain a diversified investment pool.

That does not mean adding a brokerage account is a no-brainer. SDBs can offer total open architecture that allows a participant to select virtually any stock, bond, or mutual fund on the market, as well as alternative investments like gold, REITs, and ETFs. Or, the brokerage account can be restricted to mutual funds or some other categories of investments. The open architecture enables sponsors essentially to roll out investment opportunities that otherwise would not fit on a more-condensed 401(k) investment menu.

It remains incumbent upon sponsors to go through a due diligence process once they decide to go with offering a brokerage account. They must be sure

that an SDB complies with the plan’s investment policy statement, and they should vet providers and the pricing structure just as they would any investment vehicle they offer to participants.

Jesch suggests that sponsors select a brokerage account provider with both experience and a reputation that makes it likely the company will be around for a while. If the provider is not stable and disappears from the scene once participants already have opened accounts to invest in stocks, bonds, and mutual funds, an administrative migraine is likely to ensue. The sponsor will have to ensure that any new provider makes the same investments available, or the accounts might have to be liquidated.

Despite the narrow niche carved out by brokerage accounts in 401(k) plans, some believe they will grow in popularity over the next few years. Cunha points out

that the average participant is becoming more educated and sophisticated about investing and has greater access to research and information that could ease the way for investing in an open architecture universe in the 401(k) structure.

Joshua Kadish, Principal Financial Adviser and Wealth Manager with Retirement Planning Group, says more advanced technology will make the reporting of SDB investments more efficient and might help spur their growth.

In addition, Jesch thinks brokerage accounts increasingly will become permanent fixtures in defined contribution plans. As investment choices in plans become more restricted with the proliferation of managed accounts and other asset-allocation models, he says, there always will be participants who want to manage their own investments and have access to an open market. —Louis Berney

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Clients of T. Rowe Price benefit from a wealth of experience,
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(an average of 14 years with our firm), and a proven invest-
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