4149 / What disclosures are required under the DOL 408(b)(2) regulations if a broker sells securities to a 401(k) plan?

Brokerage services are covered services so that the broker is required to disclose compensation arrangements under Section 408(b)(2) if the services are provided to an individually directed plan where one or more designated investment alternatives are made available. Essentially, if a plan offers a menu of investments in which participants must invest, then the services would be covered services that trigger the disclosure obligations under the regulations. If a plan permits individually directed accounts but does not have designated investment alternatives, the plan may not be required to provide disclosures under the recordkeeping and brokerage sections of the DOL regulations.

The disclosure requirements apply even if a broker is not selling the designated investment alternative to a plan. This situation could arise in the case of a broker working with a single participant who has elected to use a window allowing the participant to buy securities outside the plan’s core funds available to other participants. Because the plan has a core group of investments, it is treated as having a designated investment alternative. If a broker also assists with distributions, loans, calculation of vesting, or enrollments, additional disclosures will be required for these recordkeeping services.¹

1.Labor Reg. § 2550.408b(c)(1)(ii).