HR2544-119

What This Bill Does

The Financial Freedom Act amends ERISA fiduciary duties for participant-directed individual account pension plans. If a plan lets participants or beneficiaries control their account investments, ERISA fiduciary rules would not require or prohibit any particular type of investment alternative as long as participants can choose from a broad range of options under Labor Department regulations. Investment types cannot be favored or disfavored except based on risk-return characteristics in the context of providing suitable benefit options. If a fiduciary selects a self-directed brokerage window, the Labor Secretary may not issue regulations or subregulatory guidance constraining or prohibiting the range or type of investments offered through that window. ERISA's participant-control rule applies to the brokerage window, and the fiduciary does not violate prudence or diversification duties merely by selecting the window or because participants control assets inside it.

Who Benefits and How

Retirement plan participants benefit from access to a broader range of investment alternatives in participant-directed accounts. Plan fiduciaries benefit from statutory protection against rules requiring or forbidding particular investment types when they offer broad choices. Self-directed brokerage providers benefit because the Labor Department could not constrain the range or type of investments offered through brokerage windows. Asset managers offering alternative investments benefit if plan menus or brokerage windows become more open to their products.

Who Bears the Burden and How

The Department of Labor loses authority to issue guidance restricting investment types offered through self-directed brokerage windows. Plan participants bear more investment-choice risk if they direct assets into volatile or complex options through brokerage windows. Plan sponsors must still provide a broad range of options and evaluate risk-return characteristics for investment alternatives. Retirement investor advocates may face reduced regulatory tools to challenge risky investment access in defined contribution plans.

Key Provisions

• Amends ERISA fiduciary duties for participant-directed individual account pension plans.
• Provides that fiduciaries are not required or prohibited from selecting particular investment alternatives if broad choice is offered.
• Restricts the Labor Department from constraining the range or type of investments in self-directed brokerage windows.
• Protects fiduciaries from prudence or diversification violations solely because they select a brokerage window or participants control assets within it.