Why would A Plan Fiduciary not permit Self-Directed accounts?
Self-directed account balances may not be deemed 404(c) compliant for all participants of the Plan if the " investment alternatives offered by the plan would not permit those participants with small account balances to diversify their investments "
If a participant wanted to diversify their account by investing solely in individual securities, the DOL recognizes that a " substantial amount of investment capital to achieve such diversification " would be needed, precluding 404(c) relief.
A self-directed account almost always affords the opportunity to invest within mutual funds. As a "look-through investment," mutual funds would meet the Regulations need for the opportunity for the participant to diversify the account
The Plan Fiduciary must make certain that every participant has a sufficient account balance to invest in at least three broadly diversified mutual funds. Since most mutual funds would require a minimum investment of $1,000, participants with less than $3,000 should normally not have available a self-directed account as an investment option.
Due to account sizes, the Plan Fiduciary may have to provide for a participant-directed account platform in which all assets are pooled, thus allowing choice among three designated investment alternatives.