Limited access to Self-Directed accounts could be discriminatory & expensive

The Plan Fiduciary may be forced to limit access to a self-directed account option because of the dollar value of the participant's account balance. As sometimes happens, the availability of the self-directed account option may be restricted-for very real practical reasons-to the Highly Compensated participants. This could be deemed discriminatory.

The Plan may need to demonstrate the "current availability" of the right to a self-directed account by passing the Ratio Percentage Test, or alternatively, the Average Benefits Test.

Aside from the additional testing requirements, there is sometimes a greater administrative burden in reconciling numerous individual brokerage account statements. Specialized software is available to facilitate the administration of participant-directed accounts, but this same software does not necessarily facilitate easily self-directed accounts. Some trust companies can interface with participant-directed accounting software to allow processing of the self-directed accounts, but there is a custodial expense for this. And the trust company will usually restrict the choice of the brokerage firm to a specific company.

Restriction of the choice for a brokerage account when setting up the self-directed account is not necessarily a bad thing from an administrative viewpoint. If participants can set up their accounts at any firm, the Plan Fiduciary can have a difficult time chasing down statements to prepare annual administration reports.