Unfortunately, there seems to be no clear guidance from, or interpretation of, ERISA about how the brokerage window fits in. "It's uncharted territory, from a legal-challenge standpoint, and that's why a lot of plan sponsors haven't instituted SDBs yet," says Thomas Rossi, a consultant in the New York office of Watson Wyatt Worldwide. "Without significant regulatory guidance, you have to make sure you've documented your every step."

Undoubtedly, plan sponsors are in a difficult position. "You're damned if you do it, and you're damned if you don't," says Buck Consultants's Koski. By giving participants access to virtually any mutual fund and publicly traded security available, the brokerage option helps plan sponsors as fiduciaries by not limiting participants to only a few investment options, which means that participants can't say, "You didn't provide the right kinds of securities to choose from," says Hughes-Guden.

Containing Liability?

There are steps companies can take that may prove invaluable. First, provide plan participants with as much information and disclosure as possible, says Rossi. "Plan sponsors have to make sure they've communicated the risk associated with investing in a brokerage account. They have to demonstrate that they've educated their people."

Companies can also try to mitigate risk by limiting the amount of money that participants can invest through a brokerage window, as well as by restricting the type of investments that can be used. For example, Southwest's pilots can't trade on margin or invest in futures, commodities, precious metals, currencies, or Southwest stock. In addition, says Doherty, "They can move only 25 percent of their 401(k) out of core mutual funds into the brokerage window." While there is no limit on trades, Southwest pilots will be watched closely. "We're going to be able to monitor activity," says Doherty. "If people are excessively trading, we'll be notified, and we'll get hold of the individuals to make sure they know what they're doing."

With those policies in place, Doherty believes that an SDB option makes a lot of sense for the pilot workforce. "Most of our pilots are college-educated, well-informed investors and risk-takers," he says. But they aren't reckless: The Southwest Airlines Pilots' Association started an education process six months before offering the SDB option. So the company with the clever tag line "You are now free to move about the country" has employees who are free to move about the investment universe. Doherty is confident that they've done their homework and aren't flying blind.

Meg Glinska is a Boston-based freelance writer.

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