Just 5 percent of the firm's clients now offer that option. The newfound popularity of self-directed accounts reflects a larger trend toward increased investment choice within defined contribution plans. According to the Hewitt survey, nearly 42 percent of employer-sponsored plans provided more than ten investment options in their plan, up from 23 percent in 1997. But for the plan sponsors, there's a steep learning curve. Self-directed brokerage accounts raise red flags for many plan sponsors.
Employees use self-directed accounts in various ways.
Some sponsors allow participants to invest in individual securities through a broker or trading account. Others restrict their participants to mutual funds. Three years ago, for example, U S West began offering its employees self-directed accounts through Charles Schwab. These employees generally move about 75 percent of their discretionary funds into their self-directed accounts. Company stock cannot be shifted out of U S West's core plan, which consists of six mutual funds.