News Archive

66 pages. "ICI's economic analysis investigated how the addition of a private market allocation could impact diversification and risk-return profiles of DC plan portfolios. [The] analysis summarizes findings from academic literature on private fund performance and conducts three quantitative exercises: applying statistical methodologies to unsmooth private asset returns ... analyzing a mean-variance efficient frontier; and simulating TDF glide path outcomes."  MORE >>

"With this rule, the DOL proposes a regulatory safe harbor from which the acts of plan fiduciaries of defined contribution plans will be given the presumption of prudence.... [N]early 45,000 comments were filed, with some comments providing substantive suggestions to improve the implementation of the rule and other comments objecting to the rule because of concern that it will encourage the inclusion of risky, complex, and higher cost investment options, and result in less protection for Americans' retirement savings. It remains to be seen how the DOL will respond[.]"  MORE >>

"Consistent with existing ERISA principles and Supreme Court guidance, the proposed rule confirms that the same fiduciary standards apply to all investment options, regardless of whether they invest in public or private markets. As always, fiduciaries must maintain a prudent process that considers all relevant facts and circumstances when evaluating plan investments."  MORE >>

"A central theme of the proposed rules is that ERISA's prudence standard focuses on the fiduciary's decision-making process and requires an objective evaluation of relevant factors at the time an investment decision is made, rather than judging the decision based on subsequent investment performance. The proposed rules also state that fiduciaries who satisfy the safe harbor should receive substantial deference regarding their investment decisions."  MORE >>

"[W]hile the consideration of three or more competing target date suites may be different than the common practice (particularly for small and mid-sized employers), there is something to be said for it. For example, plan fiduciaries should consider the participants in making decisions about the asset allocation and glide path of the various target date managers -- and then compare that to the needs and circumstances of the covered workforce."  MORE >>

"The proposed ERISA prudence safe harbor applies only to the selection of DIAs, not to brokerage windows, settlor plan design features, or ongoing monitoring obligations.... The proposal states that it is intended to be asset-neutral but is expressly aimed at 'democratizing access to alternative assets' in 401(k) and similar defined contribution plans ... Even if finalized, the DOL's proposed prudence safe harbor is expected to face litigation risk, including potential challenges to the rule itself and to fiduciaries' application of the six-factor framework, as well as separate claims alleging breaches of the duty of loyalty or prohibited transactions."  MORE >>

"The comment period for the Investment Selection Proposal closed last week.... Letters suggesting more significant changes to the proposal were submitted by the CFP Board, AARP, the AFL-CIO, and Morningstar. However, none explicitly recommended that the [DOL] fully rescind the proposal. Some agreed in principle that alternative assets could benefit savers in certain contexts and welcomed additional clarity for fiduciaries."  MORE >>

"While the proposal introduces a more defined framework for evaluating prudence, it does not lower the fiduciary standard. In several respects, it may raise expectations by making the elements of a prudent process more explicit.... [1] A higher bar for documented process ... [2] A false sense of security around the safe harbor ... [3] Increased complexity in investment decisions ... [4] Misalignment between selection and monitoring ... [5] Litigation will likely evolve, not disappear ... Taken together, these risks point to a common theme: greater clarity is likely to bring greater accountability in practice."  MORE >>

"Today, the retirement industry insists that if a product is somehow legal under lax state insurance rules or state banking laws and has a vague, weak ERISA exemption, then it somehow belongs inside a 401(k) plan. ... A much better test is this: Could the product survive inside a fully transparent, federally regulated, SEC-registered mutual fund subject to daily fair-value accounting? If the answer is no, fiduciaries should immediately ask why.... [T]he best historical example may be stable value itself."  MORE >>

"For some plans, alternatives may offer meaningful diversification and long-term benefits when implemented carefully. For others, the added complexity, liquidity considerations, or cost may outweigh those potential advantages. Much depends on the plan's participant base, investment objectives, and governance structure.... ERISA continues to serve as the guardrail that ensures participant interests remain paramount."  MORE >>

"[P]rivate equity products differ fundamentally from traditional mutual funds and public securities. They involve limited transparency, subjective valuation, conditional liquidity, complex fee structures, leverage, and performance reporting methodologies that are often not comparable to public-market investments.... This checklist is designed to help ERISA fiduciaries identify hidden risks, conflicts, prohibited transaction concerns, and misleading performance claims before adding private-market exposure to participant-directed retirement plans."  MORE >>

"Comment letters from the business, finance, and employee benefits communities have been broadly supportive of the [DOL's] Investment Selection Proposal, though many of these letters have also recommended various improvements and clarifications. In particular, industry letters urged the DOL to clarify the status of outside fiduciary advisers, the duty to monitor and to reconsider the DOL's wording regarding 'maximizing' returns."  MORE >>

"For asset and fund managers, the Proposed Rule lays out the framework under which such persons can create new, more diversified investment products with asset categories not traditionally found in participant-directed 401(k) plans and introduce these alternative investment products within a zone of safety from certain fiduciary challenges under ERISA section 404....For plan sponsors and fiduciaries [the] proposed safe harbor rewards documented process, not investment outcomes."  MORE >>

"While the proposal introduces a more defined framework for evaluating prudence, it does not lower the fiduciary standard. In several respects, it may raise expectations by making the elements of a prudent process more explicit.... [1] A higher bar for documented process ... [2] A false sense of security around the safe harbor ... [3] Increased complexity in investment decisions ... [4] Misalignment between selection and monitoring ... [5] Litigation will likely evolve, not disappear"  MORE >>

"For advisors and plan sponsors evaluating how to enhance long-term, risk-adjusted returns within a defined contribution menu, private equity may offer exposure to a different growth profile than public markets alone. That said, expanded access does not eliminate risk, and inclusion comes with important considerations."  MORE >>

19 pages. "[It] is essential for DOL to make clear that there is no one prudent process, and any factors listed in a final regulation are not the exclusive means by which fiduciaries may meet their prudence obligations.... The language in the preamble and the repeated reference to an ERISA section 3(21)(A) fiduciary in the examples could be interpreted to mean DOL prefers that type of assistance rather than other types, and any other equally appropriate assistance (or lack of assistance if not needed) would not satisfy the requirements in a final regulation."  MORE >>

"The proposed rule will reduce regulatory uncertainty by providing clarity to plan fiduciaries as they consider new plan investments that can help retirement savers invest for a successful retirement.... Fiduciaries should not be forced to operate under the fear that offering a particular asset class will invite hindsight second-guessing and costly, often meritless litigation, even where exposure to these assets can be prudently made available in a DC plan through a professionally managed, diversified investment option."  MORE >>

"The [DOL's] proposed regulation on selecting designated investment alternatives ... reflects an effort by the DOL to bring greater structure and clarity to how fiduciary decisions are evaluated under ERISA. For plan committees and advisors, that shift creates a number of practical opportunities.... [1] A clearer playbook for fiduciary decisions ... [2] Stronger documentation and defensibility ... [3] More confidence to evaluate broader investments ... [4] Reduced pressure to default to lowest cost ... [5] Better alignment with participant outcomes."  MORE >>

"The Proposed Rule does not by itself resolve all of the structural questions that private funds and other nonregistered products face in DC plans. It does, however, offer a clearer framework for fiduciaries' prudent process and highlights where the operational features of these products (particularly liquidity, valuation, benchmarking, fees, and complexity) may have to evolve. For managers and sponsors, the near-term focus is likely to be both on vehicles such as target date funds, balanced funds, and CITs and other delivery structures that can satisfy the Safe Harbor's expectations, and on targeted comments aimed at ensuring that the final rule can be applied to nonregistered structures on workable terms."  MORE >>

"Although rooted in an executive order on alternative assets, the proposal addresses more than just alternative assets and outlines a new process-based safe harbor for fiduciary decision-making. This LawFlash outlines key themes and implications from the proposal."  MORE >>

"[In] its pursuit of a fiduciary safe harbor, the DOL is making the following mistakes: [1] Applying the standards of very large companies, with their substantial resources, to the small and mid-market plan sponsors and their fiduciaries; [2] Giving examples that appear to be imposing mandatory rules, which is inconsistent with a principles-based standard -- the prudent person standard of ERISA."  MORE >>

"[A]sset managers and private equity fund sponsors have launched a coordinated push to bring private equity, private credit, and other alternatives into participant-directed accounts.... It is, we are told, time to democratize access. What this framing tactfully omits is that the accredited investor standard, the prudent expert rule under ERISA, and the diversification and liquidity expectations baked into Section 404(a) exist for reasons.... Stripping those guardrails away is not democratization. It is the unilateral repeal of protection, sold to the people who lost it as a favor."  MORE >>

"Plan committees should evaluate whether their current fiduciary process, including investment review and selection framework, generally aligns with the proposed six‑factor analysis, particularly with respect to the rationale documented in committee minutes. Plan fiduciaries should consider with their ERISA counsel and investment advisor what preparatory steps, if any, may be appropriate in anticipation of the proposed regulations being finalized, including with respect to fiduciary process, committee documentation, and investment policy statements."  MORE >>

"Updating PTE 77-4 would better align the exemption with today's marketplace. It would give managers greater flexibility to offer plan participants diversified, professionally managed strategies -- including those with private market exposure -- within the familiar and well-understood ERISA compliance framework of PTE 77-4.... [E]xpanding the exemption ... would provide access to a broader range of investment options. More choice when paired with strong fiduciary oversight can support better diversification and long-term investment opportunities."  MORE >>

"Retirement industry stakeholders appear split on the [DOL's] proposed safe harbor for alternative investments in defined contribution plans, with public comments revealing sharp divides over fees, risk, liquidity standards and fiduciary liability.... [I]ndividuals and organizations have weighed in during the public comment period, with some praising the regulatory clarity and others warning that the six-factor framework doesn't go far enough to protect plan sponsors or participants."  MORE >>