8 Must-Answer Questions Before Your Clients Add Private Equity to Their QDIA
On August 7, 2025, President Trump signed an executive order directing agencies to facilitate alternative assets in defined contribution plans. Five days later, the DOL rescinded its 2021 statement that had discouraged these investments.
But here’s what hasn’t changed: ERISA’s prudence standard. The participant disclosure rules. And most importantly, your clients’ fiduciary liability – and your potential co-fiduciary exposure.
Policy changed; fiduciary duty didn’t. For most mass-market DC plans, the prudent answer today is still “no – for now.”
With auto-enrollment driving 94% participation rates (versus 64% in voluntary plans), the default fund IS the plan for most participants. Target-date strategies now manage over $4 trillion. That’s why these eight questions matter – and why you need your clients to build a clean paper trail for each answer.
1. Has Your Client Acknowledged the Policy Change Without Treating It as a Green Light?
The Test: Document that the committee understands the August 7 EO and August 12 DOL rescission – but that ERISA prudence still governs.
What They Need:
- One-page policy brief with exact quotes from both documents
- Counsel memo stating: “QDIA relief ≠ asset-class blessing”
Make Sure They Keep: Both documents in the committee packet
Some committees may treat this policy shift as blanket permission to add alternatives. It’s not. It’s simply one less regulatory roadblock. Advisors need to pump the brakes and ensure proper documentation of the committee’s understanding.
2. Can Their Recordkeeper Actually Handle Daily Pricing?
The Test: The recordkeeper should evidence daily Net Asset Value (NAV), treat T+1 cash flows as an industry norm, and provide a playbook for capital calls inside the plan. No duct tape allowed.
What to Verify:
- SOC 1 Type II report
- Service level agreements with file specifications
- Mock exchange with timestamps
- Capital-call standard operating procedure (buffers, credit lines, sweeps)
Documentation to Require: All of the above
Here’s the reality check for your clients: interval funds and gated vehicles create friction that daily-valued QDIAs must somehow reconcile. If their recordkeeper hesitates when you ask about this, you have your answer – and your advice should be clear.
3. How Often Is the Sleeve Actually Valued?
The Test: Periodic independent valuations with interim estimation methods to support daily pricing, plus supplemental de-smoothing methods that show real risk.
What to Review:
- Manager valuation policy with auditor letter
- One-page explanation of the de-smoothing approach (like Venn or PIMCO techniques)
Ensure They Document: All valuation documentation and methodology memos
Private equity smooths returns. Your oversight recommendations need to un-smooth them. Otherwise, the committee is hiding risk from participants who are likely unaware.
4. What Happens When Everyone Wants Out?
The Test: The committee can explain – in plain English – what happens if liquidity dries up.
What You Should Review:
- Terms and policies around potential gating at the plan or underlying-sleeve level
- Queue history for comparable vehicles
Critical Documentation: Terms, policies, and queue data
The plan needs to know what happens if people want to redeem in size. If your clients can’t answer this, you shouldn’t let them proceed.
5. Can You Defend the All-In Fees to Your Client (and Can They Defend Them to a Judge)?
The Test: The blended expense ratio fits the investment policy ceiling and is disclosed properly under 404a-5 in participant disclosures.
What to Calculate:
- Complete fee breakdown (management + performance + carried interest + overlays)
- Mock participant statement
- Updated 404a-5 comparison chart with appropriate benchmark
Required Documentation: Fee calculations, mock-ups, and revised comparison charts
| Sleeve Weight | Sleeve Fee | Blended ER | Multiple of Index TDF |
| 0% | – | 0.055% | 1.0x |
| 10% | 1.50% | 0.200% | 3.6x |
| 20% | 1.50% | 0.344% | 6.3x |
| 10% | 2.00% | 0.250% | 4.5x |
| 20% | 2.00% | 0.444% | 8.1x |
Based on Vanguard Target Retirement Trust Plus (0.055%) as baseline
Even a 10% allocation can more than triple the expense ratio. Can your client defend that to a judge? Can you defend recommending it?
6. Where’s the Performance Edge?
The Test: Net-of-fee outperformance versus an appropriate public market equivalent – with documentation on why this manager and why now.
What to Scrutinize:
- Public Market Equivalent (PME) analysis versus agreed benchmark
- Selection memo covering sourcing, edge, capacity, and risks
Essential Documentation: Performance deck, PME analysis, selection memo
Academic research questions whether recent relative performance – and the path forward – can come close to PE’s early days. Help your clients build their case on current data, not industry mythology.
7. Are They Telling Participants the Truth?
The Test: Materials clearly explain PE inclusion and speak to questions that participants may ask.
What to Review and Approve:
- Plain-language FAQ and web text
- Worked example of math
Documentation Requirements: Final FAQ and website copy
“Daily NAV” doesn’t mean daily liquidity. If the materials don’t make that crystal clear, your client is setting up participants – and themselves – for trouble. Don’t let that happen on your watch.
8. How Will Performance Be Measured?
The Test: Time-weighted returns (what participants experience) come first. Internal Rate of Return (IRR) is supplemental only. Risk metrics are de-smoothed.
What to Establish:
- One-paragraph measurement policy
- Sample report showing TWR-first presentation
- De-smoothed risk statistics
Required Records: Policy, report samples, methodology notes
Participants don’t experience IRR. They experience time-weighted returns. Make sure your clients report what participants actually get, not what makes the sleeve look good.
Your Advice Should Be Clear: Just Say No (For Now)
Unless your client can answer “yes” to ALL eight questions – with documentation – your prudent advice should be no.
Most plans going through this set of questions will realize they’re not ready. That’s exactly the point. Advisors who walk clients through this process are doing their fiduciary job properly.
What This Really Means for Your Practice
Policy changed. Fiduciary duty didn’t. Your duty to provide prudent advice didn’t either.
For most mass-market DC plans, the prudent recommendation today is “no – for now.”
If clients insist on proceeding, help them do it with guardrails. Prove the plumbing. Price the trade-offs in basis points, not adjectives. Ensure they tell the truth about liquidity. Require performance reporting the way participants experience it.
These eight questions – and the evidence trail – protect your clients. They also protect you.
Because if things go sideways, they’ll remember who recommended this.
Joshua Hemmert was part of the team that launched JPMorgan’s first target date funds. He is an investment consultant at Christian Brothers Consulting Solutions, which advises Catholic institutions. The views expressed are his own.
