Mere days after President Donald Trump’s Executive Order directed the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to revisit and revise their guidance and regulations around 401(k)s and other defined contribution plans including alternative assets, the DOL has started doing so.
RELATED – Borzi Sounds Alarm on Trump’s 401(k) Alternatives Order
“Instead of allowing Washington bureaucrats to call the shots, we believe plan fiduciaries should decide which retirement investment options are best for hardworking Americans.”
Labor Secretary Lori Chavez-DeRemer
Today, the DOL announced its Employee Benefits Security Administration has rescinded a Dec. 21, 2021, supplemental statement that discouraged fiduciaries from considering alternative assets in 401(k) retirement plan investment menus.
In the previous supplemental statement, which undermined an earlier June 3, 2020, information letter issued during the first Trump administration, the Biden administration warned that most plan fiduciaries would be “not likely suited to evaluate the use of PE investments in designated alternatives in individual account plans.” This assertion had a chilling effect on the market and took a dismissive view of alternative assets and the capabilities of plan fiduciaries, today’s release says.
“This is just another example of how the Biden administration put their thumb on the scale to pick winners and losers. Instead of allowing Washington bureaucrats to call the shots, we believe plan fiduciaries should decide which retirement investment options are best for hardworking Americans,” said Secretary of Labor Lori Chavez-DeRemer.
“Retiring with dignity is a key part of the American Dream, but far too few Americans have the opportunity to realize that dream today due to unnecessary government overreach,” Deputy Secretary Keith Sonderling added. “By repealing the Biden administration’s stifling guidance, we look forward to a future where innovative retirement products can deliver increased upside, diversification, and security to the American worker.”
The 2021 supplemental statement, the DOL release said, marked a departure from previous department norms dictating a neutral, principled-based approach to fiduciary investment decisions, consistent with the requirements of ERISA. When evaluating any particular investment type, the DOL said a plan fiduciary’s decision should consider all relevant facts and circumstances and will necessarily be context specific. “The department should not single out particular investments or investment strategies for additional or special scrutiny.”
The decision to rescind the previous supplemental statement comes on the heels of Trump’s “Democratizing Access to Alternative Assets for 401(k) Investors” Executive Order, signed in the Oval Office on Aug. 7. It eases the way for 401(k) and other defined contribution plans to include alternative assets such as private equity, real estate, private credit, infrastructure, commodities, cryptocurrency, and lifetime income strategies.
The Investment Company Institute released a statement Tuesday afternoon supporting the DOL’s announcement.
“The decision marks a welcome return from the Department to the principles-based approach that fiduciaries have always followed under the Employee Retirement Income Security Act (ERISA),” the statement read. “The speed at which the Department has moved following President Trump’s recent executive order is an encouraging sign of its commitment to implementing the order in full and offering millions of American retirees the chance to participate in private market offerings through their professionally managed workplace retirement plans.”
EDITOR’S NOTE: This article has been updated since original publication to include reaction to today’s DOL move from the Investment Company Institute.
ADDITIONAL COVERAGE:
• Advisors Increasingly Support Private Market Funds in 401(k) Plans
• Trump: Regulatory Overreach, Opportunistic Lawsuits Have Stifled Investment Innovation
• Trump Signing EO Today Enabling Private 401(k) Investments
• DOL, Industry Leaders React to Trump’s EO Signing on Private 401(k) Funds
• Private Equity in 401(k) Plans: Policy Shift or Practical Reality?
• Should 401(k) Plans Offer Annuities and Alternative Investments?
• Private Equity’s Fast Lane to 401(k)s