Strengthening Present Traction, SEC Action, Wait for Guidance

Cooley LLP, Aug. 13: Private Equity and Venture Capital Investments for 401(k) Plans?

Quotable: “Is there anything to do now? We think it is likely that, eventually, alternative investment options will find their way into more DC plans in some form or another. In the meantime, PE, VC and other alternative asset sponsors should consider what they might be able to contribute to a strengthening of the present traction, whether that includes reaching out to government regulators, plan fiduciaries or other stakeholders, or proactively working on solutions to the commercial and structural challenges posed by alternative assets that might make them more appropriate as offerings in DC plans.”

Mayer | Brown, Aug. 12: President Trump Signs Executive Order Seeking to Expand Availability of Alternative Assets in 401(k) Plans

Quotable: “With respect to the federal securities laws, the SEC has historically limited how participant-directed defined contribution plans have been able to access most privately offered alternative investment vehicles… The Order expressly contemplates the need for the SEC to revisit its existing guidance to facilitate access to alternative investments by defined contribution plans. Depending on what action, if any, the SEC takes in response to the Order, we may see asset managers develop new products that facilitate investments in alternative funds in defined contribution plans relying on the ICA exceptions in ways that were not previously available.”

Akerman LLP, Aug. 11: What Employers Should Know About Trump’s Executive Order on Expanding Access to Alternative Assets in 401(k) Plans

Next Steps: “The Order signals a potential shift in regulatory posture, but until the DOL issues new rules or guidance, the existing fiduciary standards and enforcement environment remain in place. Plan sponsors and fiduciaries considering alternative assets should:

• Monitor forthcoming proposals for new safe harbors or clarified prudence criteria.

• Review investment policy statements to address alternative asset evaluation and monitoring.

• Document all diligence on alternative assets, including analysis of liquidity, valuation, participant understanding, and cost relative to expected benefit.

• Prepare participant communications explaining the nature and risks of alternative investments and consider enhanced education efforts.

“While the Order raises the prospect of broader investment menus in 401(k) plans, plan sponsors and other fiduciaries should proceed under the current, more conservative standards until new guidance is issued. The key remains a well-documented, prudent process tailored to plan demographics and participant needs.”

Next page: Prudent evaluation, Accredited investors, Curbing ERISA litigation