DOL to allow private equity investments in DC Plans

Ary Rosenbaum
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Ary Rosenbaum - The Rosenbaum Law Firm P.C.

The Department of Labor (DOL) released some new guidance that might facilitate the inclusion of private equity (PE) exposure in participant-directed defined contribution (DC) plans ERISA.

The guidance contemplates the viability of multi-asset target-date, target-risk, and balanced funds made available on a plan lineup, including as a designated investment alternative.

The selection and monitoring of an investment fund made available in a participant-directed plan are subject to ERISA’s stringent fiduciary duties. This DOL guidance explains how a fiduciary, can select an investment option that has PE exposure. The types of funds the DOL has in mind under the new guidance are those with partial exposure to PE; so that the remainder of the fund’s portfolio would need to have “a range of asset classes with different risk and return characteristics and investment horizons.” The DOL specifically envisions the non-PE asset classes to be both liquid and have readily ascertainable market values, such as publicly-traded securities.

While the DOL guidance may facilitate the inclusion of PE within DC plan lineups in a mutual fund or fund of funds, I don’t think many plan sponsors will pursue it since the exposure is going to be limited to publicly-traded securities and the recent bias for index funds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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