DOL’s Private Assets in 401(k)s Proposal Draws 40,000 Comment Letters

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Please, Mr. Postman, is there a letter in your bag for me?

The Marvelettes didn’t get an answer to that question, posed in the chorus of their 1961 Motown hit Please, Mr. Postman, but the Department of Labor sure did.

Financial advisors, trade groups, consumer advocates and individual Americans submitted more than 40,000 comment letters to the DOL about recently proposed regulations that would, among other significant effects, expand access to private assets and other alternative investments within workplace retirement plans. The deadline for comments came and went Monday, by which time a veritable mountain of material had been sent to the agency. The comments show views on the proposal are complicated and decidedly mixed, including within the financial services industry itself. To what extent the DOL will respond to the commentary as it prepares a final version of the regulations remains to be seen, but advisors will do well to study up on the proposals.

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Divided Opinions 

Critics include the likes of Christine Benz, director of personal finance and retirement planning for Morningstar, who characterized the proposal as a solution in search of a problem. The firm’s formal comment further questions the broader implications for the investment selection process by retirement plan fiduciaries. The safe harbor it would create, Morningstar argues, will allow fiduciaries to rely on potentially conflicted guidance from parties with “the strongest commercial interest” in 401(k) plan investment selections. If enacted as proposed, the rule’s safe harbor framework would insulate plan fiduciaries from litigation based on the selection of investments, alternatives or otherwise, as long as they consider and are satisfied with six factors:

• Performance

• Fees

• Liquidity

• Valuation

• Benchmarking

• Complexity

Many individual public comments highlighted the complex risk profiles and opaque fee structures that come with some alternative asset classes, calling them inappropriate for workplace retirement accounts owned by everyday investors.

Supporters include the Investment Company Institute and the American Securities Association. These groups say the proposal would democratize access to potentially lucrative investment opportunities that are commonly used by institutional investors, while tamping down on cookie-cutter class action lawsuits that have plagued retirement plan sponsors for decades. The latter claim stems from the very same safe harbor framework criticized by other commenters.

Supporters also point to the likelihood that alternatives will most likely be folded into professionally managed investment options, including target-date funds, rather than offered as standalone funds that could be misused by novice investors.

Who Said Bailout? The most skeptical takes, like the one shared by the consumer protection organization Americans for Financial Reforms, paint the proposal as a would-be bailout for struggling private equity firms. “The proposal unleashes private equity’s high-fee, opaque and risky investment model on workers’ retirement savings,” the group wrote. “Driving workers into the arms of private equity firms and crypto insiders would let the president’s Wall Street and crypto cronies pocket billions at the expense of families’ retirement security.”

This post first appeared on Retirement Upside. To receive actionable insights for financial advisors guiding clients through the strategies, products, and policy shifts shaping retirement outcomes, subscribe to our free Retirement Upside newsletter.