Private Assets in DC Plans: What to Expect in the Year Ahead

Investing in alternative assets is nothing new, even in defined contribution retirement plans. But the Department of Labor’s proposed rule, issued March 30, offers a process intended to reduce the threat of litigation for plan sponsors when including private market offerings.

Plan fiduciaries now await a final rule, expected several months after a 60-day comment period ends on June 1. Former DOL officials and several trade associations requested a 30-day extension to the comment period, arguing that the current deadline does not provide enough time for stakeholders to review and respond to the approximately 150-page proposal.

Whenever the final rule is published, expert opinions vary as to its short-term effects.

Next Steps

Charles Field, co-chair of Sanford Heisler Sharp McKnight’s ERISA litigation practice who represents plan participant plaintiffs, said if the DOL adopts the rule, as proposed, he expects widespread growth of alternative investment products for defined contribution plans.

“It’ll allow [alternative asset] managers to begin offering their products to plan fiduciaries, pension consultants and whoever else has decisionmaking authority over how plans manage their assets,” Field says.

Kevin Walsh, a principal in Groom Law Group who advises clients on fiduciary matters, says given the volume of comments—more than 12,960 had been submitted as of April 29—the DOL might not issue the final rule until shortly before or after Thanksgiving.

“So far, there are folks who think it’s a good idea, it’s a bad idea, those who are suggesting tweaks, and those who fundamentally understand what is being proposed,” Walsh says.

He notes that some commenters have a misconception that fiduciaries must put alternative assets in their plans and that they must create rules to put those assets into their plans—neither of which is true.

Field says the rule calls for plan fiduciaries to engage in a due diligence process in which they consider possible investments against six criteria outlined in the proposed rule, including those that contain alternative assets. The evaluation criteria are benchmarking, complexity, fees, liquidity, performance and valuation.

Drew Carrington, iCapital’s managing director of alternatives in retirement portfolios, says the DOL’s proposed rule provides the context for plan fiduciaries to “do the analysis.”

“If you conclude, after the analysis, ‘This isn’t right for my participants at this time,’ that’s fine,” Carrington says. “There’s nothing in the rule that mandates [investing in alternative assets]. No one in the industry is arguing we have to drag plans, kicking and screaming, into private markets.”

Applying the Analysis—to All Investments

Walsh says he believes the rule will impact all plans in the year ahead, as the six criteria apply to all investments, not just alternatives.

Walsh recommends that plan fiduciaries begin to consider the proposed rule’s six evaluation criteria when reviewing their plans’ current investments, if they were not already part of their reviews. In tandem, consultants or outsourced investment managers will probably begin documenting how they review investments based on the same criteria.

“I do think the rule will have more fiduciaries consider alternatives, but regardless of whether a fiduciary considers alternatives, I think folks will look at the six safe harbor elements and say, ‘To the extent we’re not considering these factors or we’re not documenting these factors, maybe it makes sense for us to include in our minutes that we are considering these things, so that our process looks more like what the department outlined,” Walsh says. “Prudent process is always a tool for defending against allegations that the investment choice was wrong.”

Walsh says he does not think the way fiduciaries invest will change until the rule is finalized. But once the rule is finalized, he expects plan fiduciaries and consultants to begin to consider “more novel products with more regularity.”

He says he would be surprised if in about five years, however, there is no significant uptake.

“If you look at foundations and endowments [today], you look at defined benefit plans … across the board, other long-term investors have been using private credit markets,” Walsh says.

Carrington says the retirement industry often takes a “follow the leader” approach, and plan fiduciaries might wait for others to add alternatives to DC plans first.

“I don’t think anyone was going to do anything in that interim period where the rule was coming but we didn’t know what was in it,” Carrington says. “The people who want to move now have enough clarity to go ahead.”

Speed of Adoption

Jeffrey Palma, senior vice president and head of multi-asset solutions at asset manager Cohen & Steers, says it will take time for the industry to educate plan sponsors and participants about how to incorporate alternative assets into DC plans in a compliant manner.

“I don’t think there’s a problem with people being slow,” Palma says. “In fact, that’s probably the default option that many people would take.”

Field agrees that the industry is likely to move slowly toward adding the new asset classes.

“If I’m a prudent fiduciary, I would go after this very slowly,” Field says. “I’m not going to jump in and be the first. I want to do my due diligence, test the waters and see what products are being offered.”

Palma says the speed of adoption may also be affected by the performance of alternatives. While it looked like private markets were substantially outperforming listed markets for a while, the gap has closed in recent years, he says.

“I think that should give people pause [to the notion] that … private markets are going to outperform listed markets over medium- and long-term horizons,” Palma says. “It’s just not clear to me that’s the case. It’s not clear that returns have outpaced liquid benchmarks or liquid alternatives that might exist.”

Carrington says that while there is an undercurrent of belief that placing private assets on investment menus means participants will build portfolios on their own, that will not be the case.

“It’s important to stop the discussion about how participants will decide about private assets,” Carrington says. “We’re not asking them to do that. It should absolutely be driven by the plan sponsor rolling up their sleeves, doing the work with their adviser or consultant, and concluding what’s right for their plan and their participants.”

While Carrington is not sure how long adoption and uptake will take, he thinks the industry may be underestimating the speed of change. He points to the time it has taken for plans to adopt plan features, including automatic enrollment and daily valuation, as examples of industry shifts that happened faster than expected.

Half (50.2%) of plan sponsor respondents to the 2025 PLANSPONSOR Defined Contribution Survey said their plans offered automatic enrollment. In the Pension Protection Act of 2006, Congress added an optional provision to the Internal Revenue Code encouraging plan sponsors to auto-enroll their employees. The SECURE 2.0 Act of 2022 requires most new 401(k) and 403(b) plans established after December 29, 2022, to auto-enroll unless an exemption applies.

Intel Case Pending

Last October, the plaintiffs in Anderson v. Intel Corp. Investment Policy Committee appealed to the U.S. Supreme Court after losses in a federal district court and a circuit court in their long-running case against Intel Corp., accusing the tech giant of breaching its fiduciary duty by investing some plan assets into alternative investments.

The plaintiffs urged the court to reevaluate the “meaningful benchmark” standard used to assess claims of mismanagement in retirement plans. This standard, applied in various ways across circuit courts, requires a benchmark used to challenge investment performance or fees to generally have goals, risks and potential returns similar to the challenged investments. The Supreme Court accepted the case and will hear it in the term that begins in October.

Palma says the Intel case—initially filed in August 2019—underscores why plan sponsors and consultants are likely to move slowly through the process of adding alternatives to their plans.

“Plan sponsors don’t want to be involved in 10 years of litigation,” Palma says. “I think that’s what the [proposed] rule is designed to address—less ‘we want a certain asset class to be included or not included,’ but more, ‘if fiduciaries have a prudent process, they shouldn’t face 10 years of litigation.’”

Meanwhile, Walsh calls the Intel case “one of the biggest deterrents” for plan sponsors hoping to incorporate private assets into 401(k) plans.

If the Supreme Court rules in favor of Intel, the industry will see the dismissal of more cases alleging fiduciary breaches. But if the plaintiffs survive the initial motion to dismiss the case, it will have a “chilling effect” on adding different investments to plan menus.

“I think there’s a value to some litigation to keep fiduciaries on their toes, but at some point, you’re creating an environment where fiduciaries aren’t focused on outcomes; they’re more focused on not getting sued,” Walsh says. “The decision for the plaintiffs could be yet another reason for fiduciaries to hide under their rocks.”

More on this topic:

	What’s at Stake in the DOL Proposal Directing Assets to TDFs That Include Alts?
	What Kind of Near-Term Future Do Alts Actually Have in DC Plans?