Industry Groups Push DOL for Sub-Regulatory Guidance on 401(k) Private Market Investments

Several industry groups sent a letter to the Department of Labor Thursday, asking the agency to release sub-regulatory guidance for plan fiduciaries considering the inclusion of private and other alternative investments in defined contribution plans.

President Donald Trump’s executive order last month gave the agency six months to offer regulatory guidance about how fiduciaries can follow a prudent process when adding asset-allocation funds that contain private equity, cryptocurrency and other alternative investments to their DC plan lineup. The industry groups’ letter, addressed to Secretary of Labor Lori Chavez-DeRemer, asked the agency to offer temporary sub-regulatory guidance, since formal regulations will need to go through comment periods and take longer to go into effect.

“While we strongly support the use of notice-and-comment rulemaking to provide a comprehensive, durable framework for fiduciaries considering alternative assets, we also recognize that a full rulemaking process will take a significant amount of time, during which fiduciaries will be left with uncertainty that will continue to chill consideration and development of diverse funds that include alternative assets,” stated the letter, signed by the American Retirement Association, the Financial Services Institute, the HR Policy Association and the National Association of Professional Employer Organizations.

The letter emphasized that swift action would directly advance the executive order’s goal of curbing avoidable lawsuits. It warned that “ambiguity in fiduciary duties has historically created an environment ripe for costly and burdensome lawsuits. By issuing timely guidance, the Department can reduce the legal uncertainty that fosters litigation, thereby empowering fiduciaries to exercise their best judgment with regard to funds that include alternative assets.”

The letter pointed out that the number of publicly traded companies has steadily declined, while private markets now exceed $30 trillion in assets. As a result, DC plan participants have fewer avenues to access the types of alternative investment strategies long employed by defined benefit plans, endowments and other institutional investors to diversify holdings and improve long-term performance. At the same time, fiduciaries remain hesitant to consider such options without clear regulatory direction, largely because of litigation risks.

To ease this uncertainty and fulfill the executive order’s mandate, the DOL could issue sub-regulatory guidance such as a compliance assistance release, field assistance bulletin, tip sheet or interpretive bulletin, the letter suggested.

The letter further explained, “Interim guidance would not displace the importance of rulemaking but would serve as an essential bridge, enabling fiduciaries and product innovators to begin adapting and developing participant-ready solutions more quickly.”

It concluded by urging a balanced approach: “By combining timely sub-regulatory guidance with a commitment to formal rulemaking, the Department can provide fiduciaries with the confidence needed to evaluate alternative investments today and create a lasting framework for the future.”

Last month, a group of Republican senators asked the DOL for a private assets safe harbor. Several industry insiders suggested that a safe harbor would protect plan sponsors from litigation, but such a rule would require a comment period and take time to be enacted.

But sub-regulatory guidance would serve as a short-term solution, the industry groups’ letter stated, “by allowing fiduciaries to focus on acting in participants’ best interests rather than navigating unclear legal risks.”