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Compliance Corner

Retirement Updates

DOL Supplements Letter on Private Equity Investments in Defined Contribution Plans

January 04, 2022

On December 21, 2021, the DOL provided a supplemental statement on the use of private equity (PE) investments in designated investment alternatives made available to participants and beneficiaries in individual retirement account plans. The statement supplements the June 3, 2020 DOL Information Letter that addressed the role of PE investments in defined contribution plans. (See our June 3, 2020 edition of Compliance Corner for more information about that letter.)

The DOL reiterated that fiduciaries could offer a professionally managed asset allocation fund with a PE component as a designated investment alternative as long as the investment is prudent and made solely in the interest of the plan’s participants and beneficiaries. Although the letter allowed PE investments, the DOL clarified that the Information Letter did not endorse or recommend such investments due to their complexity.

After the DOL came out with the Information Letter in 2020, the Securities and Exchange Commission issued a “risk alert” highlighting compliance issues in examinations of registered investment advisers that manage PE funds. Additionally, the DOL received questions and reactions from a variety of stakeholders regarding the letter. As such, the DOL chose to issue this supplemental statement to clarify a few things.

First, the DOL admitted that the PE investment advantages that were touted by the entity that requested the information letter reflected the perspective of the PE industry and didn’t necessarily include counter-arguments. Second, the DOL chose to emphasize the expertise that plan fiduciaries would need to possess in order to satisfy ERISA duties to be prudent and monitor investments. Finally, the DOL cautioned against application of the Information Letter outside of the context of fiduciaries who offer PE investments in their defined benefit and contribution plans and are suited to analyze these investments for participant-directed accounts with the assistance of qualified fiduciary investment advisers. The DOL took it a step further and mentioned that plan-level fiduciaries of small, individual account plans are likely not suited to evaluate PE investments in designated investment alternatives in individual account plans.

Employers considering offering PE funds as an investment option in their plans should be mindful of their fiduciary duties and consult with their investment advisers for assistance.

U.S. Department of Labor Supplement Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives »

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