Overview
- The Labor Department, which issued the proposal Monday, set out a process-based safe harbor under ERISA to guide 401(k) fiduciaries considering private equity, private credit, real estate and cryptocurrencies for plan menus.
- Fiduciaries would have to document six reviews before adding an option: performance, fees, liquidity, valuation, appropriate benchmarks, and product complexity.
- The safe harbor would apply to designated investment alternatives that appear on a plan’s menu and would not cover brokerage windows or self-directed brokerage accounts.
- Industry groups and major asset managers welcomed the move, while consumer advocates and Senator Elizabeth Warren warned that alternatives could raise risks and costs for workers.
- Defined-contribution plans hold roughly $8.8 trillion to $14.2 trillion, yet only 4% offered alternatives with about 0.1% of assets last year, and experts say valuation, liquidity, nondiscrimination rules and litigation risk could slow adoption even if the rule is finalized.