Exec Order Seeks to Expand Types of Assets Eligible for Retirement Savings Plans

Action: The President has issued an Executive Order directing the Department of Labor (DOL) to reexamine guidance regarding the fiduciary duties of retirement fund managers under the Employee Retirement Income Security Act (ERISA) and consider the appropriateness of including alternative assets (e.g., private market investments, commodities, and digital assets) in funds’ asset allocations. Though the Order defers to DOL on specific regulatory changes, it states that it is the Administration’s policy that retirement funds should have access to alternative assets when appropriate.

Trusted Insights for What's Ahead^®

• ERISA establishes standards for the management of retirement plans, including fiduciary duties for those that manage such plans. DOL regulations note that fiduciaries have a duty to “prudently select and monitor any service provider or designated investment alternative offered under the plan.”
• While this requirement does not explicitly ban any particular asset class—and despite a 2020 DOL information letter that stated prudent private equity investments do not necessarily violate ERISA—plan managers have generally interpreted this requirement conservatively, favoring common investment vehicles (e.g., mutual funds, index funds, and target-date funds) rather than assets that may appear novel or volatile.
• Following the release of the President’s Order, DOL rescinded a 2021 statement that sought to clarify its 2020 guidance, which had stated that its 2020 guidance only applied to a narrow set of circumstances and that private equity investments are not “generally appropriate for a typical 401(k) plan.”
• Earlier this year, DOL had already rescinded 2022 guidance that had cautioned fiduciaries to exercise “extreme care” before adding cryptocurrency options to a 401(k)’s investment options.
• DOL is directed to clarify its position on alternative assets within 180 days, and the Securities and Exchange Commission (SEC), in consultation with DOL, is directed to consider ways to facilitate access to investments in alternative assets.
• Some experts expressed concerns that the high fees and volatility associated with many alternative assets make them inappropriate for the typical 401(k) investor.