DOL’s Private Assets on 401(k)s Proposal Draws 40,000 Comment Letters

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Please, Mr. Postman, is there a letter for me in your bag?

The Marvelettes never found an answer to that question, which was asked in the chorus of their 1961 hit Motown. Please, Mr. Postmanbut the Ministry of Labor is sure.

Financial advisors, trade groups, consumer advocates and individual Americans have submitted more than 40,000 comment letters to the DOL regarding recently proposed rules that, among other important implications, would expand access to private assets and other investments within workplace retirement plans. The deadline for comment came and went on Monday, by which time a mountain of material had been sent to the organization. Opinions show that opinions on the proposal are complex and decidedly mixed, including from the financial services industry itself. To what extent the DOL will respond to the analysis as it prepares the final version of the regulations remains to be seen, but advisers would do well to scrutinize the proposals.

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Different Opinions

Critics include the likes of Christine Benz, director of personal finance and retirement planning for Morningstar, who portrayed the proposal as a solution in search of a problem. The company’s official comments continue to question the broader implications of the investment selection process by retirement plan fiduciaries. The safe harbor it would create, Morningstar says, would allow fiduciaries to rely on potentially conflicting guidance from groups with “very strong commercial interests” in 401(k) planning investment choices. If implemented as proposed, the safe harbor legal framework will protect plan fiduciaries from lawsuits based on investment choices, alternative or otherwise, provided they consider and satisfy six factors:

• Working

• Funds

• Liquidity

• Measurement

• Estimating the proportions

• Complex

Many public comments highlighted the complex risk profiles and murky payout structures that come with other asset classes, calling them inappropriate for retirement accounts and everyday investors.

Supporters include the Investment Company Institute and the American Securities Association. These groups say the proposal would democratize access to potentially profitable investment opportunities often used by institutional investors, while ending the cookie-cutter lawsuits that have plagued retirement plan sponsors for decades. The latter claim derives from the same safe harbor framework criticized by some commenters.

Supporters also point to the possibility that alternatives will be folded into professionally managed investment options, including target date funds, rather than offered as private funds that could be abused by novice investors.

Who Said The Bailout? More skeptics, like those shared by the consumer protection group Americans for Financial Reforms, paint the proposal as a bailout for struggling private companies. “This proposal presents a high-fee, opaque and risky private equity model for workers’ retirement savings,” the group wrote. “Driving workers into the arms of private companies and crypto insiders will allow the president’s Wall Street and crypto cronies to pocket billions at the expense of the security of retirement families.”

This post originally appeared on Retirement Upside. For actionable information on financial advisors guiding clients through strategies, products, and policy changes that shape retirement outcomes, sign up for our free Retirement Focus newsletter.