The Times, They Are A Changin’ – New Administration, New Rules, And More to Come

In the five months since the Trump Administration took the reins in Washington, DC, we have seen a flurry of changes affecting employee benefit plans: both retirement plans and health and welfare plans.  In this post, we focus on a few of the recent retirement plan changes relating to plan investments.

Crypto in 401(k) Plans

The Department of Labor (the Department) rescinded Compliance Assistance Release No. 2022-01 regarding 401(k) plan investments in cryptocurrencies and clarifies that the term “cryptocurrencies,” applies to a wide range of “digital assets” including those marketed as “tokens,” “coins,” “crypto assets,” and any derivatives thereof.  The 2022 release had directed plan fiduciaries to exercise “extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.”  The DOL’s stated purpose for rescinding the release is a desire to restore the Department’s historical approach by neither endorsing, nor disapproving of, plan fiduciaries who conclude that the inclusion of cryptocurrency in a plan’s investment menu is appropriate. 

ESG/Fiduciary Rules

In separate court filings the DOL has indicated that it will not continue to defend certain Biden era rules regarding ESG investing and fiduciary rules.

Private Equity Investments in Retirement Plans

The Trump Administration is also reportedly considering guidance that would pave the way for 401(k) plans to invest in private equity.  Note – offering private equity in a defined contribution plan is always up to the plan fiduciaries.  

Soft guidance on this topic was previously issued by the Employee Benefits Security Administration under the first Trump Administration in 2020.  See Information Letter 06-03-2020.  Additional guidance was issued in 2021, stressing the need for caution with such investments.  See U.S. Department of Labor Supplement Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives.

 The 2020 guidance confirmed that all investments must satisfy ERISA’s requirements of prudence and loyalty and that in considering private equity investments, plan fiduciaries must evaluate issues of liquidity and valuation, as well as higher fees and higher risks.  

Investments in private equity by qualified retirement plans is already permitted under federal law and private equity is used in defined benefit plans, but in those plans, participants are not directing those investments, those decisions are being made by a plan fiduciary.   Now defined contribution plans are looking to add private equity to their investment options.

The industry is not waiting for Washington to act.  A leading 401(k) plan recordkeeper recently announced that it is moving forward with plans to offer private equity investment options in its 401(k) investment line up now, even without additional guidance.  Under this structure, participants who have managed accounts would be able to access certain collective investment trusts that invest in private equity.   

And, the Ninth Circuit has just dismissed a class action case alleging that investments in private equity were imprudent and violated ERISA. See: Anderson v. Intel.  In the Anderson case, the 9th Circuit looked at benchmarking, disclosures and fiduciary processes to reach its decision to uphold the dismissal.

As can be seen, the times are changing, so stay tuned.  Plan fiduciaries who want more information regarding the legal issues involved in offering private equity in 401(k) plans may reach out to a Boutwell Fay attorney.

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