The Department of Labor (DOL) has cautioned plan fiduciaries about private equity investments as components of investment options, such as target-date or balanced funds.
The statement however doesn’t withdraw DOL’s 2020 guidance detailing factors plan fiduciaries to consider when evaluating a professionally managed asset allocation fund with a private equity component as a potential investment option.
The original 2020 information letter concluded that plan fiduciaries wouldn’t necessarily violate their ERISA duties by selecting an investment option with a private equity component after objectively considering the factors identified by DOL. Since then, the DOL grew concerned that plan fiduciaries could expose participants to “unwarranted risks” by misinterpreting the information letter as support for using private equity investments with investment options.
The DOL has further explained that the original letter was intended primarily for defined contribution plan fiduciaries that also oversee defined benefit plans and already have experience evaluating private equity investments for those plans.
