DoL Allows Private Equity in 401(k) Plans
The U.S. Department of Labor will allow private equity investments in 401(k) plans as part of a professionally managed asset allocation fund. In an Information Letter, the DoL provided relief to allow the use of private equity investments in target date, target risk, and balanced funds so long as the plan sponsor satisfied its fiduciary obligations. The DoL stressed the importance of ensuring liquidity, advising that a fiduciary consider capping private equity investments at 15% of total fund assets, consistent with the SEC’s illiquid securities rules. A DoL official lauded the change: “This letter should assure defined contribution plan fiduciaries that private equity may be part of a prudent investment mix and a way to enhance retirement savings and investment security for American workers.”
Best news out of the DoL since…? It was patently unfair to allow DB plans to invest in private equity while prohibiting DC plans. Limiting total PE investments to ensure liquidity avoids some of the concerns traditionally associated with retail investors. This change should be a boon for the private equity industry.