What Comes Next? Executive Order on Access to Alternative Assets for 401(k) Investors

by Jason Levy, Sr. Counsel at Great Gray

There’s been no shortage of headlines about the new White House Executive Order on Access to Alternative Assets for 401(k) Investors and the growing conversation around private market exposure in DC plan investments. But what does it really mean for plan decisionmakers, advisors, and other fiduciaries? Amidst the buzz, it is important to focus on what the Executive Order and related agency action can’t—and can’t—do.

Executive Action Cannot Change the ERISA Investment Standard

The Executive Order and follow-up Department of Labor (“DOL”) and other agency action cannot – and will not – alter the standard for selecting and monitoring investment options within a plan lineup. This standard is both strict and well established. Fiduciaries must act solely in the interest of plan participants, with the exclusive purpose of maximizing risk-adjusted returns, net of fees. That principle applies universally, regardless of whether an investment includes public or private market assets.

This means that if a responsible fiduciary conducts a prudent evaluation process and reasonably determines that a target date fund (TDF) with private market components meets the ERISA standard, that option may be added to the plan.

Executive Action Can Provide Directionally Helpful Commentary

Any ERISA investment decision must be supported by a prudent process that considers all relevant facts and circumstances. Investments with private markets exposure raise unique issues (e.g., liquidity and valuation) that should be evaluated as part of the determination as to whether the investment is reasonably likely to maximize risk adjusted financial returns. Fiduciary investment advisors should take responsibility for understanding these issues and how they apply to particular investment options with private market exposure. The prior Trump Administration DOL issued guidance on such considerations, and it can be expected that the current DOL will issue further guidance in response to the Executive Order.

How Advisors Can Help
Knowledge is critical for advisors to fulfill their fiduciary obligation to select investment options that will maximize risk adjusted financial returns. Not understanding the key attributes of investments with private market exposure – or being able to evaluate these attributes in specific investment options – is akin to tying one hand behind your back. Regardless of what investment is ultimately selected, the available universe should be considered, including private market investments that provide unique diversification benefits.

This material is provided for general and educational purposes only.  It is not intended to provide legal, tax, fiduciary or investment advice.  It does not address your specific circumstances and may not be relied upon.  Neither access to this material nor the contents of this material create a professional or fiduciary relationship between you and any of Great Gray Group, LLC, RPAG, Great Gray Trust Company, LLC, their affiliates or any of their representatives or employees.  For legal, tax, fiduciary, or investment advice, please consult your own consultant, advisor, or lawyer, as appropriate.