Ahead of the Department of Labor’s (DOL) comment deadline Monday night, industry organizations are submitting their final thoughts on the agency’s proposed fiduciary rule involving alternative investments.
The agency issued a 60-day comment period for organizations to confer potential ideas or revisions on the regulation. That comment period expired on June 1 at 11:59 p.m. ET, and the Federal Register shows 44,906 comments were received.
The proposed regulation, “Fiduciary Duties in Selecting Designated Investment Alternatives,” would potentially expand the usage of alternative investments in 401(k) plans by broadening investor access to the private funds.
Specifically, under the proposed rule, when selecting investment alternatives, “plan fiduciaries would need to objectively, thoroughly, and analytically consider, and make determinations on factors including performance, fees, liquidity, valuation, performance benchmarks, and complexity,” the DOL previously said.
While President Donald Trump’s executive order expressed broad support of private market investments, the DOL’s proposed rule takes on an “asset-neutral” approach in that it does not favor or disfavor any specific asset class or type. Rather, the DOL’s proposal emphasizes the fiduciary’s duty of prudence and process over product type.
The proposal also includes a regulatory safe harbor that would limit litigation risk for plan fiduciaries who incorporate alternative investments into their retirement plans.
In final comments to the DOL, Investment Company Institute (ICI) CEO Eric Pan applauded the agency for implementing a safe harbor that he said would protect fiduciaries. “To ensure that the rule achieves its intended goals without relaxing existing fiduciary duties, the safe harbor framework establishes appropriate guardrails to facilitate the broader incorporation of private assets into 401(k) plans,” said Pan in a statement. “We look forward to working with the Labor Department to help advance this effort.”
Andy Banducci, a senior vice president of Retirement and Compensation Policy for the ERISA Industry Committee (ERIC) also celebrated the proposed rule for its safe harbor approach.
“Retirement plans are under attack by lawsuits based on second-guessing, and this regulation will help reaffirm that federal law requires plans to have a prudent process, not perfect outcomes in hindsight,” he stated.
Others expressed skepticism in the proposal’s ability to encourage private market adoption, as plan sponsors continue to voice qualms driven by legal uncertainty. “While the proposal is often framed as expanding access to alternative investments, Aon sees the bigger issue as whether that access will actually translate into adoption,” said Ari Jacobs, global head of Investments at Aon. “From their work advising plan sponsors across a wide range of retirement programs, there is hesitation driven by ongoing litigation risk and uncertainty around how those decisions will be evaluated over time.”
To ease doubts from plan sponsors, the Managed Funds Association released some recommendations for the DOL to implement, including refining the safe harbor provision by clarifying that fiduciaries who complete the required evaluation steps are “deemed to have satisfied the safe harbor.”
The DOL should also clarify its rule’s examples as “illustrative guides,” rather than as the only acceptable way for fiduciaries to comply with its safe harbor, MFA recommended.
“The Department of Labor’s proposal will give plan fiduciaries more confidence to offer these investment options while maintaining strong protections for workers and retirees,” said Bryan Corbett, MFA president and CEO.
Promoting lifetime income products
Some industry organizations called on the DOL to recognize lifetime income products more prominently in the final rule.
In comments submitted to the DOL, the Insured Retirement Institute (IRI) asked the agency to “clearly and expressly recognize annuities as an important category of retirement income tools,” and even suggested the agency develop an asset-neutral approach to annuities and other retirement income tools. “These products may differ from traditional accumulation-only investments in purpose, structure, pricing, liquidity, benchmarking, and participant value. A final rule that appropriately recognizes those differences would advance an important retirement security objective without compromising ERISA’s core fiduciary standards,” the IRI wrote.
IRI urged the DOL to clarify that annuities and other lifetime income products may be considered as designated investment alternatives, components designated investment alternatives, or part of default retirement plan pathways such as target-date strategies and other qualified default investment alternatives (QDIA).
It also recommended for the DOL to ensure that fiduciaries evaluating lifetime income products may consider factors such as guaranteed income, longevity protection, income stability and retirement outcomes, rather than relying solely on traditional accumulation-focused measures like expense ratios, short-term investment performance, or liquidity features.
TIAA’s comment letter proposed two targeted refinements, including asking the DOL to make illustrative examples of lifetime income products “more open-ended and principles-based” to show how a fiduciary might satisfy the safe harbor. “We are concerned that including specific examples could lead to plan fiduciaries treating these examples as the only permissible path, even when the rule doesn’t intend that,” TIAA stated. “This could result in an unintended narrowing of the range of lifetime income products that fiduciaries feel comfortable considering.”
The organization also urged the agency to implement clear guidance on lifetime income examples. Specifically, TIAA asked the DOL to include explicit language in the final rule that states that lifetime income examples are provided for illustrative purposes only and are not the exclusive means of satisfying any safe harbor factor. “This guidance would give fiduciaries the confidence to apply the safe harbor to a broader range of investment structures and lifetime income products, reinforcing the rule’s asset-neutral intent without altering its core framework,” the organization added.
Supporting stable value funds and managed accounts
Empower issued its statement advising the DOL to refine examples that could inadvertently disadvantage stable value funds or managed account services.
The recordkeeper cautioned that examples included in the proposal’s liquidity factor could unintentionally create uncertainty around stable value funds, and recommended additional clarification to ensure stable value funds remain within the safe harbor framework.
It also raised concerns about an example in the proposal’s complexity factor involving managed account services and target-date funds (TDFs) that it said could be read as favoring lower-cost TDFs over managed accounts when participant outcomes appear similar.
Empower urged the DOL to clarify that the example is intended to address a fiduciary’s failure to understand and properly implement a managed account service—not to suggest a preference for one investment solution over another.
EDITOR’S NOTE: This article was updated to include final comment numbers after the comment period ended.
SEE ALSO:
• 37,000 Comments and Counting on DOL Investment Selection Proposal
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news.