A thumb on the scale(s)?


Years ago, I remember participating in a question and answer session with a group of plan sponsors. The focus was on the challenge of not just getting, but keeping their plans compliant, while looking for creative ways to engage and encourage participants. Then, at one point, a weary-looking gentleman, expressing his frustration at the pressures of audits and litigation, said, “I wish the DOL would just tell us what to do.”

I warned him at the time that he had to be careful what he wished for – that he just might get it.

Sure enough, in mid-March the Department of Labor issued a “Compliance Assistance Communiqué” that was unique both in format and, arguably, in focus. He reminded the plan’s trustees of the importance of their review and assessment of the plan’s investment prudence, then stated unequivocally that he had concerns about the ability of cryptocurrency to meet those standards. high. Indeed, the statement made clear that those who included such options could “expect to be questioned as to how they can reconcile their actions with their duties of care and loyalty…” – not just as standalone options on the menu, but even through a brokerage. Account. And so, while not an outright ban, it seems fair to say that it is likely to have what lawyers call a “chilling effect” on cryptocurrency as that 401(k) investment option.

In late December, the Department of Labor issued a statement on the use of private equity in participant-managed plans, indicating that, except in a minority of situations, plan-level trustees of small, individually accounted plans will not are unlikely to be adept at evaluating the use of Equity Investments in Designated Investment Alternatives (DIA) in Individual Account Plans. This was a step back from a June 2020 newsletter which claimed that private equity investments “as one component of a professionally managed multi-asset class vehicle structured as a target date , target risk or balanced fund” may be offered as an investment option for participants in defined contribution plans under ERISA. It seems likely that some private equity firms (or those promoting such investments) took the initial guidelines as a sort of green light to promote these options beyond the confines of the original letter – bringing the Department of Work to clarify its position – and, presumably, to end active consideration of these options, at least by “small individual account plans”.

And then, of course, there’s the focus on ESG options, which the Trump administration clearly tried to undermine with its then (slightly muted) proposed final settlement — and which the Biden administration first announced that it would not enforce, and has since then, with its own proposed regulations, sought to tip the balance in favor of these options, arguably to the point of not only encouraging, but requiring, the taking into account these factors.

The reality is, of course, that times are changing. And while the longstanding precepts of prudence and fiduciary responsibility have not changed, the environment in which these decisions are made has. Cryptocurrency wasn’t a “thing” until fairly recently (and it didn’t take long to find its way into 401(k) platforms), and those who may have misapplied (accidentally or “on purpose”) the Department of Labor statement on private equity had to be recalled. ESG is certainly a relatively recent goal, but not entirely new, but plan trustees can perhaps be forgiven for feeling a little “punch” by shifting sentiments between jurisdictions.

Usually well-meaning, the perspective of even the most experienced and expert regulatory professional sometimes fails to appreciate the impact in the ‘real’ world.

It is the value of the access and influence that the American Retirement Association and its sister organizations, armed with the input, insight and perspective of its members, bring to these processes. Insight and influence that allows you to “put your thumb on the scales” by providing a practical, pragmatic perspective on the rules and regulations that guide our industry now and in the days to come.

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