President Trump signed an executive order on “Democratizing Access to Alternative Assets for 401(k) Investors” establishing a policy that Americans should have access in their retirement accounts to funds that include investments in alternative assets “when the relevant plan fiduciary determines that such access provides an appropriate opportunity for plan participants and beneficiaries to enhance the net risk-adjusted returns on their retirement assets.” A White House fact sheet is available here.
The E.O. defines the term “alternative assets” as: (1) private market investments, including direct and indirect interests in equity, debt, or other financial instruments that are not traded on public exchanges; (2) direct and indirect investments in real estate; (3) holdings in actively managed investment vehicles that are investing in digital assets; (4) direct and indirect investments in commodities; (5) direct and indirect interests in projects financing infrastructure development; and (6) lifetime income investment strategies including longevity risk-sharing pools.
The E.O. directs that within 180 days, the Secretary of Labor shall reexamine past and present guidance regarding a fiduciary’s duties under ERISA in connection with making available to participants an asset allocation fund that includes investments in alternative assets, and consider whether to rescind DOL’s December 21, 2021 “Supplemental Private Equity Statement.” The Secretary of Labor is further directed to within 180 days “clarify the Department of Labor’s position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets under ERISA.” Such clarification must “aim to identify the criteria that fiduciaries should use to prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments.”
The Secretary shall also propose rules, regulations, or guidance clarifying the duties that a fiduciary owes to plan participants under ERISA when deciding whether to make available to plan participants an asset allocation fund that includes investments in alternative assets. In carrying out the directives, “the Secretary shall prioritize actions that may curb ERISA litigation that constrains fiduciaries’ ability to apply their best judgment in offering investment opportunities to relevant plan participants.”