I am going with a special edition of the Five Favorites post this week, solely covering five stories about the Department of Labor’s new proposed regulation addressing the issue of adding alternative assets, such as private equity and crypto, to the investments offered in 401(k) plans. For each one, I have included my own questions or comments on the aspect of the regulation covered by that particular article.

This is a totally selfish approach to this week’s post in the series and to my coverage of the regulation, in that every day I find an article that interests me about the reg and I keep finding new angles for thinking about it. So rather than write daily on the subject – thus almost certainly boring both myself and any faithful readers within a few days – I am capturing them all in one fell swoop.

1. Seems to me the proposed regulation literally (metaphorically speaking, anyway) paints a big red target on the backs of any plan fiduciaries who allow alternative investments into their plans. As this Thompson Hine post nicely explains, the regulation lists six points of analysis that fiduciaries should exhaust before adding any particular alt into a plan. But I find it very unlikely that most fiduciaries will be able to exhaustively analyze these issues at the level of expertise required of a fiduciary. For those who can’t, the list of factors reads like a checklist for a class action complaint, which can be written to target any particular aspect of the list that a plan fiduciary did not nail down.
2. It’s not just me who doubts whether any plan fiduciary will really be able to hit the mark on each of those six factors. This article focuses on the sheer complexity of the task assigned to fiduciaries by the regulation.
3. This article addresses the fact that the regulation is focused on reducing breach of fiduciary duty class action litigation against 401(k) plans, particularly with regard to any plans that add alternative investments into their menu of investment options. But breach of fiduciary duty litigation is literally written directly into the statute, and the standard of care for a fiduciary is likewise literally written right into the statute, each time without any reference to the limiting factors that the proposed regulation seeks to have applied to such lawsuits. If the standards of judicial interpretation of statutory authority and agency action set out in Loper are real things to be even handedly applied by the courts, it’s impossible to see how regulatory action imposing these particular terms on breach of fiduciary duty litigation under ERISA can withstand court challenge. The regulation almost literally contradicts the words of the statute itself.
4. Meanwhile, this article by a Morningstar executive points out that “And never say never, but most of these types of investments, especially private equity and private credit, are unlikely to pop up as stand-alone investment options on 401(k) plan menus. Rather, they would probably appear inside target-date funds or managed retirement accounts that are overseen by investment professionals rather than participants themselves.” The problems with this for plan fiduciaries are two fold, at least. First, this buries the risk exposure within an investment product in a manner that is going to make it still harder for plan fiduciaries to ever satisfy the six factors listed in the regulation. Second, this guarantees there will be massive numbers of plan participants with untold dollars of exposure to alts in their retirement accounts without knowing it. What could possibly go wrong? Especially for plan fiduciaries, who are legally charged with acting on their behalf?
5. It’s certainly a good proposal for the financial industry, as you can tell from the praise for the regulation from that corner of the ring in this article. There’s nothing per se wrong with that – the entire retirement industry operates on a symbiotic relationship among Wall Street, plan participants, employers and the rest. But remember that the definition of fiduciary duty in the statute literally doesn’t say one word about protecting or even considering the interests of those selling investment products, and the breach of fiduciary duty liability provisions place the risks on fiduciaries, not those who sell investments.