A New Framework for Consideration of Private Equity in Defined Contribution Plans

Alternative investments such as private equity can commonly be found in the investment portfolios of defined benefit plans. However, despite their potential strengths, there has not been wide adoption of private equity strategies in defined contribution (DC) plans to date. To support the consideration of private equity by fiduciaries of DC plans subject to the Employee Retirement Income Security Act of 19741 (ERISA), the Department of Labor (DOL) issued an information letter2 on June 3, 2020, to Groom Law Group on behalf of two private equity managers (the ‘‘Information Letter’’). The Information Letter provides a framework for a prudent process for fiduciaries who believe a private equity allocation to a diversified plan investment option, including a target date fund, may be appropriate.

In this Bloomberg article linked below, Groom attorneys Scott Mayland, David Levine and Kevin Walsh first explain the general ERISA fiduciary principles attendant to the selection of DC plan investment options. They then identify the source of interest in private equity investments as well as the litigation challenges that have prevented wide adoption within DC plans. Finally, they describe the guidance the Information Letter provides, including the considerations the DOL identified as important in analyzing whether to incorporate a private equity.