The U.S. Department of Labor delivered a warning to the private equity industry as it looks to make inroads into participant-directed retirement savings plans.
In a supplemental statement clarifying its views on the use of private equity investments in defined contribution plans, the DOL cautioned plan fiduciaries against the perception that private equity is generally appropriate as a component of a designated investment alternative in 401(k) plans.
The three-page statement issued Tuesday builds on an information letter the department released in June 2020 in which it essentially greenlighted the use of private equity investments in retirement savings plans.
The statement comes after stakeholders criticized the letter as something that could be marketed as endorsing private equity investments in 401(k) plans and after the SEC's office of compliance inspections and examinations issued a risk alert, citing broad areas of concern.
"After considering reactions to the Information Letter by stakeholders, the department concluded it was important to release a statement cautioning fiduciaries, especially in smaller plans, against marketing efforts that may misrepresent the Information Letter as a U.S. Department of Labor endorsement or recommendation of these investments for 401(k) plans," Ali Khawar, acting assistant secretary for the department's Employee Benefits Security Administration, said in a news release.
In the supplemental statement, the department agreed with stakeholder criticism that the information letter reflected the perspective of the private equity industry and that it lacked research data from independent sources.
The statement also expressed the department's view that plan-level fiduciaries of small plans typically will not have the expertise needed to evaluate the prudence of private equity investments in their plans.