Three Republican lawmakers introduced bicameral legislation Thursday to clarify that plan fiduciaries may invest in a diverse range of asset classes, such as digital assets and private equity.
Sen. Pat Toomey, R-Pa.; Sen. Tim Scott, R-S.C.; and Rep. Peter Meijer, R-Mich., introduced the Retirement Savings Modernization Act to amend ERISA and allow for defined contribution plans, as well as pension plans, to invest in a wide range of asset classes outside of the public markets. While nothing in ERISA currently limits what asset classes a plan may invest in, the legislation aims to make clear that retirement plan sponsors can diversify their asset classes however they would like.
"401(k) plans almost never incorporate exposure to alternative assets due to fiduciaries' anticipated litigation risk," according to a news release from the Senate Banking Committee, which Mr. Toomey serves as ranking member of.
"Our legislation will provide the millions of American savers invested in defined contribution plans with the option to enhance their retirement savings through access to the same wide range of alternative assets currently available to savers with defined benefit pension plans," Mr. Toomey said in the news release. "This reform will open the door to higher returns and a more secure retirement for millions of Americans."
The bill also promises to uphold ERISA's standard for fiduciary duties and promote the diversification of retirement plans, according to the news release. As stated in the bill text, the range of alternative assets that plans may invest in includes commodities, digital assets, hedge funds, private equity, real estate and venture capital, among others.
As the news release notes, "pension plans have consistently outperformed 401(k) plans because they diversify across the full range of asset classes, putting one of every five dollars in alternative asset classes like private equity."
The Defined Contribution Alternatives Association and the Institute for Portfolio Alternatives expressed support for the bill, as it "reaffirms ERISA's high standard while reminding plan fiduciaries that consideration of alternative investments within a multi-asset vehicle choice on a DC plan menu can be appropriate," according to their support letter.
Other organizations in support of the bill include the CFA Institute and the Securities Industry and Financial Markets Association, among others, according to a committee news release.
