Department of Labor Issues Cautionary Letter Clarifying It Does Not View Private Equity as Appropriate for Most Defined Contribution Plans

During the Trump administration in 2020, the Department of Labor issued an information letter stating that alternative investments can be added to defined contribution plans without violating ERISA’s fiduciary standards.
This letter did not endorse adding private equity directly to an investment lineup. Rather, the letter stated it may be appropriate for defined contribution plans to include private equity indirectly through a target date, target risk or a balanced fund.
In December, the Department issued a follow up letter clarifying the 2020 letter. This letter was issued because the Department is concerned that the original letter has been used as a marketing tool and has been interpreted as a broad endorsement of alternative investments in defined contribution plans.
In this letter, the Department states that the original 2020 letter was directed only to large plan sponsors that have both a defined benefit and a defined contribution plan where the plan fiduciaries have experience evaluating private equity. The letter further states that the Department does not believe alternative investments are appropriate for the majority of defined contribution plans.