U.S. Department of Labor Issues Information Letter On Private Equity Investments

WASHINGTON, DC – The U.S. Department of Labor today issued an Information Letter under the Employee Retirement Income Security Act (ERISA) concerning private equity investments as a component of a professionally managed asset allocation fund offered as an investment option for participants in defined contribution plans. 

On May 19, 2020, President Trump issued Regulatory Relief to Support Economic Recovery Executive Order 13924. President Trump directed agencies “to remove barriers to the greatest engine of economic prosperity the world has ever known: the innovation, initiative, and drive of the American people” in order that we may “overcome the effects the virus has had on our economy.”

“This Information Letter will help Americans saving for retirement gain access to alternative investments that often provide strong returns,” U.S. Secretary of Labor Eugene Scalia said. “The Letter helps level the playing field for ordinary investors and is another step by the Department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.” 

Chairman of the U.S. Securities and Exchange Commission Jay Clayton commended the Department’s efforts to improve investor choice and investor protection, saying the Information Letter, “will provide our long-term Main Street investors with a choice of professionally managed funds that more closely match the diversified public and private market asset allocation strategies pursued by many well-managed pension funds as well as the benefit of selection and monitoring by ERISA fiduciaries.” 

Private equity investments have long been part of the investment portfolios used by defined benefit plans to fund retirement benefits for many American workers, but they generally have not been incorporated into investment funds used by defined contribution plans, such as 401(k) plans. Rather, 401(k) plans generally use mutual funds, bank collective investment trusts, and insurance company pooled accounts with portfolios focused on publicly traded stocks and bonds. The Information Letter addresses private equity investments offered as part of a professionally managed multi-asset class vehicle structured as a target date, target risk, or balanced fund. Adding private equity investments to such professionally managed investment funds would increase the range of investment opportunities available to 401(k)-type plan options.  The Information Letter, however, does not authorize making private equity investments available for direct investment on a standalone basis.  

The Information Letter was developed by the Department of Labor’s Employee Benefits Security Administration (EBSA). EBSA’s mission is to ensure the security of the retirement, health, and other workplace-related benefits of American workers and their families.

The Information Letter will support ERISA plan fiduciaries’ prudent consideration of innovative retirement plan investment opportunities to help defined contribution plan participants achieve successful retirement outcomes through appropriately diversified investment options that provide strong investment returns.  “This letter should assure defined contribution plan fiduciaries that private equity may be part of a prudent investment mix and a way to enhance retirement savings and investment security for American workers,” said EBSA Acting Assistant Secretary Jeanne Klinefelter Wilson. The Information Letter is available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020.

The Department of Labor’s mission is to foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the U.S.; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.