DOL Issues "Supplemental Statement" to 2020 Information Letter

December 22, 2021 – The Department of Labor’s Employee Benefit Security Administration (EBSA) has issued a supplemental statement to a June 2020 Information Letter. The letter addressed whether plan fiduciaries should offer private equity investments as investment options in individual account defined contribution plans. The 2020 letter indicated that such plans could potentially include managed asset allocation funds with a private equity component, but pointed out that a plan fiduciary should take into account whether it is prudent to include such an investment, particularly if it is a component of a plan’s qualified default investment alternative (QDIA).

The supplemental statement was issued out of reported concern by some stakeholders that the original letter could be taken as an endorsement or recommendation of such private equity investments in defined contribution plans. In the statement, the EBSA reiterates that plan fiduciaries should possess the requisite level of expertise to satisfy their duty under ERISA to prudently select and monitor private equity investments and suggests that fiduciaries of a “typical 401(k) plan” may not have the necessary expertise. In the 2020 Information Letter, the EBSA responded to a scenario about plan fiduciaries who offer both defined benefit and defined contribution plans. The EBSA noted in the supplemental statement the contrast with plan-level fiduciaries of small defined contribution plans, who may be less suited to evaluate the use of private equity alternatives. Further, ERISA Section 404(c) does not relieve a plan fiduciary of the prudence duties that apply to the selection and monitoring of designated investment alternatives, investment managers, and investment advice service providers.