SIFMA and SIFMA AMG submitted a comment letter to the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) in response to the Department’s proposed rule on Fiduciary Duties in Selecting Designated Investment Alternatives (RIN 1210-AC38). The comment letter supports the Department’s asset-neutral, process-based approach while offering targeted recommendations to strengthen the final rule and better enable plan fiduciaries to expand retirement savers’ access to a broader range of investment opportunities, including private market assets.

“The proposal reflects ERISA’s fundamental principles by emphasizing the importance of a prudent fiduciary process when selecting advisors and investment products, while preserving broad discretion for plan fiduciaries to determine which options best serve the interests of their plans and participants,” SIFMA wrote in the letter.

The letter offers recommendations to improve the proposed rule’s practical workability and to advance the Department’s stated goal of reducing frivolous litigation risk that stifles plan sponsor innovation and ultimately harms plan participants, including:

• Strengthen fiduciary discretion in the safe harbor by clarifying that fiduciaries have deference to determine which factors are relevant to their specific plan design, participant demographics, and investment menu architecture, and that deviation from the safe harbor does not create a presumption of imprudence.
• Harmonize conflict language with SEC and other existing regulatory standards to reflect that potential conflicts are already significantly regulated and require mitigation and disclosure, rather than being treated as categorically prohibited.
• Adopt asset-class neutral liquidity requirements by removing references to SEC Rule 22e-4 and instead requiring that plan fiduciaries confirm that investment managers have controls and procedures reasonably designed to identify, manage, and mitigate liquidity risk.
• Recognize Collective Investment Trusts (CITs) as well-regulated vehicles subject to ERISA, OCC oversight, and state regulation, and ensure they receive equal treatment in the safe harbor’s examples alongside mutual funds.
• Clarify that examples are guideposts only, not the exclusive means of satisfying the safe harbor, to preserve flexibility for fiduciaries evaluating innovative or newly developed investment products.
• Modernize Class Exemption PTE 77-4 to reflect decades of market evolution and expand its scope beyond open-end mutual funds to encompass other investment vehicles.

“Addressing the issues outlined above would significantly improve the proposed rule on Fiduciary Duties in Selecting Designated Investment Alternatives and its intended purpose of providing clarity and confidence to plan fiduciaries,” the letter concluded.

The full letter can be found here: https://www.sifma.org/advocacy/letters/fiduciary-duties-in-selecting-designated-investment-alternatives

Source: SIFMA

Managed Funds Association recommends targeted changes to strengthen DOL’s 401(k) alternatives proposal

Recommendations will strengthen the proposed safe harbor, reduce litigation risk, and expand retirement investment options. 

MFA recommended targeted changes to strengthen the Department of Labor’s (DOL) proposal to expand access to alternative assets in 401(k) retirement plans in a comment letter. MFA strongly supports the proposal, which would reduce litigation risk for plan fiduciaries who offer investment options that include alternative assets.

Alternative assets — including private credit, hedge funds, and other non-traditional strategies — can improve diversification and deliver stronger risk-adjusted returns for retirement savers. However, plan fiduciaries have been discouraged from offering these investment strategies to their employees due to legal uncertainty. The DOL proposal would give millions of American workers greater choice in how they invest for retirement by providing a legal safe harbor for plan fiduciaries to offer a greater variety of investment options.

“American workers deserve access to the same types of investment strategies that pensions and other institutional investors have benefited from for decades,” said Bryan Corbett, MFA President and CEO. “Research shows diversified portfolios that include alternative assets can improve long-term returns and reduce risk. The Department of Labor’s proposal will give plan fiduciaries more confidence to offer these investment options while maintaining strong protections for workers and retirees.”

MFA recommended several targeted changes to strengthen the proposal, including:

• Improving the safe harbor. Clarify that fiduciaries who complete the required evaluation steps are deemed to have satisfied the safe harbor, reducing uncertainty and unnecessary litigation risk.
• Improving the examples. Clarify that the rule’s examples are illustrative guides, not the only acceptable way to comply with the safe harbor.
• Clarifying the role of independent fiduciaries. DOL should make clear that engaging an independent fiduciary is a choice, not a requirement in any specific context. Including the term in examples outlined in the proposal could lead sponsors to conclude that hiring an independent fiduciary is required in specific situations.
• Focusing on existing protective regimes. Recognize that products governed by the Investment Company Act and the Employee Retirement Income Securities Act (ERISA) are already subject to comprehensive regulatory and fiduciary regimes that address valuation, liquidity, and complexity. Additional analytical requirements would be duplicative and unnecessary.
• Improving the liquidity analysis. The proposal should clarify that fiduciaries may assess whether a product’s liquidity profile aligns with how similar products are designed and used in the market. For example, target date funds can include less-liquid assets but still maintain sufficient liquidity overall to meet normal redemption needs. This clarification would help prevent overly restrictive liquidity interpretations that discourage the inclusion of investments that can improve risk-adjusted returns.
• Improving benchmark comparisons. Clarify that fiduciaries may use benchmarks and methodologies commonly accepted by industry professionals when evaluating investment products.

Read the full letter here.

Source: MFA

Access to Private Markets Offers New Opportunities to Millions of Retirement Savers

The Investment Company Institute (ICI) submitted its comment letter in response to the Department of Labor’s (DOL) proposed rule on fiduciary duties in selecting designated investment alternatives. ICI President and CEO Eric J. Pan issued the following statement:

“ICI applauds the DOL for this significant step to expand 401(k) investors’ ability to diversify their portfolios. As investment opportunities continue to expand rapidly in the private markets, 401(k) investors should have the ability to include private market investments in their long-term investment portfolios. A partial allocation as part of a well-diversified retirement portfolio has the potential to improve investment outcomes, and plan fiduciaries should be able to offer this choice.

“ICI’s research indicates that modest private market allocations can enhance diversification and improve expected risk-adjusted returns. These estimated benefits persist even after adjusting for the tendency of private market valuations to move more gradually. In addition, our simulation results suggest better estimated outcomes for retirement savers when modest private market allocations are included in target date funds. These analyses highlight the material importance of the proposal for 401(k) participants.”

“To ensure that the rule achieves its intended goals without relaxing existing fiduciary duties, the safe harbor framework establishes appropriate guardrails to facilitate the broader incorporation of private assets into 401(k) plans. We look forward to working with the Labor Department to help advance this effort.”

Read the full comment letter here.

Read ICI’s economic analysis of the DOL’s proposal here.

Source: ICI