Investor Advocates Urge DOL to Reverse Policy on Private Equity in 401(k)s

Nineteen organizations that advocate on behalf of investors, consumers, workers and retirees are calling on the Department of Labor to withdraw a policy statement that paves the way for 401(k) plans to add private equity investments as part of diversified investment options.

The organizations sent a letter to Labor Secretary Eugene Scalia that says private equity investments “are likely to saddle middle-class retirement savers with high costs and lock them into unnecessarily complex investments that underperform publicly available alternatives.” 

The letter is a response to a private information letter the DOL issued in early June to the Groom Law Group, allowing an asset allocation fund to include a private equity option as part of a “prudent investment mix” to enhance retirement savings, according to a statement from Acting Assistant Secretary of Labor Jeanne Klinefelter Wilson. That letter allows private equity investments within diversified target date, target risk and balanced funds.

(Related: DOL Gives Green Light for Private Equity in 401(k)s)

The 19 organizations criticize the DOL for failing to challenge the claim that a private equity option is likely to enhance long-term investment returns for plan participants.

Among the reasons to challenge that claim, according to their letter, are the absence of standardized performance calculations for private equity funds, their lack of transparency and illiquidity, which could be especially problematic for plan participants who change change jobs and cannot or may not choose to  keep their retirement savings in a former employer’s retirement plan.