Daniel Aronowitz, assistant secretary of Labor for the Employee Benefits Security Administration, said Tuesday that he hopes that Labor's plan to allow alternative investments in 401(k)s, once finalized, will lead to more product innovation.
"In the short term, I hope that there are more target-date funds that are considering alternative investments," Aronowitz said during a question-and-answer session with Ken Bentsen, CEO of the Securities Industry and Financial Markets Association, at an event held by Mayer Brown, an international law firm, in Washington.
"I hope that plan fiduciaries and plan sponsors want to put out creative and innovative benefits," Aronowitz continued. "I hope that in five to 10 years we see investments that we haven't even thought about — maybe target date funds 2.0, managed accounts 2.0, other ideas."
New types of investments, Aronowitz continued, should be "designed to have risk-adjusted returns net of fees to make sure we're not just dependent on a smaller and smaller subset of public stocks. I hope that there are risk mitigation strategies that protect against 2008 drawdowns. ... If you read our rule thoughtfully, you'll see we want risk-adjusted returns net of fees, depending on whatever the plan fiduciary decides is the risk tolerance for their plans. This is the efficient frontier. We want risk mitigation to protect against a potential market drawdown. We want to protect 60-year-olds that are five years from retirement losing 40%."
Labor wants "plan fiduciaries to be creative and inventive and not have to look over their shoulder worried about being sued," Aronowitz added. "We hope there's more innovation in the plans. We're excited to see what the investment advisors are thinking about doing."
Labor's plan — which follows President Donald Trump's executive order "Democratizing Access to Alternative Assets for 401(k) Investors" — establishes a set of process-based safe harbors for plan fiduciaries to use when selecting designated investment alternatives. The proposed regulation lays out the steps that managers of 401(k) plans should take when considering alternative assets as part of their investment lineups.
ERISA attorneys as well as Aronowitz have said that the plan is also meant to stem the tide of ERISA lawsuits.
Labor is taking comments on its plan until June 1; 19,000 people have weighed in.
Daniel Aronowitz. Credit: Senate Health, Education, Labor and Pensions Committee
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