Three Republican lawmakers introduced a bill that would expand the allowed investment classes in defined contribution pension plans to almost anything, including “digital assets.”
The Retirement Savings Modernization Act was described by Senators Pat Toomey (R-Pennsylvania), Tim Scott (R-South Carolina), and Rep. It was just introduced to bolster Americans’ retirement savings. Assets included in defined contribution plans such as 401(k) plans. The authors wrote that the act amended the Employee Retirement Income Security Act of 1974 (ERISA) to “clearly provide that private sector retirement plan sponsors may offer plans that include both pensions and 401(k)s. It has been carefully diversified across its entire range to ensure that of the asset class. ”
Leveling the playing field
According to a press release, the bill’s sponsors said the Retirement Savings Modernization Act would level the investment playing field between traditional pension plan investments and the participant-driven investments found in 401(k)s. positioned.
1. Clarify that plan trustees may choose from investment options that include a variety of asset classes, including private equity. The bill’s sponsors argued that ERISA itself did not limit the asset classes that could be included, saying, “This amendment is intended to allow Congress to let investment professionals determine the appropriate range of asset classes. I will make it clear that I am,” he said.
2. Protect ERISA’s fiduciary standards, as fiduciaries still have to go through a careful process to select their investments.
3. Promote prudent diversification of retirement savings plans. Sponsors point out that the law does not require access to specific asset classes, but rather “provides fiduciaries with tools to ensure greater diversification.”
A “targeted” investment?
The short (three-page, wide-spaced) bill actually aims to do all that by creating the term “covered investment” and adding it to ERISA 404(a) (trustee (recommend, select, or monitor targeted investments) – refers to direct or indirect investments. (II) including, but not limited to, any of the following:
(bb) Liabilities, including public and private credit.
(cc) Digital Assets.
(dd) hedge funds;
(ff) Insurance products and annuities.
(gg) Private Equity.
(hh) Real Assets.
(ii) real estate or real estate related securities;
(jj) Securities listed on a domestic stock exchange.
(kk) Venture Capital.
(ll) Invest in any fund, commingled account, or pooled investment vehicle that invests in any investment, including but not limited to those listed in items (aa) through (kk).
The timing (and the need for it) of the bill is likely a result of cautionary comments made by the Department of Labor regarding certain investment classes, including the inclusion of compliance assistance release numbers into cryptocurrencies (a.k.a. “digital assets”). of defined contribution investments. Private Equity Investments in 2022-01 and 2020 Information Letters and 2021 Supplemental Instructions. In either case, while not directly prohibiting such investments, the DOL expresses its concerns about the prudence of such investments in light of changing considerations and advises the Plan’s fiduciaries to It warned and reminded plan fiduciaries of their due diligence and prudent process obligations.
The bill will be sponsored with broad industry support, including the Securities Industry and Financial Markets Association (SIFMA), the Defined Contribution Alternative Investments Association (DCALTA), the Portfolio Alternatives Institute (IPA), and the Small Business Investors Alliance (SBIA). There is.” , American Securities Association (ASA), Chartered Financial Analysts (CFA) Institute.
However, it has not yet won the endorsement of the American Retirement Association. “The American Retirement Association opposes any law that undermines his ERISA fiduciary protections for plans and participants,” said Brian, CEO of the American Retirement Association and executive director of the National Association of Plan Advisors. Graph commented. “Based on the current legislative language of this bill, we are concerned that it will have that effect and will discuss that concern with the bill’s sponsors.”