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The Regulatory Environment for Alts in DC Plans is Evolving


Over the past few weeks, there have been several meaningful steps forward for our industry related to access to alternatives through defined contribution (DC) plans.

As you know, more than 100 million Americans participate in an employee-sponsored DC plan. But while most American’s retirement savings are held in DC plans, antiquated regulations don’t clearly allow those plans access to portfolio diversifying investments and other alternative products that can serve as important long-term diversification tools.

Bulk of Intel ERISA Suit Permanently Dismissed

Earlier this week, the District Court for the Northern District of California claims against Intel’s retirement plan investment committee alleging that it had automatically violated its fiduciary duty by including alternative investments, including hedge funds and private equity, within investment options its DC plan. The dismissal is with prejudice, meaning that absent an appeal and action by the Ninth Circuit, the plaintiffs cannot replead their claims.

This major victory is a significant positive for retirement plan investment committees considering alternative investments and provides a helpful roadmap to make these investment decisions going forward. The following summary was provided by our counsel at Groom Law Group:

“The plaintiffs argued that Intel’s inclusion of a target fund that allocated 37.2% to non-traditional assets and a designated investment alternative that allocated up to 56.22% of its assets to non-traditional investments was per se imprudent. The District Court rejected this argument noting that Intel included the non-traditional assets partially to reduce risk. Judge Koh noted that, “ERISA fiduciaries are not required to adopt a riskier strategy [stocks and bonds only] simply because that strategy may increase returns.” Essentially, Judge Koh recognized that it is not per se imprudent to include non-traditional investments – even in substantial concentrations. The court’s analysis focused on ERISA’s statutory requirements and did not rely on any of DOL’s recent sub regulatory commentary on private equity.

In the alternative, the plaintiffs alleged that the Intel investments were imprudently designed when compared to their benchmarks. The plaintiffs identified a number of possible benchmarks. However, those benchmarks did not include a similar allocation to non-traditional investments and the plaintiffs did not explain why those were similar. Judge Koh held that the plaintiffs’ benchmarks were not appropriate and that determining a benchmark is something that a court should do at the motion to dismiss phase. Because the court had given the plaintiffs’ three prior opportunities to identify a benchmark, Judge Koh determined that it would be prejudicial to Intel to give the plaintiffs’ a fourth try. While less specific to non-traditional investments, Judge Koh made clear that she expects plaintiffs to allege more detail and specific facts in order to bring a fee lawsuit.”

DOL Provides Supplemental Statement on Private Equity in DC Plans

In addition, in late December, the Department of Labor (DOL) recently released a that builds on the Information Letter the department released in June 2020. While the DOL cautioned plan fiduciaries against marketing efforts that endorse private equity investments, the supplemental statement left in place the June 2020 letter and its substance. While the tone of the supplemental statement is more negative than the Information Letter, it can be viewed as a positive that DOL under both Republican and Democratic administrations has now issued guidance for DC plan fiduciaries for evaluating the inclusion of alternatives in DC investment options.

For over 35 years, the IPA has advocated for wider acceptance of important portfolio diversifying investments, and we will continue fighting for a more modern regulatory environment that supports their inclusion within employer-sponsored plans along with our coalition partners. Together, we intend to continue expanding opportunities for everyday Americans to secure their retirement through access to a variety of asset classes crucial to build a long-term diversified investment portfolio.

Finally, we would like to extend a special thank you to Kevin Walsh, Principal at Groom Law Group, and our partners at the Defined Contribution Alternatives Association (DCALTA), for working with the IPA and our members to advocate for equal access to alternative investments.

If you have any questions about the Intel decision or the DOL’s latest Supplemental Statement, please don’t hesitate to reach out to Tony or me.


Anya Coverman
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives