DOL Addresses Private Equity as a Plan Investment

The Department of Labor’s Employee Benefits Security Administration (EBSA) today released an Information Letter addressing the issue of including private equity investments—which are not publicly traded securities—among investment options available in certain individual account (401(k)-type) defined contribution (DC) plans.

EBSA’s letter indicates that such plans could potentially include funds with a private equity component. But the EBSA pointed out that there are significant differences between such DC plans and professionally managed defined benefit (DB) plans, wherein retirement benefits are based on known formulas. EBSA’s letter describes in detail considerations that a plan fiduciary should take into account when determining whether it is prudent to include such an investment component in an individual account DC plan, especially if a private equity investment will be a component of a plan’s qualified default investment alternative (QDIA).