“We fear that it will be ‘open season’ from the plaintiffs’ bar on plan fiduciaries who are early adopters of alternative investments,” said Tim Collins, a partner at Duane Morris.

The Department of Labor’s proposed rule that would give 401(k) plan fiduciaries a clearer path for considering alternative investments is fraught with challenges for the plan managers, according to lawyer Tim Collins.

The recently-issued rule lays out the steps that managers of 401(k) plans should take when considering alternative assets as part of their investment lineups. Part of the Trump administration’s broader push to open up access to alternative investments, it also establishes a set of “safe harbors” for plan fiduciaries to use when selecting designated investment alternatives. 

But Collins, who is a partner at Duane Morris, warns that the rule could actually increase the pressure on plan managers. “We fear that it will be ‘open season’ from the plaintiffs’ bar on plan fiduciaries who are early adopters of alternative investments,” he told InvestmentNews. “Under the guise of mitigating litigation risk, the DOL’s proposed rule presents a number of significant ongoing risks to plan fiduciaries.”

In particular, Collins notes that, while the DOL is seeking to codify a process-driven fiduciary process, a number of the rule’s components are ripe for attack. “In requiring that plan fiduciaries identify a ‘meaningful benchmark,’ the DOL emphasized that prudence requires the fiduciary to have ‘read, critically reviewed, and understood’ the benchmark’s explanation,” he said. “Questions will undoubtedly be raised against plan fiduciaries as to whether they complied with this requirement.”

“In short, the bar for a prudent fiduciary has been raised under the proposed rule,” he added. [...]

To read the full text of this article, please visit InvestmentNews (subscription required).