Comment Letter Opposing the Department of Labor’s Proposed Rulemaking Entitled “Fiduciary Duties in Selecting Designated Investment Alternatives”

Office of Regulations and Interpretations
Employee Benefits Security Administration
US Department of Labor
Washington, DC

Thank you for the opportunity to comment on the Notice of Proposed Rulemaking entitled “Fiduciary Duties in Selecting Designated Investment Alternatives.” The Roosevelt Institute is a think tank, a student network, and the nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum. Roosevelt’s think tank engages in critical research and policy development to advance new ideas that rebalance power and repair past harms—so that our economy and society work for everyone. 

As explained in the comment below, despite the proposal’s misleading name and the media coverage of this endeavor, this rulemaking is not really about investments in “alternative assets.” Rather, the Department of Labor is trying to fundamentally weaken the standard for Americans’ retirement plans, full stop. The goal appears to be to encourage covered retirement plans such as 401(k)s to replace existing investment options with risky, costly investments, including but not limited to so-called “alternative assets” like private equity, private credit, and cryptocurrency. This approach could erode the investment options that people currently rely on, such as target-date funds composed of low-cost, diversified index funds, in favor of riskier and costlier investments. Millions of people could be exposed to these investments without a meaningful choice, both because they are defaulted into them and because better options are no longer available.

The Department’s approach would also exacerbate some of the worst features of the financialization of our society—the shifting of costs and risks onto individuals to benefit the financial services industry. Traditionally, America’s retirement plans were “defined-benefit” pensions, which provided promised benefits for a retiree’s lifetime. Employers largely bore the costs and risks associated with those plans, and investment professionals managed investment decisions. 

However, over the last several decades, the retirement system has transformed into a primarily “defined-contribution” system. Costs and risks, as well as the complexity of decision-making, now fall onto individual people trying to save for retirement. There have been hard-fought efforts in recent years to improve the governance of defined-contribution plans, such as 401(k)s, including efforts to address high fees that were draining retirement accounts without providing sufficient value. 

The approach described in the proposal would be a step in the wrong direction, shifting more costs, risks, and complexity onto individuals and relieving employers of even more responsibility. It is clear who will benefit most if retirement plans adopt the approach described in the proposal: Wall Street firms offering high-cost investments and existing investors in certain assets.  

This proposal also stands in stark contrast with our country’s preeminent public retirement program, Social Security, which features pooled funds, a public purpose, predictability, and a lifetime of benefits in retirement, without the need to navigate complex financial products.

For these reasons, the Roosevelt Institute does not support the proposal and recommends that the Department of Labor withdraw it.

Thank you again for the opportunity to comment.

Sincerely,

Brad Lipton

Director, Corporate Power and Financial Regulation

Rey Fuentes

Director, Strategic Initiatives