403(b) plans and lifetime income programs suffer a similar malady: both sorts of arrangements operate in a sort of “exception” environment, where they rely upon atypical application of the standardized qualified plan rules in order to effectively work. This means that these programs are not typically amenable to broad and sweeping policy statements of the sort which are often issued by senior government leaders. This leadership challenge, by the way, is not limited to gov’t policy leaders. I have been privy to a number of glaring business examples over the years where corporate leaders have also become enamored by a concept, which then fails miserably where the “details” of implementing such grand ideas have to meet reality.

So it seems to be with Executive Order 14330, which seeks to “Democratize” ERISA retirement plan investments, by making it simpler for participant directed defined contribution plans to offer things like private equity interests to plan participants as DIAs.

To say that this particular government efforts is causing some consternation amongst ERISA plan fiduciaries is probably an understatement as-among other concerns- it raises the concern for the lack of something as simple as appropriate benchmarking against with to measure such decisions. This then, of course, gives rise to fears of class action lawsuits and related costs of fiduciary insurance.

For the 403(b) fiduciary, however, the “exception” environment in which they operate serves to alleviate some of the consternation facing other DC fiduciaries. This is because that, without a statutory change, 403(b) investments are still limited to annuity contracts and custodial accounts holding mutual fund investments. None of these will support the typical private equity investment.

Even should the proposed 403(b) CIT legislation ever pass, it would likely still be insufficient to support private equity investments from being held by most 403(b) plans. This is because the proposed CIT modifications still require that the PE investment be held as part of an 81-100 collective trust. The legal structure of the collective trust is anathema to the manner in which the PE investment is typically structured and operates, which rely on the condition and decisions of each individual plan. Even should somehow someone contrive a “solution” to this challenge, it would necessarily rely upon a contorted process.

As I noted in my last blog, details of the way in which regulations apply are critically important, even in the application of broader policy. To this end, it is these details which can help ease the anxiety of the 403(b) fiduciary.

A side note: this article was written without any use of AI, though I’ve little doubt that this information will soon end up in an AI program near you without, of course, any attribution…