The Supreme Court has been asked to clarify how US courts assess the fiduciary duties of retirement plans, as litigation risks associated with alternative investments hinder their inclusion in 401(k) plans.
The Managed Funds Association (MFA), the trade body representing the alternative asset management industry, and the American Investment Council (AIC) submitted an amicus brief advocating for fiduciaries to be judged on their decision-making process, rather than hindsight performance.
The MFA and AIC argue that, at present, litigation risk linked to alternative investments is hindering their inclusion in 401(k) plans, the most common US workplace pension scheme.
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Because plan sponsors today can be sued based on hindsight performance comparisons alone, the industry bodies say it pushes fiduciaries to choose familiar, conventional investment options despite alternatives’ ability to enhance returns and diversify risk.
The MFA and AIC want plaintiffs to compare an investment against a “genuinely similar strategy” before inferring imprudence, instead of pointing to unrelated, better-performing funds in hindsight. They claim this will deter meritless claims, preserve fiduciary discretion, and expand access to diversified investment options for retirement savers.
“American workers with 401(k) plans should have access to the same diversified investment strategies that pensions use to strengthen long-term returns and manage risk,” said Bryan Corbett, MFA’s president and chief executive.
The move come as US President Donald Trump signed an executive order last year allowing private markets investments to be included in US retirement plans.
Following the order, alternative managers have been seeking access to 401(k)s through collaborations and tailored products. For example, Blackstone partnered with US retirement plan administrator Empower earlier this year to gain access to 401(k) pension plans.
