Principal wraps private markets in CITs while DOL's benchmark stalls

Principal is not waiting for the Labor Department's private-asset benchmark to resolve itself. The recordkeeper is packaging private markets into managed collective investment trusts, with its own oversight and monitoring attached to target-date CITs, and aiming at the 3 percent of defined-contribution assets that have stayed on the sidelines.

The move lands in a stalled rulemaking: the DOL's safe harbor for private assets in DC plans rests on a 'meaningful benchmark,' a test the industry cannot satisfy because private-market portfolios do not mark to a liquid index, leaving sponsors with a permission structure that has no clear key. Principal's answer is to bypass the benchmark question and make the target-date CIT itself the accountability wrapper.

The pressure is measurable: PWD's tracking shows advisers on track to add $2 trillion in private assets while 401(k) sponsors remain stuck at 3 percent of DC assets in alternatives, a gap that is a fiduciary-packaging problem more than a product problem. The asset class has plenty of supply; what is missing is a vehicle a plan committee can defend.

The vehicle choice is not incidental, because collective trusts have become the default chassis for target-date strategies: they give recordkeepers direct control over the sleeve lineup and a fee structure that covers administration. Private markets inside a CIT inherit that infrastructure—the same fund accounting, committee oversight, and quarterly reporting as the public sleeve—and a sponsor gets exposure to alternatives without building a separate governance track.

The safe harbor turns on comparability: a plan fiduciary must be able to assess whether a private-asset allocation is serving participants, and the DOL's proposed framework wants a benchmark that allows that judgment. Private markets resist the exercise—a vintage-year portfolio with a J-curve of contributions and distributions does not line up beside the Russell 3000 on a plan's monitoring screen.

Principal's construction works around that by embedding private markets inside a managed target-date CIT, giving the sponsor a single vehicle with a named oversight process: the committee monitors the CIT, not the underlying private funds, and the recordkeeper's monitoring function stands in for the missing index. That is a fiduciary answer, even if it is not the one the DOL's proposal contemplates.

Ron Surz has been making a related argument from the plan-design side: custom target-date funds should replace the 'managed QDIA' as the simpler, DOL-friendly fix for defaulted participants, because two different risk decisions—the glidepath and the individual account management—have been sharing one product name, and the conflation creates confusion. A custom TDF moves the decision to a single, board-level design question, which is exactly the governance structure private assets need.

A custom TDF also answers the question the managed QDIA leaves open—who owns the risk decision when markets break—because a managed account can shift allocations participant by participant, a feature in accumulation but a governance puzzle in default. Fixing the decision at the plan level gives a regulator something clean to examine and a committee a single point of accountability.