Real Estate in Participant-Directed Defined Contribution Plans: Fiduciary Considerations

Benefits and executive compensation partner Fred Reish and senior counsel Bruce Ashton coauthored an article for Cohen & Steers about how 401(k) plan sponsors should consider real estate when selecting investment alternatives.

Reish and Ashton assert that real estate investment trusts (REIT) are historically a low-correlated asset class that offers daily liquidity and the prospect of enhanced risk-adjusted returns. They highlight best practices for defined contribution plans and emphasize the need for a balanced investment lineup. Overall, real estate provides helpful investment characteristics, and active REIT managers can potentially add value.

The authors further note that when selecting investment alternatives, 401(k) plan sponsors must apply generally accepted investment theories and prevailing investment industry practices. This means, in part, selecting a 401(k) lineup that is diversified across major asset classes and within each investment.

In conclusion, Reish and Ashton explain that real estate is now considered a core asset class and used by institutional investors for diversification because their market value fluctuation tends to be different than stocks and bonds.