U.S. DOL Proposes New Safe Harbor for Selecting Investment Options for 401(k) Plans, Including Options With Alternative Assets

On March 30, 2026, the U.S. Department of Labor (DOL) released a much-anticipated proposed rule (Proposed Rule) setting forth guidance on the selection of designated investment alternatives for 401(k) and other defined contribution plans. The Proposed Rule was issued in response to President Donald Trump’s August 7, 2025, executive order entitled “Democratizing Access to Alternative Assets for 401(k) Investors” (the EO), which was intended to expand access to alternative assets for 401(k) plan participants. You can read more about the EO in our prior Update, available here.

Background

Selecting plan investment options is a fiduciary act subject to the fiduciary duty requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA), including the duty of prudence. The Proposed Rule focuses on process and provides a safe harbor for demonstrating the satisfaction of the duty of prudence under ERISA in connection with selecting plan investments, including alternative investments. The Proposed Rule is asset-neutral and applies to the selection of any designated investment alternative, not just those containing alternative assets.

The Proposed Rule makes clear that ERISA does not require or restrict any specific type of asset from being included in a plan investment lineup (other than an investment that is illegal). The preamble to the Proposed Rule states that “ERISA gives maximum discretion and flexibility to plan fiduciaries in selecting designated investment alternatives,” including the types of alternative investments described in the EO (which include investments in private equity, real estate, commodities, and digital assets such as cryptocurrency).

Safe Harbor Factors

The Proposed Rule lays out a six-factor safe harbor (Safe Harbor) aimed at determining whether a fiduciary has satisfied the prudence standard of ERISA when selecting a designated investment alternative, including one containing alternative assets. Under the Safe Harbor, if a fiduciary “objectively, thoroughly and analytically” considers these six factors and makes its selection decisions based on such factors, the fiduciary is presumed to have met the prudence standard of ERISA, and the fiduciary’s judgment “is entitled to significant deference.” However, the Proposed Rule is also clear that in selecting a designated investment alternative, a fiduciary must consider a reasonable number of similar investment alternatives (with reasonableness and similarity dependent on the specific facts and circumstances). The six factors are the following:

• Performance (on a risk-adjusted basis): A plan fiduciary must determine that a proposed investment alternative maximizes risk-adjusted expected returns, net of fees and expenses, over an appropriate time horizon. The Proposed Rule does not require that a fiduciary select an investment alternative with the highest return.

• Fees: A plan fiduciary must determine that the fees and expenses of the investment alternative are appropriate, taking into account its risk-adjusted expected returns, net of fees and expenses, and any other value the investment alternative brings to furthering the purposes of the plan.
  • Value, for this purpose, can include exemplary customer service, lifetime income, risk mitigation, and active management.
  • The Proposed Rule indicates that a plan fiduciary does not have to select the investment alternative with the lowest fees or expenses but can select an investment alternative with higher fees related to the value the investment alternative brings to the plan.
• Liquidity: A plan fiduciary must consider and determine that the investment alternative will have sufficient liquidity to meet the anticipated needs of the plan at both the plan and individual levels.
  • A plan’s liquidity needs may be affected by both participant-level events (e.g., retirements, separation from service, and financial hardships) and plan-level events (e.g., plan termination, the changing of service providers, corporate mergers and acquisitions).
  • The Proposed Rule states that there is no requirement that a fiduciary select only fully liquid products and that a prudent fiduciary process may lead to a decision to sacrifice some liquidity to seek additional risk-adjusted return.

• Valuation: A plan fiduciary must consider and determine that the investment alternative has adopted adequate measures to ensure that the investment alternative is capable of being timely and accurately valued in accordance with the needs of the plan.

  The Proposed Rule indicates that plan fiduciaries may rely on valuations based on public exchange valuations as well as valuations that meet FASB 820 fair value measurement or Investment Company Act standards. In all cases, the valuation must be determined in a conflict-free, independent process.

• Performance Benchmark: A plan fiduciary must consider and determine that the investment alternative has a “meaningful benchmark” and compare the risk-adjusted expected returns, net of fees, of the investment alternative to the “meaningful benchmark.” “Meaningful benchmark” for this purpose is “an investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks” to the investment alternative. The Proposed Rule contemplates that there may be more than one meaningful benchmark, and that no single benchmark is a meaningful benchmark for all investment alternatives. 

• Complexity: A plan fiduciary must consider the complexity of the investment alternative and determine whether the fiduciary (a) has the skills, knowledge, experience, and capacity to comprehend it sufficiently to discharge its obligations under ERISA and the governing plan documents or (b) must seek assistance from a qualified investment advice fiduciary, investment manager, or other individual.

  The Proposed Rule is clear that plan fiduciaries are not precluded from selecting complex investment alternatives but must understand the investment, its fees, and its risks before selecting the investment alternative.

While the Proposed Rule generally does not require that a fiduciary consult outside advisers, a fiduciary must seek assistance from a qualified investment advice fiduciary, investment manager, or other individual if needed to sufficiently discharge the fiduciary’s obligations. The Proposed Rule indicates that reasonable reliance on recommendations of a prudently selected investment advice fiduciary will be indicative of a prudent process.

DOL Comment Period

The Proposed Rule is subject to public comment, and the comment period runs until June 1, 2026. Plan fiduciaries and interested parties may want to consider submitting comments. 

Takeaways for Plan Fiduciaries

The Proposed Rule reinforces the DOL’s view that plan fiduciaries have wide discretion to select from any type of investment (including alternative investments) in constructing the menu of investment options for their plans and seeks to mitigate the risk of liability for plan fiduciaries to the extent they follow the Safe Harbor process in selecting such investments. However, it remains to be seen whether the Proposed Rule will give plan fiduciaries sufficient comfort in that regard, and the U.S. Supreme Court’s removal of Chevron deference for agency rulemaking may lessen the efficacy of the Safe Harbor. For now, plan fiduciaries should review their current practices in selecting investment alternatives in light of the proposed Safe Harbor, understanding that the Safe Harbor will apply to all types of investments, not only alternative assets.

Takeaways for Asset Managers

The Proposed Rule is aimed at mitigating certain factors that have historically limited the ability of defined contribution plans subject to ERISA to utilize investments that include alternative assets. By the DOL’s estimates, these plans have about $8.8 trillion in assets. If finalized, the Proposed Rule has the potential to bring many new investors into the alternative asset market. Additionally, the Proposed Rule’s emphasis on plan fiduciaries consulting professional advisers in connection with their consideration of the Safe Harbor factors may create further opportunity for consultants and similar investment advisers to provide such advice to plan fiduciaries. Notably, the Proposed Rule does not make any changes to the “plan asset” regulation under ERISA (including the 25% limitation on benefit plan investors that many asset managers rely on to avoid the application of ERISA to their funds), nor does it alter other key ERISA standards such as loyalty and conflict of interest rules as well as requirements regarding diversification.