DOL Proposes Fiduciary Safe Harbor for 401(k) Alternative Investments

April 9, 2026

Will 401(k) plans be “Democratized” by adding “Alts”?: DOL issues its proposed “Fiduciary Duties” regulation

David Kaleda, Clifford Kirsch, Cynthia Krus Eversheds Sutherland (US) LLP + Follow Contact LinkedIn Facebook X Send Embed

On March 31, 2026, the Department of Labor (DOL) published in the Federal Register a proposed regulation entitled “ Fiduciary Duties In Selecting Designated Investment Alternatives ” (Proposed Rule). The DOL issued the Proposed Rule in response to White House Executive Order 14330, “ Democratizing Access to Alternative Assets for 401(k) Investors ” (Executive Order). Responding to concerns about litigation risk raised in the Executive Order, the DOL states that the Proposed Rule provides a “safe harbor” that fiduciaries of plans covered by the Employee Retirement Income Security Act of 1974, as amended (ERISA) can follow when evaluating designated investment alternatives, including those that include “alternative assets.”

We believe the Proposed Rule provides a welcome roadmap to plan fiduciaries responsible for selecting all of a plan’s designated investment alternatives, not only those that relate to alternative assets. The regulation, when finalized, will allow fiduciaries to demonstrate their compliance with ERISA’s fiduciary duty of prudence. However, it remains to be seen whether the Proposed Rule will deter ERISA litigation. We are hopeful that the final regulation will make it easier for plan fiduciaries to extricate themselves from litigation earlier in the proceedings. We also expect improvements to the Proposed Rule will help reduce the compliance and litigation risk. We provide below a summary of the Proposed Rule, along with our observations, and we recommend some next steps.

During the next several months, retirement plan marketplace stakeholders including assets managers, mutual funds, unregistered investment funds, insurance companies, collective investment trusts and others should come to understand what steps they should take to help plan sponsors and similar fiduciaries meet their fiduciary duties under ERISA. The DOL requests that written comments be submitted by June 1, 2026 and we recommend that stakeholders take advantage of this opportunity to help the DOL craft a workable safe harbor.

Summary of Proposed Rule

Overview

The DOL issued the Proposed Rule in response to the Executive Order, which stated that the policy of the United States government is that participants in ERISA-covered 401(k) plans should have access to funds that include investments in “alternative assets.” The Executive Order defined the term “alternative assets” very broadly to include several types of securities and other interests including private equity and debt, real estate, commodities, projects financing infrastructure development, actively managed investment vehicles that are investing in digital assets, and lifetime income. The DOL acknowledges that these may all be appropriate under the Proposed Rule depending on the circumstances applicable to the plan.

The Proposed Rule sets forth a “safe harbor” pursuant to which a plan’s fiduciaries can comply with ERISA’s fiduciary duty of prudence under Section 404(a)(1)(B) of ERISA. Notably, the Proposed Rule provides a path for complying with the duty of prudence applicable to all designated investment alternatives under a plan, not just alternatives that are an alternative asset or include an alternative asset component. The DOL intends that the Proposed Rule be investment neutral, which it believes is consistent with principles underlying ERISA’s fiduciary duties. Further, the DOL states that it is neither the agency’s responsibility nor plaintiff class action attorneys’ responsibility to determine what investment options should be made available under a plan. Rather, it is the responsibility of the plan’s named fiduciary to select the plan’s designated investment alternatives. To that end, the DOL intends the Proposed Rule to be “…consistent with the Department’s historical practice of providing neutral guidance that does not favor or disfavor any particular type of investment or investment strategy.”

Structure of the Safe Harbor

The Proposed Rule provides that the fiduciary duty of prudence under ERISA “does not require or restrict any specific type of designated investment alternative, except insofar as a designated investment alternative might be otherwise illegal.” As such, the DOL states “there is no per se rule respecting alternative assets generally…” Rather, the fiduciary has a duty to establish “a diversified menu of designated investment alternatives to further the purposes of the plan by enabling participants and beneficiaries in such plan to maximize risk-adjusted returns, net of fees, on investment across their entire portfolios in their plan.” To that end, the plan fiduciary should give “appropriate consideration” to “all relevant factors.”

The Proposed Rule establishes a “non-exclusive” list of six “relevant factors” to be considered in selecting investment options. The DOL states that if the plan fiduciary follows the process described within the sections of the Proposed Regulation explaining those factors, the fiduciary is “presumed to have met the duties under section 404(a)(1)(B) of ERISA of such fiduciary and is entitled to significant deference.” The Proposed Rule requires that the plan fiduciary consider the following six factors:

1. Performance:

The fiduciary “must appropriately consider a reasonable number of similar alternatives” for purposes of determining whether “the risk-adjusted expected returns, over an appropriate time-horizon, of the designated investment alternative, net of anticipated fees and expenses, further the purposes of the plan by enabling participants and beneficiaries to maximize risk-adjusted returns on investment net of fees and expenses.” The DOL states that a determination of what is a “reasonable number” and what are “similar alternatives” is based on the facts and circumstances. The DOL further provides that the plan fiduciary “should not focus solely on expected returns.” Rather, they should take into account all risks to which investors will be exposed such as economic, market, sector, and investments-specific risks as well as the risk capacity of the plan’s participants. This provides some guidance regarding how a plan fiduciary might evaluate risks including consideration of plan demographics.

1. Fees:

The fiduciary “must appropriately consider a reasonable number of similar alternatives” for purposes of determining “that the fees and expenses of the designated investment alternative are appropriate, taking into account its risk-adjusted expected returns and any other value the designated investment alternative brings to furthering the purposes of the plan.” The DOL’s inclusion of the “value” is important because it can help substantiate why additional costs to the plan participants (e.g., charges associated with lifetime income benefits) could be appropriate under ERISA. Further, the DOL emphasizes that the plan fiduciary does not act imprudently just because it “does not select the alternative with the lowest fees and expenses…”

1. Liquidity:

The fiduciary “must appropriately consider and determine that the designated investment alternative will have sufficient liquidity to meet the anticipated needs of the plan at both the plan and individual levels.” In so doing, the Proposed Rule provides that “there is no requirement that a fiduciary select only fully liquid products” and that “a prudent fiduciary process may regularly lead to a decision to sacrifice some plan- or individual-level liquidity, or both, in pursuit of additional risk-adjusted return.” The DOL points to participant-level liquidity as the ability to engage in certain transactions regarding assets allocated to their plan accounts (e.g., distributions, reallocation among investment options), while plan-level liquidity is the ability to make changes to the plan as a whole (e.g., replacement of investment funds, mergers, spin offs). The Proposed Rule recognizes a long-standing reality that some investment options limit liquidity at the participant- or plan-level and that this does not result in a per se violation of ERISA. The fact that investment options limit liquidity by reason of including “alternate assets” should not change that. Of course, the benefits of limiting liquidity (e.g., higher long-term, risk-adjusted returns) must outweigh any limits on liquidity.

1. Valuation:

The fiduciary “must appropriately consider and determine that the designated investment alternative has adopted adequate measures to ensure that the designated investment alternative is capable of being timely and accurately valued in accordance with the needs of the plan.” The ability to determine a fair value on a daily basis is necessary in the current retirement plan marketplace, which is a daily valuation environment. The Proposed Rule provides guidance on how plan fiduciaries can evaluate valuation practices.

1. Performance Benchmark:

The fiduciary “must appropriately consider and determine that each designated investment alternative has a meaningful benchmark, and compare the risk adjusted expected returns of the designated investment alternative to the meaningful benchmark.” The DOL defines a “meaningful benchmark” as an “investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks to the designated investment alternative.” The DOL states that an evaluation of “risk-adjusted expected returns” can be based upon historical performance or, if there is no historical performance, the fiduciary can use appropriate comparators. It also points to the use of composite benchmarks as a basis for complying with the factor. Notably, the DOL dismisses the notion that an analysis is not possible with new products or types of products and that “when considering a new or innovative product design, a fiduciary should seek to identify the best possible comparators to it while also scrutinizing the potential value proposition presented by the new or innovative design.” Therefore, as new investment products that include an alternative asset component evolve, plan fiduciaries will have flexibility in evaluating investment performance.

1. Complexity:

The fiduciary should consider whether it “has the skills, knowledge, experience, and capacity to comprehend [a designated investment alternative] sufficiently to discharge its obligations under ERISA and the governing plan documents” in light of the “complexity of the designated investment alternative.” Based upon the fiduciary’s level of experience and expertise, it may be prudent “to seek assistance from a qualified investment advice fiduciary, investment manager, or other individual.”

To illustrate how the plan fiduciary should analyze a potential designated investment alternative in accordance with the six factors, the Proposed Rule includes several examples under each factor. These examples cover an array of factual scenarios that could arise when a designated investment alternative includes alternative assets. However, the Proposed Rule focuses on the process fiduciaries should undertake when selecting designated investment alternatives of all types. Thus, plan fiduciaries should be focused on how the Proposed Rule might impact their fiduciary processes regardless of whether they intend to include alternative assets.

Safe Harbors within the Safe Harbor

As discussed, compliance with the six factors in the DOL’s view is a safe harbor. Further, within some of the factors, the Proposed Rule includes additional safe harbor provisions. Such provisions, if the plan fiduciary meets their conditions, would result in a determination that the plan fiduciary appropriately considered the applicable factor and, thus, met its prudence requirements under section 404(a)(1)(B) regarding that factor.

1. Participant-Level and Plan-Level Liquidity:

One such safe harbor focuses on participant-level and plan-level liquidity. The fiduciary meets its prudence obligation if “in connection with a given designated investment alternative (including one that holds a percentage of assets that are not securities, non-publicly traded securities, or securities acquired in exempt offerings),” the investment option is a mutual fund registered as an open-end investment company under the Investment Company Act of 1940, as amended (ICA). The DOL’s reasoning is that these funds are required by ICA rules to adopt and implement an adequately designed liquidity risk management program.

Alternatively, in order to meet the safe harbor, the fiduciary (i) “obtains a written representation from the person responsible for managing the designated investment alternative, or otherwise performs appropriate due diligence, that the designated investment alternative has adopted and implemented a liquidity risk management program that is substantially similar to a program that meets [ICA requirements],” (ii) “reads, critically reviews, and understands any written representation and consults a qualified professional where appropriate,” and (iii) “does not know, or have reason to know, other information which would cause the fiduciary to question any written representation.”

The Proposed Rule includes another plan-level liquidity safe harbor that requires the plan fiduciary to evaluate the amount of a designated investment alternative’s assets allocated to illiquid investments, the duration of any limits on liquidity and the required advance notice to exit the designated investment alternative. Based on its evaluation, the fiduciary “concludes that the designated investment alternative will appropriately balance the future liquidity needs of the plan, the ability of the designated investment alternative to achieve increased risk-adjusted return on investment, and the ability to maintain its asset allocation targets even if there were redemptions from multiple plans or non-plan investors.”

1. Valuation:

In the case of a non-publicly traded asset, the plan fiduciary may “rely on asset valuations that result from the application of generally recognized procedures for measuring the fair value of assets for purposes of disclosure in financial statements prepared in accordance with US generally accepted accounting principles, if applied through a conflict-free, independent process with respect to acquisition, disposition, or management of the assets” if certain conditions are met. First, the fiduciary “reads, critically reviews, and understands the written representation, or otherwise performs appropriate due diligence on the valuation process.” Second, the fiduciary “does not know, or have reason to know, other information which would cause the named fiduciary to question any written representation.” Note that not all alternative investments funds rely on US GAAP, particularly funds managed by non-US advisers. The Proposed Rule does not state what constitutes a “conflict-free, independent process.”

On the other hand, in the case of certain funds registered under the ICA, the fiduciary meets the prudence requirements if it “reads the fund’s publicly available audited financial statements and valuation-related disclosures, or otherwise performs appropriate due diligence on the valuation process” and it “does not know, or have reason to know, other information which would cause the fiduciary to question the veracity of the audited financial statements.” The DOL specifically acknowledges that the Investment Company Act and Rule 2a-5 promulgated thereunder requires that registered funds have audited financial statements prepared in accordance with generally accepted accounting principles and that the statements include an auditor’s report.

1. Complex Fee Structures:

In the case of designated investment alternatives with private assets or similar investments that have complex or variable fee structures (e.g., performance fees), the Proposed Rule includes two options. First, the fiduciary conducts relevant due diligence to understand each fee that the plan may pay, and, in so doing, critically evaluates and determines the average total expected rate of the designated investment alternative’s fees, when fees will be paid, and how they will be determined. Then the fiduciary must (i) determine “that the fee structure will deliver increased value by incentivizing performance which will, in turn, increase expected risk-adjusted return on investment” and (ii) determine “that this increase outweighs the variability or potential unpredictability of the amount and timing of the fees.”

Second, the fiduciary receives a written representation from the person responsible for managing the designated investment alternative, or otherwise performs adequate due diligence to confirm, that none of the underlying fees will be passed through to the plan, and that, instead, the plan will pay an appropriate, flat, AUM-based fee, to the person responsible for managing the designated investment alternative, who will then internalize the underlying fees and takes other steps. Query whether plan fiduciaries will require managers to move to this “flat fee” structure.

Definition of Designated Investment Alternative

The Proposed Rule defines the term “designated investment alternative” as “any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts, including a qualified default investment alternative within the meaning of 29 CFR 2550.404c–5.” Notably, the Proposed Rule specifically excludes brokerage windows, self-directed brokerage accounts or similar features offered under a plan that allow plan participants to “select investments available beyond those designated by the plan.” Additionally, the term “designated investment alternative” does not include any investments purchased through the brokerage window or self-directed brokerage accounts. The implication appears to be that a plan can offer such a window or account without the underlying investment funds being subject to scrutiny under ERISA’s prudence standards. However, the DOL could have made a clearer statement in this regard.

The Proposed Rule also states that the term “designated investment alternative” does not include “design features chosen by plan settlors, including features that establish the payment method of benefits under the plan.” The DOL specifically points to a “design feature in a participant-directed individual account plan that permits participants to electively join an open-end, actuarily fair, longevity risk-sharing with mortality pooling but no insurance or additional investment product” as an example of a plan feature that is not a “designated investment alternative.” This incorporates the longevity risk sharing pools reference in the Executive Order.

| Eversheds Sutherland Observation: We believe the Proposed Rule is an excellent start to providing a path to compliance for ERISA fiduciaries who are concerned about compliance and litigation risk when selecting designated investment alternatives. While we have made a number of initial observations below, we will continue to monitor this as we further work through the DOL’s rulemaking process. |
DOL’s Approach to the Safe Harbor

The Proposed Regulation establishes a safe harbor that, effectively, is an outline of how to conduct procedural prudence as set forth in several prior court cases and DOL guidance. A plan fiduciary will be required to do a lot of analysis to establish that it appropriately considered all of the factors in the Proposed Regulation. This is the case whether or not the investment alternative includes alternative assets. Also, the Department states many times throughout the Proposed Rule and its preamble that a plan fiduciary may have to hire an investment consultant who is independent of the manager of the designated investment alternative (and its affiliates) in order to appropriately consider the factors or, alternatively, hire a discretionary asset manager. This is not a new concept under ERISA. Courts have long held that plan sponsors can hire experts to help them make fiduciary decisions (or delegate discretionary asset management to an investment adviser), but the number of times the DOL reminds the fiduciaries of the need to do so is notable.

Safe Harbors within the Safe Harbor

The “safe harbors within the safe harbor” will be helpful to many plan fiduciaries in establishing its review under some of the factors. However, they may raise issues among some stakeholders in the retirement industry. For example, fiduciaries may not be required to do as much due diligence when they invest in open-end mutual funds registered under the ICA versus other investment vehicles (for example, collective investment trusts, separately managed accounts, and closed-end funds). Alternatively, the fiduciary will likely seek certain representations from the manager of the investment vehicle. That manager will likely be asked to operate the vehicle in a manner that is substantially similar to ICA requirements. Yet, many managers of investment vehicles choose not to be subject to the ICA because they will have more management flexibility than what might otherwise be allowed under the ICA.

Application to Different Alternative Assets

The safe harbor is broad enough to contemplate that an investment alternative that invests some or all of its assets in alternative assets could be a “designated investment alternative” so long as that fiduciary can establish compliance with the duty of prudence in accordance with the factors. In other words, the fund need not be a “sleeve” of a qualified default investment alternative (QDIA) or an asset allocation fund. However, many of the examples under the factors are focused on QDIAs. Furthermore, the examples largely focus on private assets and lifetime income, but not the other alternative assets, including digital assets, discussed in the Executive Order. Presumably, this is because the DOL is of the view that the principles under the safe harbor apply to all designated investment alternatives and regardless of the nature of the alternative assets in which it invests. However, examples addressing additional scenarios involving alternate assets, including digital assets, would likely give plan fiduciaries some comfort.

Proposed Rule does not Address all ERISA Issues

The Proposed Rule focuses on compliance with ERISA’s fiduciary duty of prudence regarding making a “designated investment alternative” available under a plan. However, it does not address how to comply with the duty of prudence when selecting multiple designated investment alternatives, some of which may invest in alternative assets, and how those “designated investment alternatives” should fit together. This is a key consideration for plan fiduciaries, which almost universally rely on a safe harbor under section 404(c) of ERISA. In order to get safe harbor protection, section 404(c) and the DOL regulations promulgated thereunder requires, among other things, that the investment menu available under a participant-direct plan consist of a broad range of investment alternatives that meets specified diversification and risk and return requirements. Plan fiduciaries likely will want clarity as to how funds that invest in alternative assets fit within the requirements of section 404(c) safe harbor. The DOL states that it will provide future guidance on fiduciary responsibilities in establishing investment fund line ups within the plan and requested comments on section 404(c) safe harbor compliance.

Furthermore, the Proposed Rule addresses the selection of investments, but it does not directly address how fiduciaries should monitor those investments on an ongoing basis. The DOL indicates in the preamble to the Proposed Rule that it intends to issue guidance on this topic in the near term, and that the processes and factors set forth in the Proposed Rule are also applicable for monitoring purposes. It would be helpful if the DOL clarifies in its guidance that the “Performance” factor does not require considering several similar, alternative investments on a continuous basis as it does upon initial selection. Tracking performance against a reasonable benchmark should be sufficient to satisfy this factor.

Definition of “Designated Investment Alternative”

The DOL’s statement in the Proposed Rule that the term “designated investment alternative” does not include a brokerage window, self-directed brokerage account, and investments made by participants through them is a significant and helpful development. This is the closest the DOL has come to codifying that plan fiduciaries do not have any fiduciary responsibility regarding investments available through these windows and accounts. However, a clear statement that ERISA fiduciary duties do not attach to such investment options would be appreciated by plan fiduciaries. This could open the door to allowing direct participant investment in digital assets and other alternative assets. Also notable is the DOL’s clarification that at least some longevity risk sharing pools are not subject to ERISA. This position should result in increased interest in the utilization of these pools, particularly with respect to those used for plan distribution purposes.

Investment Company Act Versus Other Applicable Law

With respect to liquidity, the Proposed Rule states that a plan fiduciary is deemed to meet the safe harbor when an open-end, ICA-registered mutual fund is the designated alternative (or part of it) because the ICA and the regulations thereunder include specific requirements related to liquidity management. On the other hand, the Proposed Rule requires that the plan fiduciary get a representation from the managers of other investment alternatives (e.g., collective investment trusts, closed-end funds) or otherwise determine that the alternatives have liquidity management programs substantially similar to those required under the ICA. However, many investment alternatives intentionally do not have such liquidity management programs. The Proposed Rule also extends similar consideration to mutual funds regarding valuation. Managers of these other investment alternatives should evaluate their current procedures to determine how the Proposed Rule may affect their products and determine whether they should submit written comments to the DOL in this regard.

SEC Exemptions

Many experts expected that, as directed in the Executive Order, the DOL and Securities and Exchange Commission (SEC) would work together on developing regulations and other guidance. Many speculated that the SEC would issue guidance concurrent with the DOL’s release of its proposed rulemaking. Such guidance could address investor qualification requirements which serves a barrier to investments in private funds. Furthermore, SEC action to implement the Proposed Rule could continue to augment the innovative underpinnings of the proposal. The SEC could provide additional guidance that could strengthen the use of the safe harbor for both open-end and closed-end funds including business development companies.

Next Steps

At this point, the DOL states that retirement marketplace stakeholders should submit written comments to the DOL on or before June 1, 2026. The DOL could extend that period time, but this is not guaranteed. Therefore, all stakeholders should carefully review the Proposed Rule (including the preamble), identify issues that should be addressed by the DOL in its final regulation, and submit written comments. Furthermore, stakeholders should be reviewing their current compliance procedures and products as well as procedures that may allow them to access the safe harbors. They can also use this time to determine opportunities for product innovation as the safe harbor becomes finalized. The Proposed Rule is an excellent step in the right direction to making alternative assets more available in 401(k) plans, but there is room for improvement and more work to be done.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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