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

April 21, 2026

A Safe Harbor in Rough Waters: Department of Labor’s Proposed Regulation on Alternative Assets

Gina Alsdorf, Carol McClarnon Carlton Fields + Follow Contact LinkedIn Facebook X ;) Embed

On March 30, 2026, the U.S. Department of Labor (DOL) released a proposed regulation on fiduciary duties in selecting designated investment alternatives. The proposed regulation is in response to President Trump’s August 7, 2025, Executive Order 14330, titled “ Democratizing Access to Alternative Assets for 401(k) Investors,” instructing the DOL to “clarify [its] position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets” under the Employee Retirement Income Security Act of 1974 (ERISA). The executive order pointed to “[b]urdensome lawsuits that seek to challenge reasonable decisions by loyal, regulated fiduciaries,” as well as restrictive guidance issued by the previous administration, as denying “millions of Americans opportunities to benefit from investment in alternative assets.”

To address this problem, “[t]he overarching goal of the proposed regulation is to alleviate certain regulatory burdens and litigation risk that interfere with the ability of American workers to achieve, through their retirement accounts, the competitive returns and asset diversification necessary to secure a dignified and comfortable retirement.” The DOL notes that achieving this goal can only be accomplished “by clarifying that ERISA gives fiduciaries (not opportunistic trial lawyers) the discretion and flexibility to determine when designated investment alternatives, including those that contain alternative investments, offer the opportunity for participants to maximize risk-adjusted returns on their retirement assets net of fees.”

This article outlines the history of the DOL’s alternative investment guidance, provides an overview of the proposed regulation, and identifies certain provisions that should be clarified in the final regulation to further the goal of creating a workable fiduciary safe harbor.

History: How We Got Here

While alternative investments have never been impermissible under ERISA, historically plan fiduciaries have avoided including them in individual account plans such as 401(k) plans. This hesitation arose out of perceived regulatory and litigation risk, as well as liquidity concerns. DOL guidance over the years has not been consistent, nor has it provided the necessary level of clarity to assure plan fiduciaries:

• June 3, 2020: A DOL Information Letter states that a plan fiduciary would not violate its fiduciary duties under ERISA solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as an investment option in an individual account plan, under the circumstances described in the letter.
• December 21, 2021: The DOL issues a supplemental statement indicating that most fiduciaries are not well suited to analyzing the investments described in the June 3, 2020, Information Letter.
• March 10, 2022: The DOL issues Compliance Assistance Release No. 2022-01 regarding 401(k) plan investments in cryptocurrencies, admonishing fiduciaries to exercise "extreme care” if considering adding a cryptocurrency option to a 401(k) plan.
• May 28, 2025: In Compliance Assistance Release No. 2025-01, the DOL rescinds Compliance Assistance Release No. 2022-01.
• August 7, 2025: Executive Order 14330 directs the DOL to revisit previous guidance and clarify its position on alternative investments. The order instructs that “[s]uch clarification must aim to identify the criteria that fiduciaries should use to prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments” and to reexamine guidance and issue regulations regarding the appropriate fiduciary process for selecting asset allocation funds containing alternative investments.
• August 12, 2025: The DOL rescinds the December 21, 2021, supplemental statement.
• September 23, 2025: The DOL issues Advisory Opinion 2025-04A, which clarifies that a guaranteed lifetime income product could be used as a qualified default investment alternative (QDIA) (i.e., the designated investment for contributions of participants who do not provide investment instructions).
• March 30, 2026: The DOL releases the proposed regulation on fiduciary duties in selecting designated investment alternatives.
• March 31, 2026: The proposed regulation is published in the Federal Register.
• June 1, 2026: Comments are due on the proposed regulation.

Overview of Proposed Regulation

The proposed regulation reiterates familiar concepts regarding the fiduciary duty of prudence and its application to the selection of a “designated investment alternative,” with an emphasis on the use of a prudent process. Although the executive order mandates guidance with respect to specific alternative investments, it is important to note that the definition of “designated investment alternative” in the proposed regulation is not limited to such alternative investments. Rather, it intentionally covers the selection of most individual account plan investment options:

1. The term “designated investment alternative” means 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 C.F.R. 2550.404c-5.
2. The term “designated investment alternative” shall not include “brokerage windows,” “self-directed brokerage accounts,” or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan and shall not include investments acquired or available to be acquired through any such arrangements.
3. The term “designated investment alternative” shall not include plan design features chosen by plan settlors, including features that establish the payment method of benefits under the plan. The core of the proposed regulation is the introduction of a proposed process-based safe harbor that fiduciaries may use to demonstrate prudence in their decisions to select a designated investment alternative. The application of the safe harbor to alternative investments is addressed through examples, with additional color provided in the preamble.

Six Safe Harbor Factors

The proposed safe harbor for selecting a designated investment alternative requires that plan fiduciaries must “objectively, thoroughly, and analytically consider, and make determinations on factors including performance, fees, liquidity, valuation, performance benchmarks, and complexity.” If the safe harbor is met, the plan fiduciary’s judgment with respect to a particular factor or factors, including the relationship between the factors, is presumed to meet the duty of prudence under ERISA and is entitled to significant deference.

1. Performance. A plan fiduciary must appropriately consider a reasonable number of similar alternatives and determine that the risk-adjusted expected returns of the investment, over an appropriate time horizon, 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.

   • Determination of a “reasonable number” is a facts-and-circumstances test and is a term that the proposed regulation does not define.
   • A plan fiduciary selecting a designated investment alternative “should consider various risk metrics” when evaluating investments.

2. Fees *.* The plan fiduciary must consider a reasonable number of similar alternatives and determine 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.”

   • Determination of a “reasonable number” is a facts-and-circumstances test and is a term that the proposed regulation does not define.
   • For this purpose, the term “value” includes any benefits, features, or services other than risk-adjusted returns.
   • There would be no violation of the duty of prudence or the proposed safe harbor solely because the fiduciary does not select the alternative with the lowest fees and expenses from among the alternatives considered.
   • The DOL acknowledges that ERISA’s duty of prudence does not require a fiduciary to compare an investment alternative with every similar alternative available in the market.

3. Liquidity. A 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.

   • Because participant-directed individual account plans are long-term retirement savings vehicles, particularly for participants early in their careers, there is no requirement that a fiduciary select only fully liquid products.
   • The preamble notes that fiduciary liquidity considerations include but are not limited to participant benefit withdrawals due to retirement, separation from service, or financial hardship; and asset reallocation or reinvestments to other designated investment alternatives. The DOL notes that this should be evaluated at the time of selection of the designated investment alternative.
   • 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.

4. Valuation *.* The fiduciary must appropriately consider and determine that the designated investment alternative has adopted adequate measures to ensure that it is capable of being timely and accurately valued in accordance with the needs of the plan.

5. Performance Benchmark. The plan 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.

   • A “meaningful benchmark” is defined as an investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks to the designated investment alternative.
   • The “risk-adjusted expected returns” may be determined based on the designated investment alternative’s historical performance unless it has none, in which case it may be determined based on the historical performance of a different investment with similar mandates, strategies, objectives, and risks and that is not the meaningful benchmark.
   • When considering a new or innovative product design, a fiduciary should seek to identify the best possible comparisons to it while also scrutinizing the potential value proposition presented by the new or innovative design.

6. Complexity *.* The plan fiduciary must appropriately consider the complexity of the designated investment alternative and determine that it has the skills, knowledge, experience, and capacity to comprehend it sufficiently to discharge its obligations under ERISA and the governing plan documents or whether it must seek assistance from a qualified investment advice fiduciary, investment manager, or other individual.

Examples and Suggested Clarifications

Consistent with the “principles-based approach” intended by the proposed regulation, a fiduciary’s actions would be evaluated based on its procedural prudence. Procedural prudence looks solely to the process underlying the investment decision, not the results. The six factors would provide structure for fiduciaries in the decision-making process. The regulatory examples, together with preamble language, are helpful in evaluating particular alternative investments, but they also inadvertently create challenges.

There is no question that the proposed safe harbor will assist a fiduciary in demonstrating that it has met its duty of prudence, but the extent to which it will deter the filing of frivolous litigation remains to be seen. In explaining the ERISA litigation problem, the preamble correctly notes that the issue is not so much with success on the merits, but rather the difficulty of ending the case at the motion to dismiss stage. The DOL notes that, while much of this litigation may ultimately fail, it is “not before significant resources have been expended in defense,” and “courts [are] often allowing cases to proceed to discovery, which causes plans to spend millions in defense and creates settlement leverage for plaintiffs.”

To be more effective in achieving its goals, the final regulation should include stronger language to clarify that, in appropriate cases, a fiduciary may have satisfied the duty of prudence as a matter of law, particularly if the fiduciary follows the six factors, even if its process varies from the relevant examples and preamble suggestions.

The following paragraphs identify particular situations where clarification would facilitate a fiduciary’s selection of alternative investments.

“Illegal Investments. ” Although there is nothing in ERISA that imposes an affirmative duty on fiduciaries to ensure that a plan investment does not violate public policy, the operative language of the proposed regulation states that any type of investment in violation of “applicable federal law” is not permitted. The proposed regulation does make clear that ERISA does not require or restrict any type of investment “except insofar as a designated investment alternative might be otherwise illegal.” This provision is most likely intended to address situations involving investments in a foreign adversary of the United States. Two examples are given: (i) nations and individuals designated as threats under the “Trading With the Enemy Act,” which was enacted during World War I and authorizes the president to restrict financial transactions with declared enemy nations and their allies; and (ii) persons or entities appearing on the “Specially Designated Nationals and Blocked Persons” list administered by the Office of Foreign Assets Control, which list is continually updated. Including an express regulatory prohibition raises the possibility that a claim might be made that there is a per se fiduciary duty breach if a specific investment option was found to be, or includes an investment, in violation of applicable federal law. Adding to the confusion, over time the countries and entities on each of the specific lists may change rapidly. Moreover, there is no guidance on the definition of “applicable federal law,” which would appear to be broader than the examples, perhaps even going further than international concerns.

In furtherance of controlling spurious litigation, there are a number of ways in which the final regulation could resolve confusion in this regard. For example, the regulation could confirm that the existence of a designated investment alternative that might be viewed as violating applicable law is not a per se breach of fiduciary duty. The selection of any designated investment alternative should be analyzed under ERISA’s general fiduciary standards, focusing on procedural prudence. Further, the final regulation could clarify that the existence of a possible illegal investment is to be determined at the time of investment selection. In the event, for example, that an investment restriction is suddenly imposed, fiduciaries will need adequate time to identify and evaluate other alternatives and map to a new option if appropriate.

Liquidity Risk Management Programs. The examples provide that plan fiduciaries may be able to address liquidity concerns by obtaining written representations from the persons responsible for managing the investment. The representations would confirm that with respect to such investment, they have “adopted and implemented a liquidity risk management program that is substantially similar to” a program governing mutual funds subject to the Investment Company Act of 1940 (1940 Act). It may be impossible to expect some investment options to have a liquidity risk management program that is substantially similar to the 1940 Act requirements for mutual funds. Recognizing this, where there is not a written representation, a plan fiduciary may instead conduct an objective, thorough, and analytical evaluation, on their own or with the help of a third-party investment advice fiduciary, to assess whether a pooled investment is sufficiently liquid to offer as a designated investment alternative. According to the preamble:

• The plan fiduciary should determine the time it would take a designated investment alternative to sell its illiquid investments in the quantity required by the plan’s liquidity needs without reducing their value and the liquidity restrictions the investment manager places on the designated investment alternative.
• The plan fiduciary must conclude that the designated investment alternative appropriately balances future liquidity needs with the ability of the designated investment alternative to (i) achieve increased risk-adjusted return on investment net of fees and (ii) maintain its asset allocation targets even if the fund faces a significant pull on liquidity from redemption requests. The result is that in many cases, a fiduciary will be faced with a requirement to undertake a sophisticated liquidity analysis that may require hiring a third-party investment professional, potentially at high cost.

To encourage more interest in alternative investment options, it would be helpful for the DOL to clarify that obtaining a representation that the designated investment alternative has adopted a liquidity risk management program “substantially similar to” 1940 Act mutual funds, or conducting thorough due diligence, are not the only means of assessing liquidity. For example, if an alternative investment is unable to operate under a liquidity risk plan similar to that required of mutual funds, its manager could provide a written representation describing its policies related to liquidity. A fiduciary could then engage an investment professional, if necessary, to consider the written representation, at far less cost than if the investment adviser had to perform the due diligence itself.

“Duty to Maximize Risk-Adjusted Returns, Net of Fees *.”* In addition to the proposed safe harbor, the proposed regulation, with emphasis added, states:

A fiduciary with responsibility or authority for selecting designated investment alternatives has a duty to act prudently also when establishing 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.
This statement may very well work as intended to support the purpose of the regulation. By shifting the focus from a cost-benefit analysis of each investment alternative to a wider view of the entire menu, it should be easier for fiduciaries to become comfortable with including specific alternative investments as part of an overall diversified portfolio. The challenge for fiduciaries may be that, as a practical matter, the meaning of this statement may be unclear such that the process and the substance (i.e., investment results) become conflated in operation.

It would be helpful for the DOL to provide additional clarification, beyond just examples, to avoid misconstruing the language as adding a separate fiduciary duty to “maximize risk-adjusted returns, net of fees.” Instead, a prudent process could include this objective as a consideration in the process of evaluating an investment. In other words, the ability to maximize risk-adjusted returns would be a legitimate reason for including a designated investment alternative. A process that otherwise reflects good business judgment should not be problematic based on a theory that the selected investment menu does not enable risk-adjusted returns, net of fees, to be “maximized.” Absent one narrow example, the proposed regulation does not explain what it means to “maximize,” or how to determine maximization in the context of selecting investments.

Investment Advisers *.* While the preamble makes clear that nothing in the proposed regulation should be read to mean that a fiduciary must always hire a third-party investment adviser, as a practical matter a fiduciary may feel the need to do so to mitigate litigation risk. Every example in the proposed regulation concluding that a fiduciary has met its obligations includes a statement that the fiduciary consulted with a third-party investment professional. By contrast, examples of situations in which a fiduciary is determined not to meet the safe harbor include the fact that the fiduciary did not hire an investment professional. Moreover, language in the preamble cautions that fiduciaries may wish to engage an investment advice fiduciary to enable it to “understand and evaluate” certain aspects of the investment.

It would be helpful if the final regulation expressly states that reliance by a fiduciary on the safe harbor does not require the use of an investment adviser.

Fiduciary Understanding *.* In addition to the items described above, other examples and preamble language repeat the concept that the fiduciary must understand the factors. Although fiduciaries have always been expected to understand the investments they are choosing, the preamble at times contains language that could be read to extend the degree of understanding to include understanding sophisticated financial analyses. This understanding might be difficult for non-financial professionals to achieve on their own and may be the reason the fiduciary hires a financial professional. The proposed regulation should make clear that it is not creating a new legal standard for “understanding” and that the regulation is simply affirming the current standard that a fiduciary should hire an investment adviser in situations where it is not equipped to properly select an investment.

Fiduciaries would likely be more comfortable if any confusion caused by the preamble is resolved in the final regulation by confirming that they may rely on an investment adviser’s recommendations with respect to any safe harbor factor, without necessarily understanding the complex financial concepts underlying each of the factors used by the adviser.

Note on Prohibited Transactions

The proposed safe harbor would provide a path for fiduciaries to satisfy ERISA’s fiduciary duty of prudence, but it would not protect against claims based on breach of any of the other fiduciary duties (e.g., duty of loyalty) or prohibited transactions. The adoption of certain types of alternative investments may raise concerns about prohibited transactions for which there is no current clear-cut exemptive solution. Many newer investment products did not exist at the time when the current prohibited transaction exemptions were created and therefore were not contemplated or addressed at that time. The preamble acknowledges that the proposed safe harbor does not have an effect on prohibited transactions, and that the DOL does not contemplate issuing any new exemptions related to the new regulation.

To encourage the adoption — and creation — of alternative investment products, additional prohibited transaction exemptions would be extremely helpful. Absent that, the DOL could provide additional guidance in the form of information letters, field assistance bulletins, or other interpretative guidance, with a view to widening the types of private investment structures ultimately available to plans.

Functional Results

The stated purpose of the proposed regulation is to encourage access to alternative investments by reducing baseless litigation with respect to the selection of all investment alternatives. Whether it delivers on this promise remains to be seen — and the ultimate language adopted in the final regulation may turn out to be a determinative factor.

The proposed regulation, if adopted in its current form, would at least solidify the DOL’s position on asset neutrality and flexibility originally intended by ERISA, replacing the “caution” and paternalism of previous guidance. As proposed, the regulation also successfully would reassert the traditional process-based analysis that looks to procedural prudence. Going back to ERISA’s basics should help to redirect courts in the proper direction. And while this article is intended to highlight potential improvements to the proposal that could further support the goal of encouraging the adoption of alternative investments, the proposed regulation nevertheless contains useful principles and language that will support a fiduciary’s selection of alternatives, particularly when incorporated as a small portion of a well-diversified fund or collective investment trust.

On the flip side, the preamble at times says too much and, by doing so, confuses the focus on the underlying process-driven analysis of fiduciary decision-making. Refinements in the preamble language could go a long way in preventing misunderstandings that could contribute to baseless litigation and create tension on early resolution of unnecessary litigation. Undoubtedly, stakeholders’ comment letters will provide valuable insights in this regard.

As a reminder, comments on the proposed regulation are due on June 1, 2026.

;) ;) Report

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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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