DOL EBSA Issues NPRM for 401(k) Investment Options

Quick Hits

• The DOL proposed a six-factor safe harbor to meet a fiduciary’s duty of prudence when selecting designated investment alternatives under participant-directed defined contribution plans.
• The proposed regulation does not apply to brokerage windows or self-directed brokerage accounts under defined contribution plans. 
• This proposal follows President Trump’s executive order aimed at increasing access to alternative assets and reversing earlier Biden-era guidance that discouraged such investments due to risk concerns. 
• By clarifying the fiduciary process affording discretion to plan fiduciaries to select investments, the DOL hopes the courts will follow through with deference. 

The proposed rule, titled “Fiduciary Duties in Selecting Designated Investment Alternatives,” establishes a process-based safe harbor for fiduciaries’ duty of prudence under the Employee Retirement Income Security Act (ERISA) in selecting investment options for participant-directed individual account plans. The proposed rule aims to “alleviate certain regulatory burdens and litigation risk” with alternative investments—including alternative assets such as private equity, real estate, digital assets like cryptocurrency, commodities, infrastructure, and lifetime income strategies.

The DOL accomplishes this by removing the focus on alternative investments and returning to the U.S. Securities and Exchange Commission’s (SEC) 1979 investment duties regulation, expanding on that guidance. If the proposal is finalized, it would provide greater clarity and reduce the legal risk for plan fiduciaries that include alternative assets in employer-sponsored retirement plans.

Shifting Policy

The proposal comes on the heels of President Donald Trump’s Executive Order (EO) 14330 “Democratizing Access to Alternative Assets for 401(k) Investors,” issued on August 7, 2025, which asserted federal policy to open 401(k) investments to alternative assets. The EO directed the DOL to reexamine its guidance on fiduciary duties under ERISA related to alternative investments and clarify its position on alternative assets and what processes fiduciaries would need to open retirement funds to alternative investment options.

EO 14330 marked a policy shift from the Biden administration’s 2021 rescission of guidance issued during President Trump’s first term, which had signaled comfort with private equity investment, and other Biden-era sub-regulatory guidance that had cautioned retirement plans against investment in cryptocurrency and other products tied to the value of cryptocurrencies out of risk concerns.

In the past, most 401(k) plans have shied away from alternative assets due to fiduciary concerns, regulatory risk, and litigation liability. The proposed rule notes research from the Plan Sponsor Council of America showing that more than 500 fee cases have been filed since 2016, resulting in more than $1 billion in litigation settlements paid by plan sponsors. The proposed rule notes that “several stakeholders” submitted letters to the DOL following EO 14330 expressing support for “reducing excessive litigation,” particularly an increase in class action litigation in recent years.

The Proposed Rule: Safe Harbor Process

Asset-Class Neutral

While EO 14330 directed the DOL to provide guidance on specific alternative assets, the proposed rule takes a broader approach, avoiding categorical prohibitions on certain alternative assets and focusing on plan fiduciaries having “maximum discretion” to select investments that further the plan’s purposes. The proposed rule “does not require or restrict any specific type of designated investment alternative, except insofar as a designated investment alternative might be otherwise illegal.” If the safe harbor is met, a fiduciary selecting plan investments is presumed to have met his or her fiduciary duty of prudence under ERISA Section 404(a)(1)(B). The DOL proposed regulation acknowledges that selecting designated investment alternatives for plans is a fiduciary act. The DOL clarifies, however, that the duty of prudence neither requires nor restricts any type of investment – it is asset-class neutral.

Six Safe Harbor Factors

The proposed rule would introduce a set of six non-exhaustive factors for plan fiduciaries: (1) performance, (2) fees, (3) liquidity, (4) valuation, (5) benchmarking, and (6) the complexity of the designated investment alternatives. When a fiduciary follows the processes described in making investment decisions, those decisions would be “presumed to be reasonable” and “entitled to significant deference.”

1. Performance. The fiduciary would need to consider “a reasonable number of similar alternatives” and determine the investment’s risk-adjusted expected returns for the purposes of the plan.
2. Fees. The fiduciary would need to “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.” Interestingly, other value means benefits, features and services other than investment returns, which could arguably permit higher fees for services aiding participants or administering the plan.
3. Liquidity. The fiduciary would need to consider and determine whether a “designated investment alternative will have sufficient liquidity to meet the anticipated needs of the plan at both the plan and individual levels.”  Notably, the proposed rule recognizes that because 401(k) plans are long-term retirement savings vehicles, “there is no requirement that a fiduciary select only fully liquid products,” and a prudent process may lead to a decision to sacrifice some liquidity in pursuit of additional risk-adjusted return.
4. Valuation. The fiduciary would need to “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.”
5. Performance Benchmark. The fiduciary would need to consider “each designated investment alternative has a meaningful benchmark and compare the risk-adjusted expected returns of the designated investment alternative to the meaningful benchmark.”
6. Complexity. The fiduciary would need to “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.” This could be viewed as an admonishment to seek the advice of a professional.

What it Means for Plan Sponsors and Fiduciaries

The proposed rule would expand potential investment options for retirement plans by reducing potential liability for plan sponsors and fiduciaries. By confirming that fiduciaries have maximum discretion to select from any type of investment, including alternative assets, the proposed rule opens the door for plan sponsors to consider adding private equity, real estate, digital asset funds, and other alternatives to their plan menus without the fear that such selections will automatically invite regulatory attention or litigation.

However, the proposed rule would not completely bar potential claims by plan participants arising from risky investment decisions or excessive fees associated with alternative assets. Fiduciaries would also continue to be “prohibited from selecting a designated investment alternative that is otherwise illegal.” Further, while the rule seeks to provide fiduciaries with a safe harbor, the Supreme Court of the United States has removed Chevron deference for agency rules, meaning the rule would be afforded a lower level of deference. As the DOL acknowledges in the proposed rule, the rule would provide “persuasive authority regarding what constitutes a prudent process.”

Next Steps

The DOL is inviting comments on the proposed rule, specifically on the six safe harbor factors outlined with regard to best practices for participant-directed individual accounts and established investment principles, and on potential additional factors. Comments will be accepted for sixty days after the NPRM is formally published in the Federal Register.

In the meantime, employers may want to review their investment committee processes and documentation practices in light of the proposed six safe harbor factors. This safe harbor will apply to all types of investments, not just alternative assets.