On March 31, 2026, the Department of Labor (DOL) proposed a rule on fiduciary duties in selecting designated investment alternatives. The proposal clarifies the fiduciary evaluation and selection process for investment alternatives—particularly nontraditional and alternative strategies—by establishing that fiduciary compliance depends on prudent, well-documented decision-making processes rather than investment outcomes.
By providing plan sponsors with clearer standards and procedural guidance, the Proposed Rule aims to meaningfully reduce fiduciary litigation risk associated with offering investment options in 401(k), 403(b), and other participant-directed plans. It follows the August 7, 2025 Executive Order (EO) issued by President Trump to expand access to alternative assets such as digital assets, private equity, private credit, real estate, and hedge funds in defined contribution plans.
The Proposed Rule, however, applies more broadly than to so-called “alternative” asset selections. It clarifies that all plan investment option selections are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) prudence standard and does not require or restrict any specific type of investment option, except when the investment might otherwise be illegal.
The Goal of the Proposed Rule
In the preamble, the DOL states that the overarching goal of the Proposed Rule is to alleviate regulatory burdens and litigation risk. To that end, it laid out three key principles:
- ERISA is grounded in process, not outcomes.
- ERISA provides fiduciaries with discretion and flexibility in selecting designated investment alternatives, including the alternative investments described in the EO.
- Fiduciaries that follow the prudent process set out in the Proposed Rule are entitled to deference in a legal action alleging a breach of fiduciary duty.
The DOL intends for the Proposed Rule to carry persuasive weight to courts in evaluating fiduciary conduct.
The Safe Harbor
Under the Proposed Rule’s safe harbor, if a fiduciary follows the prescribed process for six relevant factors, the fiduciary’s judgment regarding those factors is presumed reasonable and entitled to significant deference.
The safe harbor focuses on six core considerations:
- Performance. The fiduciary must determine that the investment alternative’s risk-adjusted expected returns further the purposes of the plan.
- Fees. The fiduciary must determine that fees and expenses are appropriate in light of the investment’s risk-adjusted expected returns and any other value. There is no obligation to select the alternative with the lowest fees and expenses.
- Liquidity. The fiduciary must determine that the investment has sufficient liquidity to meet anticipated plan needs at both the plan and participant levels.
- Valuation. The fiduciary must determine that the investment has adopted adequate measures to ensure it can be timely and accurately valued.
- Performance Benchmarks. The fiduciary must determine the investment has a meaningful benchmark. The Proposed Rule 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.”
- Complexity. The fiduciary must determine whether it has the skills, experience, and capacity to understand the investment sufficiently.
While the Proposed Rule focuses on the review and inclusion of alternative assets, the safe harbor applies to any designated investment alternatives in participant-directed plans. It does not apply to brokerage windows or self-directed brokerage accounts. Although it does not explicitly apply to defined benefit arrangements, it may serve as guidance for fiduciary best practices more broadly.
Importantly, if a fiduciary follows the safe harbor, the selection is deemed prudent. However, fiduciaries are not required to follow the safe harbor to satisfy ERISA’s prudence standard.
Plan Fiduciary Considerations
The Proposed Rule provides guidance to plan fiduciaries but does not ensure that asset managers will offer products that satisfy fiduciary standards. For example, while the safe harbor requires consideration of liquidity and valuation, there may not always be alternative asset classes, particularly among alternative assets, that meet those standards.
Plan fiduciaries should therefore ensure that any designated investment alternatives meet the fiduciary prudence test, regardless of market pressure to offer certain types of assets.
The Proposed Rule anticipates that plan fiduciaries will turn to their investment advisers and asset managers to obtain representations regarding the six factors in the safe harbor. For example, a plan fiduciary may obtain a written representation from an asset manager regarding their liquidity risk management program. The Proposed Rule notes that certain investment options are already subject to liquidity risk management requirements under the Investment Company Act. When an investment is not subject to that framework, a plan fiduciary may instead evaluate whether the representations are consistent with the investment alternative’s governing documents and plan agreements, whether those documents or agreements allow flexibility that undermines those representations (e.g., by suspending investor withdrawal rights), and whether amendments or additional agreements may be needed to support them.
In some instances, fiduciaries may need to negotiate separate agreements to substantiate these points.
We expect that the additional representations and due diligence required to rely on the safe harbor may increase fees charged by investment advisers, asset managers, or both. Plan fiduciaries should review their service agreements to determine whether these extra services are included and at what cost.
Finally, plan fiduciaries should review plan investment policies to ensure alignment with the Proposed Rule. Even if a fiduciary decides not to consider alternative assets, that decision should be documented.
What’s Next
The Proposed Rule is open for public comment until June 1, 2026. The DOL has not yet provided an applicability date.
If you have any questions, or would like additional information, please contact one of the attorneys on our Employee Benefits & Executive Compensation team.
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