Plan governance The Department of Labor’s Alternative Investments Proposed Rule

The U.S. Department of Labor (DOL) has proposed a regulation to clarify how fiduciaries can prudently select designated investment alternatives, including alternatives, for 401(k) and other participant-directed defined contribution plans under Employee Retirement Income Security Act (ERISA). This aims to reduce regulatory uncertainty and litigation risk while not mandating the inclusion of alternative investments (or any other particular investment).

What is the DOL proposing?

The DOL has proposed a regulation clarifying how ERISA fiduciaries can satisfy their duty of prudence when selecting designated investment alternatives for participant‑directed defined contribution plans, including asset‑allocation funds that incorporate alternative investments.

Why did DOL issue this proposal?

The proposal implements President Trump’s August 2025 Executive Order directing DOL to democratize access to alternative assets in 401(k) plans. DOL aims to reduce regulatory uncertainty and litigation risk that have discouraged fiduciaries from offering such investments.

Does the rule specifically endorse alternative investments or private markets?

No. The rule is explicitly asset‑neutral. It confirms that no investment type—including private equity, private credit, real estate, digital assets, commodities, or infrastructure—is per se impermissible under ERISA, provided fiduciaries follow a prudent, well‑documented process.

What is the safe harbor provided by the rule?

The proposal establishes a process‑based safe harbor. If a fiduciary objectively, thoroughly, and analytically evaluates relevant factors using the framework outlined in the rule, the fiduciary is presumed to have met ERISA’s duty of prudence and is entitled to significant deference in the event of any litigation scrutiny.

What factors must fiduciaries consider?

The rule identifies six non‑exclusive investment factors: performance, fees and expenses, liquidity, valuation, performance benchmarks, and complexity. Each factor is accompanied by examples illustrating how a fiduciary can demonstrate a prudent process.

How does the proposal address liquidity concerns?

DOL acknowledges that some investments may be less liquid and provides examples showing how fiduciaries can prudently balance certain liquidity constraints against the objectives of seeking greater diversification and enhanced risk‑adjusted returns, including through pooled investment vehicles.

What guidance does the rule provide on valuation?

The proposal emphasizes the importance of timely and accurate valuation. Examples indicate fiduciaries may rely on independent, conflict‑free valuation processes, including periodic valuations for assets without readily observable market prices.

How does this proposal affect litigation risk?

The central objective of the rule is to curb opportunistic litigation. DOL emphasizes that ERISA prudence is process‑based, and that courts should defer to fiduciaries who follow the safe harbor’s analytical and documentation framework and reject claims over mere fiduciary judgment calls.

Does the rule require plans to offer alternative investments?

No. The proposal does not mandate the inclusion of alternative assets or any specific investment option. It simply provides clearer guidance for fiduciaries that choose to evaluate and offer such investments.

What is the timeline for comments and next steps?

The proposal will be subject to a 60‑day public comment period following publication in the Federal Register. Trade associations such as ICI and SIFMA are organizing member calls and preparing comment letters. DOL has indicated the rule could be finalized later this year.

What issues are likely to be raised in comments?

Early reactions highlight questions around valuation independence, flexibility of the safe harbor to avoid technical compliance traps and ensuring that examples remain illustrative rather than prescriptive as private market structures evolve.