DOL Issues Proposed Rule Increasing Retirement Plan Investment Options

Overview

Among other things, President Trump’s Executive Order 14330, “Democratizing Access to Alternative Assets for 401(k) Investors” (1) noted that many employer-sponsored defined contribution plans do not allow for alternative asset investments and (2) directed the U.S. Department of Labor (“DOL”) to propose guidance (including safe harbors) clarifying the ERISA fiduciary duties owed to plan participants when investments in alternative assets are made available as investment options for participant investment direction. Accordingly, on March 30, 2026, DOL released a proposed rule, “Fiduciary Duties in Selecting Designated Investment Alternatives.”

Summarized below, the proposed rule explains the steps that fiduciaries of participant-directed individual account plans, such as 401(k) plans, should take when considering any designated investment alternative for inclusion on a plan’s menu of investments available for participant direction and establishes a safe harbor for a fiduciary’s duty of prudence under ERISA when selecting designated investment alternatives for participant-directed plans.

Designated Investment Alternative

Executive Order 14330 defined “alternative assets” to include the following:

• private market investments, including direct and indirect interests in equity, debt, or other financial instruments that are not traded on public exchanges, including those where the managers of such investments, if applicable, seek to take an active role in the management of such companies;
• direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate;
• holdings in actively managed investment vehicles that are investing in digital assets;
• direct and indirect investments in commodities;
• direct and indirect interests in projects financing infrastructure development; and
• lifetime income investment strategies including longevity risk-sharing pools.

As opposed to just the alternative assets listed in Executive Order 14330, the proposed rule applies to “designated investment alternatives,” which generally refers to the investment options chosen by a plan fiduciary to be on the plan’s menu available to participants and beneficiaries for investment of their retirement benefits.[1] Accordingly, the proposed rule is intended to be asset-neutral and apply broadly to the fiduciary selection of all designated investment alternatives.

Duty of Prudence

The duty of prudence in Section 404(a)(1)(B) of ERISA requires thata plan fiduciary discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries, and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.^[2]

Existing ERISA regulations provide that this duty is satisfied where the plan fiduciary (1) gives appropriate consideration to those facts and circumstances that, given the scope of such fiduciary’s investment duties, the fiduciary knows or should know are relevant to the particular investment, including the role the investment or investment course of action plays in that portion of the plan’s investment portfolio or menu with respect to which the fiduciary has investment duties and (2) acts accordingly.^[3]

To help reduce ambiguity (and corresponding litigation risk) about when this duty is satisfied, the proposed rule supplements the existing regulations in the context of selecting designated investment alternatives for participant-directed individual account plans by identifying six relevant factors and demonstrating what it means for a fiduciary to “act accordingly.”

Brownstein Comment: The DOL is expected to issue interpretive guidance on monitoring designated investment alternatives following their inclusion on a plan’s investment menu. However, for clarity, the proposed rule does not address a fiduciary’s existing obligation to monitor all plan investments at regular intervals and remove options that are no longer appropriate.

Brownstein Comment: The duty of prudence applies to the selection of each designated investment alternative and also to the collection of designated investment alternatives as a whole. However, the proposed rule does not address how to prudently curate a menu of investments overall. Accordingly, the DOL is requesting comments on whether future guidance should address the process required to curate a prudent menu of investments overall or whether the requirements of the regulations implementing Section 404(c) of ERISA should continue to be best practice.

Safe Harbor

The proposed rule provides a safe harbor, which sets forth a non-exhaustive list of six factors, when applicable, that a plan fiduciary should objectively, thoroughly and analytically consider and make determinations about when selecting designated investment alternatives for a plan menu. Where a plan fiduciary works through this analysis and makes a determination for a factor, the fiduciary is presumed to have satisfied the duty of prudence and is entitled to significant deference with respect to such factor. The six factors, each described in more detail below, are (1) performance, (2) fees and expenses, (3) liquidity, (4) valuation, (5) benchmarking, and (6) complexity.

Brownstein Comment: The DOL is requesting comments on these six factors, including: (1) what should be best practices within the participant-directed individual account market and established investment principles, (2) identifying any additional factors (and rationale for their inclusion), and (3) whether participant profiles or characteristics should be included in the final rule as a standalone factor, and if it should be applied to all designated investment alternatives or just with respect to target date funds and managed accounts.

Factor 1 – Performance

The plan fiduciary should consider a reasonable number of similar investment alternatives and then determine whether the risk-adjusted expected returns of the designated investment alternative, over an appropriate time horizon and net of anticipated fees and expenses, furthers the purposes of the plan by enabling participants and beneficiaries to maximize their risk-adjusted return on investment, net of fees and expenses. The proposed rule includes examples that address return as a measure of performance and appropriate time horizons.

Brownstein Comment: The examples clarify that “performance” should not focus solely on expected returns and note that it is often prudent to select a lower-risk investment strategy with a lower expected return. Thus, the proposed regulations clearly do not require fiduciaries to always select the highest return investment option.

Factor 2 – Fees and Expenses

The plan fiduciary should evaluate 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. For this purpose, the term “value” includes any benefits, features or services other than risk-adjusted returns.

The proposed rule makes clear that this factor does not require choosing the lowest fees within a group of alternatives with comparable risk-adjusted return. For example, a prudent plan fiduciary could choose an investment option that charges higher fees in exchange for greater services or as part of risk management. The examples also illustrate an imprudent process in analyzing the value proposition between two available share classes. This example reinforces the fiduciary obligation to conduct basic fee and expense due diligence when evaluating investment options for the plan.

Factor 3 – Liquidity

The plan fiduciary should determine whether the designated investment alternative will have sufficient liquidity to meet the anticipated needs of the plan at both the plan level and individual-participant level.

The proposed rule illustrates that where there is a participant-level trigger event (e.g., retirement or financial hardship), there needs to be sufficient liquidity. Accordingly, for a non-publicly traded investment alternative, a prudent process could require having a written representation from the person responsible for managing the designated investment alternative that the designated investment alternative has adopted and implemented a liquidity risk management program substantially similar to a program that meets the requirements of the Investment Company Act of 1940. Additional examples are provided addressing participant and plan-level liquidity.

Brownstein Comment: This may be the most important factor for fiduciaries to consider. Alternative asset investments are often less liquid than the publicly traded stock held in the mutual funds and collective investment trusts often used by 401(k) plans but generally offer an illiquidity premium. However, the minimum level of liquidity required (as demonstrated in the examples) will shape the types of alternatives investments that fiduciaries may be comfortable offering in a plan.

Factor 4 – Valuation

The fiduciary should determine whether 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. For this purpose, the fiduciary should examine whether it understands and could rely on the investment manager’s written representations about the valuation process.

The proposed rule includes examples for permissible ways to determine value for non-publicly traded investments (including pursuant to certain accounting standards and SEC rules). The examples also address potential conflicts of interests that could arise (e.g., where value of an investment is determined by a related party).

Factor 5 – Benchmarking

The plan fiduciary should determine that each designated investment alternative has a meaningful benchmark against which the fiduciary and the plan’s participants could compare the risk-adjusted expected returns of the designated investment alternative.

A “meaningful benchmark” is an investment, strategy, index or other comparator that has similar mandates, strategies, objectives and risks to the designated investment alternative. The proposed rule notes that there may be more than one meaningful benchmark for a designated investment alternative but that no single benchmark is a meaningful benchmark for all designated investment alternatives on a plan investment menu. The examples may help to distinguish on what may and may not be a meaningful benchmark.

Factor 6 – Complexity

The plan fiduciary should consider the complexity of the designated investment alternative and determine whether the fiduciary has the skills, knowledge, experience and capacity to comprehend the investment sufficiently to discharge its obligations for selecting and monitoring the investment (or whether the fiduciary would be prudent to seek assistance from a qualified investment advice fiduciary, investment manager or other individual).

For clarity, plan fiduciaries are not precluded from prudently selecting sophisticated investment strategies that may be complex. However, plan fiduciaries are responsible for securing sufficient information to understand the investment prior to adding the investment to the plan’s menu of investment options for participant selection. The proposed rule includes examples on how to satisfy this factor (e.g., in some instances, by performing sufficient due diligence or obtaining written representations from the fund manager), but the fiduciary would be wise to analyze whether the fiduciary’s reliance on a manager’s representations or other methodology is itself prudent.

Brownstein Comment: None of the six factors require a plan fiduciary to seek assistance from a professional investment advisor or investment manager. However, to the extent a plan fiduciary reasonably relies on recommendations of a prudently selected (and monitored) investment advice fiduciary within the meaning of section 3(21)(A)(ii) of ERISA or an investment manager within the meaning of section 3(38) of ERISA, that fact will be indicative of a prudent process.

Public Comments

The proposed rule is open for public comment. Comments can be submitted electronically, by mail or via personal delivery, and are due on or before June 1, 2026. Please let us know if you would like Brownstein’s assistance in drafting and submitting a comment letter.

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[1] Paragraph (m) of the proposed rule includes the full definition of “designated investment alternative.” The term includes qualified default investment alternatives within the meaning of 29 CFR § 2550.404c-5, but does not include brokerage windows, self-directed brokerage accounts, or similar investments that enable participants and beneficiaries to select investment beyond those designated by the plan.

[2] 29 USC § 1104(a)(1)(B).

[3] 29 CFR § 2550.404a-1(b)(1)(i) and (ii).

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THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING DOL RULES ON ALTERNATE ASSETS IN 401(K)S. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.