On March 31, 2026, the U.S. Department of Labor published a proposed rule intended to provide a safe harbor process for a fiduciary’s duty of prudence under the Employee Retirement Income Security Act of 1974 (ERISA) in connection with selecting designated investment alternatives. The proposed rule would apply to a fiduciary’s selection of any type of investment as a designated investment alternative for participant-directed individual account plans like 401(k) and 403(b). This blog highlights safe harbor factors and key fiduciary duties in the proposed rule.
Background
This proposal was released in response to an August 7, 2025 executive order directing DOL to expand 401(k) investment options. The order stated that many Americans in employer-sponsored plans lack access to alternative assets due to regulatory hurdles and litigation risks. Learn more about the executive order and alternative asset definitions from our previous blogs.
Following this executive order, DOL proposed a rule that guides fiduciaries on their responsibilities under ERISA when prudently selecting designated investment alternatives for participant-directed individual account plans. Designated investment alternative is defined as the investment options on the plan’s menu chosen by a plan fiduciary and available to participants and beneficiaries for investment of their retirement benefits.
The U.S. Securities and Exchange Commission’s 1979 Investment Duties Regulation remains intact. This proposal expands the context of selecting designated investment alternatives for participant-directed individual account plans. A fiduciary’s responsibilities when selecting alternative assets funds are the same that apply when selecting any other type of investment, according to the proposed rule.
Prudently Selecting Investments
Selecting a designated investment alternative for a participant-directed individual account plan is a fiduciary act governed by ERISA’s duty of prudence. Prudence under ERISA is based on process and gives maximum discretion and flexibility to plan fiduciaries in selecting any type of investment as a designated investment alternative. Documenting the process and decision is important.
Process-Based Safe Harbor
For investment selection on the plan’s menu, the proposed rule establishes a process-based safe harbor with six factors for plan fiduciaries to objectively, thoroughly and analytically consider and make determinations about when they select designated investment alternatives. The factors are performance, fees, liquidity, valuation, performance benchmarks and complexity (though the list is not exhaustive). Examples of what may be prudent or imprudent are included to show thata factor’s relevance to a given investment alternative depends on its specific facts and circumstances.
This rule “should carry persuasive weight to courts such that fiduciaries that comply with the rule should be found to have followed a prudent process with the result that their judgment with regard to the particular factor at issue (including the relationship of that factor to the other factors) is respected,” a DOL fact sheet says.
Prudent, Loyal and Conflict-Free
Importantly, the proposed rule clarifies that nothing in it about prudence excuses a fiduciary from their obligations to act loyalty or avoid prohibited conflicts of interest under ERISA. Those provisions of fiduciary responsibility are separate requirements, not impacted by the proposed rule. “For the avoidance of doubt, the Department does not intend to relax the loyalty requirement or waive any conflict prohibitions in relation to a fiduciary evaluation of alternative assets,” the proposed rule says.
Six Factors
Under the proposed rule, fiduciaries should consider each of the following factors and document their process and decision.
The fiduciary must appropriately consider a reasonable number of similar investment alternatives and determine these factors regarding the designated investment alternative.
- Performance: Risk-adjusted expected returns 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 risk-adjusted return on investment, net of those fees and expenses.
One example illustrates that it is often prudent to give greater weight to the long-term historical performance of possible designated investment alternatives over short-term performance.
- Fees are appropriate, considering its risk-adjusted expected returns, and any other value the alternative brings to furthering the purposes of the plan. For this purpose, value includes any benefits, features or services other than risk-adjusted returns net of fees.
One example illustrates that a fiduciary is not imprudent solely because it did not select an investment with the lowest fees and expenses. But this example emphasizes that all else being equal, a plan fiduciary must rely on the value proposition of a designated investment alternative with higher fees and expenses than similar alternatives with lower fees and expenses when choosing that designated investment alternative.
One example illustrates it would be imprudent when a fiduciary failed to consider the different value proposition between two available share classes and selected the more expensive share class even though both share classes are identical in all respects except cost.
- Liquidity is sufficient to meet the plan’s anticipated needs at both the plan and individual levels.
One example illustrates that a prudent process relies on the designated investment alternative’s registration under and compliance with the Investment Company Act of 1940, including the requirement to adopt and implement a compliant written liquidity and risk management program.
A prudent process “relies on the named fiduciary receiving a written representation from the designated investment alternative’s manager [stating] that it has adopted and implemented a liquidity risk management program substantially similar to a program that meets the Investment Company Act of 1940’s requirements. In such a case, the process is prudent if the named fiduciary reads, critically reviews and understands the written representation, consults with a qualified professional where appropriate, and does not know or have reason to know other information that would cause the fiduciary to question the written representation,” according to DOL’s fact sheet.
Examples apply this standard to different types of investment funds, including mutual funds registered under the Investment Company Act of 1940, with a range of investments, including publicly traded securities and alternative asset investments, and to investments where conflicts of interest could exist and could impact risk-adjusted return on investment.
- Valuation: Measures ensure that the investment can be timely and accurately valued in accordance with the needs of the plan.
One example illustrates a prudent selection process that relies on a written representation that the securities for which there is not a generally recognized market are valued through a conflict-free, independent process no less frequently than quarterly, according to procedures that satisfy the Financial Accounting Standards Board Accounting Standards Codification 820, titled Fair Value Measurement.
5. Performance Benchmarks: Compare the risk-adjusted expected returns, net of fees, of the designated investment alternative to the meaningful benchmark. Meaningful benchmark for this purpose is defined as “an investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks to the designated investment alternative.”
When considering a new or innovative product design, a fiduciary should identify the best possible comparators to it while also scrutinizing the potential value proposition presented by the new or innovative design.
6. Complexity: The fiduciary must appropriately determine whether they have the skills, knowledge, experience and capacity to comprehend the designated investment alternative sufficiently to discharge their obligations under ERISA and the governing plan documents, or whether they must seek assistance from a qualified investment advice fiduciary or investment manager in evaluating the designated investment alternative.
The complexity factor highlights the importance of fiduciaries delegating to investment professionals when needed and monitoring their plan professionals.
Looking Ahead
Support for the proposed rule has been mixed. DOL requested comments by June 1, 2026 on the comprehensiveness and applicability of the six safe harbor factors in the proposal. DOL encourages feedback on any additional factors that could enhance the proposed framework. DOL will consider comments and address them in a final rule.
The International Foundation will continue tracking these developments. See the Presidential Administration and Employee Benefits Toolkit for updates.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.
