DOL Proposes ERISA Fiduciary Safe Harbor for Investment Selection

The Department of Labor ("DOL") proposed a rule providing a safe harbor for 401(k) plan fiduciaries when selecting designated investments involving alternative assets.

The proposed rule, which implements an Executive Order to expand 401(k) Access to "Alternative Assets," provides a process-based safe harbor for plan fiduciaries as to their "duty of prudence" under the Employee Retirement Income Security Act ("ERISA"). The DOL stated "the overarching goal of the proposed regulation is to alleviate certain regulatory burdens and litigation risk that interfere with the ability of American workers to achieve, through their retirement accounts, the competitive returns and asset diversification necessary to secure a dignified and comfortable retirement." The DOL said these regulatory burdens and litigation risks currently deter fiduciaries from offering alternative assets—such as private equity, hedge funds, and digital assets—within asset allocation funds like target-date funds. The DOL noted that while alternative assets are common in defined benefit plans, they represent only 0.1% of defined contribution plan assets.

The proposal would require a fiduciary to consider:

• Performance: Fiduciaries must consider risk-adjusted expected returns "over an appropriate time horizon," net of fees. Under the rule, fiduciaries are not required to select the strategy with the highest returns or risk, but rather to maximize returns for a given level of risk appropriate to participants’ needs.
• Fees: Fees and expenses must be "appropriate" when weighed against risk-adjusted returns and "value," which the rule defines as benefits, features, or services beyond simple returns. The DOL clarified that fiduciaries do not violate ERISA solely by failing to select the lowest-cost alternative.
• Liquidity: Fiduciaries must determine that an investment has sufficient liquidity to meet the anticipated needs of both the plan and its participants. The DOL acknowledged that illiquid investments may offer an "illiquidity premium" beneficial to long-term savers.
• Valuation: Fiduciaries must ensure the investment is capable of being timely and accurately valued. The rule allows reliance on public exchange valuations or, for non-publicly traded assets, written representations that the manager follows conflict-free, independent processes (such as FASB or SEC standards).
• Performance Benchmarking: Fiduciaries must use a "meaningful benchmark" with similar mandates, strategies, and risks. The DOL explicitly cautions against using a broad index, like the S&P 500, to benchmark a TDF when more similar comparators are available.
• Complexity: Fiduciaries must determine they have the "skills, knowledge, and experience" to comprehend a complex investment or, if they do not, they must enlist the services of a qualified investment advice fiduciary or manager.

The DOL underscored that the proposal is "asset-neutral" and does not endorse any specific investment type. The DOL clarified, however, that ERISA does not contain "categorical restrictions" on investment types, including digital assets. The rule would maintain strict boundaries by prohibiting investments in "foreign adversar[ies]" that violate OFAC lists. The DOL also specified that the safe harbor applies to the act of selecting an individual DIA, though it noted that the same factors likely apply to the ongoing duty to monitor. The DOL estimated the rule will result in annualized cost savings of $570.9 million, primarily by reducing the time and resources plan sponsors currently expend on preparing litigation analyses for investment committee meetings.

Comments on the proposed rule are due on or before June 1, 2026.