U.S. Department of Labor Issues Long-Awaited Proposed Rule on Alternative Assets in 401(k) Plans

Authors: Jeffrey Ross and Andrea Pollak

The U.S. Department of Labor has issued its long-awaited proposed rule describing how ERISA fiduciaries should approach the selection and ongoing oversight of investment options offered in 401(k) plans. The proposal is intended to provide a clear, process-based framework for demonstrating fiduciary prudence when building and maintaining a plan's investment menu. The proposal is intended to implement President Trump's August 2025 Executive Order "Democratizing Access to Alternative Assets for 401(k) Investors."

The proposal will be of particular interest to plan sponsors, 401(k) providers, and investment managers evaluating whether and how to include more complex strategies in plan lineups. At the same time, it is important to be clear about what the proposal does-and does not-do.

I. What the Proposal Does (and Does Not) Do

Confirms flexibility, but only with a documented, prudent process

The proposal emphasizes that ERISA does not require fiduciaries to use (or avoid) particular types of investment options simply because of their label. In other words, there is no "approved list" of investments for a plan menu, and there is no automatic prohibition on particular categories of investments (such as private equity or real estate or other "alternative" assets). Any option still must fit the plan's needs and be selected through a prudent process.

Does not answer federal securities law and product-structure questions

The proposal is an ERISA fiduciary-process framework. It does not resolve whether, or how, a plan can access certain investments under the federal securities laws and related regimes. For many products, those issues-how the product is structured, offered, distributed, priced, transferred, and disclosed-remain a separate analysis.

Does not "solve" liquidity constraints in practice

The proposal acknowledges that not every prudent investment option must offer daily liquidity. However, it also does not provide an easy operational solution to the practical liquidity challenges that can arise in participant-directed plans-where participant transfers, rebalancing, withdrawals, loans, and distributions can create real friction for investments that are harder to trade or value. In practice, many of the solutions needed to make less liquid options workable in a participant-directed plan will likely continue to be developed and implemented by providers and the broader industry, rather than being prescribed in the rule text.

II. The Proposal's Core Message

The proposal sets forth a checklist of topics fiduciaries should be prepared to evaluate for each investment option, using an objective and well-documented process. Fiduciaries who appropriately evaluate the following six safe harbor topics (which they may do with the assistance of a professional investment adviser) are entitled to a presumption of prudence. The topics are:

Expected performance in context

Fiduciaries should evaluate expected performance in a way that reflects risk, time horizon, and net returns after fees and expenses, and compare the option against a reasonable set of similar alternatives. The proposal also reflects the common-sense point that fiduciaries are not required to pick the "highest return" option, particularly where risk differs.

Fees and expenses

Fiduciaries should evaluate whether fees and expenses are reasonable in light of what the investment is expected to deliver, including any services or features that may be part of its value. The proposal makes clear that prudence is not determined solely by picking the lowest-fee option, but it does reinforce the importance of basic fee diligence, including share class comparisons when relevant.

Liquidity

Fiduciaries should consider whether the investment option has enough liquidity to meet both plan and participant needs. This becomes especially important when evaluating strategies that hold less liquid assets, or where liquidity depends on gates, redemption limits, or other restrictions.

Valuation

Fiduciaries should be comfortable that the option can be valued accurately and in a timely way consistent with how the plan operates. Where values are not determined by public markets, fiduciaries should understand the valuation approach and potential conflicts. In some cases, the proposal's safe harbor would allow fiduciaries to rely on written representations about the valuation process from the investment manager or other party responsible for the investment, provided the fiduciary critically reviews and understands those representations, or performs appropriate due diligence, and has no reason to doubt them.

Benchmarking

Fiduciaries should have a meaningful way to compare an option against an appropriate benchmark or comparator set. For newer or more customized strategies, this may require more careful analysis.

Complexity

Fiduciaries should assess whether they actually understand the option well enough to oversee it, including any complex strategy features or fee arrangements (such as performance-based fees). The proposal contemplates that fiduciaries may need to engage experienced support when evaluating and monitoring more complex options.

III. A "Safe Harbor" Process Helps-but It Is Not a Liability Shield

The proposal suggests that fiduciaries who follow the described process can benefit from a presumption of prudence and receive significant deference regarding their judgments. However, the proposal does not fully eliminate fiduciary risk for at least two reasons:

1. Deference is not immunity. Even if the outlined process is followed, a fiduciary may still be challenged, and outcomes will continue to depend heavily on the facts and the record.
2. To that end, it may be hard to prove whether every element of a proposed safe harbor was satisfied. The proposed framework is detailed and fact-specific, which will likely increase the importance of consistent governance and strong documentation and record-keeping.

The proposal also does not override other ERISA requirements, including the duty of loyalty and prohibited transaction rules.

IV. Comment Period / Next Steps

The DOL's proposal will be subject to public comment. The DOL has indicated there will be a 60-day comment period beginning after the proposal is formally published in the Federal Register. Sponsors and industry participants who expect to be affected-particularly those exploring more complex or less liquid strategies-may want to consider whether to submit comments.

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