On March 31, 2026, the US Department of Labor (DOL) issued a proposed regulation addressing a fiduciary’s duty of prudence when selecting designated investment alternatives for participant-directed individual account plans, including 401(k) plans. If finalized, the rule would create a new prudence safe harbor designed to clarify the process fiduciaries should follow when selecting plan investment options, including diversified vehicles with alternative asset exposure. Comments to the proposed rule are due June 1, 2026. The proposal uses “alternative assets” broadly to refer to investments such as private market strategies, real estate, digital-asset-related investments, commodities, infrastructure investments, and lifetime income strategies.
A Process Rule, Not an Alternatives Rule
Although the proposal was prompted by the administration’s interest in expanding access to alternative assets in defined contribution plans, the rule is broader than that objective. It would apply generally to the selection of designated investment alternatives in participant-directed plans and underscores the DOL’s view that ERISA is asset-neutral: the question is not whether an investment falls within a favored or disfavored asset class but whether the fiduciary followed a prudent, well-documented process in selecting it.
That distinction matters. Alternative assets were not categorically prohibited under ERISA before this proposal. Rather, the proposed rule is aimed at reducing perceived regulatory and litigation risk that may have discouraged fiduciaries from considering more complex or less traditional investment structures in participant-directed plans. In that respect, the proposal is best understood not as opening the door to a new category of investments but as reaffirming that fiduciary prudence is judged based on process, not hindsight.
The Six Safe Harbor Factors
The centerpiece of the proposal is a six-factor safe harbor. Under that framework, fiduciaries should evaluate and document whether the investment option’s:
- expected performance is favorable on a risk-adjusted basis, net of fees, relative to a reasonable number of similar alternatives;
- fees and expenses are appropriate in light of expected returns and other benefits the investment may provide;
- liquidity is sufficient for anticipated plan and participant needs;
- valuation methodology permits timely and accurate valuation;
- benchmark is meaningful and aligned with the investment’s objectives, strategies, and risks; and
- complexity is sufficiently understood by the fiduciary, or by qualified advisers engaged to assist the fiduciary, to support a prudent decision.
The proposal also makes clear that prudence does not require a fiduciary to select the cheapest or most liquid option in every case. A fiduciary may reasonably conclude that higher fees, lower liquidity, or greater complexity are justified where the investment is expected to improve diversification, enhance long-term risk-adjusted returns, or otherwise add value to the plan’s menu.
Why Liquidity and Valuation Matter
For many traditional plan investments, such as mutual funds and collective investment trusts, liquidity and valuation are relatively straightforward. Those issues become more challenging when a designated investment alternative includes non-publicly traded or less liquid assets. In a participant-directed plan environment, where participants may reallocate balances, take distributions, retire, terminate employment, or otherwise access plan accounts on relatively short notice, fiduciaries will need to be confident that the investment can support the plan’s operational needs and can be valued accurately and timely enough for plan administration.
For that reason, the proposal should not be read as a green light to add exotic products to plan menus. If anything, it reinforces that documentation, benchmarking, liquidity analysis, valuation discipline, and the prudent use of qualified advisers become even more important as the investment grows more complex.
Important Limits
The proposal has important limits. It addresses the duty to select designated investment alternatives, but not the ongoing duty to monitor them, and the six-factor safe harbor is expressly non-exhaustive. Fiduciaries would still need to consider other relevant facts and circumstances, and the proposal does not alter ERISA’s separate duties of loyalty or the prohibited transaction rules. The proposal also does not apply to brokerage windows or self-directed brokerage accounts.
The DOL also signaled that future guidance may address broader questions regarding prudent menu construction and ongoing monitoring, including whether compliance with ERISA Section 404(c) remains a best-practice framework for participant-directed plans. Therefore, this proposal may be only the first step in a broader regulatory effort to reshape fiduciary guidance for defined contribution plan investment lineups.
What This Could Mean in Practice
If finalized, the rule could give plan committees and other fiduciaries additional comfort in evaluating a broader range of investment structures, including target date and asset allocation vehicles with exposure to private markets or other alternative assets. More broadly, the proposal appears to be aimed at reducing the effect of class-action litigation pressure on fiduciary investment decisions and reinforcing that courts should defer to fiduciaries that follow a prudent process.
Steps Plan Fiduciaries May Want to Take Now
Even before the rule is finalized, the proposal is a useful reminder for plan sponsors and committees to review their investment governance processes. In particular, fiduciaries may want to confirm that committee materials and minutes clearly reflect the basis for investment decisions and that current procedures are sufficient to evaluate fees, performance, liquidity, valuation, benchmarking, and complexity, especially if the plan is considering more sophisticated investment structures.
If you have any questions regarding the content of this alert, please contact Michael McGovern, partner, at mmcgovern@barclaydamon.com, or another member of the firm’s Employee Benefits Practice Area.