DOL Proposes New Safe Harbor for Selection of Designated Investment Alternatives for Defined Contribution Plans

On March 30, 2026, the U.S. Department of Labor (“DOL”) proposed a new rule offering a safe harbor for fiduciaries under ERISA in connection with selecting designated investment alternatives for participant-directed defined contribution plans, such as 401(k) plans  (the “Proposed Rule”).

The Proposed Rule implements Section 3(c) of President Trump’s Executive Order 143300, Democratizing Access to Alternative Assets for 401(k) Investors (such executive order, “EO 14330” was discussed in detail in a prior Epstein Becker Green Blog linked here).

Background

As described in the preamble to the Proposed Rule (the “Preamble”), in recent years, U.S. companies have increasingly stayed private longer, utilizing private sources to raise revenue, while the number of public companies has declined significantly. Capital investments have followed this trend and shifted toward the private markets. Since 2014, global private-equity markets have grown nine-fold, while public markets have only doubled.[1] Despite this trend, as of 2024, only 4% of defined contribution plans offered alternative investments[2] and such alternative investments constituted only 0.1% of total holdings.[3] The reluctance on the part of defined contribution plan fiduciaries to include alternative investments in plans’ investment menus stem from a variety of concerns, including, but not limited to, questions about overall performance and risk, how to properly offer such investments to plan participants, and fear of litigation under ERISA. The Proposed Rule, at the direction of EO 14330, seeks to address these last two concerns.

The Proposed Rule – Scope, Safe Harbor, Potential Implications

What types of “designated investment alternatives” does the Proposed Rule apply to?

The Proposed Rule defines designated investment alternatives (“DIAs”) to refer generally to “investment alternatives” on a plan’s menu chosen by a plan fiduciary and available to participants and beneficiaries for investment of their retirement benefits.  The Proposed Rule is purposely neutral to types or classes of DIAs and does not require or restrict any specific type of DIA; provided, however, that a DIA may not include (i) investment options that are illegal, (ii) a “brokerage window,” “self-directed brokerage account” or similar plan arrangement that enables participants to select investments beyond those designated by a plan or (iii) a plan design feature chosen by a plan settlor in a nonfiduciary capacity (such as a non-investment feature, like a longevity risk sharing pool).

This definition is broader than the investment classes identified in EO 14330, which generally encouraged the inclusion of alternative investments such as private equity and private debt, real estate, actively managed investment vehicles that are investing in digital assets, commodities, infrastructure development projects, and lifetime income strategies, including longevity risk-sharing pools. Instead of identifying specific alternative investments, the Proposed Rule focuses on how fiduciaries may prudently select any DIA for inclusion in a plan’s investment menu.

What is the safe harbor set forth under the Proposed Rule?

The Proposed Rule outlines a process-based safe harbor with six non-exhaustive factors that fiduciaries should consider when evaluating whether to provide a DIA in a plan’s investment menu.  Under this safe harbor, a plan fiduciary that makes determinations based on the six factors (which may include relying on recommendations of an investment advisor or delegation to an investment manager with respect to one or more factors) is “presumed to have met the duties under section 404(a)(1)(B) of ERISA of such fiduciary and is entitled to significant deference.”

What are the six factors set forth in the safe harbor in the Proposed Rule?

The six factors, along with a brief description of each, are set forth below. The Proposed Rule also includes explanatory examples and analysis for each of these factors, and many of the examples address specific alternative investments.

1. Performance. Fiduciaries must compare a reasonable number of similar investment alternatives and determine that the risk-adjusted expected returns of the DIA, over an appropriate time horizon and net of fees and expenses, enables participants and beneficiaries to maximize risk-adjusted return on investment, net of those fees and expenses. This consideration should take into account the risks that investors are exposed to and the risk capacity of the plan’s participants as well as the expected return of the investment.
2. Fees. Fiduciaries must compare a reasonable number of similar investments and determine that the fees and expenses are appropriate relative to the risk-adjusted expected returns, net of fees, and any other value presented (g. greater customer service).
3. Liquidity. Fiduciaries must determine that the DIA will have sufficient liquidity to meet the anticipated needs of the plan at both the participant and plan levels. While many retirement savers may have long investment time horizons until retirement and, therefore, may benefit from reduced liquidity in exchange for a premium, participant-level liquidity needs are highly variable, and accordingly, a plan fiduciary must balance restrictions on liquidity with any additional value gained.
4. Valuation. Fiduciaries must ensure investments can be timely and accurately valued in an independent and conflict-free process. For non-publicly traded securities or assets, a fiduciary may rely on quarterly valuations in line with FASB accounting standards.
5. Performance Benchmark. Fiduciaries must utilize a meaningful benchmark to compare risk-adjusted expected returns, net of fees, to the DIA. A “meaningful benchmark” should have similar mandates, strategies, objectives, and risks to the applicable DIA.
6. Complexity. Fiduciaries must assess the applicable investment’s complexity and ensure that they are sufficiently skilled (or, that they have prudently engaged a third-party expert with sufficient skill) to understand the investment.

While not required, the Proposed Rule notes that, to properly understand and evaluate each of the above factors with respect to a particular investment, it may be meaningful (or, even necessary given the fiduciary’s understanding) to work with an investment advice fiduciary within the meaning of ERISA Section 3(21) or an investment manager, as defined in Section 3(38) of ERISA.

What are potential implications of the Proposed Rule?

• Decreased Exposure to Fiduciary Litigation. A core feature of the Proposed Rule it to provide safe harbor protections to fiduciaries who engage in the outlined safe harbor process, considering the six listed factors.  The DOL confirms this by asserting that the Proposed Rule should be afforded Skidmore deference as persuasive authority as to what constitutes a prudent process for choosing investments. 
• Uncertainty Remains. It is unclear how eager plan fiduciaries of defined contribution plans will be to incorporate alternative investments in plan’s investment menus, despite the safe harbor provided by the Proposed Rule. It is likely that plan fiduciaries will continue to be concerned about the future performance of alternative assets, particularly given their liquidity and valuation characteristics.
• Potential Increased Transparency. While not required by the Proposed Rule, the DOL noted in the Preamble that, given the process-based safe harbor and examples demonstrating the detailed and thorough nature of this analysis, the Proposed Rule might have the effect of increasing transparency among product vendors offering DIAs in their investment vehicles to plan fiduciaries, specifically with respect to the DIA’s rights, benefits, and features.
• Greater Inclusion in Target Date Funds. As noted in the Preamble, while there are other avenues for inclusion of alternative investments in defined contribution plans, the most likely method is by including them in target date funds or managed accounts. Target date funds already play a pivotal role in retirement plans – as of 2023, about 90% of large, participant-directed defined contribution plans include a target date fund for participant selection[4] and as of 2024, about 84% of participants in defined contributions plans used target date funds[5]. The design of a target date fund (in that it readjusts and reallocates investments over the specified retirement time horizon of the participant or beneficiary) could help to address fiduciary concerns about risk, liquidity and valuation of alternative investments.
• Use of an ERISA Section 3(21) or 3(38) Advisor. The Proposed Rule appears to give equal weight to fiduciaries relying on either a selected 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 in order to satisfy the safe harbor’s process (but such use is not required). In either case, under the safe harbor, the fiduciary’s determinations are presumed prudent and entitled to significant deference.

Open Areas and Comment Period

The Proposed Rule is open for public comment for 60 days (or, until June 1, 2026). The Preamble solicits comments generally and on the specified topics below:

• Whether the number of plans using an ERISA 3(21) or 3(38) fiduciary will increase under this Proposed Rule? If so, will this be for all plans or only plans of a certain size? How will this impact plan costs?
• What share of defined contribution plans use off-the-shelf plan designs with set investment lineups? How does usage vary by plan size? Do these plans utilize 3(21) or 3(38) fiduciaries?
• How would the Proposed Rule change fiduciary litigation? How would this affect the cost of fiduciary insurance and the scope of coverage (g., lower self-insured retentions)?
• Would the Proposed Rule affect how plan fiduciaries consider including alternative assets? Would they be more likely to include them in response to the Proposed Rule, and if so, in what form (e., asset class, investment vehicle, etc.)?
• What is the magnitude of financial benefits that will be reaped in connection with the increased use of alternative assets in products for defined contribution plans?
• Are there any quantifiable risks or costs associated with the increased use of alternative assets in products for defined contribution plans that are not captured in this regulatory impact analysis? If yes, what is the magnitude of those risks or costs?

Additionally, the DOL noted in the Preamble that it anticipates issuing interpretive guidance in the near future concerning fiduciary obligations under ERISA to monitor DIAs following their inclusion on a plan’s investment menu. The Preamble notes that the DOL is generally of the view that the factors and processes outlined in the Proposed Rule will apply to this ongoing duty.

Takeaways for Plan Fiduciaries

Plan fiduciaries should note that the Proposed Rule emphasizes a disciplined and thoughtful process over the inclusion (or exclusion) of any investment option for participant-directed individual account plans, not only alternative investments.  Plan fiduciaries should review and consider how their policies and procedures should be modified to reflect the process and six factors set forth in the Proposed Rule pending its finalization and adoption.  For instance, investment committee charters, investment policy statements, and upcoming solicitations (RFPs) for new investment products and new investment advisors, managers and consultants, should be updated to reflect the parameters of the safe harbor.  Plan fiduciaries and investment committee members should be apprised of, and monitor developments relating to, the Proposed Rule and, following its adoption, trained on the process and analysis to be followed and documented to ensure that their decisions fall within the protection of the safe harbor. They should also confer with their plan consultant, ERISA Section 3(21) investment advisors and/or ERISA Section 3(38) investment managers regarding monitoring of the options currently on the plan's investment menu under the safe harbor’s provisions.

Endnotes

[1] Sanja Arya, Breaking Barriers: Redefining Equity Market Portfolios with Venture Capital, Morningstar Indexes (Nov. 2024)https://assets.contentstack.io/v3/assets/bltabf2a7413d5a8f05/blt1aeeccec6ce5e015/6887a00b8c9c0c3eaeb99ee3/Breaking-barriers-Redefining-equity-market-portfolios-w-VC.pdf          

[2] PlanSponsor, 2025 DC Survey: Plan Benchmarking (Jan. 7, 2025)

[3] Jessica Hall, Private Equity in 401(k) Plans? Highly Risky for the Average Investor, MarketWatch (Jan. 11, 2025), https://www.marketwatch.com/story/private-equity-in-401-k-plans-highly-risky-for-the-average-investor-6eced355      

[4] EBSA tabulations of audited plans in the BrightScope database.

[5] Vanguard, How America Saves, Figure 79 (2025), http://workplace.vanguard.com/insights-and-research/report/how-america-saves-2025.html