Key Takeaways
- On March 30, 2026, the U.S. Department of Labor (DOL) released a proposed rule (the “Proposed Rule”) designed to make it easier for individuals in 401(k) and other participant-directed plans to direct a portion of their retirement savings to alternative assets such as private equity, private credit, real estate, and other private assets by establishing a formal, process-based safe harbor for plan fiduciaries selecting designated investment alternatives (DIAs).
- The DOL has solicited comments on the Proposed Rule, and the comment period closes on June 1, 2026.
- For private fund managers, the Proposed Rule could open a significant new distribution channel through 401(k) and other defined contribution (DC) retirement plans, but doing so will require DC-ready product structures, enhanced liquidity management, independent valuation governance, clearer fee disclosure, and more robust benchmarking.
- For institutional investors, the Proposed Rule is likely to have broader market effects beyond retirement plan menus, including increased demand for DC-ready vehicles alongside traditional private closed-end fund structures. Institutional investors are watching closely to see whether private fund sponsors divert meaningful resources or management attention toward building DC-channel operations, and whether these developments will affect fund capacity, co-investment access, or fund terms for existing institutional investors.
Background and Policy Context
Employees investing their 401(k) plans can typically select from a menu of pre-defined investment options, including target date funds and other registered investment companies that are selected by plan fiduciaries. In recent years, asset managers have developed new investment vehicles that offer exposure to private funds, but these products raise complex fiduciary considerations.
Under ERISA Section 404(a)(1)(B), plan fiduciaries must act with the care, skill, prudence, and diligence of a prudent expert in like circumstances. Selecting a DIA is itself a fiduciary act governed by that standard.
In addition, a 1979 DOL regulation titled Investment Duties (the “1979 Rule”)[1] provides general guidance with respect to prudently selecting investments. The 1979 Rule provides that this standard is satisfied where the fiduciary gives “appropriate consideration” to all relevant facts and circumstances, including the risk of loss and opportunity for gain, diversification, liquidity, and projected return relative to plan funding objectives. The Proposed Rule supplements the 1979 Rule by establishing a specific safe harbor for DIA selection.
In recent years, the federal government has focused on expanding access to alternative investments, and on August 7, 2025, President Trump signed an Executive Order titled “Democratizing Access to Alternative Assets for 401(k) Investors” (the “Executive Order”). The Executive Order recognized that most Americans saving through employer-sponsored retirement plans such as 401(k) plans have no access to the diversification and return potential that alternative assets can offer and identified regulatory burdens and litigation risk as the principal barriers to such access. The Executive Order defined “alternative assets” broadly to encompass private market investments, real estate, vehicles investing in digital assets, commodities, infrastructure finance, and lifetime income strategies. The Executive Order directed the DOL—in consultation with the Securities and Exchange Commission and Department of the Treasury—to propose regulations and safe harbors addressing the inclusion of alternative investments in 401(k) and other participant-directed retirement plans, with an explicit mandate to prioritize approaches that curb the ERISA litigation risk that has historically constrained fiduciary decision-making.
The Proposed Rule would implement the Executive Order by supplementing the existing 1979 Rule with specific guidance and a safe harbor applicable to the selection of any DIA, not just those that include alternative assets.
The Proposed Rule: The Six-Factor Safe Harbor
The central mechanism of the Proposed Rule is a process-based safe harbor structured around a non-exhaustive list of six factors. When a plan fiduciary objectively, thoroughly, and analytically considers and makes determinations on any applicable factor, its judgment on that factor or factors is presumed to have met the duties under ERISA Section 404(a)(1)(B)’s prudence standard with respect to such factor. The six factors are:
- Performance. The fiduciary must appropriately consider a reasonable number of similar alternatives and determine that a DIA’s risk-adjusted expected returns, over an appropriate time horizon and net of anticipated fees and expenses, further the plan’s purposes. Importantly, the Proposed Rule clarifies that a lower-risk strategy with lower expected returns may be prudent where it holds assets with low correlations to public markets and thereby improves overall portfolio risk-adjusted returns.
- Fees. The fiduciary must consider a reasonable number of similar alternatives and determine that fees are appropriate given a DIA’s risk-adjusted expected returns and any other value—including features and services—the DIA brings. Selection of the lowest-cost option is not required; higher fees may be justified by a genuine value proposition, including strategies incorporating alternative assets designed to reduce downside volatility or provide lifetime income benefits.
- Liquidity. The fiduciary must consider and determine that a DIA will have sufficient liquidity to meet plan needs at both the plan and individual participant levels. The Proposed Rule offers meaningful flexibility for illiquid strategies. For open-end funds registered under the Investment Company Act of 1940, as amended (the “1940 Act”), compliance with Rule 22e-4’s written liquidity risk management program automatically satisfies the liquidity factor. For non-registered DIAs (such as collective investment trusts or traditional private fund structures), the plan fiduciary may satisfy this factor by obtaining a written representation from the DIA’s manager confirming adoption of a substantially equivalent program or by conducting its own independent liquidity analysis. The fiduciary must read, critically review, and understand any written representation and must not know or have reason to know information that would cause it to question that representation. In practice, the clearer verification path for registered funds may create a structural preference for 1940 Act-registered structures as DIAs.
- Valuation. The fiduciary must determine that a DIA has adequate procedures to ensure timely, accurate valuation in accordance with plan needs. For assets lacking readily observable market prices, a prudent process may rely on a written representation that such securities are valued through a conflict-free, independent process no less frequently than quarterly, in accordance with FASB ASC 820 (or any successor standard). For 1940 Act-registered funds, the fiduciary may satisfy this factor by reviewing audited financial statements and valuation-related prospectus disclosures for conformity with Rule 2a-5 under the 1940 Act. The Proposed Rule explicitly identifies affiliated or conflicted valuation processes—such as a continuation fund where the manager controls valuation inputs—as failing both the safe harbor and ERISA’s prudence standard.
- Performance Benchmarks. The fiduciary must identify a “meaningful benchmark”—defined as an investment, strategy, index, or comparator with similar mandates, strategies, objectives, and risks to a DIA—and compare the DIA’s risk-adjusted expected returns against it. Composite benchmarks blending public market equivalents and IRR-based methodologies are specifically contemplated for funds with private asset sleeves. The Proposed Rule would accommodate new and innovative product designs, requiring only that the fiduciary identify the best available comparators and scrutinize the product’s value proposition.
- Complexity. The fiduciary must assess a DIA’s complexity and determine whether it has—or must obtain from a qualified investment adviser or investment manager—the skills, knowledge, experience, and capacity to comprehend the DIA sufficiently to discharge its ERISA obligations. A fiduciary that does not genuinely understand the product, including complex fee structures such as management fees, performance fees, and carried interest, without engaging appropriate assistance, will not satisfy the safe harbor.
Implications for Private Fund Sponsors
Private fund sponsors are generally not directly subject to the Proposed Rule. Nonetheless, it will have significant indirect effects by shaping employer appetite for plan investment options with exposure to alternative assets and driving the operational, structural, and disclosure standards that DC-channel products must meet. Even modest asset allocations from the DC market could represent a transformational source of new capital for private fund sponsors.
The Proposed Rule will likely accelerate demand for 1940-Act registered structures—such as interval funds, registered closed-end funds, and tender offer funds—that can be offered as DIAs while managing liquidity and valuation obligations. GPs structured as traditional closed-end private funds will need to consider whether, and how, to develop parallel DC-ready vehicles, and whether the operational and regulatory overhead of a registered structure is warranted for the DC channel.
Implications for Plan Sponsors and 401(k) Fiduciaries
The Proposed Rule clarifies the fiduciary process plan sponsors must follow to include alternatives in their investment menus, and the safe harbor provides litigation protection for those who do so rigorously. Plan fiduciaries who document thorough compliance with the six-factor framework may be able to limit discovery to their process documentation and avoid the full cost of ERISA class action litigation. Key takeaways are as follows:
- Process documentation is paramount. The proposed safe harbor is process-based, not outcome-based. Plan fiduciaries must document their analysis of each applicable factor to support a safe harbor defense. Existing investment policy statements and committee procedures would need to be updated to reflect the six-factor framework. Minute-taking and robust discussion will become more important for retirement plan committees that consider DIAs for their investment lineup.
- Delegation and qualified advisers. The complexity factor will require many plan fiduciaries to engage qualified investment advisers or investment managers when evaluating alternatives. Fiduciaries should be prepared to assess their internal capabilities honestly, as selecting a complex product without genuinely understanding it explicitly fails the safe harbor. Committee education may be required to ensure that decision-makers have the tools necessary to adequately assess investment alternatives.
- Liquidity assessment at plan and participant level. Unlike institutional separate accounts, DC retirement plans face unpredictable individual-level liquidity events (e.g., retirements, hardship withdrawals, loans, and asset reallocations). Plan fiduciaries would need to model these scenarios and ensure the DIA’s liquidity terms—advance notice periods, incremental redemptions, lock-ups, and redemption queues—are compatible with anticipated participant needs and the rules and regulations that govern retirement plan distributions.
- No preference for any asset class. The Proposed Rule, as drafted, is explicitly neutral: it does not require or prefer alternative assets. Plan fiduciaries are not obligated to add alternatives to their menus, but the Proposed Rule clarifies how to do so prudently for those who so elect.
- No guidance on overall menu design. The Proposed Rule addresses only the selection of individual DIAs and does not provide a safe harbor for the curation of a plan’s investment menu as a whole. The DOL has noted that it is considering whether to issue separate guidance on the process for prudently curating a menu of investments overall. Plan fiduciaries should be aware that this gap means the Proposed Rule’s safe harbor would not insulate them from claims relating to the overall composition of their investment lineup.
Looking Ahead
Comments to the Proposed Rule are due on or before June 1, 2026. Industry participants are encouraged to submit comments on all six factors, the safe harbor mechanics, and any other issues relevant to the Proposed Rule’s subject matter. Please reach out to your usual MoFo contact or the authors for more information.
[1] 29 CFR 2550.404a-1; 44 FR 37225 (June 26, 1979).