DOL Offers 401(k) Fiduciaries a Safer Path to Alternative Assets

The Department of Labor has proposed the clearest federal opening yet for private-market and other alternative investments inside 401(k) plans, laying out a process-based safe harbor aimed at easing fiduciary fears over litigation, valuation, and liquidity. The proposed rule would clarify that the Employee Retirement Income Security Act of 1974’s prudence standard turns on a fiduciary’s process, not on whether an investment is in any particular asset class or sits inside the traditional mutual fund box. U.S. Dep’t of Labor, Employee Benefits Security Administration, Fiduciary Duties In Selecting Designated Investment Alternatives, 29 C.F.R. Part 2550, RIN 1210-AC38, 91 Fed. Reg. 16,088 (Mar. 31, 2026).

That distinction matters. Defined benefit plans have long used private equity, real estate, and other less liquid strategies, but participant-directed defined contribution plans have largely stayed in public markets. The reasons are familiar: daily liquidity demands, difficult valuations, layered fees, and a steady drumbeat of ERISA fee litigation. The DOL states that the proposed regulation is meant to reduce “regulatory burdens and litigation risk” that may have discouraged fiduciaries from considering alternatives as part of plan menus. 29 C.F.R. Part 2550, RIN 1210-AC38, 91 Fed. Reg. 16,088 (Mar. 31, 2026) (stating proposed regulation’s overarching goal is to “alleviate certain regulatory burdens and litigation risk”).

The DOL issued the proposed regulation in response to President Donald Trump’s August 2025 executive order directing the DOL to facilitate access to alternative assets for 401(k) investors. But the department’s Employee Benefits Security Administration has gone further than the order’s narrow focus on asset-allocation funds containing alternatives. Instead, the agency proposed an asset-neutral framework for any designated investment alternative, reasoning that a narrower rule could wrongly imply that funds with alternative assets are specially favored or disfavored. 29 C.F.R. Part 2550, RIN 1210-AC38, 91 Fed. Reg. 16,088 (Mar. 31, 2026); see also Exec. Order No. 14330, Democratizing Access to Alternative Assets for 401(k) Investors, 90 Fed. Reg. 38921 (Aug. 7, 2025).

The proposal would be a roadmap for fiduciaries that want to consider harder-to-value and harder-to-trade products without stepping outside ERISA’s guardrails. The proposed safe harbor revolves around six factors: performance, fees and expenses, liquidity, valuation, benchmarks and complexity. 29 C.F.R. Part §2550.404a-6(g)-(l) (identifying performance, fees and expenses, liquidity, valuation, benchmarks, and complexity as relevant factors).The DOL’s announcement uses nearly the same list, underscoring that fiduciaries must make documented determinations on each before adding a designated investment alternative to a participant lineup.

Liquidity is one of the proposal’s most consequential sections because it takes on the central structural problem of marrying private assets to participant-directed plans. EBSA says fiduciaries do not have to limit menus to fully liquid investments and expressly acknowledges that illiquid assets may produce an “illiquidity premium” for long-term investors. At the same time, fiduciaries must determine that a fund has sufficient liquidity for the plan and its participants, and the proposed rule provides examples in which a plan could offer a product which “permit quarterly redemptions by investors and does not otherwise impose any specific limits or restrictions on timing or payment of redemptions.” 29 C.F.R. §2550.404a-6(i) and related examples (discussing liquidity and the potential for an illiquidity premium).

Valuation is the other obvious fault line, and here the department tries to draw a line between acceptable complexity and unacceptable opacity. The proposed rule warns against completely relying on proprietary valuation methods shaped by conflicted affiliates, especially where private assets are acquired from affiliated vehicles. But it also says fiduciaries may generally rely on valuations prepared under reasonable procedures adopted by SEC-registered funds under the Investment Company Act, unless the fiduciary knows facts that would call those valuations into question. 29 C.F.R. §2550.404a-6(j) and related examples (discussing valuation, including reliance on registered-fund valuation procedures and warning against conflicted methodologies).

Benchmarks, another chronic weakness in private-market products, get unusually detailed treatment. The proposed rule would require fiduciaries to identify a “meaningful benchmark” and compare expected risk-adjusted returns, net of fees, against that comparator. The rule would allow benchmarks to be indexes, strategies, or other comparators with similar mandates, objectives and risks, and would expressly leave room for custom composite benchmarks where that would better reflect a fund’s mix of public and private exposures. 29 C.F.R. §2550.404a-6(k) and related examples defining a “meaningful benchmark” and permitting custom composite benchmarks where appropriate.

The complexity factor may be the most operationally important for investment committees. Fiduciaries wouldn’t be required to become experts in every product structure, but would decide whether they have the “skills, knowledge, experience, and capacity” to understand the investment well enough, or whether they would need to retain a qualified adviser or investment manager. In effect, the agency is signaling that prudent reliance on expertise is permissible and, in some cases, necessary. Proposed 29 C.F.R. §2550.404a-6(l) (discussing whether fiduciaries possess sufficient skills, knowledge, experience, and capacity or should retain qualified experts).

The fee discussion is also likely to resonate with plan sponsors. The DOL states that ERISA doesn’t require fiduciaries to choose the cheapest reasonable investment. A higher-cost option can still be prudent if the fiduciary has considered a reasonable range of comparable alternatives and concluded that the expected value, net of fees, justifies the cost. That is a notable point for private-market strategies, which often carry more complex and higher fee loads than traditional index products. Proposed 29 C.F.R. §2550.404a-6(h) (stating ERISA does not require selection of the cheapest reasonable alternative).

Takeaways

For the retirement industry, the proposed rule is the most concrete sign yet that Washington is trying to modernize the 401(k) menu without formally endorsing any single product category. To date litigation risk, regulatory caution and general fiduciary uneasiness regarding how such alternative investments may be viewed by the DOL have largely restrained broader use of alternatives in defined contribution plans even where fiduciaries might be able to justify them through a prudent process.

Still, the proposal is more permissive in theory than it is likely to be in immediate effect. EBSA’s own economic analysis suggests the biggest beneficiaries will be larger plans with sophisticated committees, custom menus and outside advisers, while smaller plans that rely on prebuilt lineups may be less able to make use of the safe harbor directly. That means the near-term market impact is likely to be gradual and more of a legal reset than a wholesale remaking of 401(k) investing. 29 C.F.R. Part 2550, RIN 1210-AC38, 91 Fed. Reg. 16,088 (Mar. 31, 2026). (Regulatory Impact Analysis and Paperwork Reduction Act sections).

The broader message is unmistakable. The DOL is informing fiduciaries that alternative assets are not presumptively off-limits under ERISA, but they also are not being waved through. The question is whether a fiduciary can show a disciplined process on performance, cost, liquidity, valuation, benchmarks, and complexity before saying yes. For private-markets firms, that is a meaningful opening. For plan committees, it is permission paired with needing documentation. 29 C.F.R. Part 2550, RIN 1210-AC38 (Mar. 31, 2026).

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Samuel Krause is a partner at Hall Benefits Law.

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