The Department of Labor recently proposed a new regulation titled Fiduciary Duties in Selecting Designated Investment Alternatives, which would establish a six-factor safe harbor for prudent investment selection applicable to every investment option on a defined contribution plan’s menu, not just alternative assets. Fiduciaries who objectively, thoroughly, and analytically evaluate all six factors when selecting a designated investment alternative (DIA) would receive a presumption of prudence entitled to “significant deference” in litigation and DOL enforcement. This is one of the most consequential ERISA fiduciary investment proposals in decades. Although the rule is currently proposed, not final, and reliance is not yet authorized — the comment deadline is June 1, 2026 — Plan sponsors and investment committees should be ready to act as soon as the regulation is finalized. Specifically, at your next committee meeting be ready to review the six-factor framework, and begin aligning your practices when selecting investment options to add to the plan lineup, to take advantage of the safe harbor.
Background
Why have alternative investments been absent from most 401(k) plans? The short answer is litigation risk. The DOL’s preamble acknowledges that more than 500 ERISA class action suits have been filed since 2016, resulting in more than $1 billion in settlements since 2020. Alternative investments — private equity, private credit, real estate, digital assets, infrastructure, and commodities — are already standard investments in many defined benefit pension plans, where they are evaluated by sophisticated institutional fiduciaries. But in 401(k) and 403(b) plans, their features (higher fees, limited liquidity, complex valuation, non-public pricing) have made plan sponsors reluctant to include them, for fear of generating lawsuits that would be difficult and expensive to defend even if the investment was, in fact, prudent.
The current proposal follows directly from President Trump’s August 2025 Executive Order (E.O. 14330), which directed DOL to clarify ERISA fiduciary duties in connection with alternative assets and propose safe harbors to curb litigation that constrains fiduciary judgment. The DOL went further than the Executive Order required: rather than limiting the rule to alternative assets, DOL drafted an asset-neutral, principles-based regulation that applies to the selection of any DIA — mutual funds and index funds included. The DOL also simultaneously rescinded its August 2025 supplemental statement that had previously cautioned fiduciaries against private equity in typical 401(k) plans.
This proposed regulation supplements, but does not replace, the existing 1979 Investment Duties Regulation (29 C.F.R. § 2550.404a-1). Nothing in the proposal changes the ERISA duty of loyalty or the existing prohibited transaction rules.
What the Proposed Rule Would Do
The proposed regulation would add 29 C.F.R. § 2550.404a-6. It applies to participant-directed individual account plans (401(k), 403(b), and similar DC plans). It covers the selection of any DIA on the plan’s investment menu, expressly excluding brokerage windows. The rule confirms three foundational principles: (1) ERISA is grounded in process; (2) plan fiduciaries have maximum discretion and flexibility in selecting DIAs, including alternative assets; and (3) when decision-making follows a prudent process, arbiters of disputes — including courts — should defer to fiduciaries under a presumption of prudence. Investments that are illegal under federal law (e.g., investments in foreign adversaries or OFAC-sanctioned entities) are categorically excluded.
The Six-Factor Safe Harbor
Proposed Section 2550.404a-6(f) provides that a fiduciary who objectively, thoroughly, and analytically considers, and makes appropriate determinations on, each of the following six factors is presumed to have satisfied the duty of prudence under ERISA Section 404(a)(1)(B). The six factors are non-exhaustive — fiduciaries must still consider any other facts and circumstances they know or should know are relevant. The safe harbor is only as strong as the documentation supporting it.
- Performance. Expected and historical performance must be assessed in light of the investment’s objectives, strategy, and intended role in the menu. Performance should not be evaluated in isolation; it must be considered in relation to participant outcomes over time. The proposal expressly states there is no presumption against new or innovative investment designs — but fiduciaries must seek the “best possible comparators” for novel strategies.
- Fees and Expenses. Fiduciaries must consider a reasonable number of similar alternatives and determine that fees are appropriate, taking into account risk-adjusted expected returns net of fees and any other value the DIA brings to the plan. Fee review is not a standalone inquiry — it must be weighed against investment value.
- Liquidity. The fiduciary must evaluate the liquidity profile of the DIA and confirm it is compatible with the plan’s participant liquidity needs (job changes, retirements, hardship withdrawals, plan loans). This factor will require heightened analysis for alternatives with redemption windows, gates, or lock-up periods. The proposal acknowledges that some illiquidity may be acceptable if the investment otherwise merits inclusion.
- Valuation. Fiduciaries must understand how the investment is valued and how frequently. For publicly traded assets, valuation is generally deemed satisfied. For assets without a recognized public market, additional due diligence is required — including mutual funds with underlying non-public securities. Valuation methodology must be credible, well-governed, and free from conflicts of interest.
- Meaningful Benchmark. Risk-adjusted returns must be compared to a meaningful benchmark — a comparator with similar mandate, objectives, strategy, and risk profile. This factor directly tracks the issue pending before the Supreme Court in Anderson v. Intel Corp. Investment Policy Committee, No. 25-498 (S. Ct., cert. granted Jan. 16, 2026), which will decide whether ERISA plaintiffs must plead a meaningful benchmark to survive a motion to dismiss. The Supreme Court’s decision (expected by mid-2027) may affect how this factor is interpreted in the final rule.
- Complexity. Fiduciaries must determine they have the skills, knowledge, experience, and capacity to comprehend the DIA sufficiently to discharge their ERISA obligations — or must seek assistance from a qualified investment adviser or investment manager. Complexity is not disqualifying, but more complex investments require stronger diligence, more robust documentation, and may require engagement of specialized advisers.
Presumption of Prudence and Judicial Deference
The safe harbor creates a presumption that the fiduciary’s selection decision was reasonable and entitled to significant judicial deference, provided the six-factor analysis was conducted objectively, thoroughly, and analytically. DOL has deliberately framed the rule to reduce litigation risk by establishing that courts and other arbiters should defer to fiduciaries who follow the process — not second-guess the outcome. This is consistent with the current DOL’s enforcement posture under FAB 2026-01 (issued April 14, 2026), which also directs EBSA staff to concentrate enforcement on egregious misconduct rather than novel theories.
What the Rule Does Not Cover
The proposed rule addresses DIA selection only. DOL has separately indicated that guidance on the ongoing fiduciary duty to monitor DIAs after selection is forthcoming. Until that monitoring guidance is issued, fiduciaries should consider using the proposed six-factor framework to inform their ongoing monitoring practices as well. The rule also does not alter the duty of loyalty, ERISA’s prohibited transaction rules, or the ERISA Section 404(c) participant direction safe harbor.
Action Items for Plan Sponsors
- Brief your investment committee. Investment committee members should understand that a major shift in the fiduciary investment selection framework is underway, that the rule intersects with pending Supreme Court litigation (Anderson v. Intel), and that the standards for what constitutes a defensible selection process are becoming more specific and more public. This is an appropriate topic for the next committee meeting.
- Map your current investment review process to the six factors now. Even though the rule is not final, the six factors — performance, fees, liquidity, valuation, meaningful benchmark, and complexity — represent DOL’s clearest statement yet of what “acting prudently” looks like in investment selection. Begin assessing whether your current investment committee process and documentation capture each factor. This is a documentation hygiene exercise as much as a compliance exercise.
- Do not rush to add alternative investments in reliance on this proposal. Reliance on the proposed rule is not yet authorized. Wait for the final rule before concluding that any alternative investment is safe to add under this framework
- Be Ready to Review your existing lineup; Committee Charter, advisory agreements and processes once the rule is finalized.
- Do not confuse this proposed rule with the Investment Advice Fiduciary Rule which was separately vacated and became effective April 20, 2026 under the restored 1975 five-part test. This proposed rule addresses DIA selection, not the definition of investment advice fiduciary status. Please see our alert regarding that issue here.
