Employee Benefits Law Blog

The U.S. Department of Labor (DOL) has taken a significant step toward reshaping the investment landscape for defined contribution plans. In March 2026, the DOL released a proposed rule addressing the inclusion of alternative investments, such as private equity, real estate, private credit, and digital assets, in participant-directed retirement plans.

While the proposal does not require plan sponsors to add these investments, it signals a meaningful shift in how fiduciaries may evaluate and incorporate them under ERISA.

1. The Safe Harbor Framework

Under the proposal, a fiduciary that objectively, thoroughly, and analytically considers certain factors when selecting a designated investment alternative is presumed to have satisfied ERISA’s duty of prudence with respect to those factors. That determination is entitled to significant deference.

The safe harbor is procedural rather than substantive. It does not mandate particular investments or asset classes, nor does it require fiduciaries to achieve specific outcomes. Fiduciaries may rely on a prudently selected investment advice fiduciary under ERISA section 3(21) or delegate responsibilities to an ERISA section 3(38) investment manager.

2. Required Fiduciary Considerations

The proposal identifies a non‑exhaustive list of factors that fiduciaries must consider, as applicable:

• Performance and Time Horizon. Fiduciaries must evaluate risk‑adjusted expected returns, net of fees, over an appropriate time horizon. The regulation makes clear that fiduciaries are not required to select the investment with the highest expected return and may prudently favor lower‑risk strategies, including those that incorporate alternative assets to improve risk‑adjusted outcomes.
• Fees and Expenses. Fiduciaries must consider a reasonable number of similar alternatives and determine that fees are appropriate in light of risk‑adjusted returns and any additional value provided. Selecting a higher‑fee option may be prudent where justified by services, features, diversification, risk mitigation, or lifetime income benefits. Lowest cost is not the governing standard.
• Liquidity. Fiduciaries must assess both participant‑level and plan‑level liquidity needs. The proposal expressly recognizes that fiduciaries are not required to select only fully liquid investments and may accept liquidity constraints where justified by improved risk‑adjusted returns or other plan benefits. Conditional deeming relief is available where appropriate liquidity risk management programs are in place.
• Valuation. Fiduciaries must determine that designated investment alternatives can be timely and accurately valued. Acceptable valuation methods include public market pricing, independent valuation processes consistent with generally accepted accounting principles, and valuation regimes under the Investment Company Act, provided conflicts of interest are appropriately addressed.
• Meaningful Benchmarks. Each designated investment alternative must be evaluated against a meaningful benchmark with similar mandates, strategies, objectives, and risks. For alternatives, this may include custom or composite benchmarks, so long as the fiduciary understands and critically evaluates the comparison.
• Complexity. Fiduciaries must assess whether they have sufficient expertise to understand the investment’s structure, risks, and fees, or whether assistance from qualified professionals is required. Offering complex investments without adequate comprehension is inconsistent with the duty of prudence.

3. What the Proposal Does Not Do

Importantly, the proposed rule does not mandate that plans offer alternative investments, nor does it provide a blanket safe harbor insulating fiduciaries from liability. Instead, it reinforces that decisions regarding alternative investments remain highly fact‑specific and dependent on the fiduciary’s process and documentation.

The DOL also does not appear to relax ERISA’s fundamental duty of loyalty. Fiduciaries must continue to act solely in the interest of plan participants and beneficiaries, and to evaluate alternatives based on risk‑adjusted economic considerations rather than ancillary objectives.

4. Practical Implications

If finalized, the proposal would provide fiduciaries with a clearer and more defensible framework for evaluating designated investment alternatives, including those incorporating alternative assets. While it does not eliminate fiduciary risk, it reinforces that prudence is measured by process, not by investment labels or short‑term results.

The DOL has invited public comments on the proposal, with the comment period scheduled to close on June 1, 2026. The scope and final form of the rule may change in response to stakeholder feedback.

Plan sponsors should be cautious about making immediate changes in anticipation of the rule and instead focus on understanding its potential implications while monitoring further guidance.