The Department of Labor (“DOL”) released a highly anticipated proposed rule establishing a process-based safe harbor for fiduciaries selecting designated investment alternatives in participant-directed 401(k) plans. This proposed rule follows Executive Order 14330 issued August 7, 2025, and marks a pivot toward asset-neutrality. The proposed rule explicitly states that ERISA does not categorically restrict the inclusion of alternative assets—meaning private equity, digital assets, infrastructure, and lifetime income solutions are permissible options for plan investment menus. In addition to a process-based safe harbor, DOL provides examples of how a prudent fiduciary evaluates specific aspects of potential plan investments.
DOL describes the purpose of the proposal as seeking to “alleviate certain regulatory burdens and litigation risk that interfere with the ability of American workers to achieve, through their retirement accounts, the competitive returns and asset diversification necessary to secure a dignified and comfortable retirement.” To do this, the proposal seeks to grant a presumption of prudence to fiduciaries who document an objective, thorough and analytical process for evaluating six core factors: performance, fees, liquidity, valuation, benchmarking, and complexity. For some of these factors, plan fiduciaries would be entitled to rely on representations from asset managers.
Key Takeaways:
- Private Equity & Private Credit: The DOL establishes a framework for incorporating private market assets (e.g., via sleeve in a Target Date Fund), provided the fiduciary understands the complex incentive fees (e.g., carried interest) and ensures independent, conflict-free quarterly valuations.
- Digital Assets & Infrastructure: Superseding previous restrictive guidance, the DOL explicitly names digital assets and infrastructure financing as permissible options, reaffirming that an assessment of risk-adjusted returns net of fees consistent with a particular plan’s aims and purpose, not asset labels, should drive menu creation.
- Real Estate: Direct and indirect real estate interests are permitted. Fiduciaries must weigh the unique valuation challenges inherent in non-publicly traded physical assets against their historical inflation-hedging benefits.
- Lifetime Income / Annuities: The rule provides an express safe harbor for annuities with liquidity restrictions. It recognizes that the liquidity premium inherent in these products is a legitimate component of plan design, as the lack of immediate liquidity can be offset by the benefits of lifetime income and longevity risk mitigation.
Critical Compliance Items:
- Valuation: Non-publicly traded assets must be valued through a conflict-free, independent process at least quarterly, adhering to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 on Fair Value Measurement standards.
- Liquidity: Fiduciaries are not required to offer only fully liquid products. Illiquidity premiums can be harnessed if the product’s redemption structure aligns with the plan’s and participants’ anticipated needs.
- Incentive Payments (Net-of-Fees): Sophisticated performance fees are permitted so long as fiduciaries conclude that the incentivized performance adequately outweighs the variability of the fees.
Next Steps:
Official publication in the Federal Register is anticipated this week, and the 60-day comment period will commence upon that official publication. The proposal restatement of the duty of prudence, and it will be important for plan sponsors, consultants, and asset managers to review the proposal and submit comments. One area of focus will be on whether the safe harbor and examples are sufficiently flexible to avoid creating risk of fiduciary “foot faults” while also being sufficiently concrete that fiduciaries can be confident that they have correctly complied.
Groom is preparing a comprehensive analysis of this guidance and plans to host a series of webinars to dive deeper into the fiduciary implications and implementation strategies.
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