The Department of Labor’s Employee Benefits Security Administration (“DOL”) recently issued a much-anticipated proposed rule (“Proposed Rule”) responding to President Trump’s directive in Executive Order (“EO”) 14330 to promote the inclusion of private markets in 401(k) plans and reduce litigation risk.[1] The Proposed Rule clarifies how fiduciaries can satisfy their prudence obligations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), when selecting designated investment alternatives (“DIAs”) for participant-directed individual account plans. Specifically, the Proposed Rule seeks to establish a process-based “safe harbor” that identifies six non-exclusive factors for plan fiduciaries to consider when establishing and maintaining a plan investment menu. Under the Proposed Rule, fiduciaries who document an objective, thorough, and analytical process for considering these factors (when applicable) are likely to meet ERISA’s prudence standard, and DOL argues that their decisions should be entitled to significant deference.
The DOL has requested comments on the Proposed Rule generally and on a variety of specific issues. Comments are due by June 1, 2026.
Scope of the Proposed Rule
Covered Asset Classes
In EO 14330, President Trump directed the DOL to issue guidance focusing on fiduciary responsibilities under ERISA when incorporating certain alternative asset classes into asset allocation funds (e.g., target date or life cycle funds). The DOL identified that one of the primary impediments to investment innovation is fiduciaries’ concerns about ERISA litigation. In light of the hundreds of class action lawsuits, there is a widespread perception by many in the sponsor community all plan investments, and in particular novel investments, create litigation risk. The DOL thus elected to craft the Proposed Rule to address the prudent selection of all DIAs, not just the incorporation of alternative investments.
The DOL explains that providing guidance only for asset allocation funds that include alternative investments could create a false impression that such funds are preferred by the DOL, when in fact alternative investments are not “favored or disfavored.” The DOL’s view is that the Proposed Rule’s expansive scope reflects its long-standing principle of investment neutrality and better ensures that fiduciary decisions with respect to the selection of DIAs are evaluated under a consistent regulatory framework.
Scope of Fiduciary Responsibility
The DOL reminds fiduciaries that, although they have “maximum discretion” to select investments to further the purposes of the plan, they remain subject to a duty to act prudently when establishing a diversified menu of designated investment alternatives. For example, the Proposed Rule makes the following points:
- Discretion is not a license to bypass other federal laws. The DOL clarifies that a fiduciary is strictly prohibited from selecting an investment that is otherwise illegal, specifically citing assets that violate the OFAC Specially Designated Nationals list or federal civil rights laws.
- The DOL states that a prudent process encompasses both the selection of individual DIAs and the curation of the investment menu as a whole.
- Under the Proposed Rule, fiduciaries are expected to objectively, thoroughly, and analytically consider all relevant factors when selecting investment alternatives. Where a fiduciary determines it lacks the specific expertise required to evaluate complex asset classes or sophisticated investment strategies, it should seek out a professional investment advisor or manager.
- The DOL emphasizes that the safe harbor addresses the duty of prudence and does not limit the duty of loyalty or the prohibitions against fiduciary conflicts of interest. The selection of an investment alternative, including one with exposure to alternative assets, must be made for the exclusive purpose of maximizing the risk-adjusted returns, net of fees.
Monitoring
The Proposed Rule does not address the specific mechanics of post-selection monitoring, but the DOL clarifies that the safe harbor does not displace this established fiduciary duty. Relying on Hughes v. Northwestern University, the DOL reaffirms that fiduciaries have a continuing obligation to prudently monitor all plan investments and remove those that are no longer appropriate. The DOL expresses the view that fiduciaries who document compliance with the safe harbor’s six-factor process during regular monitoring cycles will likely satisfy ERISA’s prudence requirement. The preamble states that the DOL anticipates issuing formal interpretive guidance on monitoring and requests comments.
The Six-Factor Safe Harbor
The Proposed Rule provides a structured framework consisting of six non-exclusive factors that fiduciaries should consider, when applicable, in evaluating a plan’s DIAs. To illustrate the practical application of these principles, the Proposed Rule also includes examples intended to demonstrate an objective, thorough, and analytical approach with respect to each specific factor. The factors and our observations are summarized in the following chart.
| Factor | Description | Groom Insights |
| Performance | Fiduciaries are not required to aim to achieve the highest absolute returns. Instead, a prudent process focuses on maximizing risk-adjusted expected returns net of fees over an appropriate time horizon. | The Proposed Rule acknowledges that volatility management, including downside risk protection, is a valid fiduciary consideration, to the extent that it aligns with the plan’s purpose and participants’ risk capacity. For example, where a plan fiduciary determines the plan has a “predominantly younger workforce,” the fiduciary may rely on a longer-term time horizon when selecting a DIA for the plan. |
| Fees | ERISA does not require the selection of the cheapest fund. Fiduciaries may select a fund with higher fees if they determine the cost is justified by the “value proposition.” | Under the Proposed Rule, a comprehensive “net of fee” analysis should allow fiduciaries to demonstrate the total value of an investment strategy. By evaluating all layers of compensation relative to risk-adjusted expected returns, fiduciaries can clearly articulate the specific diversification benefits or alpha-generating potential an asset brings to the plan. This holistic evaluation highlights the merit of the investment relative to its total cost, supporting well-informed selection decisions that focus on long-term participant outcomes. |
| Liquidity | Defined contribution plans are not required to exclusively offer fully liquid investments. However, a prudent process would seek to ensure the plan maintains sufficient liquidity to meet expected participant and plan-level liquidity needs. | The safe harbor confirms that fiduciaries can capture illiquidity premiums to benefit long-term retirement savers. This permits fiduciaries to align an investment’s redemption structure—such as quarterly windows or specific annuity lockups—with the anticipated liquidity needs and demographic profile of plan participants. Such strategic alignment may position the plan to maximize long-term return potential while remaining responsive to participant requirements and the plan’s purposes. In examples, however, the DOL directs fiduciaries to consider the Investment Company Act of 1940’s framework for managing illiquidity, which may not be workable for all investments. |
| Valuation | DIAs must be fairly valued. For non-public securities, fiduciaries can satisfy the safe harbor by ensuring the assets are valued at least quarterly through a conflict-free, independent process adhering to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 on Fair Value Measurement. | For DIAs that include non-publicly traded assets, independent, conflict-free valuation processes consistent with FASB standards should help demonstrate a prudent process for establishing fair market value. |
| Meaningful Benchmarking | A prudent process involves selecting a “meaningful benchmark” for each designated investment alternative that shares similar mandates, strategies, and risks. | The safe harbor facilitates the use of benchmarks that are tailored to the specific characteristics of a designated investment alternative. This shift toward peer-group and composite analysis allows fiduciaries to move beyond the limitations of broad-market indices, ensuring that performance monitoring is accurate, contextually relevant, and reflective of the investment’s actual risk-return profile. By selecting asset-appropriate benchmarks, fiduciaries gain a more robust perspective on an investment’s impact within the broader plan portfolio. |
| Complexity | Plan fiduciaries are not precluded from prudently seeking sophisticated investment strategies, provided the fiduciary either has the skill to sufficiently evaluate the investment or engages a third-party expert to do so. | The Proposed Rule states that fiduciaries may need specialized expertise when evaluating complex issues like carried interest and managed account solutions. The DOL repeatedly states that fiduciaries lacking sufficient expertise may need to engage consultants or advisers, or alternatively, mitigate their risk by delegating discretionary authority to an investment manager. |
GROOM INSIGHT:
- Building on Existing Precedent. The Proposed Rule is similar in many respects to the “investment duties” regulation from 1979, which requires “appropriate consideration” of factors that a fiduciary knows or should know are relevant to the plan’s purposes. However, the Proposed Rule goes further than prior guidance by adopting a more deferential approach to fiduciary decision-making and the creation of an asset-neutral, process-based safe harbor covering the selection of any DIAs regardless of asset class or strategy. This framework represents the clearest guidance to date that fiduciaries may consider a broad universe of legally permissible investments, and it may help reduce actual and perceived risk of enforcement and litigation.
- Deference to Fiduciary Decisions. The Proposed Rule aims to adopt the principles of fiduciary deference established in Firestone Tire & Rubber Co. v. Bruch. Under Firestone, courts apply a deferential standard of review when a trustee exercises discretionary powers to interpret plan provisions. Citing Tussey v. ABB, Inc., theDOL argues the rationale of Firestone should be extended to investment decisions, meaning courts would afford more deference to fiduciaries’ decisions rather than reviewing those decisions de novo. The DOL believes this is appropriate because “subjecting a fiduciary to constant Monday morning quarterbacking over its decisions, with the benefit of 20/20 hindsight, would eviscerate the discretion that is at the core of the statutory framework.”
- Trade-offs. The Proposed Rule, with its extensive commentary discussing some of the administrative and judicial authorities, will likely give many fiduciaries comfort that they have the leeway to invest in alternative asset classes and to pursue innovative strategies. That being said, the Proposed Rule includes a significant amount of detail that may ultimately create some degree of additional risk for fiduciaries if courts interpret the examples prescriptively. Presumably, the DOL determined that the benefits of the certainty provided under the proposed regulatory framework outweigh the risks.
- Deference to the Proposed Rule Post Loper Bright. The DOL acknowledges that, in light of the Supreme Court’s decision in Loper Bright, the Proposed Rule must carry significant persuasive weight to serve as an effective defense for fiduciaries in litigation. In Loper Bright, the Supreme Court overruled the Chevron doctrine, holding that courts need not defer to an agency’s interpretation of an ambiguous statute. The DOL thus attempts to strengthen the persuasive effect of the safe harbor by including a narrative in the preamble citing examples of authorities demonstrating a lineage of jurisprudence supporting the view that the duty of prudence is primarily focused on process and does not favor or disfavor any specific class of assets or investment strategy. The DOL argues that the 2021 Supplemental Statement on Private Equity in Defined Contribution Plan DIAs and Compliance Assistance Release 2022-01 regarding digital assets (both recently rescinded) deviated from the agency’s norms by creating a “heightened” degree of care. Accordingly, the DOL asserts this regulation should carry persuasive weight to courts under applicable Supreme Court precedent (i.e., Skidmore) such that fiduciaries that comply with the regulation should be found to have followed a prudent process.
Comment Period
The 60-day comment window is a critical opportunity for stakeholders to provide feedback that will help the DOL refine the Proposed Rule. The preamble solicits comments generally and on a number of topics, including:
- Whether future guidance should define the specific process required to curate a “prudent menu” as a whole, or if the existing regulations under ERISA Section 404(c) remain the gold standard for best practices in participant-directed plans;
- Whether the six factors (performance, fees, liquidity, valuation, benchmarking, and complexity) are sufficiently comprehensive or if they should be adjusted to better align with established investment principles and current market trends;
- What research, data, and anecdotal evidence is available regarding the Proposed Rule’s intended benefits, such as increased diversification and the chilling effect of litigation; and
- What data is available to estimate how many plans will engage fiduciary advisers as a result of the Proposed Rule.
[1] Fiduciary Duties In Selecting Designated Investment Alternatives, 91 Fed. Reg. 16088 (March 31, 2026).
