The U.S. Department of Labor (DOL) has issued a proposed rule, “Fiduciary Duties in Selecting Designated Investment Alternatives,” in response to Executive Order 14330 (August 7, 2025), “Democratizing Access to Alternative Assets for 401(k) Investors.” While the proposal was prompted by the policy debate over alternative assets in 401(k) plans, it is broader and more consequential than a “private assets in DC” headline suggests—it would create a new prudence framework and a process-based safe harbor for selecting any designated investment alternative (DIA) in a participant-directed individual account plan. 

1. What the proposal is really doing

At its core, the proposed rule is designed to reinforce that ERISA prudence is fundamentally process-based rather than outcome-based. The DOL’s emphasis is on documented diligence, risk-adjusted returns and fiduciary discretion, not on categorically approving or disapproving specific investments or product types.

The proposal also appears expressly aimed at reducing litigation pressure that, in the Department’s view, has deterred plan fiduciaries from exercising judgment in plan menu design. In that sense, it functions as both (i) a prudence framework for investment selection and (ii) a statement about fiduciary discretion and judicial deference.

2. Scope: Not just alternatives

Although the proposal “plainly speaks” to asset allocation funds with alternative asset exposure, it is drafted to apply to a selection of any designated investment alternative in participant-directed defined contribution plans. The DOL frames the rule as a supplement to guidance in place since 1979.

Mechanically, the proposed rule would add a new regulation at 29 CFR § 2550.404a-6, confirming that selecting a DIA is a fiduciary act and establishing a prudence framework centered on an objective, thorough and analytical review of relevant factors.

3. The proposed safe harbor: “Presumptive prudence” through documented process

A key feature is a proposed safe harbor/presumptive-prudence framework intended to provide fiduciaries maximum discretion—and, if the process is properly followed, a stronger basis for deference to fiduciary judgment.

The proposal identifies six non-exclusive elements (plus twenty practical examples) that fiduciaries should consider as applicable when evaluating an investment option.

A. Performance

Fiduciaries should assess expected and historical performance in light of the investment’s objectives, strategy and intended role in the plan lineup, and avoid evaluating performance in isolation from participant outcomes over time.

B. Fees

The proposal emphasizes that fiduciaries are not required to select the lowest-cost option in every case. Instead, fees should be evaluated for reasonableness relative to value, strategy and expected benefits—a point that may matter most for investments involving complexity or diversification features.

C. Liquidity

Fiduciaries should consider whether the investment’s liquidity is appropriate for participant-directed retirement plan use, recognizing that some options may be less liquid than daily-traded products yet still be prudent if liquidity is managed consistently with participant needs (e.g., deferred annuities versus more immediate needs for distributions, hardship withdrawals, loans and election changes) and plan-level requirements.

D. Valuation

The DOL highlights the need to understand how the investment is valued and how frequently valuations are updated. Fiduciaries should be comfortable that valuation is credible, well-governed, appropriate to the structure and free from conflict, particularly for harder-to-price assets without a generally recognized market.

E. Benchmarking

Fiduciaries should evaluate whether the investment can be compared to a meaningful benchmark—one with similar mandates, objectives, strategies and risks—to avoid misleading comparisons. The “meaningful benchmark” concept has been addressed in recent litigation and is expected to be addressed by the Supreme Court in its fall 2026 term.

F. Complexity

Finally, fiduciaries should consider operational, structural and analytical complexity. Complexity is not treated as disqualifying, but it implies that more complex investments require stronger diligence and documentation and may require engagement of knowledgeable experts.

Taken together, these elements underscore that the safe harbor is not a “green light” for any specific product category. Rather, it is a framework to demonstrate that a selection decision was made using a well-supported, well-documented process.

4. Key takeaways for plan sponsors

1. No per se prohibition on alternative assets. The proposal states that ERISA does not require or prohibit any particular type of designated investment alternative (other than illegal investments), rejecting categorical arguments against alternative structures.
2. “Cheapest” is not always the prudence standard. Fiduciaries may select a higher-cost option if they reasonably determine it offers commensurate value—potentially including diversification, risk management, income features or other participant-outcome benefits.
3. Liquidity can be managed—within limits. The proposal recognizes that participant-directed DC plans are long-term retirement vehicles and indicates fiduciaries need not select only fully liquid products, which is particularly relevant for options with illiquid sleeves or engineered liquidity features.
4. Valuation and benchmarking become central diligence issues. The proposal places significant weight on timely and accurate valuation and the use of meaningful benchmarks aligned to mandates, objectives, strategies and risks—likely to become critical practical issues once the rule is finalized.
5. Monitoring is not addressed yet. A major limitation is that the proposal does not address the ongoing fiduciary duty to monitor DIAs after selection; the DOL indicates separate interpretive guidance on monitoring is expected in the near term.

5. What happens next (and how sponsors can prepare)

The proposal is framed as a process-and-deference rule whose practical significance is giving fiduciaries a more defensible framework for selecting investments that may be more complex, less liquid or more expensive when fiduciaries reasonably conclude they improve participant outcomes. It is also consistent with the DOL’s recent views and actions supporting plan sponsors while balancing the voluntary nature of the U.S. employee benefits system with ensuring participants and beneficiaries receive promised benefits.

Public comments are due 60 days after publication in the Federal Register. Commenters are invited to address both specific provisions and the subject matter generally. Industry review and feedback are expected over the coming weeks as stakeholders inform the DOL’s path toward a final rule.

For plan sponsors, the immediate practical implication is that process quality, documentation discipline and access to credible experts and analysis will matter even more—especially for options that raise heightened questions around fees, liquidity, valuation, benchmarking and operational complexity. 

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