The Bottom Line
- The DOL’s proposed regulations provide a roadmap for documenting fiduciary decision-making around performance, fees, liquidity, valuation, benchmarks, and complexity. If finalized, following this framework may provide plan fiduciaries with a presumption of prudence.
- Plan committees should evaluate whether their current fiduciary process, including investment review and selection framework, generally aligns with the proposed six‑factor analysis, particularly with respect to the rationale documented in committee minutes.
- Plan fiduciaries should consider with their ERISA counsel and investment advisor what preparatory steps, if any, may be appropriate in anticipation of the proposed regulations being finalized, including with respect to fiduciary process, committee documentation, and investment policy statements.
What happens when a plan committee is challenged over an investment decision that did not perform as expected? Under a new proposal from the U.S. Department of Labor (DOL), the answer may depend less on outcomes and more on process.
On March 31, 2026, the DOL issued proposed regulations titled Fiduciary Duties in Selecting Designated Investment Alternatives. The proposal is intended to clarify how fiduciaries (e.g., 401(k) plan committees) of participant‑directed defined contribution plans, including 401(k) plans, can satisfy their duty of prudence under ERISA when selecting a plan’s investment options.
The proposed regulations would create a process‑based safe harbor under which a fiduciary that follows specified analytical steps when selecting a designated investment alternative (DIA) would have a rebuttable presumption of prudence.
While the proposal was shaped in part by efforts to expand access to alternative investments and reduce 401(k) plan class actions, the proposed safe harbor is asset-neutral and applies to all DIAs, including traditional plan investment options such as mutual funds, collective investment trusts, and separately managed accounts. Although not yet effective, the proposed regulations provide a useful indication of the issues fiduciaries may need to address when the regulations are finalized.
Fiduciaries should work with their ERISA counsel and qualified investment advisor now to review existing processes and ensure that committee decisions and minutes can be appropriately developed with the relevant factors below in mind. Comments on the proposed regulations are due by June 1, 2026.
Background
The proposed regulations implement Executive Order 14330 (August 2025), which directed the DOL to clarify ERISA’s prudence standards and reduce litigation uncertainty associated with offering diversified investment options, including those with alternative asset exposure.
How the Proposed Safe Harbor Works
Process‑Based and Asset‑Neutral
The proposed regulations reaffirm that ERISA prudence is evaluated based on the fiduciary’s decision‑making process, not investment outcomes. They do not require or restrict any particular asset class and apply equally to all DIAs, including target‑date funds and other asset‑allocation funds, including those with exposure to alternative investments like private equity or cryptocurrency.
Importantly, the proposal is limited to investment selection and does not change fiduciaries’ ongoing obligation to monitor plan investments.
However, fiduciaries may utilize the safe harbor methodology for their ongoing review of a plan’s current investment lineup.
The proposed regulations also include a rebuttable presumption of prudence for fiduciaries who satisfy the proposed safe harbor. If finalized, this presumption would be a very significant and helpful development for plan fiduciaries, as a fiduciary’s selection of a DIA would be presumed prudent where the required process is followed and documented.
Six‑Factor Analytical Framework to Evaluate Investments
To rely on the safe harbor, fiduciaries would need to objectively and analytically consider all relevant facts and circumstances using a structured analysis. The proposal highlights the following nonexclusive factors:
1. Performance
Review a reasonable range of similar investment options and determine that the selected investment is expected to perform appropriately for its level of risk over an appropriate time horizon, after taking fees and expenses into account.
The proposal does not require fiduciaries to select the investment with the highest expected return or best recent performance; rather, the analysis should be tied to the role of the investment in the plan menu and the likely needs of participants.
2. Fees
Evaluate whether fees and expenses are reasonable in view of the services provided and the value delivered. Prudence does not require choosing the lowest‑cost option, and fee analysis should be contextual.
3. Liquidity
Consider whether the investment’s liquidity profile aligns with participant‑directed plan needs, including participant transactions, rebalancing, and withdrawals under reasonably anticipated circumstances. Limited or less frequent liquidity may be acceptable depending on plan design and participant behavior, in pursuit of additional risk-adjusted return.
4. Valuation
Analyze how the investment is valued, including the transparency, reliability, and frequency of valuation, especially where market prices are not readily available. The focus should be on whether valuation methods are reasonable and appropriate for fiduciary oversight.
5. Performance Benchmarks
Appropriately consider and determine whether each DIA has a meaningful benchmark and compare the risk-adjusted expected returns of the DIA to that benchmark.
The proposed regulations recognize that traditional benchmarks may not always exist or may need adjustment, and the lack of a perfect benchmark alone does not make an investment imprudent.
6. Investment Complexity
Evaluate the operational and structural complexity of an investment, including whether the fiduciary, with appropriate expert support, can understand and monitor it over time. More complex investments may call for additional diligence and documentation.
The DOL emphasizes that fiduciaries are not required to consider every factor in all cases and may reasonably tailor their analysis based on the investment, the plan, and participant demographics.
Treatment of Alternative Assets
The proposed regulations do not single out alternative assets and confirm that no asset class is inherently prudent or imprudent under ERISA. This includes private equity, private credit, real estate, infrastructure, commodities, digital assets, and lifetime income strategies.
Importantly, the proposed regulations do not require plan sponsors to offer alternative investments or change existing plan menus.
What Fiduciaries Should Do Now
Although the proposed regulations are not yet final, fiduciaries should consider with their ERISA counsel and investment advisor taking steps now to position themselves for compliance if the proposed regulations are adopted. This includes reviewing:
- Investment selection and monitoring processes
- Committee documentation and meeting minutes
- Investment policy statements