US Department of Labor proposes new process-based rule to expand investment options in 401(k) plans

On 30 March 2026 the U.S. Department of Labor unveiled a proposed regulation, “Fiduciary Duties In Selecting Designated Investment Alternatives”, that sets out how 401(k) plan fiduciaries can meet ERISA’s prudence obligation when choosing designated investment options, including those with exposure to private markets, real estate and other alternative asset classes. According to the Department’s press release, the measure implements President Trump’s August 7, 2025 Executive Order encouraging broader participant access to alternative investments and establishes a 60‑day window for public comment. The proposal was published in the Federal Register on 31 March 2026.

At its core the proposal offers a process‑based safe harbour: if a fiduciary follows an objectively documented, analytical process that considers a specified set of factors when selecting a designated investment alternative, the fiduciary’s decision would be presumed to satisfy ERISA’s duty of prudence and receive substantial judicial deference. The Employee Benefits Security Administration, which drafted the rule, framed it as asset‑neutral guidance intended to preserve fiduciary discretion rather than to favour any particular investment strategy.

The rule builds on the Department’s longstanding Investment Duties regulation from 1979, expanding the regulatory framework by identifying six non‑exhaustive factors fiduciaries should evaluate and by providing illustrative examples of prudent selection processes. Assistant Secretary Dan Aronowitz and the EBSA materials list those six factors as performance, fees, liquidity, valuation, performance benchmarks and complexity. The Department and practitioner commentaries stress that the analysis must be tailored to the plan’s circumstances, including participant risk tolerance and investment time horizons, and that returns should be judged net of fees.

Briefly, the six factors as explained in the proposal and accompanying guidance are:

• Performance: compare a reasonable set of similar alternatives and assess expected risk‑adjusted returns over an appropriate horizon, taking participants’ needs into account.
• Fees: evaluate whether fees are reasonable in light of expected returns and any ancillary services, without requiring selection of the cheapest option.
• Liquidity: determine whether the investment will provide sufficient liquidity for plan‑level and participant‑level needs; long‑term vehicles need not be fully liquid.
• Valuation: ensure assets can be valued in a timely, reliable and independent manner consistent with plan requirements, including for holdings without a recognised market.
• Performance benchmark: identify meaningful comparators, which for private or novel strategies may include custom composite benchmarks.
• Complexity: judge whether the fiduciary has the expertise to understand the investment or must obtain qualified professional assistance.

The proposal supplies concrete examples applying these factors. Drawing on the Department’s scenarios and legal advisories from the private bar, a fiduciary could, for instance, choose a target‑date fund with lower projected returns but materially less volatility if that better aligns with participant objectives; elect a more expensive passive vehicle in exchange for superior service; approve a lifetime income product with liquidity limits where the insurer’s guarantees add value; or include a complex product with private allocations provided robust due diligence and clear fee arrangements are documented.

The Department explicitly limited the rule’s scope to the initial selection of designated investment alternatives in participant‑directed individual account plans. It does not, in its present form, supplant the continuing duty to monitor investments under Tibble v. Edison International, 575 U.S. 523 (2015); the Department signalled it will issue interpretive guidance addressing monitoring. The rule likewise does not govern brokerage windows or self‑directed accounts that permit participants to pick investments outside the plan’s designated menu. EBSA materials and industry observers also note the proposal is not mandatory: fiduciaries are not required to add options with allocations to alternative assets.

Legal commentators and trade groups foresee two principal consequences if the rule is finalised as proposed. First, fiduciaries who can show adherence to the safe harbour process will be better positioned to defend selection decisions on the merits in ERISA litigation; the Department and industry advisers predict this could reduce meritless suits and limit hindsight‑driven claims that focus solely on relative performance. Second, the clarification may prompt asset managers and annuity providers to expand product offerings targeted at 401(k) plans, particularly in target‑date and asset‑allocation vehicles that have historically bundled private market exposures. The Department’s preamble contains market research supporting the potential diversification benefits of institutional‑quality investment access for retirement savers.

Practical implications for plan sponsors and advisers emphasised across the Department’s release, trade commentary and law firm advisories include: documenting the investment selection process with reference to the proposed factors; ensuring advisers and consultants possess the necessary expertise to evaluate alternative strategies; and establishing robust monitoring systems that reflect the Department’s process‑based approach. Industry groups such as ASPPA characterised the proposal as reinforcing the long‑standing ERISA process standard while remaining asset‑neutral. The Small Business Administration’s advocacy arm observed the rule will affect many small participant‑directed defined contribution plans and encouraged stakeholders to review the proposal during the comment period.

The Department’s press materials, the Federal Register posting and analyses from legal and industry commentators all point to a 60‑day public comment window beginning with the Federal Register publication. If finalised, the rule would represent a notable shift in the regulatory landscape by creating a clearer pathway for fiduciaries to consider a wider universe of investment options for 401(k) participants while anchoring protection to a documented prudence process rather than to particular asset classes.