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Demystifying the Duty of Prudence: DOL Proposes ERISA Safe Harbor for Designated Investment Alternatives in Retirement Plans

Reported by The National Law Review ·JD Supra ·Foley
Apr 15, 2026· 3 min read
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Key Takeaways
  • • The Department of Labor proposed a six-factor safe harbor on March 30-31, 2026, to clarify fiduciary duty of prudence under ERISA when selecting designated investment alternatives, including alternative assets like private equity and real estate for 401(k) plans.
  • • The proposed rule implements President Trump's Executive Order 14330 ("Democratizing Access to Alternative Assets for 401(k) Investors") and is designed to reduce litigation risk while encouraging plan sponsors to add alternative investments to participant-directed retirement plans.
  • • Currently, only 4% of defined contribution plans offer alternative investments with just 0.1% of DC plan assets allocated to alternatives; the DOL estimates the rule could redirect approximately $178 billion annually (across 4.5 million participants) to target date funds incorporating alternative assets.
  • • The safe harbor is process-based rather than outcome-based, requiring fiduciaries to objectively and thoroughly evaluate alternative investments against six specified criteria, including risk-adjusted expected returns net of fees relative to the plan's investment purpose.
  • • The proposal does not mandate that employers add alternative assets to their plans; rather, it provides litigation protection and procedural clarity for fiduciaries who choose to do so, affording them meaningful discretion and flexibility in investment-selection decisions.
Summary
The Department of Labor released a proposed regulation on March 30-31, 2026, establishing a safe harbor framework for ERISA fiduciaries selecting designated investment alternatives in 401(k) and other participant-directed individual account plans. The proposal directly implements Section 3(c) of President Trump's August 2025 Executive Order 14330, which instructed the DOL to clarify fiduciary duties and appropriate processes for offering alternative assets in retirement plans within 180 days of issuance. The regulatory effort reflects the Administration's stated objective to harmonize investment options available in defined contribution plans with those already common in defined benefit plans, while simultaneously reducing litigation exposure that may discourage plan sponsors from broadening their investment lineups.

The centerpiece of the proposal is a six-factor safe harbor that provides a process-based presumption of prudence for fiduciaries who follow its framework. The rule emphasizes that ERISA prudence is fundamentally grounded in process rather than outcomes—fiduciaries must demonstrate they conducted an objective, thorough, and analytical evaluation of alternative investments. The first enumerated factor requires assessment of an alternative's risk-adjusted expected returns net of fees to determine whether the investment furthers the plan's stated purpose. While the DOL notes that these six factors are not exhaustive, the framework provides meaningful structure for fiduciaries navigating complex alternative asset selection decisions.

Current market penetration of alternative assets in defined contribution plans remains minimal. Only approximately 4% of DC plans currently offer alternative investments, with alternative assets representing just 0.1% of total DC plan assets. The DOL's impact projections suggest the proposed rule could substantially expand this universe, with an estimated $178 billion annually being allocated to target date funds incorporating alternative assets, benefiting roughly 4.5 million plan participants. Alternative assets under consideration include private market investments (direct and indirect equity, debt, and other instruments not traded on public exchanges), real estate holdings and debt instruments, and actively managed investment vehicles.

Notably, the proposal does not mandate that plan sponsors add alternative assets to their investment menus. Rather, it provides litigation protection and procedural clarity for fiduciaries who elect to do so, affording them meaningful discretion and flexibility in their decision-making processes. The safe harbor operates as a presumption entitled to deference if fiduciaries adhere to the prescribed process framework, thereby reducing the regulatory uncertainty that has historically constrained plan sponsor adoption of alternatives.

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The National Law Review Demystifying the Duty of Prudence: DOL Proposes ERISA Safe Harbor for Designated Investment Alternatives in Retirement Plans JD Supra Demystifying the Duty of Prudence: DOL Proposes ERISA Safe Harbor for Designated Investment Alternatives in Retirement Plans Foley Demystifying the Duty of Prudence: DOL Proposes ERISA Safe Harbor for Designated Investment Alternatives in Retirement Plans