Key Takeaways
- • The Department of Labor on Monday issued a proposed rule clarifying how alternative investments such as private equity and private credit may be included in defined contribution plans, including within diversified, professionally managed options like target-date funds.
- • The proposal includes a regulatory safe harbor for fiduciaries who add alternative investments to investment funds, with comments due within 60 days of Federal Register publication.
- • The rule reaffirms that ERISA fiduciary duties continue to apply and emphasizes liquidity, valuation, cost, and portfolio-role considerations, with alternatives generally intended as components of multi-asset strategies rather than stand-alone participant options.
- • Adoption has been low: according to the 2026 PLANSPONSOR Plan Benchmarking Report, only 2.9% of plan sponsor respondents offer any investment options that include alternatives.
- • ERISA attorneys, including Mayer Brown's Richard Nowak, expect the rule to reduce class action litigation over time once finalized.
Summary
The Department of Labor on Monday issued a proposed rule clarifying how alternative investments may be used in defined contribution (DC) retirement plans, a significant step in the agency's evolving approach to private markets in 401(k)s and other DC plans. The rule permits plan fiduciaries to include investments such as private equity and private credit within diversified, professionally managed options like target-date funds, while reaffirming that longstanding fiduciary duties under federal law continue to apply.
The proposal includes a regulatory safe harbor for fiduciaries who seek to include alternative investments in investment funds. Under the rule, fiduciaries must evaluate whether alternatives are appropriate for their plan based on liquidity constraints, valuation practices, cost structures and the role such investments play within a broader portfolio. The rule also underscores that these assets are generally intended as components of multi-asset strategies rather than stand-alone options for direct participant selection. The guidance reiterates that fiduciaries remain responsible for ensuring any investment in a plan lineup is prudent and in participants' best interest, and highlights the importance of clear participant communication about how these investments function and their risks. The guidance stops short of encouraging widespread adoption, instead emphasizing caution, documentation and risk management.
The proposal builds on earlier DOL guidance issued in 2020 and 2021, which acknowledged a potential role for private equity in DC plans but raised concerns about complexity and oversight. The new rule consolidates those positions into a single framework. Comments can be submitted within 60 days of publication in the Federal Register, after which the rule will be finalized.
The rule follows a push from alternative asset managers seeking access to the $12 trillion DC market, and comes as private credit funds have faced an uptick in redemption requests from retail investors. Alternatives have long been accessible in DC plans, but adoption has remained low largely due to litigation concerns. According to the 2026 PLANSPONSOR Plan Benchmarking Report, only 2.9% of plan sponsor respondents provide any investment options that include alternatives.
Industry reaction has been supportive. Andy Banducci, senior vice president of retirement and compensation policy at the ERISA Industry Committee, called the proposal "a meaningful and important step" and said fear of meritless litigation has reduced innovation in 401(k) offerings; the group expects to submit comments. Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council, said the proposal "wisely affirms" the ERISA prudence standard, giving fiduciaries broad discretion and deference. Richard Nowak, a partner in Mayer Brown's ERISA litigation practice, said that while the effect may not be immediate, the rule should reduce class action litigation over time, noting plan sponsors are already following the outlined fiduciary processes but are frequently second-guessed.
The proposal includes a regulatory safe harbor for fiduciaries who seek to include alternative investments in investment funds. Under the rule, fiduciaries must evaluate whether alternatives are appropriate for their plan based on liquidity constraints, valuation practices, cost structures and the role such investments play within a broader portfolio. The rule also underscores that these assets are generally intended as components of multi-asset strategies rather than stand-alone options for direct participant selection. The guidance reiterates that fiduciaries remain responsible for ensuring any investment in a plan lineup is prudent and in participants' best interest, and highlights the importance of clear participant communication about how these investments function and their risks. The guidance stops short of encouraging widespread adoption, instead emphasizing caution, documentation and risk management.
The proposal builds on earlier DOL guidance issued in 2020 and 2021, which acknowledged a potential role for private equity in DC plans but raised concerns about complexity and oversight. The new rule consolidates those positions into a single framework. Comments can be submitted within 60 days of publication in the Federal Register, after which the rule will be finalized.
The rule follows a push from alternative asset managers seeking access to the $12 trillion DC market, and comes as private credit funds have faced an uptick in redemption requests from retail investors. Alternatives have long been accessible in DC plans, but adoption has remained low largely due to litigation concerns. According to the 2026 PLANSPONSOR Plan Benchmarking Report, only 2.9% of plan sponsor respondents provide any investment options that include alternatives.
Industry reaction has been supportive. Andy Banducci, senior vice president of retirement and compensation policy at the ERISA Industry Committee, called the proposal "a meaningful and important step" and said fear of meritless litigation has reduced innovation in 401(k) offerings; the group expects to submit comments. Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council, said the proposal "wisely affirms" the ERISA prudence standard, giving fiduciaries broad discretion and deference. Richard Nowak, a partner in Mayer Brown's ERISA litigation practice, said that while the effect may not be immediate, the rule should reduce class action litigation over time, noting plan sponsors are already following the outlined fiduciary processes but are frequently second-guessed.
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