Key Takeaways
- • The Department of Labor released a proposed rule titled "Fiduciary Duties in Selecting Designated Investment Alternatives" that could broaden access to private market assets in defined contribution retirement plans such as 401(k)s.
- • The proposal is asset-neutral, focusing on fiduciary prudence and process rather than favoring or disfavoring any asset class, despite President Trump's August executive order specifically calling out private assets.
- • The rule establishes a process-based regulatory safe harbor across six factors (performance, fees, liquidity, valuation, benchmarks, and complexity) that would presume fiduciary prudence and limit litigation risk for plan sponsors.
- • The proposal opens a 60-day comment period before a final rule is issued.
- • Industry backers including the ICI, BlackRock, Empower, the ARA, MFA, and ERIC welcomed the rule, while the Private Equity Stakeholder Project opposed it over fee, return, and transparency concerns.
Summary
The Department of Labor on Monday released its proposed rule "Fiduciary Duties in Selecting Designated Investment Alternatives," which could broaden investor access to private market assets in defined contribution retirement plans. The proposal is asset-neutral and does not favor or disfavor any specific asset class. Although President Trump's executive order in August specifically called out private assets, the DOL's proposal emphasizes the fiduciary duty of prudence and process over product type. Under the rule, plan fiduciaries would need to "objectively, thoroughly, and analytically consider, and make determinations on factors including performance, fees, liquidity, valuation, performance benchmarks, and complexity," according to the DOL.
Bonnie Treichel, ERISA attorney and founder and CEO of Endeavor Retirement, said the proposal builds on ERISA's core principles of process, fiduciary discretion, and a presumption of prudence for fiduciaries who follow a prudent process. The proposed regulatory safe harbor would limit litigation risk for fiduciaries who incorporate alternatives, with Treichel noting it creates a presumption that the fiduciary met its duties under section 404(a)(1)(B) of ERISA. Ropes & Gray LLP described the rule as establishing a single, asset-neutral safe harbor applying to both alternative and traditional assets, with fiduciaries receiving a presumption of reasonableness and "significant deference" on their judgments. The proposal will now enter a 60-day comment period.
Support came from a range of industry participants. The American Retirement Association said the rule provides "helpful clarity" for fiduciaries, with CEO Brian Graff stating that it is not an endorsement of any asset class. The Investment Company Institute said more than 155 million Americans are covered by ERISA plans and cited expanded access, including allowing target-date funds to add private market assets. BlackRock, whose CFO and global head of Corporate Strategy Martin Small called the proposal an important step, and Empower also backed the rule, as did Pinpoint Policy Institute and the Managed Funds Association, whose CEO Bryan Corbett said alternatives can improve long-term performance while reducing risk. The Insured Retirement Institute urged a framework that facilitates lifetime income products such as annuities, and the American Investment Council, through CEO Will Dunham, praised the clarity the rule provides.
Opposition came from the Private Equity Stakeholder Project, which warned that expanding private equity and private credit into 401(k) plans could expose workers to "higher fees, lower returns, and opaque risks." PESP criticized the safe harbor for potentially limiting consumers' ability to sue, and executive director Jim Baker called for disclosure standards comparable to those for public stocks, mutual funds, and ETFs. Aon's Ari Jacobs emphasized that inclusion of private strategies depends on strong fiduciary governance, and the ERISA Industry Committee said it expects to submit comments to the Department.
Bonnie Treichel, ERISA attorney and founder and CEO of Endeavor Retirement, said the proposal builds on ERISA's core principles of process, fiduciary discretion, and a presumption of prudence for fiduciaries who follow a prudent process. The proposed regulatory safe harbor would limit litigation risk for fiduciaries who incorporate alternatives, with Treichel noting it creates a presumption that the fiduciary met its duties under section 404(a)(1)(B) of ERISA. Ropes & Gray LLP described the rule as establishing a single, asset-neutral safe harbor applying to both alternative and traditional assets, with fiduciaries receiving a presumption of reasonableness and "significant deference" on their judgments. The proposal will now enter a 60-day comment period.
Support came from a range of industry participants. The American Retirement Association said the rule provides "helpful clarity" for fiduciaries, with CEO Brian Graff stating that it is not an endorsement of any asset class. The Investment Company Institute said more than 155 million Americans are covered by ERISA plans and cited expanded access, including allowing target-date funds to add private market assets. BlackRock, whose CFO and global head of Corporate Strategy Martin Small called the proposal an important step, and Empower also backed the rule, as did Pinpoint Policy Institute and the Managed Funds Association, whose CEO Bryan Corbett said alternatives can improve long-term performance while reducing risk. The Insured Retirement Institute urged a framework that facilitates lifetime income products such as annuities, and the American Investment Council, through CEO Will Dunham, praised the clarity the rule provides.
Opposition came from the Private Equity Stakeholder Project, which warned that expanding private equity and private credit into 401(k) plans could expose workers to "higher fees, lower returns, and opaque risks." PESP criticized the safe harbor for potentially limiting consumers' ability to sue, and executive director Jim Baker called for disclosure standards comparable to those for public stocks, mutual funds, and ETFs. Aon's Ari Jacobs emphasized that inclusion of private strategies depends on strong fiduciary governance, and the ERISA Industry Committee said it expects to submit comments to the Department.
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