US Department of Labor Issues Groundbreaking Proposed Rule on Prudence Considerations for 401(K) Plan Investments

On March 30, 2026, the US Department of Labor (“DOL”) issued the proposed rule, “Fiduciary Duties In Selecting Designated Investment Alternatives,” which outlines how a fiduciary may satisfy its duty of prudence when selecting plan investments. The proposed rule implements President Donald Trump’s August 2025 Executive Order, which encouraged DOL to provide a pathway for 401(k) plans to offer participants exposure to “alternative assets,” including private equity, real estate, and digital assets.¹ DOL has provided a 60-day comment period for the public to submit comments on the proposed rule.

The proposed rule applies to the fiduciary selection of all 401(k) plans designated investment alternatives, including those with allocations to alternative assets, which DOL emphasized is “consistent with the Department’s historical practice of providing neutral guidance that does not favor or disfavor any particular type of investment or investment strategy.”² DOL also drafted the proposed rule to reaffirm that ERISA provides 401(k) plan fiduciaries with “the discretion and flexibility to determine when designated investment alternatives, including those that contain alternative investments, offer the opportunity for participants to maximize risk-adjusted returns on their retirement assets net of fees.”

What Does the Proposed Rule Do?

The proposed rule builds on a longstanding DOL Investment Duties regulation issued in 1979.³ The 1979 rule described how, based on the investment landscape at the time, a fiduciary could satisfy its duty of prudence when selecting plan investments. In the proposed rule, DOL “expands on” the 1979 rule by (1) identifying a non-exhaustive list of six factors 401(k) plan fiduciaries should objectively, thoroughly, and analytically consider when selecting plan investments, and (2) providing a series of examples showing how a fiduciary can engage in a prudent process with respect to each factor. Notably, the proposed rule also includes a process-based safe harbor that presumes a 401(k) plan fiduciary’s judgment is reasonable and entitled to “significant deference” if the fiduciary adequately considers the applicable factors when selecting a 401(k) plan investment.

What Does the Proposed Rule Not Do?

The proposed rule specifically focuses on the duty of prudence (Section 404(a)(1)(B)) with respect to the selection of 401(k) plan investments. The proposed rule does not address the continuing duty to monitor 401(k) plan investments and remove imprudent ones under Tibble v. Edison Int’l, 575 U.S. 523 (2015). However, DOL plans to build on the proposed rule by issuing interpretive guidance discussing the duty to monitor. The proposed rule also does not address the duty of loyalty, other than to reaffirm that fiduciaries must also continue to act loyally and avoid prohibited conflicts of interest when selecting 401(k) plan investments. The proposed rule is also limited to a 401(k) plan fiduciary’s selection of “designated investment alternatives,” which do not include “brokerage windows,” “self-directed brokerage accounts,” or “similar plan arrangements” that enable 401(k) plan participants and beneficiaries to select investments beyond those designated by the plan.

Because the proposed rule is largely focused on the investment selection process, it is unlikely to materially impact whether ERISA class actions with substantive investment challenges survive a motion to dismiss. This is because most ERISA class action complaints do not plead anything about the fiduciary’s investment process and instead rely on hindsight-based performance comparisons to other investments. In addition, most lawsuits challenge the decision to retain investments that allegedly underperformed, rather than the initial selection decision. At the merits stage, however, we expect the proposed rule, when finalized, will help 401(k) plan fiduciaries successfully defeat ERISA lawsuits challenging their investment selections, provided they can demonstrate they satisfied the proposed rule’s safe harbor provisions. If, over time, more 401(k) plan fiduciaries fight ERISA class actions on the merits as a result of the proposed rule, we anticipate we will see fewer frivolous ERISA class actions filed.

DOL’s Six-Factor Safe Harbor

The centerpiece of the proposed rule are the six non-exhaustive “safe harbor factors” that 401(k) plan fiduciaries should consider when selecting investments. According to DOL, the purpose of the proposed rule and safe harbor is to ensure that, when a fiduciary adequately considers these factors when selecting a particular investment, the fiduciary’s judgment is “presumed” to have satisfied the duty of prudence and is entitled to “significant deference” from the courts. The six factors are:

• Performance: The fiduciary must appropriately consider a “reasonable number” of similar alternative investments, and determine that the chosen investment’s expected risk-adjusted returns over an appropriate time-horizon further the purposes of the plan. Notably, DOL’s accompanying guidance to the proposed rule clarifies that a 401(k) plan fiduciary should not focus solely on expected returns. The fiduciary should factor in the risks of the proposed investment as well as their participants’ risk tolerance, the appropriate time horizon for the age of their workforce, and their expected needs. Returns should also be considered net of fees.
• Fees: The fiduciary must consider a “reasonable number” of similar investment alternatives to determine that the selected investment’s fees are appropriate, taking into account the investment’s expected risk-adjusted returns and its other benefits, features, or services. The fiduciary does not need to select the investment with the lowest fees.
• Liquidity: The fiduciary must determine that the selected investment will have sufficient liquidity to meet the anticipated needs of the plan at both the plan and individual participant level. Because participant-directed individual account plans are long-term retirement savings vehicles, the fiduciary does not need to select only fully liquid investments. DOL’s examples clarify that for investments that are not required by law to adopt and implement a specific written liquidity risk management program (e.g., collective investment trusts), the 401(k) plan fiduciary may reasonably rely on representations from the fund manager regarding its liquidity risk management plan.
• Valuation: The fiduciary must determine that the selected investment can be timely and accurately valued consistent with the needs of their plan. Notably, DOL’s examples clarify that 401(k) plan investments do not need to be invested exclusively in publicly traded securities. For investments that include securities and other assets without a generally recognized market, the fiduciary must determine that the securities and assets are valued through an independent, conflict free process that satisfies generally recognized accounting standards.
• Performance Benchmark: The fiduciary must determine that the selected investment has a meaningful benchmark, which DOL defines as “an investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks.” For investments that include an allocation to private equity and other alternative investments, the benchmark may be an appropriately designed custom composite benchmark. The proposed rule also emphasizes that there is no presumption or preference against new or innovative investments. When considering such an investment, the fiduciary should identify appropriate comparator investments while evaluating the new investment’s value proposition.
• Complexity: The fiduciary must consider the complexity of the selected investment to determine whether it (the fiduciary) has the skill, knowledge, experience, and capacity to adequately understand the investment or whether it must seek assistance from a qualified investment professional. DOL’s examples make clear that fiduciaries are not precluded from prudently selecting sophisticated and complex investment strategies, as long as they secure sufficient information to understand the investment and its attendant risks prior to selecting the investment.

Proposed Rule Examples Applying Factors

The proposed rule includes for each of the six factors multiple examples describing how a 401(k) plan fiduciary might consider that factor when selecting an investment. Collectively, the examples highlight that there is no “one-size-fits-all” approach to plan investment selection, as DOL drafted the proposed rule to emphasize that ERISA provides fiduciaries with “discretion and flexibility in selecting among a range of options.” We highlight certain noteworthy examples from the proposed rule below, as they address scenarios that are common in ERISA class action complaints:

• A fiduciary may select a target-date fund series with lower expected returns but with lower expected risk (as measured by volatility). It is perfectly appropriate for a fiduciary to seek to maximize participant returns based on an appropriate level risk by focusing on risk-adjusted returns. 
• A fiduciary may select a passive index fund with higher fees than similar funds in exchange for better services (e.g., dedicated call centers, shorter wait times, and clear investor communications), which justify the additional cost. 
• A fiduciary may select a lifetime income product that includes early withdrawal penalties and liquidity restrictions if the fiduciary concludes the increased value and certainty of future payments from the lifetime income product justify the restrictions.
• A fiduciary may select a complex investment with an allocation to private assets and with a variable fee-based incentive structure if the fiduciary conducts sufficient due diligence to understand the expected fees and determines the fee structure delivers increased value or the fiduciary obtains a written representation from the fund manager that the plan will pay only a flat asset-based fee. 

Takeaways for Plan Sponsors

The proposed rule reaffirms ERISA’s long-standing requirement that 401(k) plan fiduciaries must engage in a prudent process when evaluating and selecting plan investments. The proposed rule’s six safe harbor factors, and DOL’s accompanying examples, emphasize that plan fiduciaries must engage in an objective, thorough, and analytical process when selecting plan investments. If they do so, the proposed rule states that their judgment will be presumed to be reasonable and entitled to significant deference.
Some additional considerations for plan sponsors and their fiduciaries include:

• Fiduciaries should ensure they adequately document their investment selection process and consult with the proposed rule’s non-exhaustive factors.
• The safe harbor and the practical examples described in the proposed rule aim to make fiduciaries more comfortable considering a broader universe of investments, including alternative assets, when seeking to maximize risk-adjusted returns for their participants.
• The proposed rule does not require fiduciaries to offer investments with allocations to alternative assets. However, the preamble includes extensive investment and market research supporting the benefits of institutional-quality investment diversity, and provides helpful guidance to plan fiduciaries to assist in their evaluation of such investments.
• Fiduciaries who wish to consider a broader universe of investments but do not have the requisite expertise should determine whether their investment consultants and advisors have such expertise and engage with them as appropriate, to determine what is best for their plan and their participants.

Fiduciaries should also ensure they have the capability and information required to adequately monitor all of their plan investments and should sufficiently document that monitoring process.

Takeaways for Asset Managers and Annuity Providers

• The preamble to the proposed rule is largely focused on the inclusion of alternative assets in target-date funds and asset allocation funds, which is consistent with how many private market products have historically been structured for 401(k) plans. This focus on target-date and asset allocation funds is also consistent with the August 2025 Executive Order.
• Because the proposed rule provides a pathway for plan fiduciaries to prudently consider alternative asset classes such as private markets or lifetime income products, more asset managers and annuity providers may create new products to help provide greater risk-adjusted returns to 401(k) plan participants. Target-date fund managers in particular will be interested in reviewing private market and lifetime income product offerings.

 

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¹ For more information on the Executive Order, see Mayer Brown LLP, President Trump Signs Executive Order Seeking to Expand Availability of Alternative Assets in 401(k) Plans (Aug. 12, 2025).

² For example, in May 2025, DOL rescinded the Biden era Compliance Release No. 2022-01, which discouraged plan fiduciaries from offering cryptocurrencies in their 401(k) plans.

³ DOL further explains that it “generally is of the view that the factors and processes (or substantially similar factors and processes) outlined in the proposed regulation—including the illustrative safe harbor examples—apply to this ongoing duty. Put differently, a plan fiduciary that tracks the process in the proposed regulation during appropriately established monitoring cycles will meet ERISA’s monitoring requirements.”