DOL Proposes Safe Harbor for Alternative Investments in Retirement Plans
The Department of Labor has published a proposed rule that would establish a safe harbor for fiduciaries who include alternative assets — such as private equity and cryptocurrency — as investment options in 401(k) plans.
The proposal, Fiduciary Duties in Selecting Designated Investment Alternatives, stems from an executive order issued by President Trump last August, directing the department to update the Employee Retirement Income Security Act of 1974, or ERISA, guidance for defined contribution plans.
Industry groups, including the Institute for Portfolio Alternatives, have expressed support for the rule.
“The Department of Labor’s thoughtful work on a proposed rule implementing the president’s executive order is an important step toward modernizing how 401(k) portfolios are built … For decades, pension plans have benefited from broader diversification through access to private markets, while 401(k) savers have had far more limited opportunities,” said Anya Coverman, president and chief executive officer of IPA.
The proposal is designed to establish a “safe harbor” for fiduciaries who have historically avoided alternative investments due to concerns about litigation over fees and performance. The DOL’s plan outlines three core principles:
- Process-grounded law: Affirms ERISA as a law focused on the decision-making process;
- Fiduciary discretion: Grants fiduciaries “maximum discretion and flexibility” to select alternatives to maximize returns; and
- Presumption of prudence: Mandates that if a “prudent process” is followed, dispute arbiters should defer to the fiduciary’s judgment.
According to the proposal, fiduciaries who conduct thorough analyses of performance, fees, liquidity, and valuation “should be able to confidently rely on that determination without undue fear of litigation.”
“DOL’s approach maintains ERISA’s strong protections while giving plan sponsors the confidence they need to consider modern products where lifetime income features or a sleeve containing exposure to alternatives can help get more Americans to and through a dignified retirement,” Coverman said.
Last week, the White House’s Office of Information and Regulatory Affairs cleared its review of the proposed rule. The proposal is currently open for a public comment period before it can be finalized.
Coverman said the current proposal does not contemplate 401(k) plans investing directly in semi-liquid funds. “More likely, plans would offer professionally managed, diversified vehicles – like target-date funds – with a modest allocation to private markets.”
If implemented, the proposed rule would reshape the regulatory environment for the estimated $12 trillion 401(k) market.
The measure follows the rescission of a 2021 supplemental statement on private equity, further aligning DOL policy with the goal of broadening investment options for retirement savers.
It also complements the U.S. Securities and Exchange Commission’s recent clarification on the application of federal securities laws to digital assets. The SEC guidance, offered earlier this month, seeks to resolve more than a decade of regulatory uncertainty by sorting crypto assets into two primary categories: tokenized securities and non-security crypto assets.
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