Client Alert: Department of Labor Proposes Six Prong Safe Harbor For 401(K) Plan Fiduciaries Considering Alternative Investments

May 12, 2026

Overview. In further signaling a more accommodative posture towards the inclusion of alternative assets in participant direct defined contribution plans (such as 401(k) plans), the U.S. Department of Labor (the “DOL”) recently issued a proposed rule (the “Proposed Rule”) establishing a process-based safe harbor for fiduciaries selecting investment options—including alternative assets such as private equity—in 401(k) plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). If adopted, the Proposed Rule could reshape how ERISA plan fiduciaries evaluate alternative asset investment options, which, in turn, may create further openings for private fund sponsors to access capital stored in 401(k) plans.

The Six-Factor Safe Harbor and Presumption of Prudence

The heart of the Proposed Rule is a process-based safe harbor providing a non-exhaustive list of six factors that a plan fiduciary must “objectively, thoroughly and analytically consider, and make determinations on” when selecting designated investment alternatives. If a plan fiduciary follows the prescribed process—which may include relying on a fiduciary investment adviser or investment manager—the fiduciary’s judgment is presumed to have met its duty of prudence imposed under ERISA. The six factors listed in the Proposed Rule are:

Performance
Fees
Liquidity
Valuation
Performance Benchmarks
Complexity

Interestingly, while proposed in response to an Executive Order signed by President Trump encouraging the Secretary of Labor to reexamine the DOL’s guidance on fiduciary duties regarding alternative asset investments in ERISA-governed defined-contribution plans, the Proposed Rule is technically not limited in scope to alternative assets. Rather, the DOL describes the Proposed Rule as an “asset-neutral, principles-based regulation” that addresses the duty of prudence applicable to fiduciaries selecting all types of plan investment options—not just those involving “alternative assets”. A critical feature of the Proposed Rule is its establishment of a presumption of prudence when a fiduciary follows the safe harbor process. This presumption is intended to shift the litigation calculus significantly in favor of fiduciaries who can demonstrate they engaged in a well-documented, thorough decision-making process and, because it offers an asset-neutral evaluative framework, may be more likely to endure past this administration.

Practical Impacts for Private Fund Sponsors

Though the Proposed Rule represents another step in the DOL’s shifting posture towards alternative assets, there are a few points to keep in mind for private fund sponsors, each of which may result in the Proposed Rule being less of a sea change than headlines may indicate.

Litigation Impacts

Even if the Proposed Rule were adopted as presented, ERISA class action litigation remains a substantial concern for plan fiduciaries, and it remains to be seen whether a safe harbor such as the one presented will meaningfully increase fiduciary defendants’ success at the motion to dismiss stage or whether courts across jurisdictions will give deference to the six safe harbor factors. Plan sponsors and private fund sponsors should also monitor Anderson v. Intel Corp. Investment Policy Committee, a pending Supreme Court case addressing whether pleading an ERISA fiduciary breach claim based on fund underperformance requires alleging a “meaningful benchmark”.

ERISA Prohibited Transaction Rules Still Apply

The Proposed Rule does not alter ERISA’s prohibited transaction rules or plan asset regulations, which private fund sponsors must still navigate to avoid triggering fiduciary status and prohibited transactions—a critical reason why many fund managers refuse to accept ERISA dollars (and may continue to do so, even if the Proposed Rule were adopted). A viable path for private fund sponsors to access 401(k) capital at scale while continuing to avoid ERISA fiduciary status may be registered “wrapper” fund structures. However, such structures are expensive and complex, and may be operationally difficult to administer.

What is considered “alternative” as a threshold matter could change

Although the Proposed Rule is nominally asset neutral, the definition of what constitutes an “alternative” asset may evolve over time, and strict adherence to the safe harbor factors by plan fiduciaries may cause certain asset categories—particularly those with liquidity, valuation, and benchmarking challenges—to be considered more risky than others by the industry, thus reinforcing views that certain assets are too risky for plans.

The Proposed Rule is silent on monitoring investments

The Proposed Rule addresses only the duty of prudence in selecting investment alternatives and does not establish safe harbors for ongoing monitoring. This is a notable absence given breach-of-fiduciary-duty litigation in the ERISA context frequently alleges failure to monitor existing investments.

Marketing and Securities Law Constraints Persist for Private Funds

Private fund sponsors relying on Section 3(c)(1) or Section 3(c)(7) exemptions face securities law constraints, including strict rules on general solicitation and investor qualification, each of which may be incompatible with participant-directed 401(k) plans where investments must be available to all participants regardless of net worth.

Conclusion

While the Proposed Rule represents a nod from the DOL that it may be committed to reducing regulatory disfavor towards plan fiduciaries offering alternative investments in their 401(k) plans, it remains to be seen whether the Proposed Rule is adopted and, if so, whether it will lead to significant change within the private funds industry as some headlines may suggest. The Proposed Rule is currently in a 60-day public comment period, with comments due by June 1, 2026.

For further information contact Tanner Dowdy (tdowdy@crokefairchild.com) or Jennifer Kalmanides (jkalmanides@crokefairchild.com).