The Department of Labor (“DOL”) recently issued a proposed Rule (“Proposed Rule”) in response to Executive Order 14330, Democratizing Access to Alternative assets for 401(k) Investors. The Executive Order directed that the DOL issue the Proposed Rule to open up participant-directed defined contribution plans, including 401(k) plans, to alternative asset classes, such as cryptocurrency, private equity, and real estate.
The Proposed Rule is much broader than the directive of the Executive Order because it provides a roadmap to Plan fiduciaries on the prudent selection of all investments under a defined contribution plan. Significantly, as described below, the Proposed Rule would provide a safe harbor for fiduciaries of participant-directed defined contribution plans subject to the Employee Retirement Income Security Act (“ERISA”) when selecting investment options, including alternative asset classes.
Emphasizing that fiduciaries retain broad discretion and flexibility to select investment options, the Proposed Rule confirms the DOL’s position that no type of investment is per se prudent or imprudent under ERISA. Therefore, a plan fiduciary’s decision to invest in alternative asset classes is neither encouraged nor discouraged. This follows the Department’s rescission in 2025 of Biden-era DOL guidance that cautioned against offering cryptocurrency as a 401(k) investment option, as discussed in our June 9, 2025 Benefits Update.
Under the Proposed Rule’s safe harbor, plan fiduciaries of a participant-directed individual account retirement plan would have discretion to select any lawful investment as an investment option, including alternative asset classes, as long as they conduct and document a prudent evaluation process. In order to qualify for the safe harbor, a plan fiduciary must consider a non-exhaustive list of six factors when selecting an investment alternative. Under the Rule, a fiduciary who objectively, thoroughly, and analytically considers the performance, fees, liquidity, valuation, benchmarking, and complexity of an investment alternative, as described below, is presumed to have satisfied ERISA’s duty of prudence, and their determination is presumed reasonable and entitled to significant deference. The DOL advises that, although these six factors are not exhaustive of all aspects of a given investment that might determine its prudence, the Department determined that these factors warranted inclusion in the safe harbor based on existing law and stakeholder input:
- Performance: The fiduciary must consider a reasonable number of similar alternatives and determine that the selected investment alternative will maximize risk-adjusted expected returns, when net anticipated fees and expenses are considered, as well as the age and anticipated needs of the plan’s participants.
- Fees: The fiduciary must determine that the fees and expenses are appropriate in relation to the “value” of the investment, which may include better risk management, customer service, and lifetime income features.
- Liquidity: The fiduciary must determine that the investment alternative has sufficient liquidity to meet the anticipated needs of the plan.
- Valuation: The fiduciary must determine that the investment alternative is capable of being timely and accurately valued.
- Benchmarking: The fiduciary must compare each investment alternative to a meaningful benchmark, which has similar mandates, strategies, objectives, and risks.
- Complexity: If the fiduciary does not have the requisite skills, knowledge, and capacity to comprehend the investment alternative, they must seek assistance from a qualified investment advisor or investment manager.
The proposed Rule also offers a number of examples detailing whether a prudent process was followed with respect to evaluating each of the six factors. The examples confirming that a prudent process was followed involve the retention of a professional investment consultant to evaluate the appropriateness of the investment under consideration.
Comments on the Rule are due on or before June 1, 2026. We will continue to monitor developments, including any changes that may be adopted as part of a final Rule. Please contact Slevin & Hart for more information on how the Rule would affect your plan.
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