Unlocking Alternative Assets for 401(k) Plans

On March 30, 2026, the U.S. Department of Labor (DOL) released a proposed rule titled "Fiduciary Duties in Selecting Designated Investment Alternatives" (the Proposed Rule), which would establish a process-based safe harbor for plan fiduciaries selecting investment options for 401(k) plans, including options with exposure to alternative assets such as private equity, private credit, real estate, and infrastructure. The Proposed Rule implements Executive Order 14330, which President Trump signed on August 7, 2025, directing the DOL to clarify fiduciary duties under ERISA and to prioritize actions that curb litigation risk constraining fiduciaries' judgment in offering alternative investment opportunities. Importantly, the Proposed Rule does not currently provide an operative regulatory safe harbor. However, because it reflects the DOL's current view regarding prudent investment selection, fiduciaries evaluating alternative investments may wish to begin incorporating the proposal's six-factor analytical framework and enhanced documentation practices now, even before issuance of final regulations.

The Proposed Rule is broader than many expected: rather than limiting its scope to alternative assets, it provides a framework applicable to the selection of any designated investment alternative (DIA), consistent with the DOL's historically neutral approach across asset classes. The rule arrives as part of a coordinated federal initiative. The Securities and Exchange Commission (SEC), U.S. Department of Treasury, and DOL are coordinating efforts to expand private market access for retirement savers, with the Treasury focusing on regulatory streamlining and the SEC and DOL addressing investor protection. At the same time, the SEC's 2026 examination priorities emphasize duty of care and loyalty obligations for firms serving retail investors, signaling that expanded access will be paired with closer regulatory scrutiny.

The Six-Factor Safe Harbor

The Proposed Rule identifies six non-exclusive factors that fiduciaries would need to "objectively, thoroughly, and analytically" consider and utilize in selecting a DIA. Under the proposed framework, when a fiduciary adequately considers these factors when selecting a particular investment, courts would "presume" the fiduciary's judgment satisfied the duty of prudence and would give it "significant deference." The safe harbor itself will not become available unless and until final regulations are issued. Nevertheless, prudent fiduciaries may wish to begin adopting elements of the proposed framework now because it provides a detailed roadmap for how the current DOL views the duty of prudence. When a plan's investment options consist of mutual funds, collective investment trusts (CIT), and exchange-traded funds—all of which price daily and trade on public markets—liquidity and valuation are essentially non-issues. Regulators already require these funds to manage liquidity and report accurate values. As a result, fiduciary committees reviewing traditional menus spend most of their time on performance, fees, and benchmarking. The DOL's examples confirm this: for registered funds, fiduciaries can simply rely on existing regulatory compliance. The six-factor analysis becomes meaningfully more demanding only when alternative assets enter the picture. The six factors are:

• Performance. Under the Proposed Rule, the fiduciary would be expected to consider the DIA's risk-adjusted expected returns over an appropriate time horizon, net of fees. Fiduciaries would not be required to select the highest-return option and, given the long-term nature of retirement savings, it may be prudent to give greater weight to long-term historical performance over short-term performance.
• Fees. Under the Proposed Rule, the fiduciary would need to consider a "reasonable number" of "similar" investment alternatives and determine that fees are appropriate, taking into account risk-adjusted expected returns and any other value (including benefits, features, or services) the investment brings to furthering the purposes of the plan. The Proposed Rule expressly rejects a lowest-cost requirement: the fiduciary would not violate its duties solely because it does not select the alternative with the lowest fees.
• Liquidity. Under the Proposed Rule, the fiduciary would need to determine that the selected investment will have sufficient liquidity to meet plan and participant needs. Some illiquidity may be acceptable if prudently balanced against additional risk-adjusted returns. For example, for investments with redemption restrictions not subject to the Investment Company Act of 1940 (the 1940 Act), the Proposed Rule provides that, as a safe harbor avenue, the fiduciary may rely on manager representations that the fund has adopted a liquidity risk management program "substantially similar" to one meeting the 1940 Act liquidity risk management requirements.
• Valuation. Under the Proposed Rule, the fiduciary would need to determine that the DIA can be timely and accurately valued. For investments that include alternative assets without a generally recognized market, the fiduciary would need to determine that the assets are valued through an independent, conflict-free process that satisfies generally recognized accounting standards.
• Benchmarking. Under the Proposed Rule, each DIA would need to have a meaningful benchmark, which the DOL defines as "an investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks." Composite and custom benchmarks are permitted. The Supreme Court's pending decision in Anderson v. Intel (certiorari granted January 2026), which addresses whether ERISA plaintiffs must plead a "meaningful benchmark" to state a prudence claim, makes this factor especially important to watch.
• Complexity. Under the Proposed Rule, the fiduciary would be expected to assess whether it has the skill and capacity to comprehend the investment sufficiently or whether to seek professional assistance. Fiduciaries would not be precluded from selecting complex strategies, provided they secure sufficient information to understand the risks.

The Proposed Rule includes for each of the six factors multiple examples describing how a fiduciary might consider that factor when selecting an investment, emphasizing that there is no "one-size-fits-all" approach to DIA selection.

The proposed safe harbor addresses only the duty of prudence in selecting a DIA. It does not cover ongoing monitoring obligations (though the DOL has indicated it will issue separate interpretive guidance on monitoring), prohibited transactions, diversification, or the duty of loyalty. Again, while the safe harbor protections would not become available until final regulations are issued, the six-factor framework reflects the DOL's current expectations for prudent fiduciary decision-making.

CITs: The Emerging Vehicle of Choice

The Proposed Rule is expected to accelerate the development of alternative-asset products for 401(k) plans, many of which will be structured as CITs. A CIT is a bank-maintained pooled investment vehicle exempt from SEC registration under Section 3(c)(11) of the 1940 Act. Banks and trust companies maintain CITs under the Office of the Comptroller of the Currency or state banking authority. CITs are available only to qualified retirement plans and certain institutional investors, and they operate under a bank-trustee governance model rather than an independent board.

CITs offer several structural advantages for delivering alternative asset exposure. Without SEC registration or prospectus requirements, they operate at lower cost. They also offer flexibility that registered funds cannot easily match: multiple share classes, tailored fee schedules, and liquidity management tools such as "liquid sleeves," redemption queues, and gates.

However, the Proposed Rule's safe harbor examples reference 1940 Act compliance as the benchmark for liquidity and valuation, which is straightforward for registered funds. For CITs, the examples suggest that liquidity and valuation provisions must be "substantially similar" to 1940 Act standards—raising questions about who decides whether that standard is met. This tension may be addressed in the final rule.

Practical Takeaways

The Proposed Rule carries practical implications for asset and fund managers, investment advisors and broker-dealers, and plan sponsors as they gear up for what could be a significant opportunity.

For Alternative Asset and Fund Managers

For asset and fund managers, the Proposed Rule lays out the framework under which such persons can create new, more diversified investment products with asset categories not traditionally found in participant-directed 401(k) plans and introduce these alternative investment products within a zone of safety from certain fiduciary challenges under ERISA section 404. Managers may find opportunity in designing products that make it straightforward for fiduciaries to demonstrate compliance with each factor. As plan fiduciaries would likely rely heavily on written manager representations (particularly regarding valuation, liquidity, and fees), managers may want to begin preparing comprehensive, institutionally rigorous due diligence responses.

The Proposed Rule supplements but does not replace existing ERISA fiduciary standards. Practical obstacles that have historically limited access to alternative asset investments remain. Such obstacles exceed the scope of this discussion, but include, for example, the ERISA "25% Test": if benefit plan investors hold 25% or more of any class of equity interests in an entity, that entity's assets become "plan assets" subject to ERISA's fiduciary and prohibited transaction rules. CITs themselves are exempt because they are established for the exclusive benefit of plan investors, but the private funds held by CITs may not be.

For Investment Advisers and Broker-Dealers

The Proposed Rule creates new demand for advisory services aligned with ERISA's fiduciary framework. From an Investment Advisers Act of 1940 (Advisers Act) perspective, managers building 401(k) products should note that their contractual client is typically the fund, the target-date fund (TDF) manager, or another fiduciary decision-maker—not individual participants—creating a dual compliance lens: SEC and Advisers Act requirements for the pooled vehicle, and ERISA/DOL requirements for the 401(k) context. Private funds relying on Sections 3(c)(1) or 3(c)(7) of the 1940 Act cannot be offered through defined contribution plans without restructuring, as those exemptions restrict marketing and impose investor-counting requirements incompatible with participant-directed plans. Managers may wish to evaluate whether 1940 Act-registered structures (such as interval funds or non-traded business development companies) or CITs are the more appropriate vehicle for their strategy.

Broker-dealers facilitating alternative investment products with plan sponsors will want to carefully evaluate the boundary between activity governed under SEC Regulation Best Interest (Reg BI) and the assumption of ERISA fiduciary status. Reg BI requires broker-dealers to act in the best interest of retail customers, but that standard differs from ERISA's fiduciary obligations, particularly with respect to ongoing monitoring duties and conflicts management. A broker-dealer deemed to have provided "investment advice" under ERISA Section 3(21) could find itself subject to full ERISA fiduciary status, with attendant litigation exposure. The practical distinction is significant: Reg BI triggers point-of-sale obligations, whereas ERISA fiduciary advice creates an ongoing duty relationship. Broker-dealers may wish to consider structuring engagement models to delineate clearly between non-fiduciary activity and fiduciary advice.

The SEC's 2026 examination priorities target duty of care and duty of loyalty for firms serving retail investors, while recent Marketing Rule enforcement has focused on retail-facing advertising and conflicts management. Given that 401(k) participants are positioned similarly to retail investors, managers and broker-dealers should anticipate heightened scrutiny. Managers may want to review fund documentation and marketing materials for defined contribution-oriented alternative products for Marketing Rule compliance, including verification of performance claims, disclosure of material risks, and substantiation of any comparative statements.

For Plan Sponsors and Fiduciaries

The proposed safe harbor rewards documented process, not investment outcomes. Although the safe harbor itself will not become available unless and until final regulations are issued, prudent plan sponsors and fiduciaries may wish to begin incorporating elements of the proposed framework now—both because it provides a detailed roadmap for how the DOL views the duty of prudence and because doing so will position them to take advantage of the safe harbor when it becomes operative. Sponsors and fiduciaries may wish to begin discussions with their ERISA counsel and their plan's ERISA Section 3(21) investment advisors or Section 3(38) investment managers to assess whether and when alternative asset exposure may be appropriate for their participants. As the regulatory landscape develops, sponsors may wish to consider several preparatory steps going forward:

• Audit existing fiduciary review procedures against the six-factor framework, including investment policy statements, committee charters, and RFPs for new products and advisors, and assess whether and when they should be updated to reflect the proposed safe harbor criteria.
• Develop standardized due diligence questionnaires that map to the proposed safe harbor's requirements. Plan fiduciaries may rely on written representations from investment managers and advisors to satisfy many of the safe harbor factors, particularly for liquidity, valuation, and benchmarking—but those representations must be solicited, documented, and understood.
• Maintain robust, contemporaneous documentation of fiduciary committee deliberations—including the six-factor analysis, due diligence findings, manager representations, and the rationale for each investment decision. In ERISA fiduciary litigation, "prudence is process," and documenting that process is essential protection.

The most likely near-term opportunity for plan sponsors and fiduciary committees is evaluating a TDF that incorporates exposure to diversified investment alternatives (e.g., private equity, private credit, and infrastructure funds)—such as a TDF with an illustrative 5–10% private markets allocation—rather than adding a stand-alone alternative investment option. TDFs are already the dominant allocation channel in defined contribution plans, and embedding alternative exposure within a TDF allows participants to access these asset classes without navigating complex stand-alone vehicles. Several major TDF providers have announced or launched products with private capital sleeves, positioning this channel as the early mover for alternative asset adoption.

Key Takeaways

• The DOL's Proposed Rule would establish a process-based safe harbor for selecting 401(k) investment options, potentially reducing litigation risk for fiduciaries that follow a documented review process. Although the safe harbor is not yet operative, the proposal is expected to accelerate access to alternative investments in defined contribution plans.
• The proposal emphasizes process over outcomes, focusing on factors such as performance, fees, liquidity, valuation, benchmarking and complexity. Fiduciaries may wish to begin incorporating the framework into investment review and documentation practices now, as it reflects the DOL's current view of prudent decision-making.
• CITs are expected to play a significant role in expanding access to private market investments within 401(k) plans. However, questions remain about how certain liquidity and valuation standards will apply under a final rule.
• The proposal could create new opportunities for asset managers, advisers and broker-dealers as demand for alternative investment products grows. Firms should also prepare for increased scrutiny of fiduciary obligations, disclosures and compliance practices.

Looking Ahead

The public comment period for the Proposed Rule closed on June 1, 2026. The proposal generated substantial public interest: as of the date of this publication, the Regulations.gov docket reported 47,103 comments received and 39,296 comments publicly posted. The final rule could change materially in response to the comments the DOL receives. The Supreme Court's forthcoming decision in Anderson v. Intel, which the Court will not hear arguments on until Fall 2026, will likely shape the pleading standard for ERISA prudence claims and the practical value of the proposed safe harbor's benchmarking factor. The DOL has indicated it will issue separate interpretive guidance on the ongoing duty to monitor DIAs. Congressional activity, including the pending Retirement Investment Choice Act, could give Executive Order 14330 the "force and effect of law." And in the broader market, practitioners and investment advisors expect the Proposed Rule to accelerate CIT product development and TDF partnerships with alternative asset managers, with industry analysts (including Deloitte) projecting that private capital in defined contribution plans could exceed $1 trillion by 2030.

The regulatory trajectory is clear, and the market is already moving. Those who begin laying the legal, operational, and product infrastructure in the coming months will be well positioned when the regulatory path is settled.

For more information on how these developments may affect your plan's investment processes, product design strategy, or compliance programs, please contact Phil McKnight, Eric Mikkelson, Andrew Arbuckle, or the Stinson LLP contact with whom you regularly work.