Recent DOL Rule Proposal Could Expand Retirement Account Access to Alternative Investments

Introduction

On March 30, 2026, the US Department of Labor (DOL) released an eagerly-awaited proposed rule concerning alternative investments by retirement savers in defined contribution plans (i.e., 401(k) accounts). The proposed rule, which would provide guidance and potential safe harbor for ERISA fiduciaries that include alternative assets as investment options in the plans they sponsor, is a significant development in the ongoing retailization of private capital that is shaping the asset management industry. If the rule is adopted, it can facilitate greater access for individuals contributing to their 401(k) accounts to invest in alternative assets such as private market investments, real estate interests, commodities, interests in projects financing infrastructure development, holdings in actively managed investment vehicles that are investing in digital assets, and lifetime income investment strategies including longevity risk-sharing pools.

The proposed DOL rule has the potential to benefit private capital managers, by affirming a process-based, asset-neutral prudence standard and establishing a safe harbor for ERISA fiduciaries that appropriately consider investment strategies.

Overview of the proposed rule

The proposed rule was in response to, and builds upon, an Executive Order issued by President Trump in August 2025 intended to democratize access to alternative investments for retail investors. However, the proposed rule is not limited to alternative assets but rather applies with respect to any investment option that a fiduciary selects for a defined contribution retirement plan.

The proposed rule defines broadly the concept of “designated investment alternatives” (DIAs) as “any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts, including a qualified default investment alternative.”

The DOL’s proposed rule would apply specifically to a fiduciary's selection of DIAs for participant-directed individual account plans, and has three core objectives:

• First, the proposed rule would affirm that assessing whether a plan sponsor has complied with its ERISA duty of prudence is a process-based analysis that focuses on the methods and process used by the sponsor to assess a transaction.
• Second, the proposed rule would reiterate that fiduciaries have maximum discretion in selecting DIAs to further the purposes of the plan.
• Third, the proposed rule would establish that fiduciaries following the proposed prudent process are entitled to significant deference, including a presumption of prudence and safe harbor.

These objectives affirm that a particular type of investment – for example, an alternative asset – is not inherently or per se restricted or prudent. The proposed rule explains that for an ERISA fiduciary responsible for selecting DIAs, the duty of prudence extends beyond the mere selection of individual investment options to encompass the overall collection of DIAs and the establishment of a diversified investment menu. This cumulative and wholistic assessment is intended to enable plan participants and beneficiaries to seek to maximize risk-adjusted net returns on investment across their entire portfolio, while taking into account the different risk capacities of individual participants.

In addition, to reflect the deference described in the third objective, the proposed rule would introduce a process-based safe harbor for retirement plan fiduciaries to use when selecting DIAs. This safe harbor is intended to mitigate potential litigation risk for plan sponsors that meet specified considerations, in light of concerns that the threat of litigation deters plan sponsors from including alternative assets in the menu of available investments.

Limitations of the proposed rule’s scope

Notably, the proposed rule would not apply to brokerage windows and self-directed brokerage accounts, which are excluded from the definition of DIA. Moreover, the proposed rule’s safe harbor would not apply to a fiduciary’s duty to monitor designated investment options at regular intervals after their selection. (However, the proposing release notes that many of the considerations related to prudently selecting an investment option would be relevant to the duty to monitor investments). Last, and importantly, the proposed safe harbor would not affect a fiduciary's separate obligations under ERISA's duty of loyalty (Section 404(a)(1)(A)) or prohibited transactions (Section 406) provisions.

Safe harbor

The proposed rule would establish a safe harbor regarding both the class of investments, i.e. including alternative assets as an asset class in the plan, and the particular investment vehicles selected. The proposed safe harbor is process-based and focuses on six factors that fiduciaries must, “objectively, thoroughly, and analytically” consider when selecting each DIA. When a fiduciary follows this process, its judgment on the relevant factor is entitled to significant deference and presumed to have satisfied the duty of prudence – but the proposing release caveats that these six factors are not necessarily exhaustive. The proposed rule includes example scenarios and discusses measures by a plan sponsor that would or would not be sufficient to satisfy the safe harbor factors.

These six safe harbor factors are: (1) Performance; (2) Fees; (3) Liquidity; (4) Valuation; (5) Performance Benchmark; and (6) Complexity. Each of these factors, and the example scenarios, are discussed below.

When these factors are considered together, particularly in conjunction with the illustrative examples provided, it becomes clear that under the proposed rule, ERISA fiduciaries would be afforded significant latitude to exercise prudence. This framework encourages a holistic, plan-wide approach to evaluating DIAs, which not only accommodates but actively supports the appropriate consideration and inclusion of complex investment strategies, including alternative assets, within the overall investment menu of any plan.

1. Performance — Under the proposed rule, plan fiduciaries must consider a reasonable number of similar alternatives and determine that the risk-adjusted expected returns of the DIA, net of fees, maximize risk-adjusted returns for the plan over an appropriate time horizon.
   • Under this proposed safe harbor factor, fiduciaries need not select the highest-returning option; maximizing overall risk-adjusted returns for the plan is the standard. Critically, this performance test is undertaken on a plan-wide basis, allowing alternative investments to be evaluated not just on their standalone performance, but on their contribution to the diversification and risk management of the entire plan. The proposed rule’s examples explicitly recognize the contribution of alternative assets to the plan-wide objective of achieving risk-adjusted returns, and that plan fiduciaries may select investments that hold alternative assets with low correlations to stock and bonds in their portfolios for the purpose of achieving lower correlation. This demonstrates that prioritizing a lower-risk strategy, especially one that leverages the diversification benefits of alternative assets to improve plan-wide risk-adjusted returns, can be a prudent approach.
   • Other key components of this factor include a “net basis” approach (accounting for all anticipated fees and expenses) and a “time horizon” consideration that aligns needs of plan participants over the course of their anticipated investment (i.e., investments with a longer time horizon may be prudent for younger workers participating in the plan. The proposed rule’s examples for the performance factor highlight that the prudence standard focuses on a comprehensive process for evaluating investments to maximize risk-adjusted returns for the entire plan over an appropriate time horizon, rather than solely pursuing the highest nominal returns from individual components. 
2. Fees — Under the proposed rule, the plan fiduciary must objectively, thoroughly, and analytically consider a reasonable number of similar alternatives and determine that the fees and expenses of the DIA are appropriate. This assessment must take into account risk-adjusted expected returns and any other value the DIA brings to furthering the purposes of the plan (such as benefits, features, or services).
   • The proposed rule explicitly states that while fees must be appropriate in light of risk-adjusted returns (and any other value the DIA provides), a fiduciary would not violate ERISA solely because it does not select the investment option with the lowest fees and expenses from among the alternatives considered. For example, a prudent plan fiduciary could choose to pay more in exchange for greater services.  This is similar to the position that the SEC has taken with respect to investment advisers’ obligation to seek best execution for their clients. This safe harbor factor requires critical evaluation of the applicable fees for any DIA under consideration, but allows plan fiduciaries to undertake a holistic view with respect to the product and service offerings of DIAs, in light of the broader risk-adjusted return profile of the entire plan. In addition, to satisfy the safe harbor factor, a plan fiduciary does not need to compare an investment it is considering with every similar alternative available in the market. Instead, the proposed rule specifies that a fiduciary must consider a “reasonable number of similar alternatives.” This allows for a pragmatic approach to due diligence, focusing on a sufficient, rather than exhaustive, comparison.
   • The proposed rule’s illustrative examples highlight scenarios where higher fees are justified by the value that a DIA provides, such as enhanced services, active management, or strategic diversification. For instance, an actively managed fund with a higher expense ratio could increase plan participants’ expected risk-adjusted returns through diversification and other risk mitigation strategies such as reduced volatility and downside protection. In contrast, a fiduciary would not be deemed to have acted prudently with respect to fees if it selects for a plan a more expensive share class of a registered investment company without adequately considering the differences in the fee structures of the various share classes.
3. Liquidity — The proposed rule would require that plan fiduciaries determine that the DIA will have sufficient liquidity to meet anticipated needs of the plan, at both the plan and individual levels. 
   • For participant-level (individual) liquidity needs, the fiduciary should consider the type of plan at issue, its features, and the overall profile of its participants and beneficiaries. With respect to plan-level liquidity, fiduciaries should consider the plans’ liquidity needs and whether redemptions by other investors or other plans could adversely affect the liquidity of a DIA or the DIA manager’s ability to maintain asset allocation targets – which is particularly relevant for pooled investments that hold sleeves of illiquid assets.
   • The proposed rule acknowledges that alternative assets are often less liquid than investments in publicly-traded securities, but that illiquidity and potential investment premium for illiquid investments may be appropriate for participants with longer time horizons to hold their investments. The proposed rule explicitly states that plans are not required to offer fully liquid options, provided that they can meet any liquidity promises they have made to participants and beneficiaries.
   • If the fiduciary selects as a DIA an open-end management investment company registered under the Investment Company Act of 1940 – i.e., a mutual fund – which must adopt a liquidity risk management program in accordance with Rule 22e-4 under the Investment Company Act, the fiduciary would typically be deemed to have satisfied the liquidity factor. For others types of investments, plan fiduciaries could satisfy the liquidity factor by obtaining a written representation by the manager of the DIA that it has adopted a liquidity risk management program substantially similar to those required of mutual funds – so long as the fiduciary critically reviews the representation and does not know or have reason to know of any reason to doubt the representation – or by conducting appropriate due diligence on the manager of the DIA. 
4. Valuation — The proposed rule would require a plan fiduciary to appropriately determine that the DIA has adopted adequate measures to ensure that the DIA is capable of being timely and accurately valued in accordance with the plan’s needs. 
   • The appropriate valuation considerations will depend on the nature of the assets. For securities that trade daily on a public securities exchange, the fiduciary could rely on asset valuations derived from those exchanges. For a DIA that includes securities for which there is not a generally recognized market (such as non-public securities), the fiduciary could rely on a written representation from the DIA’s manager that the non-public securities are valued at least quarterly in accordance with Financial Accounting Standards Board (FASB) Accounting Standard 820. Where the DIA involves a vehicle that is subject to Rule 2a-5 under the Investment Company Act concerning the valuation of securities for which there is not a public market, the plan fiduciary may rely on the vehicle’s valuation-related public disclosures and publicly available financial statements so long as the fiduciary does not know or have reason to question the veracity of such disclosures or financial statements.
   • The valuation considerations in the proposed rule and adopting release underscore that valuation considerations based on objective information (if available), a conflict-free and independent process, and/or the valuation requirements of the Investment Company Act or FASB 820 will typically satisfy the requirement for prudence with respect to valuation. The fiduciary can obtain written representations by the DIA’s manager concerning the valuation process, and/or conduct its own critical analysis, to satisfy this factor. The proposed rule’s example of a plan fiduciary does not satisfy the valuation factor, involving a continuation vehicle whose manager acquires assets that were managed or controlled by an affiliate and were valued based on the proprietary valuation methods of the manager or its affiliates, underscores that where valuations may be subject to a conflict of interest, a prudent fiduciary must take appropriate steps to understand and mitigate the potential adverse impacts of the conflict.
5. Performance benchmark — Under the proposed rule, plan fiduciaries must determine and consider a meaningful benchmark that serves as a comparator against which the risk-adjusted expected returns of the target DIA are measured. A “meaningful benchmark” is defined as an investment, strategy, index, or other comparator that shares similar mandates, strategies, objectives, and risks to the DIA under consideration.
   • Crucially, the proposing release emphasizes that no single benchmark applies to all DIAs; instead, the benchmark must specifically match the particular mandate, risks, and strategy of the DIA under consideration. A generic “market” index would thus be unlikely to meet the standard of a meaningful benchmark, but bespoke benchmarking – including via designated investment alternative designs – could meet this threshold, and the rule expressly provides that there is no presumption or preference against “new or innovative” approaches. To further illustrate this flexibility, the examples provided in the rule specifically highlight private market strategies that may satisfy the “meaningful benchmark” test through methodologies like Internal Rate of Return (IRR) and Public Market Equivalent (PME) for private equity components.
   • Pursuant to the proposed rule, plan fiduciaries may also rely on the assistance of prudently selected, independent investment advice fiduciaries to construct appropriate benchmarks, particularly for complex or hybrid strategies such as asset allocation funds with private equity sleeves. Plan fiduciaries must critically review and understand the advice provided, but the fiduciaries are not expected to be benchmark-construction experts.
   • Taken together, this factor shows that complex, multi-asset strategies, including those with private market components, can be appropriately benchmarked using custom composite indices developed with expert assistance. Private capital managers with unique strategies can therefore be measured and evaluated within a plan's investment menu, even if traditional public market benchmarks are not comparable.
6. Complexity — The proposed rule would require the plan fiduciary to appropriately consider the complexity of the DIA and determine that it has the skills, knowledge, experience, and capacity to comprehend it sufficiently to discharge its obligations under ERISA and the plan. This will typically include an understanding of the DIA’s features, values, and fees.
   • The proposing release explicitly states that plan fiduciaries are not precluded from selecting investment strategies that may be complex or sophisticated. The rule and proposing release explain that a fiduciary may satisfy the complexity factor by seeking assistance from a qualified investment adviser, investment manager, or other professional; while none of the safe harbor factors require such consultation, as a practical such consultation may be necessary for many plan sponsors to satisfy the safe harbor factors. The proposed rule includes an example involving a pooled investment vehicle whose holdings include private assets, and explains that the fiduciary may satisfy its obligation to act prudently by conducting due diligence on the DIA’s features and fees, or by obtaining a written representation from the DIA’s manager concerning the fee structure, critically assessing that representation, and confirming that it does not know or have reason to know of any information which would cause it to question the manager’s representation.

Next steps for asset managers and plan sponsors

The deadline to submit comments on the proposed rule is June 1, 2026. The DOL explicitly requested comments on certain subjects, including with respect to the comprehensiveness and applicability of the six safe harbor factors. Moreover, and particularly relevant to the private capital sector, the DOL seeks further comments on whether and how the proposed rule should be modified to address risks that may arise in connection with the valuation and asset selection process of certain private asset vehicles such as continuation vehicles. The proposing release also states that the DOL anticipates issuing interpretive guidance in the near term concerning the fiduciary’s obligations to monitor DIAs, which, as noted above, was not addressed in the current rule proposal. Thus, plan sponsors and asset managers should anticipate that a final rule will contain certain changes from the proposal.

Nonetheless, if finalized, this DOL rulemaking could be expected to facilitate greater access for individual investors to alternative assets. The proposed rule could be beneficial for private capital managers by providing plan fiduciaries with guidance and flexibility in evaluating and selecting private capital investments for inclusion in a plan. However, the specific impact of the rule will depend on future developments, including the manner in which the a rule is applied and interpreted by US regulatory agencies and courts over time.

Asset managers and plan sponsors should review the proposed rule and the safe harbor factors, and should begin to consider potential enhancements to their policies and procedures that may be necessary to satisfy these factors. In particular, they should consider valuation processes and methodologies, as well as their assessment of liquidity risks. These considerations are significant with respect to both the proposed safe harbor, and more broadly for private capital managers that are expanding access to their products and services to individual investors to mitigate potential regulatory and private litigation risks that such expansion may pose. Freshfields will continue to monitor this DOL rulemaking and other measures intended to increase access to private capital investments that are relevant to asset managers, financial institutions, and other clients.