Demystifying the Duty of Prudence: DOL Proposes ERISA Safe Harbor for Designated Investment Alternatives in Retirement Plans

On March 31, 2026, the Department of Labor (DOL) published a proposed regulation (the Proposed Regulation) creating a new safe harbor for Employee Retirement Income Security Act of 1974 (ERISA) named fiduciaries such as a retirement plan investment committee to meet its duty of prudence in selecting designated investment alternatives (DIAs, and each, a DIA) in participant-directed retirement plans, such as 401(k) and 403(b) plans. The proposal implements Section 3(c) of Executive Order 14330, Democratizing Access to Alternate Assets for 401(k) Investors (Aug. 2025) (the Executive Order), which directed the DOL and the Securities and Exchange Commission to revisit guidance relating to alternative investments, such as private equity and digital assets, in retirement plans. While the Executive Order focused on making alternative investment options available in plans, the Proposed Regulation applies to all DIAs, not just DIAs that involve alternative investments.

The Proposed Regulation supplements and builds on the “appropriate consideration” standard of fiduciary prudence in the existing Investment Duties regulation at 29 C.F.R. § 2550.404a-1, published in 1979 (the 1979 Regulation), which continues to govern fiduciary investment decisions broadly. Specifically, the Proposed Regulation provides a safe harbor, a six-factor framework for selecting DIAs. This framework is asset-neutral, meaning that it applies not only to the selection of alternative investments but also to the selection of more traditional plan investment offerings. 

This article provides an overview of the key takeaways from the Proposed Regulation, notable gaps in the Proposed Regulation, and next steps for plan fiduciaries. 

Key Takeaways

• A Six-Factor Framework. The Proposed Regulation tightens the 1979 Regulation’s open-ended “appropriate consideration” standard with a six-factor prudent process a fiduciary should use when selecting a DIA. The DOL affords fiduciaries “maximum discretion to select investments to further the purposes of the plan” when applying these factors.

1. Performance. The fiduciary must appropriately consider a reasonable number of similar investment alternatives and determine that the risk-adjusted expected returns (e.g., returns evaluated in light of the investment risks assumed to achieve them) of the DIA, over an appropriate time horizon and net of anticipated fees and expenses, enable participants and beneficiaries to maximize risk-adjusted returns on investment, net of those fees and expenses.
2. Fees. The 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, taking into account its risk-adjusted expected returns, net of fees and expenses, and any other value the DIA brings to furthering the purposes of the plan (e.g., access to a unique asset class, enhanced diversification, or specialized investment expertise). There is no requirement to select the lowest-cost option.
3. Liquidity. The fiduciary must appropriately consider and determine that the DIA will have sufficient liquidity to meet the anticipated needs of the plan at both the plan level (e.g., benefit distributions, loans, and hardship withdrawals) and the individual participant level (e.g., investment transfers and reallocations). Plans do not need to offer fully liquid investment options, but fiduciaries must ensure that investments can deliver on any promises of liquidity that are made to participants and beneficiaries. To help meet this duty, fiduciaries should request and review a DIA’s liquidity risk management program.
4. Valuation. The fiduciary must appropriately consider and determine that the DIA has adopted adequate measures (such as independent third-party valuations or other reliable pricing mechanisms) to ensure that the DIA is capable of being timely and accurately valued in accordance with the needs of the plan. To help meet this duty, fiduciaries should request and review information on a DIA’s valuation process, where such information is not otherwise available from public exchanges.
5. Performance Benchmarks. The fiduciary must appropriately consider and determine that each DIA has a meaningful benchmark (i.e., one that is appropriate for the DIA’s asset class, investment strategy, and risk profile) and compare the risk-adjusted expected returns, net of fees and expenses, of the DIA to that benchmark.
6. Complexity. The fiduciary must appropriately consider the complexity of the DIA and determine whether it has the skills, knowledge, experience, and capacity to comprehend the investment sufficiently to discharge its obligations under ERISA and the governing plan documents. If the fiduciary lacks such capacity, it must seek assistance from a fiduciary with investment expertise, such as an ERISA § 3(21)(A)(ii) investment advice fiduciary or an ERISA § 3(38) investment manager.

• A Presumption of Prudence. Each prong of the six-factor process is a safe harbor. Fiduciaries that follow the recommendations for a particular prong will receive a regulatory presumption of having satisfied ERISA’s duty of prudence under ERISA § 404(a)(1)(B) and are “entitled to significant deference” from a court in litigation involving the duty of prudence with respect to that prong of DIA selection. The DOL cites to “Skidmore deference” and its rulemaking authority under ERISA § 505 as support for this deference. However, it is possible that the presumption’s enforceability and efficacy may vary by circuit after the U.S. Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), which eliminated so-called Chevron deference to agency interpretations of ambiguous statutes.
• Investment Neutrality. The Proposed Regulation expressly provides that ERISA does not categorically prohibit or require any particular asset class, including private market investments, real estate, digital assets, commodities, infrastructure, and lifetime income strategies. This aligns with the DOL’s evolving posture on alternative investments, which has included revocation of two pieces of Biden-era guidance that cautioned plan fiduciaries against offering cryptocurrency and private equity investments in participant-directed investment plans.
• Importance of Written Representations. Where a safe harbor involves written representations from service providers, such as representations regarding fees, liquidity, or valuation, the Proposed Regulation requires that the fiduciary “reads, critically reviews, and understands” any such written representation, consults a qualified professional where appropriate, and does not know or have reason to know information that would cause the fiduciary to question the representation. To meet this obligation, fiduciaries should take care to properly document when this critical review process occurs, including, for example, by reflecting this review in committee minutes.
• No Change in Other ERISA Fiduciary Duty Standards. The Proposed Regulation addresses the ERISA fiduciary duty of prudence and does not impact a fiduciary’s other duties under ERISA, such as the duty of loyalty and duty to avoid conflicts of interest. 

Select Gaps in the Proposed Regulation

• Monitoring Safe Harbor Deferred. While the Proposed Regulation acknowledges the fiduciary duty to monitor DIAs at regular intervals, the DOL opted not to include a monitoring safe harbor, stating it will issue separate interpretive guidance “in the near term.” However, the DOL indicated that these same “factors and processes (or substantially similar factors and processes)” apply to the ongoing duty to monitor, and we expect that fiduciaries will begin applying this safe harbor framework to DIA monitoring pending the release of additional regulations.
• No Protection for Overall Menu Design. The Proposed Regulation’s safe harbor protects the selection of individual DIAs but does not extend to overall investment menu curation, which is addressed under ERISA § 404(c). Given that recent ERISA litigation, particularly excessive fee class actions, has frequently challenged the investment menu as a whole, this gap leaves fiduciaries without safe harbor protection for an actively litigated aspect of plan governance. Fiduciaries should continue to periodically evaluate the overall menu composition, ideally with the assistance of an outside investment advisor. As a best practice, the investment menu should be reflected in the plan’s investment policy statement (IPS) and committee minutes should reflect the review of and any modifications to the IPS.
• Brokerage Windows Are Excluded. The Proposed Regulation expressly excludes brokerage windows, self-directed brokerage accounts, and similar arrangements from the definition of DIA. The DOL acknowledged that fiduciary principles applicable to brokerage window investments “may be somewhat different” but offered no further guidance. This means that DOL Field Assistance Bulletin 2012-02R remains the operative guidance on these windows.   

Next Steps for Fiduciaries

Plan fiduciaries should consider the following steps, even before the Proposed Regulation is finalized:

• Evaluate current DIA selection and monitoring processes against the six factors and identify any gaps. Apply the six factors in any future discussion of both the selection of new DIAs and the retention of existing DIAs.  Document in fiduciary committee minutes how each factor is addressed for every DIA decision, including the analysis and conclusions reached.
• Obtain written representations from fund managers covering liquidity terms, valuation methodologies, and fee structures. Discuss these materials in fiduciary committee meetings, seek input from the investment advisor where appropriate, and document that review in committee meeting minutes.
• Continue to monitor developments in the alternative asset space, including whether attractive alternatives are emerging that can satisfy liquidity and valuation requirements.