On March 30, 2026, the Department of Labor (“DOL”) issued a proposed regulation titled “Fiduciary Duties in Selecting Designated Investment Alternatives” (the “Proposal”). The Proposal: (1) includes safe harbors for fiduciaries when selecting investment options to include in a participant-directed plan’s (“401(k) Plan”) investment menu; (2) provides clarification regarding the prudent selection of investment options offered under a 401(k) Plan; and (3) seeks to alleviate regulatory burdens and litigation risks that the DOL views as interfering with Americans’ ability to receive competitive returns and asset diversification within 401(k) Plans. The Proposal describes prudent processes for selecting plan investment options, including those that have exposure to alternative assets. Particularly, the Proposal would expand the adoption of alternative asset exposure within target date and other pooled investment options offered under 401(k) Plans.
The Proposal restates the DOL’s long-standing position that ERISA does not require or restrict any specific type of investment options within pension plans, including 401(k) Plans. While it takes a broader approach to addressing potential fiduciary obligations in the selection of plan investment options, the Proposal states that it is intended to respond to President Trump’s 2025 Executive Order, which instructed the DOL to increase access to alternative assets within 401(k) Plans and reduce “frivolous” litigation. The DOL anticipates the Proposal should lead many 401(k) Plans to adopt investment options that include alternative assets. In this regard, the Proposal focuses on pooled investment options that include alternative assets as a portion of their investment portfolios. Although permitted by the Proposal, the direct listing of alternative assets such as hedge funds and private equity funds is not directly addressed in the Proposal.
The Proposal reiterates that section 404 of ERISA requires a fiduciary to follow a prudent process and consider those facts and circumstances that the fiduciary knows or should know are relevant to the particular investment. The Proposal does not provide a detailed description of prudent investment menu construction, but instead provides a variety of examples relating to the following non-exhaustive list of potential factors: performance, fees, liquidity, valuation, performance benchmarks, and complexity. The examples are intended to provide clarity that the fiduciary should focus on the best possible risk-adjusted returns, net of fees, rather than solely the lowest fees or highest possible returns. Additionally, the Proposal provides a safe harbor for reliance on outsourced investment professionals when reviewing the inclusion of an investment option.
The Proposal does not provide a detailed description of prudent investment menu construction but clarifies that a prudently designed 401(k) Plan includes an analysis of the investment menu as a whole as well as each individual investment option. Furthermore, one example in the Proposal clarifies that it would be prudent to include both an actively and a passively managed option covering the same asset class, even when the actively managed fund has higher fees, since the increase in fees can be appropriate due to the differing asset exposure and risk profile provided.
The Proposal provides a 60-day period for public comments.
Seward & Kissel will continue to analyze the Proposal and provide more information in the future. If you have any thoughts or questions on the matter, please contact Bradley Fay at (212) 574-1429, S. John Ryan at (212) 574-1679, Michael O’Brien at (212) 574-1505, or Shayna Roth at (212) 574‑1309.
