The Employee Benefit Security Administration (EBSA) of the US Department of Labor (DOL) has issued a proposed regulation on the selection of investments for participant-directed plans, such as 401(k) plans. 2026-06178.pdf

The Beginning: An Executive Order

The proposal is the direct result of an August 7, 2025 White House Executive Order (EO) entitled “Democratizing Access to Alternative Assets for 401(k) Investors”.  Democratizing Access to Alternative Assets for 401(K) Investors – The White House

The EO defines “alternative assets” as:

• Private market investments, such as private equity and private credit funds, and hedge funds.
• Direct and indirect investments in real estate, including debt associated with real estate.
• Actively managed investment vehicles investing in digital assets.
• Direct and indirect investments in commodities.
• Direct and indirect interests in projects financing infrastructure development.
• Lifetime income investment strategies including longevity risk-sharing pools.

The EO then says, in relevant part:

Within 180 days of the date of this order, the Secretary shall further, as the Secretary deems appropriate and consistent with applicable law, seek to clarify the Department of Labor’s position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets under ERISA.  Such clarification must aim to identify the criteria that fiduciaries should use to prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments.  [The bolding was added by me]

In other words, the DOL is ordered to issue guidance on the prudent selection of “asset allocation funds” that include allocations to alternative assets, including the criteria that fiduciaries should use in a prudent process.

The proposed regulation is responsive to that order and, in fact, goes beyond it by describing the criteria that apply to all investments for participant-directed plans, including both alternative assets and traditional assets (such as mutual funds and collective investment trusts).  That means that fiduciaries of plans that don’t include alternative investments need to pay attention to this proposal as well.

Also, while the EO limited itself to allocations to alternative investments as parts of asset allocation investments and strategies, the proposal is much broader….it covers the selection of standalone alternative investments.

Realistically, though, plan sponsors may choose not to add alternatives (such as private funds) as standalone options.  Instead, at least for the foreseeable future, they are more likely to allow alternatives to be included in asset allocation funds and strategies, such as target date funds and managed participant accounts.  In that case, the likely course of action would be to transfer the job of prudently evaluating and acting on the criteria identified by the DOL to the 3(38) investment managers of those funds and strategies.

The EO also expressed the White House’s concerns about “frivolous” lawsuits against plan fiduciaries and directs the DOL go take steps to reduce that risk:

The Secretary shall also propose rules, regulations, or guidance, as the Secretary deems appropriate, that clarify the duties that a fiduciary owes to plan participants under ERISA when deciding whether to make available to plan participants an asset allocation fund that includes investments in alternative assets, which rules, regulations, and guidance may include appropriately calibrated safe harbors.  In carrying out the directives in this section to further the policy set forth in this order, the Secretary shall prioritize actions that may curb ERISA litigation that constrains fiduciaries’ ability to apply their best judgment in offering investment opportunities to relevant plan participants. [I added this bolding too]

The proposed regulation also addresses that part of the EO by developing a fiduciary “safe harbor” that will, once the regulation is finalized (and if it survives court challenges), be more protective of plan fiduciaries. However, notwithstanding the label, the protection is not a safe harbor as that term is commonly used; instead, it is a conditional and rebuttable presumption. (The details of the safe harbor are for a future article.  This article is just an overview.)

The Proposed Regulation

The proposal responded to the White House EO by describing the criteria (or, at least, some of the criteria) for selecting alternative assets and by developing a presumption that the EBSA refers to as a safe harbor.

As I will explain in a future article, the proposed regulation identifies six factors that the DOL says are common to the consideration of all investments, alternative and traditional, for participant directed plans.  In addition, it says that there may be other “relevant” factors beyond those six.  (A “relevant” factor is one that a knowledgeable investor would decide is material to making a decision about a particular investment.) Fiduciaries must consider all relevant factors in making a prudent investment decision.  As the DOL explains, that involves identifying the criteria for evaluating a particular investment, and then obtaining and evaluating that information.  In some cases, the information and its evaluation may exceed current investment practices—but that is for a future article.

Concluding thoughts

That’s it for now.  There is much to talk about.  My next post will be about other surprises in the proposal.  After that, I will get into the concept of relevant factors and the six relevant factors that the DOL considers to be common to the evaluation of all investments for participant-directed plans. Then, in due course, I will discuss the scope and limits of the safe harbor.

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The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.