On March 30, the Department of Labor (“DOL”) issued its long-anticipated proposed regulation, “Fiduciary Duties in Selecting Designated Investment Alternatives”, that is intended to address the dual aims of (i) expanding 401(k) designated investment alternatives (“DIAs”) to funds that include alternative assets and (ii) limiting litigation risk.  The impetus for the proposed regulation was President Trump’s August 7, 2025 Executive Order – Democratizing Access to Alternative Assets for 401(k) Investors – to allow 401(k) participants access to alternative assets if a plan fiduciary determines it is appropriate.  The proposed regulation, through detailed examples, provides a roadmap to plan fiduciaries for investing in alternative assets, but also provides an asset-neutral “process-based safe harbor” to guide plan fiduciaries in selecting DIAs.  In providing the safe harbor, the DOL asserts that plan fiduciaries will enjoy reduced litigation risk – another aim of the President’s Executive Order.  While the proposed regulation’s safe harbor is helpful, there is an open question as to how effective it can be in taming the firehose of litigation that has been plaguing plans and plan fiduciaries for decades.

How Did We Get Here?

President Trump’s August 2025 Executive Order directed the DOL and U.S. Securities and Exchange Commission to review applicable guidance to address the policy “that every American preparing for retirement should have access to funds that include investments in alternative assets.”  The Executive Order defines “alternative assets” broadly to include almost all investments other than those typically considered to be “traditional” asset classes, such as publicly traded stocks, bonds, and cash.  “Alternative assets” include private market investments, interests in real estate, digital assets, commodities, infrastructure investments, and lifetime income investment strategies. As we discussed in our earlier post, Trump Seeks to Encourage PE and Crypto 401(k) Plan Investments, the regulatory treatment of alternative investments in 401(k) plans has shifted significantly over the past several years.  In 2020, the DOL under the first Trump Administration issued an Information Letter confirming that plan fiduciaries could offer a professionally managed asset allocation fund with a private equity component, provided they followed an objective, thorough, and analytical process. However, the Biden Administration DOL tempered that guidance in December 2021 with a supplemental statement cautioning that many 401(k) plan fiduciaries do not have the experience to evaluate investing in private equity, and in March 2022 issued additional guidance cautioning fiduciaries to exercise “extreme care” before adding cryptocurrency options.  In May 2025, the DOL rescinded the 2022 cryptocurrency guidance, noting that the “extreme care” standard was “not found in ERISA and differs from ordinary fiduciary principles.”  In August 2025, the second Trump Administration DOL rescinded the 2021 supplemental statement on private equity, finding that it “deviated from the Department’s historically neutral and principles-based approach to fiduciary investment decisions creating a potentially costly chilling effect on the market.” 

DOL’s Proposed Safe Harbor

The proposed regulation outlines a safe harbor for plan fiduciaries to satisfy the duty of prudence imposed by the Employee Retirement Income Security Act of 1974 (“ERISA”) in the selection of a designated investment alternative (“DIA”).  Under the proposed rule, a “DIA” refers to any investment alternative that is provided by the plan which participants and beneficiaries may direct their investments into, including a qualified default investment alternative, but does not include a brokerage window.

As set out in the proposed rule, if the plan fiduciaries objectively, thoroughly, and analytically consider the following six factors discussed below, the plan fiduciary is presumed to have met its duty of prudence and is entitled to “significant deference”.  “Significant deference” remains undefined in the text of the proposed regulation, which instead refers in a footnote to the abuse of discretion standard that courts apply to plan fiduciaries in the context of benefit claims.

Below each factor are selected examples that provide the roadmap for plan fiduciaries to invest in DIAs with alternative assets.

1. Performance. The fiduciary must appropriately consider a reasonable number of similar alternatives and determine that the risk-adjusted expected returns, over an appropriate time-horizon of the DIA, net of anticipated fees and expenses, further the purposes of the plan by enabling participants to maximize risk-adjusted returns on investment net of fees and expenses.

For example: The fiduciary considers various risk measures, including the Sharpe ratio, and selects the DIA with alternative assets because it achieves higher risk-adjusted returns and its lower expected risk, as measured by volatility, overcomes the lower expected returns.  Another example uses 10-year historical performance data as most probative for purposes of selecting the DIA.

2. Fees.  The fiduciary must 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 and any other value the DIA brings to furthering the purposes of the plan.

For example: The fiduciary determines that adding a lifetime income benefit through a variable annuity contract to an existing DIA provides commensurate value for the additional fee charged (i.e., the lifetime income feature adds value).  The fiduciary adds alternative assets to a DIA as a risk mitigation strategy that provides decreased volatility and reduced risk of large losses during a market downturn as reflected in stochastically modeling risk-adjusted returns, which added value justifies the higher fees related to the alternative assets.

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 and individual levels.

For example: Sufficient participant-level liquidity (e.g., for withdrawals, investment transfers) is deemed met by the fiduciary obtaining a written representation from the person managing the DIA or otherwise performing appropriate due diligence that the DIA has adopted and implemented a liquidity risk management program that is substantially similar to those required for mutual funds and critically reviewing and understanding the written representation and consulting a qualified professional where appropriate, and does not have reason to know of other information that would cause the fiduciary to question the written representation.

Plan-level liquidity (e.g., termination of the DIA) is deemed met by the fiduciary through the written representation process discussed above or giving consideration to the scope and duration of redemption restrictions at the plan level and any advance notice to exit the DIA and concluding that the DIA appropriately balances the future liquidity needs of the plan, the DIA’s ability to increase risk adjusted returns, the DIA’s ability to maintain its asset allocation targets. Participant and plan level liquidity for private assets is met by the fiduciary considering the redemption structures and the need to maximize risk-adjusted return on structure.

4. Valuation. The fiduciary must appropriately consider and 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 needs of the plan.

For example: The fiduciary is deemed to meet the valuation requirement by obtaining from the DIA manager a written representation that the securities for which there is not a generally recognized market are valued through a conflict-free, independent process no less frequently than quarterly, according to procedures that satisfy the FASB 820 accounting standard, critically reviewing and understanding the written representation, and not having reason to know of other information that would cause the fiduciary to question the written representation.  The conclusion does not change if the DIA manager uses alternative valuation procedures if the DIA manager documents a temporary emergency.

5. Performance Benchmark.  The fiduciary must appropriately consider and determine that each DIA has a meaningful benchmark and compare the risk-adjusted expected returns of the DIA to the meaningful benchmark.  For this purpose, meaningful benchmark is an investment, strategy, index or other comparator that has similar mandates, strategies, objectives, and risks to the DIA. 

Meaningful benchmark for purposes of the proposed regulation appears to have a slightly different meaning than “meaningful benchmark” pleading requirement currently before the U.S. Supreme Court in Anderson v. Intel Corp. Investment Policy Committee, which focuses on providing a sound basis for comparison to other funds with comparable aims to establish circumstantial evidence of an alleged breach of fiduciary duty.

For example: The fiduciary may use a custom composite benchmark for a DIA with alternative assets as the meaningful benchmark, by using a combination of methodologies used by investment professionals, including the internal rate of return method and a public market equivalent; the composite is meaningful because it reflects a similar strategy as the DIA.

6. Complexity.  The fiduciary must 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 governing documents or whether it must seek assistance from a qualified investment advice fiduciary, investment manager or other individual.

For example: The fiduciary is deemed to meet the complexity standard with respect to private asset incentive fees by obtaining from the DIA manager a written representation that the fees will not be passed on to the plan (instead, the plan pays a percentage of fees based on assets under management) critically reviewing and understanding the written representation, and not having reason to know of other information that would cause the fiduciary to question the written representation, or determining that the increased value by incentivizing performance outweighs the variability or potential unpredictability of the amount and timing of the fees.

Note that the proposed rule does not address the fiduciary’s duty to monitor plan investments.  The DOL has indicated it anticipates issuing separate guidance concerning the duty to monitor DIAs.  However, the DOL indicates that it anticipates the same or similar factors articulated in the proposed rule will apply to the ongoing duty to monitor. The proposed regulation represents the start of a multi-step federal rulemaking process.  The proposed rule includes a 60-day public comment period during which any interested party may submit written comments to the DOL.  The DOL has specifically invited comments on its estimates of benefits, costs, and transfers, as well as on substantive questions regarding the types of investment vehicles plans would use to offer alternative assets, and will take any such comments into account in drafting the final rule.

Thompson Hine Takeaways

Continue Good Fiduciary Practices.  The proposed rule provides an excellent roadmap for plan fiduciaries considering not only alternative assets, but any DIA.  To take advantage of the safe harbor, plan fiduciaries must continue good fiduciary practices:

• Adopt a formal Committee structure
• Have regular periodic Committee meetings
• Properly document all Committee reviews and decisions (e.g., meeting minutes)
• Engage qualified experts
• Establish, periodically review, and comply with investment policy statements
• Conduct regular review of performance and fees on investments/options
• Review other options for diversification and potential alternative funds
• Monitor significant high profile developments (e.g., regulatory and litigation (watch what the plaintiffs’ lawyers are watching))
• Conduct periodic request for proposals

Thorough documentation is powerful protection – memories fade, but records endure.

Don’t Expect a Reprieve From Litigation – At Least Not Yet.  With respect to the aim of the proposed regulation of reducing litigation risk, it remains to be seen whether the proposed safe harbor would meaningfully increase plan fiduciary defendants’ success at the motion to dismiss phase of litigation, after which point litigation becomes much more expensive (and therefore, defendants are more inclined to settle, regardless of the merits of the plaintiff’s claims).  The practical impact on litigation more generally relies on the courts to give deference to the six safe harbor factors, requiring an analysis of facts not likely to be pleaded in the complaint.  While the factors may provide a helpful standard for the courts to apply at the summary judgment stage, this does little to address the developed pattern whereby plaintiffs file suit, are able to survive the motion to dismiss based on the facts pleaded in the complaint, and the parties reach settlement to avoid the significant cost of further litigation.  Additionally, the influence of the proposed rule may be impacted by the Supreme Court’s decision in Anderson v. Intel Corp. Investment Policy Committee regarding the meaningful benchmark pleading standard needed at the motion to dismiss stage.  We anticipate the DOL will continue to support fiduciary defendants through amicus briefs consistent with the proposed rule.

For Alternative Asset Investment, be Thoughtful and Patient.  The alternative asset market is developing as recordkeepers and private market managers are aligning with new products, and the development is likely to accelerate with the proposed regulation.  For some, the proposed regulations may provide the roadmap they need to enter the alternative asset market with an objective, thorough and analytical process.  For many, “waiting and seeing” while “monitoring and learning” about these developments, including the methodologies and processes discussed in the alternative asset examples, may be the better route, especially if they do not have prior experience with private market assets.

Please contact the authors or your Thompson Hine attorney with any questions.