DOL Guidance on Plan Investment in Alternative Assets Focuses on Fiduciaries’ Selection Process

On March 30, 2026, the U.S. Department of Labor (DOL) proposed a new rule relating to the selection of investment options for participant-directed individual account plans such as 401(k) plans, including options with exposure to alternative assets (Proposed Rule). Under a safe harbor in the Proposed Rule, if fiduciaries consider six key factors when choosing designated investment alternatives, their decisions would be presumed prudent under the Employee Retirement Income Security Act of 1974 (ERISA). “Designated investment alternatives” are the investment options into which plan participants and beneficiaries may direct their account assets. The Proposed Rule responds to Executive Order 14330, issued on August 7, 2025 and discussed in our August 2025 Advisory, which addressed access to alternative asset investments in employer-sponsored defined contribution plans. Notably, the Proposed Rule does not require or restrict any specific type of investment (except those that are otherwise illegal), but rather focuses on the selection process. This guidance has been long-awaited by providers of alternative asset investments, but the safe harbor applies to all investments.

At a high level, the proposed selection process reflects the ERISA “procedural prudence” standard that courts have generally endorsed. While the Proposed Rule introduces some nuance particularly around liquidity and valuation of non-publicly traded assets, the framework generally aligns with current best practices.

The following is a brief summary of the six factors fiduciaries must consider as part of the safe harbor:

1. Performance. The fiduciary must consider a reasonable number of similar investment alternatives and determine that the risk-adjusted expected returns, net of fees, furthers the plan’s purpose by enabling participants to maximize risk-adjusted return on investment.
2. Fees. Fees and expenses of designated investment alternatives must be appropriate. Fiduciaries should take into account expected returns net of fees. Fiduciaries are not required to select designated investment alternatives with the lowest fees and expenses, and may, in some circumstances, select higher-fee alternatives which provide greater value in the form of benefits, features, or services (for example, lifetime income or diversification benefits).
3. Liquidity. The designated investment alternatives must have sufficient liquidity to meet the needs of the plan. Liquidity needs are considered at the individual participant level (e.g., asset reallocations to other designated investment alternatives, retirement, separation from service, or financial hardship) and at the plan level (e.g., plan terminations and changes in plan recordkeepers or investment providers). Where a designated investment alternative is not a mutual fund, an example in the Proposed Rule indicates that a fiduciary may satisfy this requirement by obtaining a written representation from the designated investment alternative’s manager that it maintains a liquidity risk management program substantially comparable to those required of mutual funds.
4. Valuation. Providers of designated investment alternatives must have adopted adequate measures to ensure that they can be timely and accurately valued. Plan fiduciaries selecting non-publicly traded designated investment alternatives may rely on asset valuations based on generally recognized fair value procedures under U.S. GAAP, provided those valuations result from an independent process free of conflicts. This area of the Proposed Rule is especially complex.
5. Performance Benchmarks. Designated investment alternatives must have a meaningful benchmark to compare the designated investment alternative returns, net of fees. A “meaningful benchmark” is an investment strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks to the designated investment alternative. Fiduciaries may rely on a benchmark created by a prudently selected independent investment advice fiduciary. While there is no presumption or preference against new or innovative designated investment alternatives, the Proposed Rule advises plan fiduciaries to identify the best possible comparators to a new or innovative product design while also scrutinizing its potential value proposition.
6. Complexity. Fiduciaries must determine whether they have the skills, knowledge, experience, and capacity to comprehend a designated investment alternative, considering its complexity. If they do not, fiduciaries must seek assistance from a qualified investment advisor in evaluating the designated investment alternative.

Initial Takeaways

• The Proposed Rule emphasizes the importance of robust procedural prudence when assessing potential investment options and the benefits of using third-party advisors.
• Providers of alternative assets seeking to offer interests to retirement plans should review their programs in light of the Proposed Rule’s safe harbor factors. Most 401(k) investment lineups today consist of mutual funds and collective investment trusts, for which liquidity and valuation are generally straightforward. Bringing alternative investments into this space will require the financial services industry to develop products that adequately address these more complex liquidity and valuation considerations.
• Whether the proposed safe harbor is satisfied is inherently a factual question. If the Proposed Rule is adopted, it remains to be seen how effectively the safe harbor protects fiduciaries in the litigation context.
• The Proposed Rule does not address other fiduciary considerations, including the duty to monitor investment alternatives, the duty of loyalty, and the “prohibited transaction” rules.
• Plan governance is critically important for fiduciaries considering investments which are, or include, alternative investments.

The comment period for the Proposed Rule ends 60 days after the date it is published in the Federal Register. This Proposed Rule leaves many questions outstanding, and we expect that there will be significant comment and engagement with the Proposed Rule from interested parties across the non-publicly traded industry. We will provide further updates as this process develops and the regulations are finalized.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.