The U.S. Department of Labor (DOL) has proposed a new safe harbor rule under the Employee Retirement Income Security Act (ERISA). The purpose of the newly proposed rule is to allow 401(k) plan sponsors to more effectively defend investment-selection decisions, including those that rely on alternative assets. By proposing this rule, DOL is preserving fiduciary neutrality toward assets while lowering litigation risks that may discourage plans from more innovative investments.
According to the DOL’s Federal Register notice, the proposed rule would provide a safe harbor for a fiduciary’s prudence duty when selecting investment alternatives for plan participants, including asset-allocation funds that include alternative assets. The notice specifically states that the DOL does not intend to impose any restrictions on any certain type of asset. Rather, the DOL hopes to give fiduciaries discretion and flexibility if they utilize a prudent and reasonable decision-making process.
DOL identifies six factors that fiduciaries should consider in choosing investment alternatives:
- Performance, focusing on risk-adjusted expected returns over time after fees and expenses;
- Fees, as compared to similar alternatives and cost-effectiveness;
- Liquidity, or whether the investment meets the needs of both the plan and participants;
- Valuation;
- Benchmarking; and
- Complexity.
Nonetheless, fiduciaries can and should consider other relevant factors in their analysis of each investment option, including alternative assets.
If fiduciaries use the decision-making process based on one or more of these factors, DOL would presume that the fiduciary’s judgment was reasonable and thus entitled to substantial deference by courts. However, the proposed rule does not eliminate the risk of litigation over a fiduciary’s decision-making process in choosing investment alternatives. Acting prudently, as defined by the proposed safe harbor, would not create an automatic defense against lawsuits. Nonetheless, the safe harbor would, in theory, strengthen the fiduciary’s position by providing it with documentation of its “prudent” actions in determining the appropriateness of investment options.
The DOL also argues in its proposal that, under Loper Bright Enterprises v. Raimondo, courts should accord Skidmore deference to its definition of prudence in this context. According to the DOL, since it has statutory authority to establish safe harbors under ERISA and because its proposed safe harbor is consistent with case law and agency practice, courts should give persuasive weight to the proposed rule. Although the proposed rule does not reach the level of Chevron deference, the DOL is clearly trying to establish a rule that will affect litigation by grounding it in existing law and prior agency practices.
In its proposal, the DOL also recognizes that many plans wish to comply with the 404(c) regulations and, as a result, seeks input about prudent menu construction in future guidance. However, the DOL also states that menu design is better addressed under the existing 404(c) framework. Therefore, the proposed safe harbor rule does not rewrite broader ERISA rules or address other issues that may arise.
Overall, the proposed rule is indicative of a larger policy shift that began with the August 2025 executive order promoting defined-contribution investments in alternative assets. The executive order blames litigation risk and prior DOL guidance for the lack of fiduciary innovation in defined-contribution plans. The proposed rule is the most transparent effort by the Trump administration to implement the executive order’s goals.
If finalized as written, the proposal could benefit plan fiduciaries who have carefully documented their decision-making process based on the six identified factors. The proposal could also make it more difficult for plaintiffs to challenge a plan’s fiduciary practices under a purely outcome-based approach.
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