DOL Proposes Rule On Fiduciary Duties In Selecting 401(k) Plan Investments

Summary

The U.S. Department of Labor (DOL) has issued a proposed rule that would create a process-based safe harbor for ERISA fiduciaries selecting investment options in 401(k), 403(b), and other defined contribution plans. The proposed rule outlines a six-factor analytical framework and confirms an asset-neutral approach, allowing plan fiduciaries to consider a broader range of investments, including alternative investments, so long as they follow a prudent, well-documented process.

The Upshot

If finalized, the proposed rule would confirm that fiduciary risk analysis is focused on process and not outcomes, giving plan fiduciaries clearer guidance and potentially stronger defenses against excessive fee and imprudence litigation. At the same time, it raises expectations around documentation, comparative analysis, and procedural rigor. Fiduciaries who cannot demonstrate a disciplined evaluation process may face increased scrutiny.

The Bottom Line

The DOL is signaling that how plan fiduciaries make decisions matters more than what they ultimately select. A robust, well-documented investment selection process, grounded in the proposed rule’s six factors, will be critical to managing fiduciary risk, particularly as plans consider more complex or alternative investment options. The proposed rule provides a roadmap for how fiduciaries should select (and ultimately monitor) investments, and how to document their process.

Overview

On March 31, 2026, the DOL released a proposed rule titled “Fiduciary Duties in Selecting Designated Investment Alternatives” (the Proposed Rule), along with a DOL News Release and Fact Sheet. The Proposed Rule is intended to clarify the application of the duty of prudence under the Employee Retirement Income Security Act of 1974, as amended (ERISA), in the context of selecting investment options for participant-directed retirement plans, such as 401(k) and 403(b) plans. The Proposed Rule introduces a safe harbor framework under which fiduciaries who engage in a structured, objective, and well-documented decision-making process will be presumed to satisfy their fiduciary obligations.

A Process-Based Safe Harbor

The Proposed Rule’s central feature is a process-based safe harbor, in which plan fiduciaries will be deemed to have satisfied their fiduciary duty of prudence in selecting investments if they:

• Conduct an objective and thorough evaluation of relevant investment factors;
• Apply those factors consistently and analytically; and
• Document the decision-making process.

The safe harbor applies on a factor-by-factor basis, meaning deficiencies in one area may not necessarily invalidate the entire process if the overall evaluation remains prudent. This approach reinforces a longstanding ERISA principle: fiduciary compliance is judged based on the process followed, not investment performance in hindsight.

The Six-Factor Framework

The Proposed Rule identifies six key considerations plan fiduciaries should evaluate when selecting investment alternatives:

1. Performance, including consideration of risk-adjusted returns over an appropriate time horizon
2. Fees, including consideration of fees and expenses in relation to risk-adjusted returns
3. Liquidity, including consideration of liquidity needs at both the plan and participant levels, while recognizing that some illiquid investments may be appropriate for long-term retirement savings
4. Valuation, including consideration of whether investments can be timely and accurately valued and any conflicts of interest in the valuation of non-publicly traded assets
5. Benchmarking, including comparison of risk-adjusted expected returns to a meaningful benchmark
6. Complexity, including consideration of whether fiduciaries have sufficient knowledge and expertise to understand the investment or need to seek assistance from qualified professional advisors 

Asset Neutrality and Alternatives

Notably, the Proposed Rule adopts an asset-neutral stance, expressly declining to favor or disfavor any particular investment type. Potential plan investments could include:

• Private equity and other private market strategies
• Real assets (e.g., real estate, infrastructure)
• Digital assets
• Insurance and lifetime income products

This represents a meaningful shift from prior DOL guidance that discouraged certain alternative investments in defined contribution plans. Under the Proposed Rule, plan fiduciaries may include such investments if they can demonstrate that the selection was prudent under the six-factor framework.

ERISA Duties Not Covered by the Proposed Rule

The Proposed Rule does not alter ERISA’s foundational fiduciary obligations. Plan fiduciaries must still:

• Act solely in the interest of plan participants and beneficiaries
• Use plan assets for the exclusive purposes of providing benefits and defraying reasonable plan administrative expenses
• Exercise prudence
• Ensure appropriate diversification of plan investments
• Act in accordance with plan documents, to the extent not inconsistent with ERISA

The Proposed Rule also makes clear that ERISA’s duty of prudence governs both the selection and ongoing monitoring of designated investment alternatives in individual account plans, although it stops short of providing detailed guidance on the monitoring aspect. The DOL has indicated that additional interpretive guidance is forthcoming. 

Litigation and Enforcement Implications

The DOL’s proposal responds in part to the surge in ERISA litigation, particularly claims involving allegedly excessive fees and imprudent investment selections. By articulating a clear evaluation framework, the rule is expected to:

• Encourage courts to defer to fiduciary processes that meet the Proposed Rule’s standards
• Reduce reliance on hindsight-based challenges
• Provide fiduciaries with a more predictable defensive posture

However, the flip side is that plan fiduciaries lacking robust documentation or consistent processes may be more vulnerable to claims.

Status

The Proposed Rule is open for public comment through June 1, 2026. It is unclear whether the Proposed Rule will provide plan fiduciaries with meaningful assurance in practice, particularly in light of the U.S. Supreme Court’s elimination of Chevron deference, which could affect how courts evaluate agency rules. However, plan fiduciaries may consider proactively reviewing their governance frameworks and best practices to evaluate existing procedures, determine whether additional advisory support is warranted, identify any potential changes to investment offerings in anticipation of a finalized rule, and seek legal advice from ERISA counsel. Plan fiduciaries should also keep apprised of further developments on this proposal, as well as any related guidance concerning the use of alternative investments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.