Fiduciary Duties in Selecting Designated Investment Alternatives for 401(k) Plans

The U.S. Department of Labor has proposed a new regulation that clarifies the fiduciary duty of prudence under ERISA (Employee Retirement Income Security Act of 1974) as it applies to plan fiduciaries when selecting designated investment alternatives (DIAs) for participant-directed individual account plans, most notably 401(k) plans. The proposal is a direct implementation of Section 3(c) of President Trump's Executive Order 14330, which aims to democratize access to alternative assets for ordinary retirement savers. The rule introduces a safe harbor framework that would shield fiduciaries from liability when they follow specified procedures in evaluating and selecting investment alternatives that include alternative assets — such as private equity, private credit, hedge funds, real estate, and infrastructure — within asset allocation funds (e.g., target-date funds or balanced funds). Previously, fiduciaries faced significant legal uncertainty about whether including such assets in retirement plan menus could expose them to liability under ERISA's strict prudence standard. To qualify for the safe harbor, fiduciaries would be required to conduct thorough due diligence on the selected alternatives, ensure fee transparency, evaluate liquidity risks given that alternative assets are often illiquid, and document their decision-making process. The regulation is designed to give retirement plan sponsors and fiduciaries greater confidence to offer diversified investment options that historically have been accessible only to institutional or wealthy investors. The proposal is currently in the public comment phase, meaning it has not yet taken effect. If finalized, it could significantly expand the types of investments available inside 401(k) and similar plans, potentially affecting millions of American workers and retirees.

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