DOL Reaffirms Process-Based Fiduciary Prudence And Proposes Safe Harbor For Investment Selection

ERISA Fiduciary Duties and the DOL’s Proposed Rule

The U.S. Department of Labor (DOL) has proposed a new rule that provides additional guidance on how retirement plan sponsors and fiduciaries can meet their investment selection obligations under ERISA—while also introducing a potential safe harbor framework for fiduciaries evaluating investment alternatives.

In light of this, plan sponsors and fiduciaries may wish to review their investment selection and monitoring process and, if necessary, update their investment policy statements. Where investment selection has been properly delegated to an investment advisor, fiduciaries may also wish to discuss the proposed safe harbor criteria and whether updates to investment advisory agreements are necessary.

Background

ERISA and its regulations require plan administrators and other fiduciaries to discharge their duties utilizing a prudent process when acting to provide benefits to plan participants and their beneficiaries and to defray reasonable plan expenses.

In participant-directed retirement plans, this duty extends to fiduciaries when evaluating and selecting investment alternatives, monitoring their performance, and assessing the reasonableness of the fees paid by the plans and their participants.

Failure to fulfill this duty has exposed plans and their fiduciaries to breach of fiduciary duty claims, including class action lawsuits that can be costly to defend—even when the plans and their fiduciaries ultimately prevail.

In response, many fiduciaries have limited or, in many cases, completely excluded certain alternative investments—such as real estate, digital assets (cryptocurrencies), and commodities—from their plan lineups.

The Proposed Rule

On March 31, 2026, the DOL—acting pursuant to President Trump’s August Executive Order, Democratizing Access to Alternative Assets for 401(K) Investors, to provide to 401(k) plan participants greater access to alternative investments—issued a proposed rule regarding the selection of designated investment alternatives. If finalized, the rule would:

(i) Confirm that a fiduciary’s duty when selecting designated investment alternatives is to follow a prudent investment selection process to enable participants to maximize risk-adjusted returns (net of fees), but does not hinge on a particular investment’s ultimate performance, and

(ii) Introduce a potential safe harbor under which fiduciaries may be presumed to have met their ERISA prudent selection duties if they utilize an investment selection process that meets the safe harbor criteria outlined in the rule, and may be entitled to deference if challenged.

The proposed rule does not require or restrict specific investments, except for those that are otherwise illegal. Instead, the rule focuses on the fiduciary’s obligation to adopt and follow a prudent process to determine whether a particular investment is appropriate for inclusion in the plan.

Safe Harbor Framework: Key Factors

Under the proposed rule, fiduciaries may be presumed to have satisfied their prudence obligations if their investment selection process uses the following six factors, along with any additional elements they deem appropriate:

1. Performance
   Evaluate a reasonable number of similar alternatives and determine that the risk-adjusted expected returns of the considered investment over an appropriate time-horizon (net of anticipated fees and expenses) enabling participants and beneficiaries to maximize risk-adjusted returns on investment (net of fees and expenses).
2. Fees
   Evaluate a reasonable number of similar alternatives and determine that the fees and expenses of the considered investment are appropriate, accounting for the risk-adjusted expected returns and any other value the considered investment brings (e.g., greater services than a cheaper investment).
3. Liquidity
   Ensure the considered investment can meet the liquidity needs of both the plan and its participants.
4. Valuation
   Confirm that the considered investment has adopted adequate measures to ensure it can be timely and accurate valued, such as when the investment is not publicly traded.
5. Performance Benchmarking
   Identify a meaningful benchmark and compare the risk-adjusted expected return (net of fees) of the considered investment to that benchmark.
6. Complexity
   Assess whether the fiduciaries have the skill, knowledge, experience, and capacity to sufficiently evaluate the considered investment in accordance with their obligations under ERISA and the governing plan documents, or whether external advice (e.g., an investment manager) is necessary.

Key Takeaway for Plan Administrators and Other Fiduciaries

The rule is not yet final and may change when the final rule is issued following the close of the comment period on June 1, 2026. Nonetheless, it clearly signals the importance the DOL places on certain factors and on establishing prudent processes to conduct a disciplined evaluation when selecting designated investment alternatives.

With that in mind, plan administrators and other fiduciaries may wish to consider:

• Reviewing existing procedures for evaluating designated investment alternatives,
• Identifying potential gaps
• Updating investment policy statements
• Consulting with their investment advisors (where investment selection has been delegated to such) or with experienced counsel to better understand the proposed safe harbor criteria.

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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.