The federal government has taken significant steps toward permitting broader access to alternative investments – such as private equity, private credit, real estate, digital assets and lifetime income strategies – within participant‑directed retirement plans. While the law does not require employers to add these investments to their plans, recent actions by the White House and the U.S. Department of Labor (DOL) are intended to clarify how plan fiduciaries may do so consistent with ERISA.
For plan sponsors, the takeaway is not that immediate action is required, but that the regulatory environment is shifting in a way that may eventually reduce litigation risk in expanded investment menu options – provided fiduciaries follow a careful, well‑documented process and engage appropriate expertise. Final rules are still months away, and important legal uncertainties remain.
The Federal Backdrop: Executive Order and Proposed Regulations
August 2025 Executive Order
In August 2025, President Trump issued an Executive Order directing the DOL to remove unnecessary regulatory barriers that discourage retirement plan fiduciaries from offering investment options containing “alternative assets.” The stated policy objective was to expand diversification opportunities and help participants seek improved risk adjusted returns over long investment horizons.
The Executive Order did not change ERISA fiduciary duties. Instead, it instructed the DOL to provide greater clarity – particularly where prior agency guidance had been viewed as discouraging innovation. [We wrote about this EO in a prior alert.]
March 2026 DOL Proposed Rule
On March 31, 2026, the DOL followed through by issuing a proposed regulation under ERISA that focuses on how plan fiduciaries evaluate investments – not which investments they may choose.
Key points of the proposal include:
- Reiteration that ERISA is investment neutral – no asset class (including cryptocurrency or private equity) is per se permitted or prohibited.
- Emphasis that fiduciary prudence remains a process based inquiry.
- Introduction of a procedure-based safe harbor designed to reduce litigation risk when fiduciaries follow a defined analytical framework.
The public comment period is open through June 1, 2026. Thousands of comments have already been submitted to the DOL.
The New Safe Harbor: Process Over Product
An attractive feature of the proposed rule is a safe harbor intended to create a presumption of prudence when fiduciaries follow an “objective, thorough, and analytical” process in selecting designated investment alternatives.
The safe harbor identifies six key factors fiduciaries should consider and document:
- Performance — Expected risk adjusted returns over an appropriate time horizon, net of fees.
- Fees and Expenses — Evaluation of costs relative to value; lowest cost is not required.
- Liquidity — Ability of the investment to meet participant and plan level liquidity needs, including withdrawals and plan operations.
- Valuation — Whether the investment can be valued accurately and in a timely manner, using reliable and independent methods.
- Benchmarking — Comparison to a meaningful benchmark with similar objectives and risk characteristics (which may require custom or composite benchmarks for private assets).
- Complexity — Whether the fiduciary has (or prudently engages) the expertise needed to understand the investment’s structure, risks and mechanics.
If a fiduciary satisfies this process, the DOL proposes that courts should generally defer to the fiduciary’s judgment in selecting that investment option as a choice for participant-directed retirement plans.
What the Proposed Rule Does Not Do
Despite its breadth, the proposal leaves important issues unresolved:
- No statutory immunity — A regulatory safe harbor is not a Congressionally created statutory safe harbor, and courts are not obligated to treat it as dispositive – particularly after recent Supreme Court decisions reducing deference to agency interpretations.
- No securities law guidance — The DOL cannot address whether certain investment structures raise issues under federal or state securities laws. Additional action by the SEC would be needed to address accredited investors and other securities registration items associated with participant-directed retirement plan offerings.
- No monitoring framework — While the rule addresses initial selection of investments, it does not meaningfully address the ongoing duty to monitor investments – an obligation that remains critical under ERISA.
- No current obligation to act — Plan sponsors are not required to add alternative assets and need not change their current investment lineup, though some wonder whether the proposed formulation of the duty of prudence – including the need to establish a menu to “maximize risk-adjusted returns” – will cause plans to offer higher risk-reward options.
Why Some Plan Sponsors Remain Cautious
Recent reporting has highlighted why many employers remain wary. Even with a safe harbor, fiduciaries may still face claims alleging flawed process, unreasonable conclusions or inadequate expertise – especially where investments are illiquid, complex or experience volatility. Litigation risk, fiduciary insurance costs, operational challenges and participant level understanding all remain real considerations.
What Investment Providers Are Considering
Investment professionals and providers are considering how to offer these alternatives in a manner that accommodates participant-directed retirement plan needs. Collective Investment Trust (CIT) and separately managed account providers are looking at the proposed regulation to determine how to provide the necessary liquidity and valuations. Advisors are looking into how to vet alternative investments against the requirements in the proposed safe harbor, including seeking appropriate benchmarks prior to recommending any alternative to a plan fiduciary.
Looking Ahead
Assuming the rule is finalized substantially as proposed, it may give fiduciaries greater confidence that carefully selected alternative investments – often through target date funds or professionally managed vehicles – can be consistent with ERISA. Whether this regulatory effort truly reduces litigation exposure, however, will be tested in the courts.
We will continue to track developments and are available to discuss how these changes may affect your organization’s retirement plans. If you have any questions about the proposed rule, please contact Allie Itami, or your regular Lathrop GPM attorney.