DOL Proposal on Alternatives in 401(k) Plans

The U.S. Department of Labor, through its Employee Benefits Security Administration, has proposed a significant regulatory update that would clarify how fiduciaries of 401(k) plans may evaluate and include alternative investments. Framed as a modernization of long‑standing retirement policy, the proposal seeks to reaffirm fiduciary obligations under ERISA while reducing regulatory uncertainty and litigation risk. By emphasizing a process‑based approach to investment selection, the rule aims to expand potential retirement investment options and better align defined contribution plans with the evolving investment landscape.

The U.S. Department of Labor, through its Employee Benefits Security Administration (EBSA), has issued a proposed regulation that would significantly expand how fiduciaries of    401(k) plans may evaluate and include alternative investments. Described as a historic proposal, the rule is intended to modernize retirement investing for more than 90 million Americans by clarifying fiduciary responsibilities and reducing regulatory and litigation uncertainty. The proposal follows an executive order from President Trump aimed at democratizing access to alternative assets for retirement savers.

At the core of the proposal is a reaffirmation of long‑standing principles under, particularly that fiduciary prudence is grounded in process rather than in judgments about specific asset classes. The regulation explains the steps plan fiduciaries should take when considering alternative assets as part of their investment lineups and establishes process‑based safe harbors to guide those decisions. Fiduciaries would be required to conduct objective, thorough, and analytical evaluations of investments, considering factors such as performance, fees, liquidity, valuation methods, benchmarks, and complexity.

Senior administration officials emphasize that the rule is designed to be asset‑class neutral and to restore discretion to plan fiduciaries. U.S. Secretary of Labor Lori Chavez‑DeRemer stated that the proposal seeks to align retirement plans with the realities of today’s investment landscape and to help more Americans retire with dignity. U.S. Deputy Secretary of Labor Keith Sonderling underscored that the department will no longer “pick winners and losers,” instead requiring fiduciaries to apply the same prudent process to all potential investment options.

The proposal also reflects coordinated support across federal financial regulators. The Treasury Department   described the rule as an initial but important step in implementing the executive order in a careful and responsible manner, while stressing the need to protect retirement assets. The Securities and Exchange Commission   participated in developing the proposal, with SEC Chairman Paul S. Atkins highlighting the importance of allowing Americans to participate more fully in innovation and long‑term economic growth through diversified retirement investments.

The Department of Labor contrasts the proposal with prior guidance issued in 2022 that discouraged the inclusion of cryptocurrency in 401(k) plans. That guidance was later rescinded and is criticized in the document as inconsistent with ERISA’s process‑based fiduciary framework and with decades of department practice. While plan fiduciaries have always had the authority to consider alternative assets, the department notes that historically very few defined contribution plans have exercised that authority.

Overall, the proposed regulation aims to clarify fiduciary standards, broaden the range of permissible retirement investment options, and modernize the regulatory framework governing defined contribution plans, while maintaining protections for workers’ retirement savings. EBSA, which oversees benefits covering more than 156 million Americans and approximately $13.8 trillion in assets, positions the proposal as a foundational step toward a more flexible and diversified retirement system.

Bridgebay Financial, Inc. provides consulting to employer retirement plans, including 401(k), 403(b), 457, profit-sharing, and defined contribution plans, focusing on investment policy statements, committee charters, asset allocation, and fund selection. The firm’s guidance is delivered through Retirement Committee consultations and does not include discretionary account management. Bridgebay creates disciplined Investment Policy Statements to support plan governance and regulatory compliance, reviewing them annually to help fiduciaries meet their responsibilities. They conduct asset allocation and gap analyses to ensure diversified, efficient fund lineups, and evaluate fund menus for cost-effectiveness and alignment with participant needs, including socially responsible options. Ongoing monitoring, fee analysis, and user-friendly reports help sponsors optimize plan value and make informed decisions through prudent oversight.