DOL’s Proposed Regulation on Selecting Alternative Investments: Broad Implications for 401(k) and 403(b) Plan Fiduciaries

On March 30, 2026, the Department of Labor issued a proposed regulation purporting to implement an executive order to expand access to “alternative assets” in 401(k) and 403(b) plans. Instead of focusing solely on alternative assets, however, the proposed regulation applies to the selection of investments of any kind. Some of the proposed regulation is merely a restatement of long-standing ERISA fiduciary principles, but the regulation includes numerous examples and a “safe harbor” that can be expected to serve as touchstones for fiduciaries selecting investments in the future.

This post will discuss key takeaways from the proposed regulation for plan investment fiduciaries, as well as highlight some areas of the proposed regulation that may require further development.

Key Aspects of the Regulation

Fiduciaries selecting investments to be offered under 401(k) and 403(b) plans should be aware of the following provisions in the proposed regulation:

1. Long-Standing Principles. The regulation reiterates the familiar concepts that (i) the selection of an investment is a fiduciary act governed by ERISA, and the fiduciary must make the selection in a prudent manner; and (ii) when selecting an investment, the fiduciary “must follow a prudent process under which it gives appropriate consideration . . . to those facts and circumstances that . . . the fiduciary knows or should know are relevant to the particular” investment.

These requirements will not surprise most fiduciaries. The key takeaways from these provisions in the regulation are that process is of paramount importance and that fiduciaries (and/or their advisors) will need to determine the facts and circumstances relevant to the particular investment. Although not stated in the regulation, fiduciaries should document the process if they want to be able to prove what they have done.

2. Maximum Discretion to Select Investments. The regulation provides that, unless otherwise illegal, ERISA does not require or restrict any specific type of investment, including alternative investments. There is no per se rule, for example, that a plan must allow or prohibit investment in private markets. The rule purports to be investment agnostic.

In light of the executive order’s emphasis on allowing access to alternative investments – and the regulatory ping-pong and civil litigation seen with respect to environmental, social and governance (“ESG”) investing – this provision may be somewhat surprising. The key to this discretion, however, is that the fiduciary must act prudently. This appears to mean that a fiduciary will only have maximum discretion if they follow a robust process in selecting the investments and prudently determine that the investment is appropriate.

3. Duty When Establishing Investment Menu to Maximize Risk-Adjusted Returns. The regulation provides that a fiduciary has a duty to act prudently when establishing a diversified menu of investments “to further the purposes of the plan by enabling participants . . . to maximize risk-adjusted returns, net of fees, on investment across their entire portfolios in their plan.”

This is one of the most surprising provisions in the regulation. While the regulation focuses primarily on the duty of prudence with respect to selecting individual investments, this provision, according to the preamble, serves as “an important reminder” that the fiduciary has a duty to “prudently curate the menu of investments overall.” Prudently curating a menu is not necessarily a new concept, but curating a menu that, in the words of the regulation, allows a participant to maximize returns across their portfolio appears to be. We believe this is an area in which further guidance would be welcomed. While the regulation contains examples for many of the provisions, this provision contains no examples or further explanation.

A stated goal of the regulation is to alleviate litigation risk. This provision, however, may have the opposite effect. One can envision plaintiffs’ lawyers alleging fiduciaries failed to enable participants to maximize returns across the menu. It would be ironic if the regulation ended up being a sword instead of a shield.

4. Safe Harbor. The regulation provides a “safe harbor” with respect to the selection of investments for fiduciaries. It sets forth a “non-exhaustive” list of six factors that, “when applicable,” a fiduciary “must objectively, thoroughly, and analytically consider.” If a fiduciary does so, the regulation states that the fiduciary’s judgment with respect to the particular factor considered is entitled to a presumption that the duty of prudence has been met and the fiduciary’s decision “is entitled to significant deference.”

It is not entirely clear how much protection the safe harbor will ultimately afford fiduciaries. For example, the safe harbor is based on a “non-exhaustive” list, and if an applicable factor – whether one of the six or an additional factor – is not considered, there is no presumption with respect to that factor. Furthermore, it remains to be seen how much deference courts will provide under the DOL’s dictate that they give significant deference.

Regardless, the six factors are a helpful expression of the considerations that go into selecting investments, and we expect they will become a staple of any fiduciary investment review process.

The six factors are:

a. Performance. The plan fiduciary must appropriately consider a reasonable number of similar alternatives and determine that “the risk-adjusted expected returns, over an appropriate time-horizon” of the investment, net of fees and expenses, “further the purposes of the plan by enabling participants and beneficiaries to maximize risk-adjusted returns” net of fees.

The regulation provides the following example: The fiduciary considers three target date fund series. The fiduciary considers various risk measures. The fiduciary selects a target date fund that has lower expected returns but lower expected risk as measured by volatility. The fiduciary makes this selection after considering the risk capacity of the plan’s participants. The lower risk strategy has achieved higher risk-adjusted returns by including alternative assets with low correlations to stocks and bonds.

The DOL concludes that the fiduciary “should seek to maximize returns, net of fees, for a given level of appropriate risk, consistent with the participants’ likely needs over the course of the anticipated investment” and indicates that the fiduciary in this example will be deemed to have satisfied the requirements of this safe harbor factor.

Determining whether an investment will maximize risk-adjusted returns for a given level of appropriate risk, and determining the participants’ likely needs, will require fiduciaries to engage in, and document, a thorough process.

b. Fees. The plan fiduciary must consider a reasonable number of similar alternatives and determine that the fees of the investment are appropriate, taking into account its risk-adjusted expected returns and any other value the investment brings to furthering the purposes of the plan.

c. Liquidity. The fiduciary must appropriately consider and determine that the investment will have sufficient liquidity to meet the anticipated needs of the plan at both the plan and individual levels.

d. Valuation. The fiduciary must appropriately consider and determine that the investment has adopted adequate measures to ensure that the investment is capable of being timely and accurately valued in accordance with the needs of the plan.

This factor is straightforward with respect to investments traded on a public exchange. With respect to investments not traded on a public exchange, a fiduciary may rely on valuations that result from application of generally recognized procedures for measuring the fair value of assets for purposes of disclosure in financial statements prepared in accordance with U.S. generally accepted accounting principles if applied through a conflict-free, independent process.

e. Performance Benchmarks. The plan fiduciary must appropriately consider and determine that each investment has a meaningful benchmark, and compare the risk-adjusted expected returns of the investment to the meaningful benchmark. The regulation defines a “meaningful benchmark” as an investment, strategy, index, or other comparator that has “similar mandates, strategies, objectives, and risks” to the investment.

f. Complexity. The plan fiduciary must appropriately consider the complexity of the investment and determine that it has the skills, knowledge, experience, and capacity to comprehend it sufficiently to discharge its obligations or whether it must seek assistance.

Conclusions

The proposed regulation reiterates the long-standing principle that prudence requires a diligent process when selecting any investment. Fiduciaries should follow, and document, an objective, thorough, and analytical process when considering investment offerings. It is likely that the six safe harbor factors will become a standard part of fiduciary checklists when considering all investments.

Two areas of the regulation raise questions that would benefit from additional guidance. First, does maximum discretion to choose investments mean that prudent fiduciaries could select an ESG fund, as the best fit for their plan participants’ risk preferences? In light of the relatively contentious history around this issue, clear guidance would be helpful to fiduciaries. Second, what does it mean to establish an investment menu that allows participants to maximize risk-adjusted returns across their portfolios? Although the regulation imposes this requirement, the preamble states that “the proposed regulation does not address the question of how to prudently curate a menu of investments overall.” Because this is a new formulation of the standard by which investments should be measured, it would be helpful if guidance was provided.

The DOL has requested comments, which are due by June 1, 2026. We will follow the proposed regulation closely and provide updates, particularly when the final regulation is issued.

If you have questions concerning the selection of investments offered under your retirement plan, please contact a member of Verrill’s Employee Benefits & Executive Compensation Group.