Department of Labor Proposes New Fiduciary Safe Harbor for Investment Selection in Defined Contribution Plans

By Barry Salkin, Andrew Oringer, Stephen Wilkes and Ari Sonneberg

Yesterday, March 31, 2026, the U.S. Department of Labor (the “DOL”) issued a proposed regulation (the “Proposed Regulation”) under the Employee Retirement Security Act of 1974 (“ERISA”) that would significantly clarify and meaningfully expand fiduciary discretion when selecting designated investment alternatives for participant‑directed defined contribution plans (including most 401(k) plans). The proposal responds to President Trump’s Executive Order 14330, Democratizing Access to Alternative Assets for 401(k) Investors (the “Executive Order”), and is expressly designed to reduce litigation risk while reaffirming ERISA’s long‑standing, process‑based fiduciary framework.

Although prompted by concerns surrounding alternative investments, the Proposed Regulation would apply broadly to all designated investment alternatives and would arguably represent one of the most consequential shifts in ERISA fiduciary policy in decades. Comments on the proposal are due by June 1, 2026.

Background and Purpose

The Executive Order directed the DOL to clarify fiduciary obligations when asset allocation funds or other investments include alternative assets – such as investment vehicles that invest in private equity and credit, real estate, commodities, digital assets (such as cryptocurrency), infrastructure – and lifetime income strategies. The Executive Order specifically asked the DOL to consider “appropriately calibrated safe harbors” that would enable fiduciaries to exercise sound judgment without undue fear of litigation.

The Proposed Regulation would go further than the Executive Order requested. Consistent with the DOL’s traditionally investment‑neutral approach, the Proposed Regulation does not favor or disfavor any particular asset class. Instead, it articulates a general, process‑driven standard for prudently selecting any designated investment alternative.

The DOL is candid about its motivation: according to the DOL, the current ERISA litigation environment has chilled fiduciary decision‑making, discouraged innovation, and pushed plans toward defensive menu designs. The proposal is intended to realign ERISA practice with statutory text, trust‑law principles, and decades of judicial precedent.

Three Foundational Principles

The preamble to the Proposed Regulation identifies three principles that underpin the Proposed Regulation:

1. ERISA is grounded in process, not outcomes. Prudence is evaluated based on the fiduciary’s investigation and reasoning at the time of the decision – not by hindsight or subsequent performance. Indeed, many practitioners colloquially refer to the prudence standard as being one of “procedural prudence.”
2. ERISA affords fiduciaries broad discretion. The statute neither mandates nor prohibits specific investment types; fiduciaries may select among a wide range of reasonable options.
3. Courts should defer to fiduciaries who follow a prudent process. When fiduciaries act within a documented, reasonable decision‑making framework, their judgments should receive substantial judicial deference.

The third principle – judicial deference that would be implemented under the Proposed Regulation through a presumption of prudence – is likely to be the focal point of legal challenges. The DOL anticipates this risk and grounds the proposal in existing trust‑law concepts and its statutory authority under Section 505 of ERISA, which the DOL asserts supports its authority to establish fiduciary safe harbors.

The Safe Harbor Framework

At the core of the Proposed Regulation is a process‑based safe harbor. A fiduciary that objectively, thoroughly, and analytically evaluates relevant factors when selecting an investment is entitled to a presumption of prudence and significant judicial deference.

The Proposed Regulation identifies six non‑exclusive factors that would ordinarily be central to the analysis:

1. Performance: Fiduciaries must consider risk‑adjusted expected returns over an appropriate time horizon, net of fees. The rule expressly rejects any requirement to select the highest‑returning option over short periods.
2. Fees: There is no requirement to choose the lowest‑cost investment. Fees are evaluated relative to value, services, and expected performance; and fiduciaries are not required to scour the entire marketplace. Performance‑based and incentive fees may be appropriate when justified.
3. Liquidity: Plans are not required to offer fully liquid investments. Fiduciaries may select investments with liquidity restrictions, including illiquid assets, when liquidity tradeoffs are reasonably balanced against potential diversification or risk‑adjusted returns, so long as participant‑ and plan‑level liquidity needs are responsibly addressed.
4. Valuation: Designated investment alternatives must be capable of timely and accurate valuation. For non‑public assets, the Proposed Regulation generally anticipates at least quarterly valuation using independent, conflict‑free methods consistent with a certain specified accounting standard (FASB ASC 820).
5. Performance Benchmarking: Each investment should be evaluated against a meaningful benchmark with comparable strategy, objectives, and risk profile. Importantly, the Proposed Regulation states that new or innovative investments are not disfavored merely because they lack long performance histories.
6. Complexity: Complexity alone does not render an investment imprudent. Consistently with the notion that ERISA fiduciaries must be “prudent experts” (a phrase informally used by many ERISA practitioners when referring to ERISA fiduciaries), the Proposed Regulation highlights that fiduciaries must themselves understand the investment or must prudently engage qualified professionals to assist with evaluation and oversight.

The proposal includes 20 detailed examples illustrating how fiduciaries may satisfy these factors in practice.

Presumption of Prudence and Judicial Review

If the safe harbor process is satisfied, the fiduciary’s judgment is presumed reasonable. The DOL envisions courts applying a deferential, abuse‑of‑discretion‑type review, with plaintiffs bearing the burden of proof.

It is noted that, in Loper Bright Enterprises v. Raimondo, the U.S. Supreme Court rejected the doctrine it had previously adopted in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., and dramatically generally narrowed or possibly even eliminated the extent to which the courts need to defer to agency regulations in interpreting federal statutes. Anticipating questions about judicial authority, the DOL grounded the Proposed Regulation in Section 505 of ERISA and framed the Proposed Regulation as deserving of deference established by the Supreme Court in Skidmore v. Swift & Co, a pre-Loper Bright case under which an agency’s interpretation is entitled to deference by a court in proportion to its power to persuade.

Scope and Limitations

The Proposed Regulation would:

• Apply only to the selection of designated investment alternatives.
• Not apply to brokerage windows or self‑directed brokerage accounts.
• Not address menu construction (which the DOL referred to as “curation”) or ongoing monitoring (although the DOL has signaled forthcoming guidance built on the same principles).
• Not alter ERISA’s duty of loyalty or the prohibited‑transaction rules.

Practical Implications

If finalized as proposed and upheld by the courts, the Proposed Regulation would potentially, among other things:

• Reduce litigation risk for fiduciaries that document a prudent selection process.
• Encourage innovation in plan menus, particularly within professionally managed vehicles such as target-date funds and managed accounts.
• Reaffirm fiduciary flexibility to consider alternative assets thoughtfully.

It should be noted that the Executive Order also called upon the Securities and Exchange Commission (the “SEC) to take action with respect to the definitions of accredited investor and qualified purchaser, but the SEC was not given a specific deadline to do so. It is possible that coordination with the SEC could be critical in addressing non-ERISA practical impediments to the use of alternative investments under participant-directed plans, and the Executive Order (which by its nature is at the presidential level), unlike certain previous DOL sub-regulatory guidance, expressly calls for inter-agency coordination in this context. Any SEC guidance would be issued separately, as would any companion guidance from the Department of the Treasury.

Conclusion

The Proposed Regulations represents a decisive shift back towards ERISA’s fundamental underlying principles: discretion, process, and deference. While legal challenges may well be likely, the Proposed Regulation, if finalized as proposed, would materially strengthen fiduciary confidence in making reasoned, well‑documented investment decisions and could meaningfully expand the range of prudent options available to retirement plan participants.

We will continue to monitor developments and provide updates as the rulemaking progresses. If you have any questions about the Proposed Regulation, or any questions about ERISA’s fiduciary provisions, please feel free to contact us.