Department of Labor Proposes Six-Factor Fiduciary Prudence Rule for Plan Investments

On March 30, the Department of Labor (“DOL”) issued a notice of proposed rulemaking (the “Proposed Rules”) entitled: “Fiduciary Duties in Selecting Designated Investment Alternatives.”  Per the DOL, the purpose of the rule is to “alleviate certain regulatory burdens and litigation risk” associated with a plan’s designated investment alternatives—including investments in alternative assets such as private equity, real estate, digital assets like cryptocurrency, commodities, infrastructure, and lifetime income strategies.

Background: Over the last year, the DOL under the second Trump Administration has focused heavily on promoting policies that make it easier for plan sponsors to broaden the scope of fiduciary prudence when it comes to selecting a plan’s designated investment alternatives, largely unraveling previous policy initiatives under the Biden Administration. In May 2025, the DOL took two actions which indicated that broader changes to qualified plan investing guidance were on the radar for the second Trump Administration:

• First, the federal government formally ended its legal defense of the so-called ESG (Environmental, Social, and Governance) investing regulations the Biden Administration adopted in 2022. Those rules, which attempted to provide regulatory legitimacy to the fiduciary prudence of ESG-related investments under a qualified plan, had been the subject of a challenge by the attorneys general from 26 states filed shortly after the rule took effect; and
• Second, the DOL rescinded a Biden-era Compliance Assistance Release in which the DOL had previously questioned the appropriateness of exposing a 401(k) plan’s participants to direct investments in cryptocurrencies (or in other products whose value would be tied to cryptocurrencies) as a result of the significant risks of fraud, theft, and loss that had been associated with those types of assets.

A few months later, in August 2025, President Trump signed an executive order (EO), entitled “Democratizing Access for 401(k) Investors,” in which he directed the Secretary of Labor to take the following actions:

• Reexamine the DOL’s past and present guidance under ERISA related to a fiduciary’s duties in connection with making alternative asset investments available in employee benefit plans;
• Clarify the DOL’s position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative types of assets; and
• Propose rules, regulations, or guidance, including “appropriately calibrated safe harbors,” to reduce legal uncertainty and discourage ERISA litigation trends that have worked to constrain a fiduciary’s ability to exercise sound judgment when selecting plan investment opportunities.

Finally, just five days following the issuance of the EO, the DOL rescinded prior guidance which discouraged fiduciaries from considering investment alternatives with a private equity component.

Proposed Rules: The DOL’s actions over the last 12 months related to fiduciary oversight of plan investments culminated in March with the publication of the Proposed Rules.   The Proposed Rules attempt to provide plan sponsors with a “one-size fits all” safe harbor framework for analyzing whether a particular designated investment alternative satisfies ERISA’s fiduciary prudent standard.  That is, instead of addressing various alternative asset investments individually, the DOL has taken what it calls an “asset-neutral” approach to determining the prudence of whether an investment is appropriate for a qualified retirement plan. Per the DOL, the Proposed Rule “does not require or restrict any specific type of designated investment alternative, except insofar as a designated investment alternative might be otherwise illegal.”  Instead, the proposed rule sets forth a safe harbor process for selecting investment alternatives in a qualified plan.

If finalized, the Proposed Rule would adopt six factors for fiduciaries to consider with respect to any investment alternatives made available under a plan:

• Expected Performance. The fiduciary would need to determine that the alternative investment’s risk-adjusted expected returns align with the plan’s purposes.
• Fees. The fiduciary would need to benchmark the investment against “a reasonable number of similar alternatives and determine that the fees and expenses of the designated investment alternative are appropriate, taking into account its risk-adjusted expected returns and any other value the designated investment alternative brings to furthering the purposes of the plan.” “Other value” means additional features and services (other than investment returns) which could arguably permit higher fees for better quality and/or a higher quantity of services that aid participants or the plan’s administrator.
• Liquidity. The fiduciary would need to assess whether a “designated investment alternative will have sufficient liquidity to meet the anticipated needs of the plan at both the plan and individual levels.” The proposed rule recognizes that because 401(k) plans are long-term retirement savings vehicles, “there is no requirement that a fiduciary select only fully liquid products,” and a prudent process may lead to a decision to sacrifice some liquidity in pursuit of additional risk-adjusted return. The relative lack of liquidity of cryptocurrency, for example, was one of the main concerns under the Biden Administration.
• Valuation. The fiduciary would need to “appropriately consider and determine that the designated investment alternative has adopted adequate measures to ensure that the designated investment alternative is capable of being timely and accurately valued in accordance with the needs of the plan.”
• Performance benchmarks. The fiduciary would need to ensure that “each designated investment alternative has a meaningful benchmark and compare the risk-adjusted expected returns of the designated investment alternative to the meaningful benchmark.”
• Complexity. The fiduciary would need to “appropriately consider the complexity of the designated investment alternative and determine that it has the skills, knowledge, experience, and capacity to comprehend it sufficiently to discharge its obligations under ERISA and the governing plan documents or whether it must seek assistance from a qualified investment advice fiduciary, investment manager, or other individual.”

Per the Proposed Rule, if the safe harbor is met, a fiduciary selecting plan investments will be presumed to have met their fiduciary duty of prudence under ERISA with respect to a specific designated investment alternative.

Significance to Plan Sponsors: The DOL invited public comment on the Proposed Rule through June 1 and is now in the process of evaluating those comments prior to finalization of the Proposed Rule.  Upon finalization, Plan sponsors should consult with their fiduciaries, investment advisors, and legal counsel, as applicable, to assess any changes that can or should be made to their current fiduciary practices with respect to the prudent selection of plan investment alternatives, including any changes to their plans’ current investment policy statements.