DOL Proposed Rule On Fiduciary Duties For Selecting Designated Investment Alternatives: What 401(k) Plan Sponsors Need To Know

The U.S. Department of Labor (DOL) has released a proposed rule titled Fiduciary Duties in Selecting Designated Investment Alternatives. Issued in response to Executive Order 14330 (August 7, 2025), “Democratizing Access to Alternative Assets for 401(k) Investors,” the proposal goes far beyond the headlines about private assets in defined contribution (DC) plans. It establishes a clear, process-based prudence framework and a safe harbor for selecting any designated investment alternative (DIA) in participant-directed individual account plans.

At The Siekmann Company, we view this as a significant step toward giving plan sponsors greater confidence and judicial deference when designing investment menus. Below, we break down what the rule actually does, who it affects, and how sponsors can prepare.

What The Proposal Is Really Doing

At its heart, the DOL is reaffirming that ERISA fiduciary prudence is about process, not outcomes. The rule stresses documented diligence, risk-adjusted analysis, and fiduciary judgment rather than approving or banning specific asset classes.

It also aims to ease the litigation chill that has made many fiduciaries overly cautious about menu design. By offering a transparent roadmap, the proposal serves as both a practical selection framework and a strong statement of the importance of fiduciary discretion.

Scope: It Applies To Every Designated Investment Alternative

While the rule was triggered by discussions around alternative assets, its language is deliberately broad. It supplements long-standing guidance dating back to 1979 and will add a new regulation at 29 CFR § 2550.404a-6.

Selecting any DIA in a participant-directed DC plan is explicitly a fiduciary act. The DOL requires an objective, thorough, and analytical review of relevant factors, regardless of whether the option is a simple index fund, a target-date fund, or a complex alternative strategy.

The Safe Harbor: Presumptive Prudence Through A Documented Process

The most powerful feature is the proposed safe harbor (often called “presumptive prudence”). When fiduciaries follow a well-documented process, their decisions receive stronger judicial deference.

The rule outlines six non-exclusive elements (supported by twenty practical examples) that fiduciaries should consider as applicable. These elements are not a checklist for every investment; they are tools to demonstrate thoughtful decision-making.

Performance

Fiduciaries must evaluate expected and historical performance in the context of the investment’s objectives, strategy, and role in the overall plan lineup. Isolated short-term returns are not the focus; long-term participant outcomes matter most.

Fees

There is no requirement to pick the cheapest option. Instead, fees must be reasonable relative to the value delivered, strategy complexity, and expected benefits. This is especially relevant for options that provide diversification or risk-management features.

Liquidity

Plan sponsors do not need to limit menus to daily-liquid products. The DOL recognizes that participant-directed retirement plans are long-term vehicles. Liquidity must simply be appropriate for typical participant needs (distributions, loans, hardship withdrawals, and investment changes) and consistent with plan-level requirements.

Valuation

Fiduciaries should confirm that valuations are credible, frequent, well-governed, and free of conflicts—particularly important for assets without active public markets.

Benchmarking

Comparisons must use meaningful benchmarks that match the investment’s mandate, objectives, strategy, and risk profile. Misleading or apples-to-oranges benchmarking will not satisfy prudence standards.

Complexity

Greater complexity does not disqualify an investment, but it demands stronger diligence, documentation, and often the engagement of qualified experts.

Taken together, these elements create a robust yet flexible framework. The safe harbor is not a blank check for any product—it rewards fiduciaries who can show they made a reasoned, documented decision.

Five Key Takeaways For Plan Sponsors

1. No per se prohibition on alternative assets. ERISA neither requires nor forbids any particular type of DIA (aside from illegal investments). Categorical bans are off the table.

2. “Cheapest” is not the prudence standard. Higher-cost options can be selected when they deliver commensurate value in diversification, income, or risk management.

3. Liquidity can be managed within limits. The rule acknowledges that some engineered liquidity features or illiquid sleeves can still be prudent in a retirement context.

4. Valuation and benchmarking are now central diligence issues. Accurate, conflict-free valuations and truly comparable benchmarks will be scrutinized closely.

5. Ongoing monitoring remains unaddressed. The proposal focuses only on initial selection; the DOL has promised separate guidance on the continuing duty to monitor DIAs.

What Happens Next, & How Sponsors Can Prepare Today

Public comments on the proposal are due 60 days after it appears in the Federal Register. Stakeholders are encouraged to comment on both specific provisions and the broader subject matter. Industry feedback will shape the final rule.

For plan sponsors, the practical takeaway is clear: process quality and documentation will matter more than ever. Sponsors should:

• Review current investment selection policies and documentation practices

• Ensure access to independent experts for complex or less-liquid options

• Strengthen benchmarking and valuation review procedures

• Document how each DIA fits participant needs and plan objectives

The DOL’s proposal balances the voluntary nature of the U.S. employee benefits system with its core mission of protecting participants. It gives fiduciaries a clearer path to offer thoughtful, diversified menus while reducing unfounded litigation risk.

At The Siekmann Company, we help plan sponsors translate regulatory developments like this into actionable, defensible practices. Whether you need a full fiduciary process review, independent benchmarking support, or guidance on incorporating alternative strategies, our team is ready to assist.

If your organization sponsors a 401(k) or other participant-directed plan, contact us today to discuss how this proposed rule may affect your investment menu and compliance strategy. Proactive preparation now will position your plan for success when the final rule is issued.