A closer look at the DOL’s proposed 401(k) safe harbor rule
On March 31, 2026, the Department of Labor (DOL) proposed a new safe harbor rule that could change the investment landscape for 401(k) and other retirement plans. The rule is designed to make it easier for plan fiduciaries to add alternative investments (private equity, private credit, real estate, digital assets) to their plan menus, while maintaining ERISA’s fiduciary standards.
What the proposal would do
Under ERISA, fiduciaries must follow a prudent decision-making process when selecting plan investments. The proposed rule would add protection for fiduciaries who document their analysis across six specified factors — performance, fees, liquidity, valuation, benchmarks and complexity — from lawsuits alleging imprudent fund selection, even when the investments are inherently more complex or risky than alternative options.
Two features stand out in the proposal:
- No asset is off-limits by defaults. The DOL makes clear it is not endorsing or discouraging any particular type of investment. The proposal would add regulatory text confirming that private-market investments are not categorically prohibited under ERISA. What matters is the process, and documented evidence that proper procedures are being followed.
- Lower cost is not the only standard. Fee litigation has long pushed retirement plans toward the cheapest available fund options. The proposed rule signals that higher-fee alternatives can be appropriate when fiduciaries demonstrate a sound, documented decision-making process.
Reasons to proceed carefully
Not everyone views the proposal favorably. Plaintiffs’ attorneys have raised concerns about the typically high fees associated with alternative investments and the timing of the rule given recent volatility in private credit markets.
There is also broader uncertainty about the rule’s future. The DOL’s recent track record on ERISA rulemaking has been uneven. Courts have struck down or significantly limited several fiduciary-related regulations over the past decade. Legal challenges to this proposal are widely anticipated from interest groups, individual investors or even plan fiduciaries if raised as a defense.
What plan sponsors should do
- Monitor the rule’s progress through the regulatory process and watch for any final rule publication.
- Do not rush to add private equity or other alternatives to your plan menu by skipping steps in the decision-making process.
- Remember: the safe harbor only protects fiduciaries who follow the documented process.
- Consult with legal counsel and investment advisors before making any changes.
- Evaluate whether any new options genuinely serve your participants’ interests and risk tolerance.
This proposal represents a significant shift in regulatory direction, but it has a long way to go before taking effect. Stay informed, plan carefully and reach out to us with any questions.
Content sponsored by Sandberg Phoenix law firm. This update is not intended to be exhaustive, nor should any discussion or opinions be construed as legal, tax or financial advice. TrueNorth Companies recommends consulting with legal, tax or benefits professionals before making any decisions related to employee benefit plans.
