DOL Proposes ERISA Safe Harbor for Selection of 401(k) Investment Options

If finalized, the proposed rules would create a formal safe harbor under which fiduciaries who follow a documented and reasoned evaluation process would be presumed to satisfy ERISA’s prudence requirements.

The Proposed Safe Harbor
The proposed rules do not endorse any particular investment type or strategy. Instead, they focus on the process used to evaluate investments.

Under the proposed safe-harbor framework, fiduciaries would be expected to evaluate six factors when selecting a designated investment alternative:

• Performance: focusing on risk-adjusted expected returns over an appropriate investment horizon;
• Fees: evaluating the investment's overall value proposition rather than cost alone;
• Liquidity: assessing whether liquidity terms are appropriate for participant and plan needs;
• Valuation: confirming that assets can be valued accurately and consistently;
• Benchmarking: using meaningful benchmarks with comparable objectives and risks; and
• Complexity: ensuring that fiduciaries possess sufficient expertise or engage qualified advisers.

The proposed regulations emphasize that fiduciaries are not required to select the lowest-cost investment, the most liquid investment or the investment with the highest expected return. Rather, fiduciaries must demonstrate that they prudently evaluated the relevant considerations and exercised reasoned judgment in reaching their decision.

Significant Shift in the DOL’s Approach
A central theme of the proposed rules is that ERISA’s prudence standard focuses on the fiduciary’s decision-making process and requires an objective evaluation of relevant factors at the time an investment decision is made, rather than judging the decision based on subsequent investment performance. The proposed rules also state that fiduciaries who satisfy the safe harbor should receive substantial deference regarding their investment decisions.

Alternative Investments
Although the safe harbor applies to all designated investment alternatives, the proposed rules are clearly intended to facilitate consideration of investments that historically have generated heightened fiduciary concerns.

The DOL expressly states that ERISA neither favors nor disfavors investments such as:

• private equity;
• private credit;
• real estate;
• infrastructure investments;
• commodities;
• digital asset investment vehicles; and
• lifetime income products.

Accordingly, the proposed rules reject any suggestion that these investments are inherently imprudent and instead confirm that they should be evaluated under the same prudence framework applicable to traditional investment options.

What Plan Fiduciaries Should Do Now
Although the proposed rules remain subject to notice and comment, plan sponsors and retirement committees may wish to begin evaluating whether their current fiduciary processes would satisfy the proposed safe harbor.

In particular, fiduciaries should consider:

• Reviewing committee procedures. Investment committee charters, investment policy statements and due diligence procedures should be reviewed to confirm they reflect a documented evaluation process consistent with the six factors identified in the proposed rules.
• Enhancing committee records. Meeting minutes and investment memoranda should clearly document the committee's analysis of performance, fees, liquidity, valuation, benchmarking and complexity considerations.
• Evaluating adviser relationships. The proposed rules highlight the role of ERISA section 3(21) advisers and section 3(38) investment managers. Fiduciaries should assess whether existing adviser relationships provide sufficient support for evaluating more complex investment strategies.
• Revisiting fee analysis. Committees that have historically focused primarily on minimizing fees may wish to revisit how they document the value provided by investment options, including participant services, diversification benefits and risk-management features.
• Preparing for new product offerings. Fiduciaries should expect increased marketing of target-date funds, managed accounts and lifetime income products that incorporate alternative assets and should be prepared to evaluate those offerings under a consistent fiduciary framework.

Looking Ahead
Comments on the proposed rules were due June 1, 2026. If adopted substantially as proposed, the regulations would be a significant development under ERISA and could provide fiduciaries with greater flexibility and protection when evaluating both traditional and alternative investment strategies. Pillsbury will continue to monitor developments in this area. If you have any questions regarding the proposed regulations or their potential implications, please contact one of the authors of this alert or your regular Pillsbury attorney.