DOL Proposes Safe Harbor for 401(k) Alternative Investments

The U.S. Department of Labor proposed a rule on March 30 that would simplify the inclusion of alternative investments, such as private equity, private credit, real estate and cryptocurrencies, in 401(k) retirement plans, potentially affecting the $10 trillion defined contribution market.

The proposal establishes a "safe harbor" framework under the Employee Retirement Income Security Act (ERISA), offering legal protections to plan fiduciaries who follow a structured evaluation process. Fiduciaries must assess six key factors: risk-adjusted performance, fees, liquidity, valuation methods, benchmarks and complexity before adding such assets. Officials emphasized that the rule does not endorse any specific investments or mandate their inclusion but aims to reduce litigation risks that have historically deterred plan sponsors from offering alternatives. By documenting thorough due diligence, fiduciaries could gain a presumption of prudence, shielding them from lawsuits even if investment outcomes underperform.

This initiative stems from an executive order signed by President Donald Trump last August, directing federal agencies to expand access to alternative assets in retirement...