DOL Proposes Principles-Based Rule for Selecting Investments with Private Market Exposure

On March 30, 2026, the U.S. Department of Labor (DOL) proposed a long-awaited proposed rule on Fiduciary Duties in Selecting Designated Investment Alternatives (Proposed Rule) to address a fiduciary’s duty of prudence under Employee Retirement Income Security Act of 1974 (ERISA). The Proposed Rule clarifies fiduciary obligations when selecting investment options in defined contribution plans, including funds that contain private market investments, and provides a safe harbor designed to avoid second-guessing fiduciary decisions in court.

The Proposed Rule is asset-neutral and principles-based. It implements President Trump’s Executive Order 14330, Democratizing Access to Alternative Assets for 401(k) Investors, by providing specific guidance on what may be a prudent fiduciary process for considering and selecting investments with private market exposure and other alternative investments. Overall, the DOL’s goal for the Proposed Rule is to reduce litigation risk that the DOL perceives as constraining fiduciaries from offering investment opportunities that could improve participant outcomes.

Proposed Rule Does Not and Cannot Change the ERISA Fiduciary Standard

At a time when private market exposure in defined contribution plan investments has become a hot topic, one thing hasn’t changed: the fiduciary standard under ERISA remains the anchor for fiduciary investment decisions.

ERISA requires fiduciaries to act:

• Solely in the interest of participants and beneficiaries
• For the exclusive purpose of providing benefits and paying reasonable plan expenses

This is not a preference. It is the standard.

It means investment decisions cannot be driven by trends, external pressure, or non-financial objectives. Every decision must tie back to risk-adjusted financial outcomes for participants.

Prudence Is About Process, Not Perfection

The DOL guidance reinforces a critical point that is often misunderstood:

Fiduciary Success Is Measured By Process, Not Outcomes.

A prudent fiduciary (that is, one who fulfills the duty of prudence):

• Conducts a thorough, objective, and analytical review
• Evaluates reasonably available alternatives
• Considers unique facts and circumstances relevant to the specific investment
• Evaluates all investments, regardless of asset class or whether the investment contains public or private exposure, against the ERISA standard: is the investment reasonably determined to maximize risk adjusted financial returns, net of fees?

Markets move. Performance changes. That is expected.

What matters is whether the decision-making process reflects the care, skill, and diligence of an ERISA fiduciary obligated to satisfy fiduciary standards described by courts as the “highest known to the law.”

Fiduciary prudence is assessed on the fiduciary’s investigation at the time of the investment decision – not on hindsight based on the investment results. Consistent with long-standing Court opinions and DOL guidance, the fiduciary duty of prudence is evaluated based on the process used to reach a determination consistent with the fiduciary investment standard.

Safe Harbor Designed To Provide Legal Protections

The key feature of the Proposed Rule is a safe harbor for responsible plan fiduciaries when they select investment options for a plan lineup. It identifies a non-exhaustive list of six factors for a plan fiduciary to objectively, thoroughly, and analytically consider and make determinations about when selecting investment options.

When a plan fiduciary does so following the process described in the Proposed Rule with respect to any of the six factors, the DOL intends that the fiduciary’s judgment regarding the factor or factors be presumed, if challenged in court, to have met the fiduciary’s duty of prudence under ERISA.

Whether DOL achieves its stated goal of ensuring that courts defer to fiduciaries under the safe harbor’s presumptions of prudence remains to be seen (and very well could be subject to litigation).

Safe Habor Provides Asset-Neutral, Principles-Based Guidance

Regardless of whether the DOL achieves its litigation goal, the Proposed Rule provides important insights to responsible plan fiduciaries regarding how the DOL views key considerations in the fiduciary process. The Proposed Rule identifies six factors fiduciaries should consider when selecting plan investments:

• Performance. The obligation to select investments reasonably determined to maximize risk-adjusted financial returns, net of fees, should be considered in the context of investment time horizons. For example, given the long-term nature of retirement savings, it can be prudent to give greater weight to the long-term historical performance of possible investments over short-term performance.
• Fees. A fiduciary must consider fees and expenses in the selection of an investment option in the plan lineup, and, consistent with long-standing precedent, is not required to select the lowest cost investment in a non-apples-to-apples investment scenario. For example, diversification and the potential to maximize risk adjusted returns may support inclusion of both a passive and a higher-cost-actively managed fund for asset classes in a plan’s investment lineup. By contrast, when comparing apples to apples – like two investments with different fee classes that are “identical in all respects except cost” – it is a breach of the fiduciary duty of prudence to select the higher cost investment.
• Liquidity. A fiduciary must appropriately consider and determine that the investment option will have sufficient liquidity to meet the plan’s anticipated needs at both the plan and individual levels. For example, immediate liquidity is a necessity when participant withdraws funds from the plan. By contrast, the DOL is clear that investments that have illiquid components are permissible under ERISA and, through an illiquidity premium, can reasonably be determined to satisfy the ERISA investment standard.
• Valuation. A fiduciary must appropriately consider and determine that the investment has adequate measures to ensure timely and accurate value determined through a conflict-free process.
• Performance Benchmarks. Each investment must have a meaningful benchmark with similar mandates, strategies, objectives, and risks. The Proposed Rule provides an example of how fiduciaries can construct composite benchmarks when an investment combines multiple asset classes.
• Complexity. Fiduciaries must have the skills and knowledge to understand an investment or must seek assistance from qualified professionals. The Proposed Rule makes clear that complexity alone does not disqualify an investment.

It may be expected that the DOL will revise some of these factors and related examples based on public comments on the Proposed Rule before adopting a final version.

Where This Matters Most Right Now

Consistent with the ERISA statute, as interpreted by the Supreme Court, the Proposed Rule is clear that the same ERISA fiduciary investment standard applies to all investment options, regardless of asset class or whether they provide private or public market exposure. The law also is clear that any ERISA investment decision must be supported by a prudent process that considers all relevant facts and circumstances.

Some responsible plan fiduciaries have raised questions as to the process to be used in evaluating the unique aspects of investments with private market exposure, and the Proposed Rule is geared to providing this guidance. Examples throughout the proposal illustrate how fiduciaries can assess liquidity restrictions, complex fee structures, valuation methodologies, and performance benchmarks for investments that include private market exposure. The guidance emphasizes that proper due diligence and, where appropriate, engagement of qualified investment professionals, are key to a prudent process.

What Happens Next

The Proposed Rule is open for public comment through June 1, 2026, and it can be expected that the final rule will contain differences with the proposal—in particular, around details and examples used in the proposal’s safe harbors.

Stakeholders should engage constructively with this rulemaking recognizing what the Proposed Rule can’t and can do. DOL rulemaking cannot – and will not – alter the standard for selecting and monitoring investment options within a plan lineup, mandate inclusion of investments with private market exposure in plan lineups, or newly “allow” such investments. But where the DOL rule can move the needle most is by providing clear guidance on how to evaluate different types of investments, including ones with private market exposure.

Great Gray will continue to monitor this proposal and provide updates as it moves through the regulatory process.