On March 31, 2026, the Department of Labor (DOL) issued a proposed rule specific to 401k plans on “Fiduciary Duties in Selecting Designated Investment Alternatives.” This comes at a time when alternative investments are becoming more widespread. While alternative investments may have triggered this proposed ruling, the more important takeaway is how the DOL is addressing fiduciary responsibility overall.
The proposal aims to make one point clear: it’s not about picking the “right” investment — it’s about demonstrating a prudent process. While the rule is partly a response to the growing use of alternative investments, its broader purpose is to clarify what the DOL expects fiduciaries to document and defend. The proposal effectively sets a clearer standard for what a well-supported investment decision should look like.
At a high level, the proposed rule reinforces that fiduciary responsibility is based on processes, rather than outcomes. In other words, the question is whether a plan sponsor followed a prudent, well-documented process — not whether a particular investment performed well.
The DOL is providing a clearer framework demonstrating prudence. If a plan sponsor follows a structured, well-documented process for selecting investments, there is a presumption that it has met its fiduciary obligation. Documented consideration of the six key factors would provide safe-harbor protection for plan sponsors. This is intended to reduce some of the litigation risk that has made plan sponsors hesitant to expand or adjust their investment lineups.
The proposal formalizes the following six key factors to be considered by plan sponsors:
Practically, this means that the plan sponsor should be able to show how these factors were evaluated and why a decision was made. The rule is “asset-neutral,” meaning that the same rule applies for all classes of investment. The key is documenting and supporting the plan sponsor’s decision-making process regarding investment selection.
For plan sponsors, the proposal is less about introducing entirely new requirements and more about reinforcing how decisions should be documented and communicated. In practice, that means:
The main takeaway is straightforward and may be reminiscent of high school math class: you need to be able to show your work. Most plan sponsors are already making prudent decisions, but going forward, the expectation is that the process behind those decisions is clearly documented.
Now is the time to take a closer look at your investment selection process. Reach out to discuss how you can strengthen documentation and align with the DOL’s proposed framework.
For more information on this topic, please contact a member of our team.
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