The Department of Labor is floating a rule that would give 401(k) plan fiduciaries a clearer process for evaluating a wider set of investment options, including private equity and private credit.
The department’s Employee Benefits Security Administration said the proposal would outline how fiduciaries can “objectively, thoroughly, and analytically” evaluate factors such as performance, fees, liquidity, valuation, benchmarks and complexity when selecting designated investment alternatives. EBSA also said the framework is meant to be neutral across asset classes, rather than favoring or discouraging specific products.
“Our goal is to deliver on President Trump’s promise for a new golden age by fostering a retirement system that allows more Americans to retire with dignity,” labor secretary Lori Chavez-DeRemer said in a Monday release. “This proposed rule will show how plans can consider products that better reflect the investment landscape as it exists today.”
The proposal comes just two weeks after the Biden-era fiduciary rule, which faced stiff years-long opposition from multiple industry groups, was finally struck down in a conclusive Texas court ruling.
In a Wall Street Journal op-ed, Chavez-DeRemer framed the proposal as a shift away from “regulatory overreach and litigation abuse” that has deterred plan innovation. The department’s approach, she wrote, is rooted in the idea that fiduciaries should be judged on the prudence of their decision-making process rather than outcomes reviewed in hindsight.
Chavez-DeRemer argued that no investment class or strategy should be treated as automatically off-limits for defined-contribution plans, explicitly pointing to alternatives such as private equity as a potential diversifier for plan menus. She also wrote that the department is not “picking winners and losers,” and said enforcement would still apply if fiduciaries act with conflicts or disloyal motives.
The DOL has opened a 60-day public comment period for the proposal.
For Jim McGowan, wealth management advisor at Apollon Financial, the DOL proposal's "safe harbor" provision – which formally offers legal protection to plan sponsors following a specific process – came as a surprise.
"Typically, changes like this are vague, and someone has to take on the risk while the rules get sorted out through legal battles over time," McGowan told InvestmentNews in an email.
For asset managers looking to expand their reach into the retail wealth space, retirement plans are a logical avenue to expand their territory, with the latest retirement industry snapshot showing $10.1 trillion in 401(k) plans by the end of 2025.
But after years of contentious ERISA class actions accusing big companies of breaching their fiduciary duty to plan participants – including multimillion-dollar judgments against Mutual of Omaha, New York Life, and UnitedHealth – plan sponsors would be understandably mindful of the implications of including exotic investment options on their menus.
President Donald Trump specifically called out the need to reduce legal risks for plan sponsors in his August executive order to expand access to alternative investments in 401(k)s. In that order, Trump vowed his administration would "relieve the regulatory burdens [that impede American workplace savers] from achieving the competitive returns and asset diversification necessary to secure a dignified, comfortable retirement."
One of the major criticisms against alternative investments, particularly private equity, has been the lack of transparency surrounding costs and performance. With that in mind, McGowan argued the PE industry "should be careful what it wishes for" when expanding into the DC plan space, where products will "be held to a much higher level of scrutiny.
"It will be interesting to see how a target date fund with a private equity allocation performs compared to an otherwise identical fund without one," he said.
The DOL's move to loosen rules around private markets comes as parts of private credit face investor scrutiny, with high-profile headlines of redemptions from some private-credit funds amid market turbulence. Concerns have risen around exposure to software-sector borrowers in particular as investors debate how artificial intelligence could reshape that industry.
Even so, advocates for expanding retail access say the 401(k) system is overly concentrated in public markets at a time when the pool of publicly traded companies has shrunk. The proposed rule could make some employers more amenable to consider alternatives – including private credit, infrastructure funds and potentially cryptocurrencies – though adoption may be slow in a market where menu changes typically move incrementally.
The DOL proposal discusses alternative investments not as standalone options within retirement plans, but as part of pooled funds such as managed accounts or target-date funds. McGowan argues that would put the onus of private equity due diligence more on investment companies behind the TDFs, and not so much on broker-dealers, RIAs, and advisors.
"That said, there will be pressure on those fund managers to incorporate these options so that advisors have them available," McGowan said. "Those who do not may find themselves at a competitive disadvantage."
For advisors weighing private equity exposure within their clients' 401(k) accounts, McGowan says it's imperative to ensure the funds incorporating PE are doing proper due diligence and have protections in place for when participants raise concerns.
"It is also important to maintain options that do not include private investments, as many clients are not yet comfortable with that level of exposure," McGowan said.
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