Department of Labor Issues Proposed Regulation Regarding Selection of Plan Investments: 

As explained in the August 2025 edition of The Speed Reader, on August 7, 2025 President Trump issued Executive Order 14330 (the “EO”) to broaden the scope of permissible investment options in employer-sponsored defined contribution plans. The EO stated that many Americans in those plans lack access to the potential growth and diversification that alternative assets may offer. It cited regulatory burdens and litigation risk as factors that impede access to such investments. The EO defined “alternative assets” as including:

• Private market investments (e.g., interests in equity, debt, or other financial instruments that are not traded on public exchanges);
• Interests in real estate;
• Holdings in actively managed investment vehicles that invest in digital assets;
• Investments in commodities;
• Interests in projects financing infrastructure development; and
• Lifetime income investment strategies, including longevity risk-sharing pools.

The EO directed the Department of Labor (the “DOL”) to propose regulations or other guidance, including safe harbors, clarifying ERISA fiduciary duties owed to plan participants when plans offer investments in alternative assets. It also directed the DOL to prioritize approaches for curbing litigation risk for fiduciaries in this regard.

On March 30, the DOL issued a proposed regulation pursuant to the EO but on a broader level.   Rather than solely addressing alternative assets, the proposed regulation provides guidance to fiduciaries on their responsibilities under ERISA when prudently selecting any investment alternatives for participant-directed defined contribution plans. That reflects the DOL’s position that a fiduciary’s responsibilities when selecting a plan’s investment lineup that includes alternative assets are the same as responsibilities that apply when selecting a plan’s investment lineup that does not include alternative assets.  

The proposed regulation establishes a process-based safe harbor for plan fiduciaries when selecting a plan investment, by providing a “non-exhaustive” list of six factors for fiduciaries to consider. When a fiduciary does so, its judgment regarding the factor or factors is presumed to have met ERISA’s fiduciary standards. The factors are as follows:

1. Performance: Fiduciaries must consider a reasonable number of similar investment alternatives and determine that the risk-adjusted expected returns of the investment (over an appropriate time horizon and net of anticipated fees and expenses) allow participants to maximize returns on their investments. For example, given the long-term nature of retirement savings, the DOL states that it is often prudent to give greater weight to long-term historical performance of an investment over short-term performance.
2. Fees: Fiduciaries must consider a reasonable number of similar alternatives and determine that the fees and expenses of the plan’s selected investments are appropriate. This involves its expected returns, in light of its risks.
3. Liquidity: Fiduciaries must consider and determine that each investment will have sufficient liquidity to meet the plan’s anticipated needs, at both the plan and individual participant levels. For example, because participant-directed defined contribution plans are intended to be “long-term retirement savings vehicles, particularly for participants early in their careers, there is no requirement that a fiduciary select only fully liquid products.”
4. Valuation: Fiduciaries must consider and determine that each investment has adopted  measures to ensure it can be timely and accurately valued per the plan’s needs. For example, fiduciaries can rely on asset valuations derived from a national securities exchange, or a similar public exchange that constitutes a generally-recognized market.
5. Performance Benchmarks: Fiduciaries must consider and determine that each investment has a “meaningful benchmark” and compare the risk-adjusted expected returns (net of fees) of the designated investment alternative to that benchmark. The proposed regulation defines “meaningful benchmark” as “an investment, strategy, index, or other comparator that has similar mandates, strategies, objectives, and risks to the designated investment alternative.” 
6. Complexity: Fiduciaries must consider each investment’s complexity and determine that they have the skills and knowledge required to understand each investment sufficiently to satisfy their ERISA duties, or whether they should obtain assistance from an external investment expert to evaluate the investments.

With respect to a fiduciary’s responsibilities when monitoring investments that have been added to a plan’s lineup, the regulation’s preamble states that it “does not address ERISA’s well-established duty for fiduciaries to monitor designated investment options at regular intervals after their selection.” The DOL, however, “anticipates issuing interpretive guidance in the near term concerning fiduciary obligations under ERISA to monitor designated investment alternatives following their inclusion on a plan’s investment menu.” The preamble goes on to state that “a plan fiduciary that tracks the process in the proposed regulation during appropriately established monitoring cycles will meet ERISA’s monitoring requirements.”

The proposed regulation’s rules do not apply to “self-directed brokerage accounts, or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan.” Its rules also do not apply to “investments acquired or available to be acquired through any such arrangements.”