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For years, retirement plan sponsors have operated in a gray zone, with private investments being technically permissible within target-date funds and managed accounts but rarely used in practice. A new proposal from the Department of Labor attempts to reduce that uncertainty in 401(k) plans but, in doing so, raises questions of its own.
The proposed DOL rule, released March 30, addresses the inclusion of private investments, lifetime income strategies, and cryptocurrencies in 401(k) plans. The rule clarifies that fiduciaries may include alternative investments within diversified vehicles, like target-date funds, provided they follow a documented, prudent process and meet defined standards for diligence, benchmarking, liquidity, and fee comparisons against similar investment funds. It also opens the door to include these alternative investments as stand-alone options for participants.
Here are some of the details of the proposal, along with the new questions it raises:
The Safe Harbor Process
The proposed rule includes legal protections for firms that follow clear processes built around six factors that plan fiduciaries must consider when selecting investments for the plan. They are:
- Performance
- Fees
- Liquidity
- Valuation
- Performance Benchmark
- Complexity
It’s a reasonable framework for choosing investment options for defined-contribution plans. Plan fiduciaries who document their consideration of each factor are presumed to have acted prudently. If finalized in its current form, this standard could reduce the risk of lawsuits tied to including higher-cost, more complex alternative investments. Lawsuits, especially those related to fees, have been on the rise. In 2025, excessive fee lawsuits jumped to 74 from 43 in 2024, according to Encore Fiduciary, a fiduciary liability insurance company.
We Still Have Questions
Each of the six factors is relatively straightforward when evaluating public market investments. Private markets complicate all six, not only because of their own inherent complexity but also because of difficulties in evaluating performance, fees, liquidity, and valuations. We have questions about how each of these factors will work in practice, and we will explore them in future pieces. For now, we focus on fees because fee transparency is often the first lens plan sponsors use when deciding if an investment belongs on their menu.
Morningstar’s Jack Shannon has highlighted how consistent fee disclosure remains a problem for semiliquid funds that hold private market investments. The growing prevalence of collective investment trusts in 401(k) plans adds another layer of difficulty. Unlike mutual funds, CITs are regulated under Erisa and the DOL rather than the Investment Company Act of 1940 and the Securities and Exchange Commission, making apples-to-apples fee comparisons challenging when those CITs incorporate private markets.
First, it is unclear whether CITs holding private market funds that charge incentive fees, such as carried interest, will be required to include those costs in the total net expense ratio shown to participants. Second, mutual funds and exchange-traded funds must include the cost of leverage in their prospectus and annual report expense ratios, which can be a material expense for private credit, real estate, and infrastructure funds; there is no clarity yet on whether CITs will be held to the same standard. Third, it remains an open question how either of those costs will flow through as acquired fund fees.
Taken together, these gaps make it harder for plan sponsors to compare a reasonable set of similar investments and assess whether fees are appropriate, as required under the proposed fiduciary rule.
These issues also matter to participants who are comparing investment options and deciding how to invest their retirement savings. History has consistently shown that minimizing costs is one of the few reliable ways to improve investor results.
A welcome improvement to the final rule would be clearer guidance on how complex private market fee schedules should be disclosed to plan sponsors and participants.
Still a Long Way to Go for Adoption
As we’ve discussed before, plan sponsors are often more concerned with mitigating the risk of legal action than with picking the top-performing investments over any given period. The proposed rule creates an opening for 401(k) plans to include private investments, but it does not require fiduciaries to dive in. Given how much most plan sponsors worry about litigation risk, many will need more clarification before they take the plunge. While the proposed rule aims to provide clarity, the questions it raises around fees, liquidity, valuation, and complexity are significant. They are precisely the areas of greatest fiduciary risk and where plan sponsors will need clear guidance before they can act with confidence.
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