DOL Proposed Alts Rule Could Fuel Future ERISA Cases

When Daniel Aronowitz, assistant secretary of Labor and head of the Employee Benefits Security Administration, testified before Congress prior to his confirmation, he pledged to end the practice of “regulation by litigation.” The Department of Labor this week proposed a rule on the fiduciary duties in selecting designated investment alternatives and, in the process, provided a regulatory safe harbor intended to do just that.

The safe harbor would allow retirement plan fiduciaries to meet their duty of prudence under the Employee Retirement Income Security Act when selecting investments. The safe harbor is available to plan fiduciaries that follow “a prudent process” when selecting investments. The DOL proposal offers a six-factor test covering the following aspects of investment selection: performance, fees, liquidity, valuation, benchmarking and complexity.

But the proposal goes further, describing situations in which fiduciaries can prudently choose professionally managed funds, such as target-date funds, that include alternative investments. Legal experts point out that the DOL’s approach echoes established case law on defined contribution plans that include private market assets. Ironically, it is case law that the proposal—and the August 2025 executive order by President Donald Trump which led to it—seek to reduce.

The DOL’s proposal speaks to judges or others adjudicating ERISA litigation. It states that plan fiduciaries are “under a presumption of prudence” when their decisionmaking—including the process of choosing alternative investments for retirement plans—“follows a prudent process” and tell the arbiters to “defer to fiduciaries.”

Some commentators considering the proposed rule have noted that since the Supreme Court in 2024 overturned the Chevron legal precedent that often compelled federal courts to defer to a government agency’s interpretation of a law or statute, it is not clear if courts would apply the DOL’s standards when hearing ERISA cases.

Broader Than Expected

“They took this as an opportunity to not only lay out a framework for alternative investment options, but also to provide guidance for fiduciary functions more broadly,” says DeMario Carswell, an ERISA attorney at law firm Miller & Chevalier Chartered who defends employers. “They even included example benchmark sets, based on real-life litigation scenarios we’re seeing.”

Although the proposed rule is intended to maintain a “neutral” stance on alternative investments in DC plans, several experts argue that it directly targets the plaintiffs’ bar. The experts point out that one reason these asset classes have not been included in retirement plans, despite their longstanding availability, is plan sponsors’ fear of the cost and risk of litigation. The DOL also made clear that the proposed rule is intended to reduce litigation.

While the regulation’s headline conclusion—that alternative assets may be used within diversified, professionally managed funds in retirement plans—drew immediate attention, the body of the rule goes further, offering a series of test cases that collectively function as a road map for plan sponsors weighing whether, and how, to incorporate private markets into DC plans.

“This is how we will unlock and unleash the full potential of America’s voluntary employee benefit system,” Aronowitz said during a media briefing Monday, during which he mentioned that the new DOL rule provides “20 examples of safe harbors for what plan fiduciaries should consider as part of a prudent process in choosing any investment.”

List of Examples 

The proposed rule includes a collection of hypothetical scenarios that walk through fiduciary evaluations under varying conditions. These include examples of the sponsors of large plans considering adding a modest allocation to private equity within a target-date fund, as well as smaller plans assessing whether they have the operational capacity to support more complex investment structures.

Those examples, experts say, appear to draw directly from past court cases and regulatory disputes.

“They brought up common claims that plaintiffs make in court and tried to debunk those claims,” Carswell says.

In one scenario, a fiduciary committee evaluates a target-date series that includes a limited sleeve of private equity investments as part of a broader asset allocation strategy. The example emphasizes that a prudent fiduciary process needs to assess liquidity management, valuation processes and fee transparency, while also considering the role of the allocation in enhancing diversification over a long-term investment horizon.

A contrasting example describes a plan sponsor reviewing a similar product but ultimately declining to include it, citing concerns about recordkeeping limitations, participant communication challenges and the difficulty of monitoring valuation practices. In that instance, the decision not to adopt the investment is also framed as consistent with fiduciary obligations.

Specific Examples

Another, very specific, example focuses on the need for DC plans to maintain a sufficient amount of participant-level liquidity and refers to the liquidity requirements for mutual funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940. The DOL’s proposal offers the three-pronged test under which an investment selection would be compliant with ERISA if all three conditions are met.

“First, the fiduciary obtains a written representation from the person responsible for managing the designated investment alternative, or otherwise performs appropriate due diligence, that the designated investment alternative has adopted and implemented a liquidity risk management program that is substantially similar to a program that meets the requirements of such Act,” the DOL states. “Second, the fiduciary reads, critically reviews, and understands any written representation and consults a qualified professional where appropriate. Third, the fiduciary does not know, or have reason to know, other information which would cause the fiduciary to question any written representation.”

Other scenarios focus on the structure of investment offerings. The rule repeatedly distinguishes between the use of alternative investments within multi-asset vehicles—such as target-date or balanced funds—and the assets’ inclusion as stand-alone options available for direct participant selection. The examples make clear that the department views the latter approach as significantly more difficult to justify under fiduciary standards.

Erin Cho, who leads law firm Mayer Brown’s ERISA fiduciary practice, agreed that the list of examples outlined in the rule seem to address common arguments plaintiff firms have made in the past regarding alternative investment funds in DC plans.

“The examples reflect the fact that the drafters are well versed in ERISA case law, as they rebut common imprudence claims made by plaintiffs,” she says.

Potential Risks

For fiduciaries, the examples may offer clarity. But they also could create risks, since the examples are so thorough and specific, says Brenda Berg, a partner in the employee benefits group at law firm Holland & Hart LLP.

“It increases the responsibility for fiduciaries to really pay attention to this,” Berg says. “All of those specifics could wind up being used against fiduciaries as well,” in that the detailed guidance could become a de facto checklist in court.

“I have a feeling that this will be considered the minimum that you would need to do,” Berg says.

In that sense, the regulation serves not only as a policy statement, but also as a practical guide. Whether its goal is to reduce litigation, encourage more plan sponsors to offer alternative investment options, or to clarify and heighten fiduciary responsibilities for those who do, the proposed rule provides fiduciaries with clearer guidance on the necessary steps to offer these investment options.

“Litigation has not been able to develop a comprehensive approach to how one thinks about [alternative assets in DC plans],” says Richard Shea, senior counsel in law firm Covington & Burling LLP’s employee benefits practice. “I think that this proposed regulation is trying to put a lot more meat on the bones of what it is that fiduciaries have to do.”

Though the DOL’s rule estimates that about $178 billion will flow each year into target-date funds with alternative investments as a result of the proposal, it will take time to tell how many plan sponsors opt to add the investments.

“It’s helpful,” Carswell says. “But it’s also a lot to live up to.”