DOL Releases ‘Safe Harbor’ Regulation for Alts in DC Plans

The Department of Labor on Monday issued a proposed rule clarifying how alternative investments may be used in defined contribution retirement plans, marking a significant step in the agency’s evolving approach to private markets in 401(k)s and other DC plans.

The rule permits plan fiduciaries to include investments such as private equity and private credit within diversified, professionally managed options like target-date funds, while reaffirming that longstanding fiduciary duties under federal law continue to apply.

The proposed rule includes a regulatory safe harbor “to curb litigation risk” for fiduciaries who seek to include alternative investments into investment funds, according to the DOL. Comments on the proposal can be submitted to the DOL within 60 days of its publication in the Federal Register.

“Today’s proposed rule is a meaningful and important step by the Department of Labor to bring needed clarity and certainty for retirement plan managers selecting the options to be made available to plan participants,” said the ERISA Industry Committee’s senior vice president of retirement and compensation policy, Andy Banducci, in a statement. “Too often, fear of meritless litigation reduces innovation in 401(k) investment offerings—and we applaud the department’s work to ensure that plan managers will have a framework on which they can rely.”

The guidance stops short of encouraging widespread adoption of alternative assets, instead emphasizing caution, documentation and risk management.

The rule arrives after a push from alternative asset managers hungry for access to the $12 trillion defined contribution market and as plan sponsors continue to weigh the potential benefits of broader diversification against concerns about liquidity, fees and litigation risk. The rule also comes as private credit funds have been reeling from an uptick in redemption requests as retail investors continue to look to pull their money out.

Alternative investments have long been accessible in DC plans, but adoption remains low often due to litigation concerns, which the proposed rule seeks to change. According to data from sister publication PLANSPONSOR’s 2026 Plan Benchmarking report, only 2.9% of plan sponsor respondents provided any investment options that include alternatives.

Proponents of the new DOL rule say the safe harbor and clearer guidelines could give fiduciaries more discretion and legal protection to offer investment funds that include allocation to alternative assets.

The proposed rule “wisely affirms the ‘prudence’ standard established by ERISA, giving retirement plan fiduciaries broad discretion and deference when offering plan investment options to participants,” said Lynn Dudley, American Benefits Council senior vice president of global retirement and compensation policy, in a statement.

Under the DOL rule, fiduciaries must evaluate whether alternative investments are appropriate for their plan based on factors including liquidity constraints, valuation practices, cost structures and the role those investments play within a broader portfolio. The rule also underscores that such assets are generally intended to be used as components of multi-asset strategies, rather than as stand-alone options available for direct participant selection.

The guidance reiterates that fiduciaries are responsible for ensuring that any investment included in a plan lineup is prudent and in the best interest of participants, regardless of asset class. It also highlights the importance of clear communication with participants about how these investments function and the risk they may carry.

The proposed rule builds on earlier guidance issued in 2020 and 2021, which first acknowledged a potential role for private equity in DC plans but also raised concerns about complexity and oversight. The new regulation consolidates those positions into a single framework intended to guide plan sponsors as interest in private markets continues to grow.

While the rule provides additional clarity, it leaves key decisions in the hands of plan fiduciaries, who must determine whether and how to incorporate alternative investments within the constraints of their plans’ structure and participant needs.

“I think it’s probably going to be a balance,” says Richard Shea, senior counsel at Covington and Burling LLP and former chair of its employee benefits and executive compensation practice. “It’s going to be hard to break out of the conservatism that results from the existing flood of litigation. But on the other hand, if there are opportunities to diversify risk, particularly with non-correlated income streams, that should be something that fiduciaries should be interested in, and it would be good if they could find a safe way to do that.”

Still, ERISA attorneys expect the proposed rule to lead to a likely reduction in litigation.

“While perhaps not immediate, I expect that the proposed rule, once finalized, will reduce class action litigation over time,” says Richard Nowak, a partner in Mayer Brown’s ERISA litigation practice. “Having represented plan sponsors in ERISA class action litigation for years, many companies and their fiduciary committees are already engaging in the fiduciary processes outlined in the proposed rule and safe harbor, but are being constantly second guessed and criticized for their reasonable decisions.”