The U.S. Department of Labor’s Employee Benefits Security Administration issued a historic proposed regulation increasing potential retirement investment options for more than 90 million Americans.

The proposed regulation explains the steps that managers of 401(k) plans should take when considering alternative assets as a component in their investment lineups and establishes a set of process-based safe harbors for plan fiduciaries to use when selecting designated investment alternatives. The proposal follows President Trump’s Executive Order, “Democratizing Access to Alternative Assets for 401(k) Investors.” 

“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,” said U.S. Secretary of Labor Lori Chavez-DeRemer. “This proposed rule will show how plans can consider products that better reflect the investment landscape as it exists today. This greater diversity will drive innovation and result in a major win for American workers, retirees, and their families.”

“The Treasury Department is proud of this rulemaking effort, which is another step in ushering in President Trump’s Golden Age,” said U.S. Secretary of the Treasury Scott Bessent. “This proposed rule is an initial step in implementing the President’s Executive Order in a safe and smart manner, broadening access to additional retirement plan options for millions of Americans while being mindful of the importance of protecting retirement assets. Treasury is grateful for the Department of Labor’s partnership and looks forward to continued engagement as the rulemaking process continues.”

“Americans’ ability to participate more fully in innovation and economic growth through well-diversified long-term investments is a vitally important priority for effective retirement planning. The Securities and Exchange Commission is pleased to have joined our colleagues at the Department of Labor to help formulate this proposal for these long-overdue improvements. We look forward to continuing our work to expand opportunities for Americans to build wealth and save for the future,” said SEC Chairman Paul S. Atkins.

The proposed regulation reflects long-standing retirement law principles. Prudence under ERISA is grounded in process and plan fiduciaries are given maximum discretion and flexibility in selecting any particular investment as a designated investment alternative.

Under the proposed rule, when selecting investment alternatives, plan fiduciaries would need to objectively, thoroughly, and analytically consider, and make determinations on factors including performance, fees, liquidity, valuation, performance benchmarks, and complexity.

While managers of defined contribution plans have always had the authority to consider alternative assets, historically, almost none have done so. In 2022, the Biden Administration further stifled these investments through a rescinded compliance release that warned fiduciaries about including cryptocurrency options in 401(k) plans. The guidance deviated from the Employee Retirement Income Security Act’s requirements and marked a departure from the department’s decades-long approach to fiduciary investment decisions.

“The department’s days of picking winners and losers are over. Our rule clearly spells out that managers must evaluate any and all potential product offerings by following a prudent process,” said U.S. Deputy Secretary of Labor Keith Sonderling. “This proposal is decidedly neutral and refrains from saying that any asset class is any better or worse than other investment types, as the law requires.”

EBSA ensures the security of retirement, health, and other job-based benefits for American workers and their families. The agency is responsible for protecting more than 156 million workers, retirees, and their families, who are covered by approximately 2.6 million health plans, 801,000 private retirement plans, and 514,000 additional welfare benefit plans. Together, these plans hold about $13.8 trillion in assets.

Read the notice of proposed rulemaking on fiduciary duties in selecting designated investment alternatives.

Source: Department of Labor

The Investment Company Institute (ICI) released the following statement in response to the Department of Labor’s (DOL) proposed rule on Fiduciary Duties in Selecting Designated Investment Alternatives:

“The DOL has taken a significant step towards realizing the vision President Trump set out in his executive order encouraging broader investor access to private market assets.

“We look forward to working with the Department to ensure that any final rule follows the key elements set forth in the proposal. This includes permitting 401(k) plan investment diversification among a broad range of asset classes while reinforcing the core principles that apply to plan fiduciaries when making any plan investment decisions. These are key ingredients to ensuring plan participants have a solid foundation for their retirement. In addition, the asset-neutral nature of the proposal is central to ensuring broader incorporation of a wide range of assets by plan fiduciaries as it confirms consistent standards for plan investments.

“More than 155 million Americans are covered by ERISA plans, and they will benefit from expanded access, such as by allowing target-date funds to add private market assets as a component of their investment portfolios. We look forward to continuing to work with the DOL on a final rule that supports innovation and maintains the robust investor protections Americans currently benefit from.”

Source: ICI

MFA issued the following statement in support of the Department of Labor’s rule proposal to broaden access to alternatives in 401(k) defined contribution retirement plans.

“Pensions have long used alternative investments to help secure retirements, and 401(k) savers deserve similar access to a wide range of investment options. Research shows portfolios that include alternative investments can improve long-term performance while reducing risk. We commend the Department of Labor for taking steps to give more Americans the choice to access alternative investments with robust investor protections.” — Bryan Corbett, MFA President and CEO

Source: MFA

SIFMA released the following statement from Kenneth E. Bentsen, Jr., SIFMA President and CEO, on a rule proposal released by the Department of Labor (DOL) related to alternative investments in retirement accounts:

“Helping Americans build savings for retirement is among the most important roles of the capital markets and SIFMA strongly supports policy efforts aimed at increasing retirement security for all. Policy changes to expand access to private markets investments could serve to improve diversification, democratize access, and offer more investment choices to the benefit of everyday retirement savers. SIFMA looks forward to reviewing the proposal in detail and engaging constructively with regulators during the comment process.”

Source: SIFMA