What the ARA Gets Wrong about the DOL's Investment Selection Rule

The American Retirement Association (ARA) is the national trade association for retirement plan professionals — advisors, consultants, administrators, actuaries, accountants, and attorneys. Through its five affiliates (ASPPA, NAPA, NTSA, ASEA, and PSCA), it speaks for roughly 40,000 of them, and I have been a member for more than 25 years.

Like Employee Fiduciary, the ARA submitted a comment letter to the Department of Labor (DOL) on its proposed investment selection rule. Unlike Employee Fiduciary, it accepted the rule's direction without any apparent concern about how the rule could negatively affect the workers it is supposed to protect.

Last week, in Kelsey's (K)orner: Thoughts on the DOL's Investment Selection Rule, the ARA's Chief of Retirement Policy & Regulatory Affairs defended that choice — even as opposition to the rule has mounted from leading consumer advocates, including members of Congress and 22 state attorneys general. The defense rests on a single proposition: fiduciary prudence is about process, not outcomes. That proposition could be profitable one for parts of the industry and a costly one for participants.

As a longtime ARA member, I am disappointed. The group's position puts the financial services industry ahead of plan participants — and ahead of the fiduciaries who have a legal duty to protect their savings. But don't take my word for it — decide for yourself. Below is a summary of the ARA's recommendations to the DOL, what it gets right, and where it fails 401(k) participants.

The ARA's Recommendations to the DOL

ARA's comment letter makes five recommendations. It asks the Department to:

1. 1. Align the rule with existing prudence regulation. ARA wants the rule's "maximize risk-adjusted returns net of fees" language mirrored to ERISA's general prudence regulation at 29 C.F.R. § 2550.404a-1, to confirm the proposal supplements rather than replaces the existing standard.
   2. Distinguish menu design from DIA selection. Make the safe harbor available to whichever fiduciary selects the DIA — including 3(38) investment managers who did not design the menu.
   3. Extend the safe harbor to monitoring. Cover ongoing monitoring, retention, and replacement decisions — not just initial selection. Most ERISA investment litigation alleges failure to monitor.
   4. Define comparison concepts more tightly. Set "similar alternative" as an investment that can fulfill the same plan menu strategy. Distinguish it from "meaningful benchmarks," which evaluate a DIA against its own objective. Confirm "risk-adjusted returns" includes qualitative factors, not just quantitative metrics.
   5. Refine the examples. Add a liquidity example accommodating vehicles that do not replicate mutual fund liquidity protections. Soften the valuation example to permit mitigated (rather than eliminated) conflicts of interest. Extend PTE 77-4 — currently available to affiliated mutual funds — into private market structures.

What the ARA Letter Gets Right

Several of these requests are reasonable, and I support them. The rule should be aligned with existing prudence regulation. Menu design should be distinguished from DIA selection. The safe harbor should extend to monitoring — most ERISA investment litigation alleges a failure to monitor. And "risk-adjusted returns" should account for qualitative factors, because that is how investment professionals evaluate managers. None of that is my quarrel.

Where the ARA Fails 401(k) Participants

My quarrel is with the rest of ARA's defense — and the idea at its center — that prudence is a matter of process rather than results.

Process can be profitable. Documentation, advisory engagements, monitoring, fee benchmarking, investment policy statements, vendor RFPs — these services scale with complexity, and the more complicated a plan's menu, the more potentially conflicted ARA members can charge to vet and document it. A documented process can also justify almost any investment, from a mutual fund loaded with hidden fees to a private credit CIT to a cryptocurrency allocation. It answers whether the steps were followed, not whether the participant came out ahead.

Outcomes are different, because they can be measured. Morningstar's Active/Passive Barometer and S&P's SPIVA Scorecard consistently show low-cost index funds outperform most actively managed peers, net of fees, over the long term. Compounded over a career, that difference is the gap between retiring on schedule and working years longer to make up the shortfall. A rule built around outcomes would force fiduciaries to confront that evidence; a rule built around process lets them paper over it.

ARA's defense rests on four such process arguments. Each one fails 401(k) participants.

Asset Neutrality Is Not Neutral

The first process argument is asset neutrality. The defense argues that "labels are not analysis" — that "private," "public," "active," "passive," "liquid," "illiquid" are descriptors, not fiduciary conclusions. Fair enough. But the rule asks fiduciaries to compare these vehicles under the same six-factor test, and the test cannot be applied symmetrically when the underlying disclosure regimes are not.

A mutual fund's total expense ratio includes acquired fund fees, leverage costs, and other indirect expenses, governed by SEC disclosure rules. A collective investment trust holding private equity, private credit, or real assets is exempt from SEC registration. Its trustees are regulated by state or federal banking authorities; its use in retirement plans falls under ERISA. Neither framework requires CITs to disclose carried interest, leverage costs, or acquired fund fees at mutual-fund-equivalent standards.

This is not hypothetical. The proposed rule's fee factor requires fiduciaries to compare costs across "a reasonable number of similar alternatives." If a CIT's stated expense ratio omits costs a mutual fund discloses, the comparison structurally tilts toward the less transparent vehicle. A fiduciary acting in good faith will select what looks cheaper on paper while delivering more expensive exposure in practice.

The DOL could close this gap by requiring CITs holding private market assets to disclose carried interest, leverage costs, and acquired fund fees in both percentage and dollar terms before the safe harbor's fee factor applies. It has not. Until it does, asset neutrality is a polite name for systemic mispricing.

ARA's letter confirms the asymmetry in what it omits. Seventeen pages on safe harbor coverage, key term definitions, and example refinements — none addressing fee disclosure for the alternative investments the rule expands access to. Carried interest, leverage costs, and acquired fund fees never appear. The silence is the structural argument made concrete.

Two of ARA's asks compound the problem.

ARA's "similar alternative" definition shields high-fee investments from cheaper comparisons

ARA wants "similar alternative" defined as an investment that can fulfill the same plan menu strategy. That sounds neutral, but it lets fiduciaries narrow comparators to vehicles with similar features, foreclosing comparison to cheaper or more transparent alternatives that achieve the same outcome.

ARA's own example illustrates this. The letter asks the Department to replace its index-fund-to-index-fund example with a managed-account comparison limited to other managed accounts, on the rationale that managed accounts compare only to each other. The structural effect: a fiduciary considering a higher-fee managed account need not weigh whether a target date fund delivers comparable outcomes at a fraction of the cost. The framing protects the fee, not the participant.

ARA's example refinements lower the bar for alternatives

ARA's liquidity refinement asks the Department to show how non-mutual-fund vehicles can satisfy the liquidity factor without replicating Investment Company Act protections — a new pathway into plans. ARA's valuation refinement asks the Department to relax the conflict-of-interest standard from "conflict-free and independent" to "appropriately identified, disclosed, managed, and mitigated" — a pathway for conflicted valuations to satisfy the rule. ARA's PTE 77-4 expansion extends exemptions designed for affiliated mutual funds — subject to SEC registration, daily liquidity, and 1940 Act fee disclosure — into private market structures subject to none of those constraints.

These are not clarifying refinements. They are asks to lower the bar for the vehicles the rule will channel new participant capital into.

The "litigation risk" framing gets ERISA's enforcement mechanism backwards

The second process argument is litigation reduction. The defense describes an environment where "hindsight is undefeated in litigation." There is some truth to that. There is also a 20-year track record showing excessive-fee litigation has been the most effective force driving 401(k) mutual fund expense ratios down. ICI data shows the asset-weighted expense ratio for 401(k) equity mutual funds has fallen by more than two-thirds since 2000. That compression was not the work of regulators. It was plaintiffs' lawyers and the threat they pose to fiduciaries who default to high-cost share classes.

Congress did not stumble into ERISA's private right of action. It chose litigation as the primary enforcement mechanism because the alternative — regulators policing plan-by-plan investment decisions across hundreds of thousands of plans — was never going to work. Litigation is how participants enforce outcome accountability. The proposed rule's effort to "reduce litigation risk" is not a neutral procedural improvement. It reallocates risk from fiduciaries to participants. When the deterrent weakens, the conduct it deters returns.

Some lawsuits are meritless. That argument does not justify dismantling the deterrent that has driven the largest participant savings of the modern 401(k) era.

There are two ways to reduce litigation. One is to reduce the harm that triggers it: stronger fee disclosure for vehicles holding alternative investments, conflict-of-interest prohibitions in valuation, and reporting that lets participants see what they pay and what they get. The other is to shield the harm from being actionable: broader safe harbors, narrower comparator definitions, eased valuation standards. ARA's letter pursues the second and ignores the first. ARA does not want less litigation. It wants less accountability for the conduct that produces it.

Protecting Fiduciaries Doesn't Serve Participants

The third process argument is that protecting fiduciaries serves participants — the cleanest expression of process-over-outcomes thinking. ARA's defense rests on a syllogism: shield fiduciaries from litigation → they make better decisions → participants benefit. The first arrow holds. The second doesn't follow.

Under the proposed rule, a participant has no new tool to evaluate whether the six-factor test was applied rigorously or reduced to a templated checklist. No new disclosure of net-of-fees performance against the benchmark the fiduciary actually used. No right to inspect the documentation that supports the safe harbor. No plain-language summary that translates the fiduciary's analysis into something a non-specialist can read.

A rule that hardens fiduciaries' legal position without giving participants matching visibility into how their savings are managed is not a clarification of ERISA. It hands fiduciaries new protection and gives participants nothing in return. ERISA's worker-protection purpose requires that any new fiduciary safe harbor be matched by new participant transparency — at minimum, annual plain-language summaries of fees in dollar terms, benchmarks used, and net-of-fees performance against those benchmarks. The rule contains none of this. ARA does not ask for it.

"Innovation" For Whom?

The fourth process argument is innovation. Fiduciaries need flexibility, the defense argues, to evaluate "new products, structures, and strategies as the marketplace changes." Target date funds are offered as the precedent — once novel, now ubiquitous and participant-beneficial.

Target date funds earned their place by solving a real problem participants had: choosing among unfamiliar options without professional guidance. They are the rare case where process and outcome aligned — flexibility produced a better result for participants. The asset classes the rule actually expands access to — private equity, private credit, cryptocurrency — are not solving a participant problem. They are solving a seller problem. Institutional limited partners are exiting private equity at record rates. Private credit fundraising is in its worst stretch in nearly a decade. Cryptocurrency remains uniquely volatile and uniquely susceptible to fraud. The "innovation" the rule enables is not new products participants are demanding. It is new buyers the asset management industry needs.

Innovation that serves participants — lower fees, better default options, lifetime income features that actually work — does not require weakening the prudence standard. Innovation that serves sellers does. When a rule's primary effect is to channel retirement savings into vehicles sophisticated investors are exiting, the framing of "innovation" deserves scrutiny, not deference.

ERISA Serves Participants, Not the Industry

The Employee Retirement Income Security Act (ERISA) exists to protect participants, not to enrich the industry that serves them. It does not ask whether a fiduciary's process was clearly documented. It asks whether the resulting decision served those participants. Process and outcome are not the same, and the rule conflates them. A six-factor checklist applied to a private credit CIT with opaque fees, illiquid underlying assets, and no meaningful benchmark is still a checklist applied to a private credit CIT with opaque fees, illiquid underlying assets, and no meaningful benchmark. Documentation does not change the substance.

ARA's defense closes by hoping the DOL "sticks the landing" on a final rule that supports responsible innovation and helps fiduciaries focus on value and participant outcomes. So do we. But sticking the landing means closing the CIT fee transparency gap, requiring meaningful crypto protections beyond disclosure, and giving participants transparency rights that match the new fiduciary protections. Those three changes are what an outcome rule would look like. Without them, the rule chooses process over outcomes — and a process rule serves the wrong constituency.

For a worker-protection statute, that is the wrong choice.