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The Department of Labor's proposed "Fiduciary Duties in Selecting Designated Investment Alternatives" is one of the clearest regulatory roadmaps in years for prudent 401(k) investment selection — and the financial industry has been quick to say so. But that doesn't mean the rule is necessarily a good thing for 401(k) participants — or for employers who could face liability for failing to protect their interests.
Let's be direct: this rule was triggered by an executive order to expand 401(k) access to private equity, real estate, infrastructure, and cryptocurrency — asset classes whose managers stand to capture hundreds of billions of dollars in new retirement assets if the rule succeeds. The financial industry's enthusiasm is understandable. Whether participants and employers should share it is a different question entirely.
Here's an honest look at what this rule gets right, where it falls short, and where it could actively harm the people it's supposed to protect.
Quick Reference: The Six-Factor Test
Plan fiduciaries who objectively, thoroughly, and analytically evaluate and document each of these six factors are presumed to have satisfied their ERISA Section 404(a)(1)(B) duty of prudence — the heart of the rule's safe harbor protection:
- Performance — risk-adjusted expected returns, net of fees, over an appropriate time horizon
- Fees — appropriateness relative to the value the investment delivers
- Liquidity — sufficiency to meet participant withdrawal and plan-level needs
- Valuation — adequacy of independent, conflict-free valuation processes
- Benchmarking — comparison against a meaningful benchmark with similar mandate and risk
- Complexity — whether the fiduciary has the expertise to evaluate the investment, or must engage qualified help
The framework applies to all investment selection decisions, not just alternative investments.
The Good
The rule gives plan sponsors a defensible process framework they've never had before, brings real scrutiny to fee practices that have long harmed participants, and could help fiduciaries make better-documented decisions regardless of where they land on the active-versus-passive spectrum.
A Concrete Framework Finally Exists
ERISA's "prudent expert" standard has always been deliberately vague — flexible enough to accommodate diverse investment philosophies, vague enough to invite litigation over almost any decision. The six-factor test gives plan sponsors a structured, comprehensive and rigorous checklist that can be applied consistently and documented defensibly. When fiduciaries follow a disciplined process, investment decisions are more likely to be grounded in financial analysis and less likely to reflect vendor inertia or recordkeeper relationships.
Fees Get Real Scrutiny — At Least in Principle
The rule explicitly flags selecting a higher-cost share class when a cheaper, identical class is available — a direct response to one of the most common participant-damaging patterns in excessive fee litigation, which has surged in recent years. The rule doesn't require the cheapest option, but it does require that higher fees be justified by commensurate value. For most actively managed funds, the performance and fee factors will make that case very difficult to sustain.
The Safe Harbor Strengthens the Case for Passive Investing
The rule actually reinforces the case for index funds rather than undermining it. Morningstar's Active/Passive Barometer and S&P's SPIVA Scorecard consistently show that low-cost index funds outperform the majority of actively managed peers on a net-of-fees basis over the long term. A plan sponsor who documents that analysis under the six-factor framework will find the passive case easier to make than ever — not harder. The rule doesn't pressure fiduciaries to add alternatives; it simply removes the legal impediment for those who choose to do so.
The Bad
The rule's shortcomings go to the heart of whether it will help plan participants make better informed investment decisions. Key provisions are either unenforceable from a participant's perspective, built on a fee disclosure framework that remains broken, or unlikely to produce real-world change despite the regulatory machinery behind them.
Documentation Protects Sponsors, Not Participants
The safe harbor is process-based, not outcome-based. A fiduciary who runs a thorough, well-documented analysis and reaches a bad conclusion is still protected. A meticulously documented decision to include an underperforming, expensive fund that marginally clears the six-factor bar is still a bad outcome for the participant who holds it. The rule creates better processes; it doesn't guarantee better results.
Benchmarking Is Sound in Theory, Exploitable in Practice
The rule requires comparison against "a meaningful benchmark with similar mandates, strategies, objectives, and risks." For publicly traded funds, this is straightforward. For private equity, infrastructure, or hedge fund-style strategies, there is no universally accepted benchmark — and the rule accommodates custom composite benchmarks developed with a qualified adviser. That's reasonable accommodation, but also an opening for predetermined outcomes: a plan sponsor who wants to include a particular alternative can, with the right adviser, construct a benchmark the investment is likely to beat. Participants have no visibility into this process and no practical ability to challenge it.
Fee Transparency Is a Mess — and the Rule Doesn't Fix It
The rule's six-factor test explicitly covers collective investment trusts (CITs) as designated investment alternatives — and given their rapidly growing use as wrappers for private market and alternative investments in 401(k) plans, that's significant. Unlike mutual funds, CITs are exempt from SEC registration under the Investment Company Act of 1940, which makes them cheaper to administer — but also means they are not subject to the same fee disclosure standards as registered mutual funds. That cost advantage has made CITs increasingly attractive to plan sponsors, but the fee disclosure gap it creates is a problem the proposed rule does nothing to resolve.
As Morningstar's Jack Shannon has documented, consistent fee disclosure remains a serious problem for semi-liquid funds holding private market investments, and CITs are at the center of it. Their sponsoring trustees are regulated by state or federal banking authorities, and their use in retirement plans is governed by ERISA — but neither framework imposes the same fee disclosure standards as registered mutual funds. Key unresolved gaps:
- Whether CITs must include carried interest in the net expense ratio shown to participants
- Whether they must include the cost of leverage as mutual funds must
- How either flows through as acquired fund fees
These points matter because the rule requires fiduciaries to compare fees across a "reasonable set of similar investments" — but if CITs aren't required to disclose their full costs on the same basis as mutual funds, that comparison is impossible to make accurately. A fiduciary could follow the six-factor process in perfect good faith and still be comparing apples to oranges on fees without knowing it.
Complexity Deference Could Cut Against Participants
Allowing fiduciaries to delegate evaluation of complex investments to qualified advisers is sensible — but "hire an expert" can also become a mechanism for adding expensive products that generate revenue for advisers without meaningfully improving participant outcomes. The rule draws no line between complexity that serves participants and complexity that serves the financial industry's distribution economics.
Adoption Will Be Slow — Which Reveals the Rule's Limits
Despite all the safe harbor machinery, many plan sponsors are unlikely to add alternatives anyway. As Morningstar has observed, plan sponsors are often more focused on mitigating litigation risk than on selecting top-performing investments. The unresolved questions around fee transparency, liquidity, and valuation are precisely the areas of greatest fiduciary exposure. The rule creates an opening. It doesn't give most fiduciaries the confidence to walk through it.
The Ugly
Beyond the technical shortcomings lie more uncomfortable questions — about who this rule was really written for, who shaped the early narrative, and what happens to participants when political winds drive regulatory outcomes.
The Political Origins of This Rule Are Not Incidental
The rule was triggered by Executive Order 14330, directing the DOL to expand 401(k) access to alternatives and prioritize approaches that "curb litigation risk." Private equity firms, real estate funds, infrastructure managers, and digital asset platforms stand to capture enormous new assets if the rule normalizes their products as 401(k) options. The early response reflected this: law firms representing asset managers — Latham & Watkins, Ogletree Deakins, Winston & Strawn — published client alerts within days. The DOL's own press release called the rule "landmark" and framed it as "democratizing access" — language that mirrors the private equity industry's talking points almost verbatim.
Meanwhile, the Pension Rights Center, Better Markets, and AARP published no visible commentary in the days following the release. That asymmetry — industry lawyers moving in hours, participant advocates in weeks — is a feature of the rulemaking process that should make participants and their advisers appropriately skeptical of the early narrative.
Digital Assets in 401(k) Plans: Dangerous by Design
Senator Elizabeth Warren put it plainly on April 2, 2026: the rule would "expose Americans' retirement accounts to private markets and cryptocurrencies." On crypto specifically, it's hard to argue. The rule reverses prior DOL guidance that specifically warned against cryptocurrency in retirement plans — guidance that was warranted. Crypto is extraordinarily volatile, has no cash flows to anchor valuation, has a demonstrated history of fraud and market manipulation, and has no meaningful track record in retirement plan contexts.
The rule's valuation and benchmarking factors, applied rigorously, should screen out the worst options. But the safe harbor means a fiduciary who hires a crypto-friendly adviser, constructs a plausible benchmark, and documents the process can include digital assets with legal protection. There is no guardrail against using the safe harbor to justify high-fee, illiquid, or highly speculative investments — provided the paperwork is in order. For participants who don't scrutinize their investment menu and don't realize their 401(k) now carries crypto exposure, this is a material and underappreciated risk.
Participants Still Can't Make Informed Decisions Themselves
The rule creates no new disclosure requirements, no plain-language summaries of how investments were selected, and no way for participants to know whether the six-factor test was applied rigorously or superficially. Participants remain entirely dependent on their fiduciaries' good faith — and plaintiffs' attorneys' willingness to take cases — for protection. The safe harbor makes class actions harder to bring, shielding good-faith fiduciaries from meritless suits but also reducing accountability pressure on those who aren't. A rule that strengthens protections for fiduciaries without creating corresponding transparency for participants is, at its core, written for plan sponsors — not the retirement savers it nominally serves.
The Bottom Line
The DOL's proposed rule is a genuine improvement over the regulatory ambiguity that preceded it. Plan sponsors who use its framework in good faith will likely make better decisions — and those who already run disciplined, low-cost passive menus will find it validates rather than challenges their approach.
But the rule has real gaps — particularly on fee transparency — and real risks, particularly around digital assets. For the rule to deliver on its participant-protection potential, the final rule must include clearer fee disclosure requirements for CITs holding private market assets, more specific liquidity and valuation guidance, and a more honest reckoning with crypto risk in retirement accounts. The question is whether anyone will push hard enough for those improvements — or whether the safe harbor will be finalized in a form that serves the financial industry's interests as much as workers' retirement security.
