The Department of Labor released its proposed rule addressing how fiduciaries should evaluate “alternative” investments within defined-contribution plans on March 30.
The proposal, titled “Fiduciary Duties in Selecting Designated Investment Alternatives,” follows an August 2025 executive order that broke from previous guidance that discouraged the inclusion of alternatives under the belief that the representative plan sponsor lacked sufficient expertise—or access to such expertise—to perform the requisite due diligence on more complex and potentially riskier investments.
The proposed rule introduces a six-factor safe harbor framework for fiduciaries. The factors address fees, liquidity, valuation methodology, performance, benchmarking, and “complexity.” This last factor is particularly important because it requires fiduciaries to assess their own ability to evaluate a complex investment or to determine whether responsibility should be delegated to a third party.
In practice, it requires advisors to own their knowledge when dealing with alternative assets.
It’s also worth noting that while much of the industry focus has been on private market funds, the proposal also references cryptocurrency, infrastructure, and commodities. It doesn’t restrict any product “insofar as the designated investment alternative might otherwise be illegal.” So it’s quite broad.
Disparate Asset Classes Require Different Considerations
Even when excluding the many unmentioned “legal” options, we are left with a disparate group of investments. Cryptocurrency and private markets, for example, have more differences than similarities. The central feature of private market funds is that investments are appraisal-priced and valued infrequently. Crypto, by contrast, is market-priced and continuously valued.
Private markets are illiquid; crypto is liquid. Private market managers engage in traditional investing and lending strategies where cash flows are expected and typically realized. Crypto is an entirely new and speculative asset with no expected cash flows. Well-established valuation methodologies exist for private equity and private credit, while crypto valuation is largely sentiment-driven, as most formal pricing models are econometric, short-term, and time-series based. Private markets tend to have substantial and often complex fee structures, while crypto exposures can be had through relatively inexpensive ETFs.
The primary risk in private markets is underperforming net of fees; the primary risk in crypto is a severe loss of capital at precisely the wrong moment: near retirement.
The takeaway: No asset class should be categorically excluded if a prudent process exists to evaluate it.
Issues Exist With Private Investments in 401(k) Plans, But They’re Solvable
In this proposal, the administration seeks to emphasize process over product: a sensible approach in a world where outcomes are never known. This emphasis is broadly consistent with the foundations of Erisa law.
The questions posed by including private investments in defined-contribution plans—fee transparency, liquidity structure, and simply understanding the market in which the manager plays—are significant but solvable if private asset managers, recordkeepers, and advisors work together.
The questions center on the following:
- How should liquidity be managed within a target-date fund or managed account framework?
- When are public/private structures most appropriate?
- What investment strategies best fill gaps in existing plan lineups?
Following a Careful Process Is Key
A plan fiduciary, supported by a qualified consultant if necessary, can evaluate private investments. It is more difficult, but also possible. When designed appropriately for the defined-contribution ecosystem and when tailored to the needs of managed accounts and custom target-date funds, private investments can become a meaningful tool for improving participant outcomes.
The proposal will now undergo a public comment period during which stakeholders can weigh in.
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