DOL proposes broad safe harbor for selecting DC plan investments
The Department of Labor (DOL) is proposing a new regulation that would address how defined contribution (DC) plan fiduciaries could demonstrate prudent selection of investment options. The proposal responds to an August 7, 2025, executive order (EO) directing DOL to take action aimed at encouraging DC plans to offer participants greater exposure to private equity, digital currencies, and other “alternative assets.” However, the proposal would be significantly broader in scope, establishing a process-based framework that includes six safe-harbor factors for fiduciaries to consider when selecting all types of DC plan investment options. (The proposal wouldn’t apply to the selection of investments for defined benefit plans or DC plans that don’t allow participants to direct their investments.) Comments are due by June 1.
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Key takeaways for DC plan fiduciaries
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Not limited to alternative assetsThe proposal would apply to all types of DC plan investment options, including those that only invest in publicly traded securities. However, the proposal wouldn’t apply to brokerage windows or self-directed brokerage accounts.
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Prudent process safe harborThe proposal would establish a framework for DC plan fiduciaries to demonstrate they followed a prudent process when selecting an investment option. The process would involve giving appropriate consideration to the facts and circumstances a fiduciary knows (or should know) are relevant to a particular investment option.
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Safe-harbor factorsThe proposal would establish the following six safe-harbor factors for fiduciaries to consider when selecting DC plan investments: performance, fees, liquidity, valuation, performance benchmarking, and complexity. Fiduciaries who appropriately consider these factors would be presumed to fulfill their ERISA duty of prudence.
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Limited to initial investment selection of individual optionsThe safe harbor factors would apply to the initial decision to select an investment option but not ongoing monitoring of the investment. DOL intends to issue other guidance to address the duty to monitor DC plan investments.
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Reliance on professional expertsFiduciaries could demonstrate compliance with any safe harbor factor by relying on recommendations from an investment advice fiduciary or delegating investment selection responsibility to a professional investment manager.
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Prudent menu constructionFiduciaries would also need to act prudently when establishing a diversified menu of investment options that enables participants to maximize risk-adjusted returns, net of fees, across their entire plan investment portfolios. However, the proposal doesn’t explain how fiduciaries would satisfy this duty.
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Supplements existing fiduciary guidanceThe proposal would supplement — but not replace — existing fiduciary guidance, such as DOL’s investment duties regulation, DC plan annuity selection safe-harbor regulation, 2025 advisory opinion on lifetime income solutions in qualified default investment alternatives (QDIAs), 2020 information letter on private equity investments in asset-allocation funds, and 2013 target date fund tip sheet. This existing guidance may include other considerations for fiduciaries to factor into their investment decisions.
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No effective date specifiedThe proposal doesn’t specify when the safe harbor would take effect. Nor does DOL explain the proposal’s implications for investment selection decisions made before issuance of a final regulation.
This article provides background on the EO, summarizes the proposal’s key components, and highlights areas where DOL has requested public comments.
Click here to read the full GRIST.