Alternative Investments and Retirement Plans: What New DOL Guidance Means for Plan Sponsors
In March, the U.S. Department of Labor issued proposed guidance that could affect how employers evaluate investment options in 401(k) and other defined contribution retirement plans. Following policy discussions that began last year, the proposal focuses on fiduciary duties under the Employee Retirement Income Security Act (ERISA) and is intended to clarify how plan fiduciaries may evaluate designated investment alternatives, including those that include alternative investments.
For plan sponsors, this has raised a practical question: Should alternative investments play a role in your retirement plan? The proposed rule does not answer that question directly. Instead, it reinforces that the decision depends on a documented and disciplined fiduciary process rather than on the type of investment being considered.
Department of Labor Proposal
The Department of Labor’s proposed rule, “Fiduciary Duties in Selecting Designated Investment Alternatives,” does not require plans to add alternative investments or state that alternatives are better or more appropriate than traditional options. Instead, it emphasizes that fiduciary prudence under ERISA should be grounded in a disciplined approach to investment evaluation.
The guidance introduces a process-based safe harbor for fiduciaries who conduct a thorough, objective, and well-documented evaluation when selecting investment options. This framework applies broadly to all designated investment alternatives, not only those that include alternative assets. It reflects long‑standing ERISA principles and is intended to provide clarity rather than favor or discourage any particular investment strategy.
Defining Alternative Investments
In the retirement plan context, alternative investments typically include private equity, private credit, real estate, infrastructure, commodities, and other assets that are not traded on public exchanges. In defined contribution plans, these exposures most commonly appear through diversified, professionally managed vehicles such as target-date or balanced funds rather than as standalone options.
The proposed DOL guidance recognizes this structure and specifically addresses asset allocation funds that include alternative assets as part of a broader portfolio. This acknowledgment may help plan sponsors that already use professionally managed solutions understand how these investments fit within existing fiduciary frameworks.
Key Considerations
From a plan sponsor perspective, alternative investments may offer broader diversification and exposure to investment strategies commonly used by institutional investors, but they also involve unique risks and complexities, including liquidity constraints, valuation considerations, and higher or less transparent fee structures, which may not be appropriate for all plans or participant populations. Clearer regulatory guidance may help fiduciaries better understand how to approach the evaluation of these options as part of their overall investment review process.
At the same time, alternative investments often involve additional complexity that fiduciaries should carefully evaluate alongside any potential diversification benefits. They may have different liquidity characteristics, valuation methods, and fee structures than traditional mutual funds or collective trusts. Ongoing monitoring and documentation remain critical, and fiduciaries should continue to assess whether any option fits their participant population and is consistent with plan objectives.
What This Means for Plan Sponsors
The proposed guidance should be viewed as a framework rather than a directive. Many plan sponsors may determine that alternative investments don’t fit their plans. Others may use this opportunity to review fiduciary governance practices, investment selection documentation, and the role of professionally managed investment options without presuming that any particular investment approach or asset class is appropriate for their plan.
Ultimately, the proposal reinforces a foundational ERISA principle: A consistent, well-documented fiduciary process is more important than any individual investment choice.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Patricia L. Hutchinson
Director of Retirement Plan Services
AIF®, MBA