Source: Galaxy; Compiled by: Golden Financial Claw

On March 30, 2026, The U.S. Department of Labor (DOL) took an important step to open alternative investments including private equity, private credit and cryptocurrencies to the 401(k) plan.

The proposed rule would establish a six-factor, process-based safe harbor that would clarify how fiduciaries (generally plan sponsors and designated investment committee members) are responsible for selecting and overseeing 401(k) investment options and ensuring that the plan is managed in the best interests of participants to meet its duty of care under the Employee Retirement Income Security Act (ERISA).

Although the Employee Retirement Income Security Act (ERISA) does not explicitly prohibit allocations to asset classes such as private equity, private credit, real assets, or cryptocurrencies in 401(k) plans, their use in practice is limited due to litigation risk, regulatory uncertainty, and structural challenges with fees, liquidity, and valuation. The proposed rule seeks to reduce litigation risk through a six-factor investment evaluation process. If this process is followed and adequately documented, it can help enhance the trustee's ability to prove their prudence in court.

This rule does not distinguish between asset classes. The same framework applies to all investments in plan options, from index funds to target-date funds that include private equity investments.

The six factors are:

• Performance: Expected risk-adjusted returns (after fees) must help achieve the plan's objectives.

• Fees: Fees must be consistent with returns and comparable alternatives and be reasonable.

• Liquidity: The liquidity profile of an investment must match participants’ withdrawal and distribution needs.

• Valuation: Investments must be reliably and consistently valued, which is particularly important for illiquid private market assets.

• Benchmark analysis: A meaningful benchmark with similar tasks and risk profiles must be identified and compared against.

• Complexity: A trustee must have or acquire sufficient expertise to properly understand and evaluate investments.

The six factors are derived from the Department of Labor's comprehensive review of decades of relevant case law, existing regulations, past subregulatory guidance, Executive Order 14330, and stakeholder input, combined with the Department's own experience. The Framework is not a completely new regulatory invention, but rather codifies and structures the standards that courts and practitioners have long used in assessing fiduciary conduct.

Our point of view

The inclusion of alternative investments in 401(k) plans has long been constrained by multiple factors including regulatory uncertainty, structural friction and litigation risk. The regulatory environment has long been unfavorable to the development of alternative investments.

In March 2022, the U.S. Department of Labor issued guidance expressing “serious concerns” about cryptocurrencies in 401(k) plans, urging trustees to “exercise extreme caution” before including cryptocurrencies as plan options.

Although the guidance was almost immediately challenged, the objection was ultimately dismissed on the grounds that the Department of Labor's issuance was non-binding and not subject to review under the Administrative Procedure Act (APA), so its actual deterrent effect remained.

Despite this, Fidelity launched the Digital Assets Account the following month, becoming the first major retirement plan provider to offer Bitcoin as a 401(k) investment option. But few plan sponsors have followed suit.

In his second term, President Trump signed Executive Order 14330 in August 2025, directing the Department of Labor, SEC, and Treasury to promote access to alternative investments in defined contribution pension plans and reduce regulatory burdens and litigation risks that have long hindered trustees from taking action. The draft rules proposed by the U.S. Department of Labor on March 30 are a direct implementation of the executive order. It clarifies under what circumstances the inclusion of alternative investments in pension plans meets the fiduciary obligations under the Employee Retirement Income Security Act (ERISA).

The proposal is intended to be defended on two fronts: first, it constitutes a well-argued institutional framework that is likely to be persuasive to the courts; second, and more importantly, it closely follows the longstanding fiduciary principles of the Employee Retirement Income Security Act (ERISA) that have been developed through case law. The proposal also represents a clear shift in policy from deterrence to promotion, with the Department of Labor explicitly seeking to realign the role of litigation in shaping trustee behavior. The rule is not intended to insulate trustees from litigation, but rather attempts to guide judicial review by providing a structured “safe harbor” that enhances defenses while adhering to prudent procedures.

This directly responds to long-standing concerns in the industry that class action risk effectively limits program design, particularly for high-fee or illiquid assets such as private equity and cryptocurrencies. At the same time, the Department of Labor acknowledged that litigation risk will persist and that adoption of the rule is likely to be gradual, suggesting that the rule is intended less to immediately prompt a broad shift in asset allocation than to serve as a legal basis for gradually expanding the scope of allowable investments in defined-contribution plans if the rule is upheld in court.

How much openness this will bring in practice remains an open question. The 401(k) trustee group is relatively conservative, and there is uncertainty about the judicial enforceability of safe harbor provisions. Recent tensions in private credit markets have further highlighted concerns about liquidity, opaque valuations and downside risks in less transparent asset classes, reinforcing the need for fiduciaries to exercise caution. Since courts are no longer required to follow the Department of Labor’s post-Loper-Bright interpretation of the Employee Retirement Income Security Act (ERISA), federal judges can independently determine that the inclusion of an alternative investment was imprudent regardless of whether the trustee followed the six-factor evaluation process, although that process itself is likely to be an important factor in the court’s analysis.

A strong team of plaintiffs’ lawyers continues to promote 401(k) litigation. Since 2016, more than 500 lawsuits over overcharging have been filed, ultimately resulting in more than $1 billion in settlements from plan sponsors. Trustees may remain reluctant to take the lead until the relevant framework is tested through litigation in the courts.

Nonetheless, the direction is undoubtedly positive. This rule fulfills the Department of Labor’s role in a broader multi-track effort to open 401(k) plans to alternative investments. The scale of this opportunity is huge. The 401(k) market has approximately US$10 trillion in assets and approximately 70 million participants. Even a modest shift in asset allocation toward alternative investments will bring about transformative new sources of capital.

The comment period for the proposed rule is open until June 1, 2026, after which the Department of Labor will review feedback and decide whether and how to finalize the framework.

The ultimate impact will depend less on the rule itself than on how the rule is interpreted and applied by trustees, regulators and ultimately the courts.