Washington, D.C. – In order to make it easier for workplace retirement plans, such as 401(k) plans, to incorporate “alternative assets” in their investment lineups, the Department of Labor (DOL) has proposed a new rule that would shield retirement plan sponsors from legal accountability when selecting investment options.

The rule proposal is designed to implement Executive Order 14330, Democratizing Access to Alternative Assets for 401(k) Investment, which was issued by the President in August. The Executive Order blames “burdensome lawsuits” for preventing plans from including alternative assets, such as private equity and debt funds and cryptocurrency, among the investments employees can choose from in their 401(k) plan. It directs DOL to engage in rulemaking to clear the way for their inclusion.

Issued in March, the DOL rule proposal, Fiduciary Duties in Selecting Designated Investment Alternatives, would create a new “process-based safe harbor” for the selection of designated investment options included on 401(k) plan investment lineups. Plan fiduciaries would be “presumed” to have met their fiduciary duties and would be “entitled to significant deference” from courts if they considered six relevant factors identified in the rule in compliance with the safe harbor.

Earlier this week Barbara Roper, a senior fellow at the Consumer Policy Center, submitted a comment letter urging DOL to withdraw the rule. The letter debunks the primary justification given for the rule, highlights the proposed rule’s radical departure from longstanding interpretations of ERISA’s prudent expert standard, and exposes deep flaws in the proposal’s examples of how plan sponsors could meet their fiduciary responsibilities.

“While the rule proposal is purportedly aimed at making it easier to add alternative assets to retirement plan investment lineups, it would do so by weakening the fiduciary standard that applies to all investment selections and limiting plans’ legal accountability when making such selections,” explained Roper. “Worse, by the Department’s own admission, the investments most likely to be affected are the target date funds employees are typically defaulted into when enrolling in a plan.” Target date funds, which automatically adjust their holdings to become more conservative as the investor gets closer to retirement, are the largest recipients of plan contributions.

The rule proposal seriously erodes the standard that would apply to the selection of these and other investment options employees choose from when investing through their 401(k) plan. It would do so by eliminating the critically important requirement that plan fiduciaries make sound decision when selecting the investment options to be included in the plan. Instead, plan fiduciaries would be presumed to have satisfied their duty of prudence if their consideration of six factors identified by the Department conforms with the safe harbor. These factors are performance, fees, liquidity, valuation, performance benchmark, and complexity.

“If courts accept the kind of superficial analysis put forward in the proposed safe harbor as satisfying plan sponsors’ fiduciary obligations, American workers could see a serious decline in the quality of retirement investments available to them,” Roper warned. “As long as they engage in a check-the-box analysis, companies would be shielded from liability when they add the high-cost, complex, and illiquid investments to the plan that are great for financial firms’ bottom line but are ill-suited to most retirement savers.”

“The big winners under the proposal are alternative investment firms, which could take advantage of the weakened standards to gain highly profitable access to this multi-trillion-dollar market,” Roper said. “The big losers are American workers, many of whom already struggle to amass sufficient savings to fund a secure and independent retirement. Not only are they are likely to see their costs rise, they could also see their retirement savings defaulted into complex investments employing untested investment strategies that put their retirement savings at risk.”

Roper’s comment letter concludes with this warning: “In the nearly 50 years since the first 401(k) plan was established, we have seen enormous strides in workers’ access to retirement plans, in the operation of those plans, and in the quality of investments offered through those plans. The existence of a strong fiduciary standard governing investment selections has been critical to that success. This proposed rule – by striking at the heart of the fiduciary standard – threatens to undo that progress by corrupting the process through which plan fiduciaries choose the investments millions of Americans rely on to fund a secure and dignified retirement.”

Roper is a long-time investor advocate and the former Director of Investor Protection at the Consumer Federation of America. Roper left CFA in the fall if 2021 to serve as Senior Advisor to Securities and Exchange Commission Chair Gary Gensler, advising the Chair on a wide range of issues affecting individual investors. After leaving the SEC in 2025, Roper joined the CPC as a senior fellow.