DOL’s proposed rule on selecting designated investment alternatives

The U.S. Department of Labor has proposed new regulations that clarify fiduciary duties when selecting designated investment alternatives for retirement plans. This proposal introduces a process-driven safe harbor framework, emphasizing documented diligence and risk-adjusted returns rather than specific investment types.

The rule aims to reinforce that ERISA prudence is fundamentally process-based, encouraging fiduciaries to exercise judgment with a stronger basis for deference. It's not limited to alternative assets, applying to any designated investment alternative in participant-directed plans.

Key considerations for fiduciaries under the proposed safe harbor include performance, fees relative to value, appropriate liquidity, credible valuation methods, meaningful benchmarking, and managing complexity through robust diligence. This framework is designed to provide a more defensible approach to investment selection, particularly for options that may be more complex or less liquid.