When President Trump’s executive order encouraging 401(k) plans to include alternative investments first dropped, it sparked strong reactions. Some advisors warned plans to stay away entirely. The plaintiffs’ bar pledged to sue. But now that the Department of Labor has released proposed regulations, the picture looks different—and, according to one ERISA attorney, not nearly as controversial as the initial headlines suggested.
A recent post penned by Carol Buckmann at Cohen & Buckmann, a New York-based executive compensation and benefits law firm, breaks down what the DOL’s new safe harbor actually says—and what it can and can’t do.
The regulations don’t mandate that plans offer alternative investments. ERISA doesn’t mandate any specific investments. What the DOL has done is provide a clear framework for fiduciaries who want to consider them. The proposed safe harbor lists six factors fiduciaries should evaluate when selecting any designated investment alternative: performance, fees, liquidity, valuation, benchmarks, and complexity. Plans may also consider customer service when reviewing fees, and all investments must be measured against a “meaningful benchmark”—one with similar mandates, strategies, objectives, and risks.
The DOL’s hope is that courts will recognize a presumption of prudence for fiduciaries who follow the safe harbor—something like the Firestone standard that applies to administrative decisions. But Buckmann is clear-eyed about the limits: safe harbors can’t stop lawsuits. Fiduciaries who follow the guidance can still be sued, and after the Supreme Court’s Loper Bright decision, courts no longer have to defer to agency guidance. That doesn’t mean judges will ignore the safe harbor—but it won’t automatically get a case dismissed.
The plaintiffs’ bar may find that challenging reasoned fiduciary decisions is harder than they expected, Buckmann writes, but that’s not the same as defeating frivolous claims on a motion to dismiss. Ultimately, she says, controlling litigation may require legislation—not just agency action.
For fiduciaries considering alternative investments, the takeaway is practical: it’s possible to select these options prudently, but it takes time and expertise. The category includes investments with very different risk profiles—private credit, cryptocurrency, real estate, commodities—and each should be evaluated independently. Fiduciaries can start by using professionally managed funds or offering alternatives through self-directed brokerage accounts. Participant communications should clearly describe risks and fees, and exposure can be limited through diversified vehicles like target-date funds.
But Buckmann is direct about the bottom line: alternative investments aren’t for all plans. Fiduciaries who aren’t prepared to do the homework, understand how the investments and fee structures work, and follow a documented process shouldn’t go down this road. Those who include alternatives without that preparation “won’t be serving their participants, will be sitting ducks in litigation, and can be personally liable for losses.”
