Labor Department Proposes Safe Harbor to Let 401(k)s Include Private Assets

Default retirement funds that many workers land in today — target-date funds heavy on public stocks and bonds — could soon include slices of private markets and other alternatives if a Labor Department proposal becomes final.

On March 30, the Department of Labor’s Employee Benefits Security Administration proposed a regulation that would for the first time create a formal “safe harbor” for employers and other fiduciaries when selecting investments for 401(k)-style plans. Published March 31 in the Federal Register as “Fiduciary Duties in Selecting Designated Investment Alternatives” (document number 2026-06178), the rule lays out how plan managers can evaluate more complex, less liquid assets while preserving protections under the Employee Retirement Income Security Act (ERISA).

What the proposal would do

The rule is asset-neutral in its operative text — it does not name private equity, private credit or digital assets — but it is widely seen as opening a path for those products to enter mainstream retirement plans if fiduciaries adhere to a specified decision-making process. The safe harbor targets participant-directed individual account plans, such as 401(k)s, and addresses a core ERISA obligation: the duty of prudence in choosing the menu of "designated investment alternatives" offered to workers.

Rather than banning or endorsing particular asset classes, the proposal lays out a non-exhaustive list of six factors fiduciaries should consider “objectively, thoroughly, and analytically” when vetting an investment option. The factors highlighted by the department include:

• historical performance and expected returns relative to benchmarks;
• fees and expenses and their potential effect on long-term savings;
• liquidity and redemption terms;
• valuation practices and the ability to determine a reliable net asset value;
• appropriate performance benchmarks; and
• product complexity and governance.

If fiduciaries follow that process and document their analysis, the department says they could qualify for the safe harbor on prudence — a protection many plan sponsors and service providers have sought as ERISA litigation over investment choices has increased.

Why the potential change matters

The Employee Benefits Security Administration oversees roughly 801,000 private retirement plans covering more than 90 million Americans in 401(k)-type arrangements, with about $13.8 trillion in total plan assets. The department’s economic analysis points to target-date and other asset-allocation funds as the most likely route by which alternatives would reach everyday savers: these multi-asset funds are commonly used as default options for automatically enrolled workers.

In an illustrative scenario, the department estimates there could be roughly 51,307 instances each year in which a target-date series that includes alternatives is added to a plan’s menu. That could affect approximately 47,333 plans annually, representing around $178 billion in assets and some 4.5 million participants moving into target-date funds with alternative components. The department cautions these are modeling assumptions, not predictions, but the figures illustrate how quickly exposure could scale if recordkeepers and managers redesign defaults.

Supporters' case

Advocates inside government and in the private sector portray the proposal as a form of democratization: allowing ordinary savers to access investments historically available mainly to institutions and high‑net‑worth individuals. Securities and Exchange Commission Chair Paul S. Atkins said the move would help Americans “participate more fully in innovation and economic growth through well-diversified long-term investments.” Trade groups and large asset managers that run private-market strategies welcomed the proposal.

The rule also implements a directive from President Donald Trump’s policy agenda. It follows Executive Order 14330, signed Aug. 7, 2025, which asked the Labor Department — in consultation with Treasury and the SEC — to consider “appropriately calibrated safe harbors” to facilitate 401(k) access to a range of alternative assets, including private equity, private credit, real estate, digital assets, commodities, infrastructure and lifetime-income products.

Critics' concerns

Consumer advocates and some Democrats warn the change could shift risk and costs onto workers who may not understand the products inside their retirement funds. Senator Elizabeth Warren called the move dangerous for working people, saying it could steer savings into opaque and volatile assets at a time of market stress. Groups such as Better Markets contend the rule could enable high-fee private equity and private credit funds, and crypto-related products, to be embedded in 401(k) options with fewer safeguards.

Practical objections focus on several features of many private strategies: illiquidity, valuation challenges, and higher fees. Private investments are often difficult to price on a daily basis, which complicates the net-asset-value reporting that many funds must provide. Smaller plan sponsors may lack the expertise and resources to evaluate complex strategies even with a checklist-style safe harbor, critics say.

A shift in regulatory tone

The proposal represents an explicit change in tone from earlier guidance. In March 2022, the department issued a compliance assistance release urging fiduciaries to “exercise extreme care” before adding cryptocurrency options to 401(k)s; that release was rescinded in May 2025. The new rule frames the department’s approach as neutral and process-focused, aligning with ERISA case law that evaluates how investment decisions are made rather than mandating particular outcomes.

What comes next

The rule is a proposal. The Federal Register entry sets a public-comment deadline of June 1. Over the coming weeks, asset managers, plan sponsors, unions, consumer groups and individuals can submit feedback on the safe harbor’s design, the factors it enumerates and the scope of investments it could affect.

After reviewing comments, the Labor Department could finalize, revise or withdraw the rule. Any final regulation would likely face court challenges and would still require employers and asset managers to decide how quickly — if at all — to redesign plan menus and default options.

Why it matters to savers

For tens of millions of workers who rarely change their 401(k) allocations, the impact is most likely to appear quietly inside target-date funds rather than as a new option on a dropdown menu. Whether a new mix that includes private assets leaves savers better or worse off will depend on fees, liquidity, valuation practices, and how well fiduciaries follow the department’s prescribed process.

The proposal marks a potentially significant recalibration of how retirement savings are managed in the United States — one that could widen access to alternative strategies but also raise new questions about transparency, cost and risk for everyday investors.