The Department of Labor’s newly proposed rule—“Fiduciary Duties in Selecting Designated Investment Alternatives”—reinforces a core principle under ERISA: the fiduciary process matters more than the specific investment selected.
Even more important is being able to explain and defend investment selection under this process. This is why, I suspect, most of my plan sponsors will want to avoid alternatives. I am a reasonably smart man (the article photo notwithstanding!) with 36 years in the investment industry. I'd be hard pressed to explain some of the alternative investments I have seen let alone explain them in plain English.
The proposal is explicitly asset-neutral. It does not promote or discourage any particular investment type, including ESG strategies or alternative assets such as private equity, real estate, or digital assets.
Instead, it emphasizes that plan fiduciaries must:
Act solely in participants’ best interests. This is common sense.
Follow a prudent, well-documented repeatable decision-making process
Conduct appropriate benchmarking and comparative analysis
Monitor investments on an ongoing basis
The rule also reflects a broader regulatory shift following recent policy direction encouraging greater access to alternative investments, while potentially providing fiduciaries with clearer guidance (and possibly safe harbors) to reduce litigation risk.
Key takeaway: The DOL is not changing what you can invest in—it is clarifying how you must decide.
Implications for ESG Investments
My $0.02 given that ESG is a part of my 401k practice?
This proposal strengthens the defensibility of ESG options, but only under one condition:
ESG factors must be evaluated within the same prudent, documented fiduciary framework as any other investment. This is what I have been doing for 20 years!
Because the rule is asset-neutral:
ESG (or alternatives or anything for that matter) is neither endorsed nor restricted
ESG can be included if it is financially relevant and prudently selected
The fiduciary file (documentation, benchmarking, rationale) becomes the critical protection
In practical terms, this shifts ESG from a “political risk” discussion to a process integrity discussion—which is a much stronger footing. And that is as it should be. This is not about pushing an agenda but finding investments that meet the defendable and repeatable process.
My two cents again? This is a net positive for ESG in 401(k) plans. It removes ideological noise and puts the focus where it belongs—fiduciary rigor.
Implications for Alternative Investments
The proposal opens the door conceptually, but not practically for most plans.
While regulators are signaling support for broader access (including private markets and other alternatives), several structural challenges remain:
Complexity: Alternatives require significantly higher fiduciary sophistication
Fees: Alternatives tend to have higher fees and are more difficult to benchmark
Liquidity: Investments must be liquid for redemptions/ exchanges. Alts tend not to be.
Valuation opacity: Harder to monitor and defend. Gives me the willies.
Litigation risk: Still very real, even with potential safe harbors. Not a fan of this.
$0.02 for the third time Most plan sponsors should proceed cautiously. The proposal may permit alternatives, but it does not make them prudent by default. In particular, most of my plan sponsors would agree they lack the knowledge to understand the complexity of alternatives. They are simply too busy to spend the time educating themselves in this arena.
Speaking of alternatives, for the average committee, adding alternatives likely increases fiduciary risk, not reduces it—unless supported by substantial expertise and governance infrastructure.
The Parting Glass
The DOL is doubling down on process over product
ESG becomes more defensible if handled rigorously
Alternatives become more permissible—but not necessarily advisable
This is only a proposal. The 60-day comment period starts now.
If anything, this proposal raises the bar. It’s not about what you offer—it’s about how well you can defend why you offered it.