The Department of Labor proposed “Investment Selection Rule” is fundamentally process-driven, not outcome-driven. Its goal is to provide fiduciaries with a defensible framework (safe harbor) when selecting investments—particularly those with alternative exposure.
A central feature is a non-exhaustive six-factor checklist fiduciaries should evaluate:
Risk-adjusted performance
Fees and value received
Liquidity
Valuation methodology
Use of meaningful benchmarks
Complexity of the investment
If fiduciaries follow a prudent process addressing these factors, their decisions are presumed prudent under ERISA—a meaningful litigation defense.
However—and this is the key tension —the same list can also become a plaintiff’s roadmap:
It may act as a “checklist” for litigation.
Failure to adequately document any one factor creates vulnerability.
In short: the rule provides both a shield and a sword.
Should Investment Committee Minutes Address the Six Factors?
My two cents? Yes—explicitly, but thoughtfully.
Not in a mechanical “check-the-box” way, but in a principles-based documentation framework:
The six factors should be embedded in the committee’s decision-making narrative, not appended as a rigid template.
Minutes should demonstrate:Deliberation (what was considered), Tradeoffs (e.g., higher fees vs. diversification benefit), and Reasoned conclusions
Why this matters:
The rule creates a presumption of prudence if process is followed.
But it also creates “pitfalls” if factors are ignored or superficially addressed.
Practical recommendation: Structure agendas and minutes around these six factors—but avoid rigid scoring systems or formulaic language that could be second-guessed.
Litigation Risk for Smaller Plans: Increased or Decreased?
Net assessment: modestly decreased—but operationally more complex.
Why risk may decrease:
The rule introduces a clear safe harbor framework, which historically has been lacking.
Courts may be more inclined to side with fiduciaries who follow a defined, documented process.
Even critics acknowledge plaintiffs may face an “uphill climb” when fiduciaries mirror the rule’s examples.
Why risk may increase (or at least not disappear):
The rule standardizes what plaintiffs will look for (i.e., the six factors).
It enables more targeted discovery—effectively lowering the cost of bringing claims.
Smaller plans often lack: Deep documentation practices, Institutional-quality benchmarking, Expertise in complex assets (e.g., private markets). This is why it is key to have an advisor on small plans as these are not areas most small plan sponsors are experts in.
Bottom line for smaller plans:
Legal standard becomes clearer (good)
Execution burden increases (challenging)
In practice, that means:
Litigation risk is shifting from “Did you act prudently?” to “Can you prove—clearly and consistently—that you followed this process?”
The Parting Glass
I feel this rule is directionally positive for plan sponsors—but only for those willing to upgrade their governance discipline. The six-factor framework should absolutely inform committee processes and minutes. Small-sized 401k plans must also have a rigorous process that follows these points.
If implemented well, this rule is a litigation mitigation tool. If implemented poorly, it becomes a litigation playbook for plaintiffs.