Alternative assets are nothing new for retirement plans. Defined benefit plans have held private equity, real estate, and commodities for decades, and ERISA itself imposes no restriction on the types of assets a plan may hold. What is new is the push to bring alternative investments into the 401(k) world.

In a recent Thompson Hine Coffee Chat webinar, Brian Gaj and Agnes Kolbeck, attorneys in the firm’s Employee Benefits and Executive Compensation practice, unpacked the Department of Labor’s proposed rule on alternative assets and what it means for plan fiduciaries.

The Real Revolution: From Mutual Funds to Collective Investment Trusts

Before turning to alternatives, it is worth noting a structural shift already underway for 401(k) plan investing from mutual funds to collective investment trusts (CITs). Mutual funds, which have been the historical investment choice for 401(k) plans, are simple from a fiduciary standpoint: the only plan asset is the interest in the mutual fund. While CITs, an investment vehicle of recent growing popularity and likely vehicle for alternative assets, are fundamentally different — both the interest in the CIT and the underlying investments of the CIT are plan assets. This distinction carries real consequences:

• Investing in a CIT means appointing a trustee/fiduciary, which triggers, for example, a duty to monitor that fiduciary.
• These monitoring obligations expand to cover conduct such as a CIT’s proxy voting and compliance with ERISA’s prohibited-transaction rules.
• CIT documents should be reviewed. A CIT involves a participation agreement, which often has participating plan representations and indemnification obligations and withdrawal restrictions that simply do not arise with mutual funds.  Make sure it works for your plan.

In short, alternative assets would add a layer of complexity for 401(k) plan fiduciaries to a recently more complex investment world created by CITs.

The Proposed Rule and Its Safe Harbor

The rule responds to President Trump’s August executive order, Democratizing Access to Alternative Assets for 401(k) Investors. It defines alternative assets broadly — including private markets, real estate, digital assets, commodities, and lifetime income strategies — so that nearly anything beyond traditional stocks, bonds, and cash falls within its scope.

The Department of Labor (DOL) responded to the order by drafting and releasing a proposed regulation, which outlines a process-based safe harbor described by the DOL as asset-neutral. A fiduciary would work through six factors: performance, fees, liquidity, valuation, performance benchmark, and complexity. A fiduciary who objectively, thoroughly, and analytically considers these factors is presumed to have satisfied the duty of prudence and is entitled to “significant deference” — a term the proposed rule leaves undefined, though a footnote points toward an abuse-of-discretion standard. The proposed rule also provides a series of examples illustrating how a fiduciary may navigate evaluating the six factors. The presenters flagged that, although referred to as “asset-neutral”, the examples read like a road map written specifically for alternative investments to satisfy the safe harbor.

The Litigation Angle

A secondary aim of the proposed rule was to reduce frivolous ERISA litigation. There are real questions about how protective the safe harbor will be in practice. ERISA litigation moves through stages, motion to dismiss, discovery, summary judgment, trial with costs escalating sharply at each stage. Because the safe harbor’s protections turn on factual findings about whether a fiduciary truly conducted a thorough review, the safe harbor is unlikely to help at the motion to dismiss stage, precisely where defendants most want an early exit.  The presenters also noted that the safe harbor and detailed examples for fiduciaries may double as a road map for plaintiffs’ attorneys “Why didn’t you follow it?”

Who Is Actually Driving This?

The presenters noted that, in their experience, neither participants nor many plan fiduciaries appear to be clamoring for alternative assets.  The clearest drivers are the executive order and the commercial interest in tapping the roughly $2 trillion sitting in target date funds. There is, however, an investment case underneath: defined benefit plans have historically outperformed defined contribution plans, in part, by capturing a premium from investing in illiquid, long-horizon private equity. The challenge is fitting that illiquid, long-horizon strategy into a 401(k)-world built around daily trading—which is why most observers expect alternatives to appear inside target date funds rather than as standalone options.

What This Means for You

If you are a plan fiduciary, advisor, or sponsor, here is the practical bottom line:

• The rule is still only proposed. The comment period has closed, and the DOL may revise the rule before finalizing it. Nothing discussed today is settled.
• The CIT shift demands attention now, regardless of alternatives. Understand what you are signing in a participation agreement.
• Do not treat the safe harbor as a litigation shield. Documenting a thorough six-factor process is worthwhile, but temper your expectations about how much it buys you in court.
• Confirm whether your advisor will actually advise on alternatives. Some will decline to do so, carve alternatives out, or charge more for their analysis.
• Know your own limits. If your team cannot evaluate alternative assets or confidently hire an expert to assist in evaluating alternative assets, alternative assets like private equity may not be right for you.
• Watch for the 2027 target date funds with alternative-asset sleeves. Even before a final rule, that product momentum may shape your options.

Stay informed, scrutinize the structures already entering your lineup, and resist adopting alternatives simply because a safe harbor makes the decision sound easy.

For a deeper dive into any of these topics, watch the full webinar recording here, read the related blog post here, or reach out to your Thompson Hine counsel.