The Department of Labor's recently proposed rule, designed to give 401(k) plan fiduciaries clearer guidelines for incorporating alternative investments, may instead create new legal vulnerabilities, according to Tim Collins, a partner at Duane Morris. The rule, part of a broader Trump administration initiative to broaden access to private equity, real estate, and other non-traditional assets, establishes a set of safe harbors for fiduciaries when selecting designated investment alternatives. However, Collins warns that these protections could backfire.
“We fear that it will be ‘open season’ from the plaintiffs’ bar on plan fiduciaries who are early adopters of alternative investments,” Collins told InvestmentNews. He argues that the rule's emphasis on a process-driven fiduciary standard raises the bar for prudence, potentially triggering more lawsuits. Specifically, the DOL requires fiduciaries to identify a “meaningful benchmark” and to have “read, critically reviewed, and understood” its explanation. Collins predicts that plaintiffs will question whether fiduciaries truly met this standard, leading to costly discovery battles.
The proposed rule comes as U.S. retirement assets reached $49.1 trillion at the end of December, according to the Investment Company Institute, up 11.2% year-over-year. Defined contribution plans held $14.2 trillion, a 1.7% increase from September 30, 2025, while private-sector defined benefit plans remained flat at $3.1 trillion. These figures underscore the growing importance of 401(k) plans in the retirement landscape, making the DOL's rule particularly consequential.
Collins also highlights the impact of the Supreme Court's 2024 Loper Bright decision, which overturned the long-standing Chevron deference. This ruling gives federal courts more authority to interpret ambiguous statutes, limiting the DOL's ability to create safe harbors that courts will honor. “The law in this area will continue to be developed in the courts, and we expect robust challenges that attempt to turn the DOL’s proposed rule against plan fiduciaries,” he said.
Supporters of the rule argue it expands options for advisors and clients, but Collins contends that the DOL's focus on prudence will invite allegations of process defects. He expects courts to be less likely to grant motions to dismiss, as plaintiffs demand deeper discovery into fiduciary processes. This could increase settlement pressures and legal costs for plan managers.
For advisors navigating this landscape, the rule underscores the need for meticulous documentation and benchmark selection. As wealth managers urge early tax planning for liquidity events, similar proactive measures may be necessary for fiduciary compliance. The DOL's proposal, while intended to clarify, may ultimately complicate the role of plan fiduciaries in an already complex regulatory environment.
