Imagine a household where both a schoolteacher with a pension and a private employee with a 401(k) both have the same retirement investment opportunities. While they don’t right now, they could with a proposed rule by the Department of Labor. By prioritizing a standard of prudence, greater access would open diversified retirement savings for private-sector employees to choose these investments while maintaining the appropriate safeguards for those savings.
Alternative assets–which include private equity, private credit, and cryptocurrencies─ have become commonplace in the last few years, and more consumers want access to these investment classes, which historically have been limited to the affluent. Their correlation with traditional investments is low, empowering consumers to diversify their investment portfolios and shield their assets from volatility and market downturns.
But adoption of alternative asset investments in 401(k) retirement plans has been slowed due to fear of litigation that has risen over the last half decade where fiduciaries are often being sued by plan participants. By March of 2026, “ERISA class action filings almost doubled year-over-year,” as found by Bloomberg.
Due to this highly litigious environment and unclear regulation, fiduciaries have been reluctant to offer alternative assets, since the investment responsibility of 401(k) investment plans rests on the fiduciary, making them subject to this increased legal risk.
Legislation that protects individuals by maintaining standards for employer-sponsored retirement benefits, known as the Employee Retirement Income Security Act (ERISA), has never limited alternative asset investments. But fear of exploitative litigation, considered a “significant threat,” has prevented fiduciaries from choosing these kinds of investments.
Meanwhile, the Biden administration warned fiduciaries about the dangers of cryptocurrency investment, which deterred many fiduciaries from making use of these investments.
To combat the current litigious environment that deters alternative asset investment in 401(k)s, the Department of Labor (DOL) issued a proposed rule in March 2026 providing clarification and safeguards for retirement investments following an Executive Order by President Trump in 2025. The rule will return ERISA to its statutory purpose to protect individuals.
The standard focuses on the process of choosing investments, better defining the “duty of prudence” over the result of the investment. A lack of definition has led to a gap in the system litigants have taken advantage of which has focused on plan outcomes over process, something the proposed rule sees as judgment-focused rather than attempting to anticipate the outcome.
The first part of the rule affirms ERISA’s duty of prudence, an essential aspect of fiduciary standards. The second part, a process-based safe harbor to combat frivolous lawsuits, contains six factors for the fiduciary to follow which includes performance, fees, liquidity, valuation, performance benchmark, and complexity. This part defines the fiduciary process instead of the investment outcome in order to mitigate litigation fear from plan fiduciaries while safeguarding employees’ retirement savings.
The DOL’s proposed rule comes at a time when most employer-sponsored retirement plans are defined contribution (DC) plans, of which 401(k)s are one type, and are funded by employee and employer contributions that are then invested in stocks, bonds, and mutual funds.
DC plan participation has risen over the last several decades because they are cheaper and more predictable for employers to offer. Given the growing number of DC plans and a growing private market, offering alternative investments gives consumers more investment options.
For decades, retirement investments followed a 60/40 portfolio model for stocks and bonds with the assumption that when one falls the other rises. However, this is not always the case and has created uncertainty in the retirement investment market. Research shows that 401(k)s already cost more than pension plans and providing better guidelines for investing by plan fiduciaries can provide greater investment options and outcomes—all while offering diversification in the retirement portfolio.
Because of this uncertainty, investing in alternative assets like those in the private market are a positive addition because of the potential rate of return. When compared with a defined benefit (DB) plan, which includes pension plans with access to these investments, private market investments have consistently performed better than 401(k)s, according to DOL data.
Research from the Center for Retirement Research at Boston College found that “[DB] plans outperformed [DC] plans by 0.7 percent” from 1990 to 2012. Depending on the plan, roughly 17 to 24 percent of the portfolio for pension funds has been invested in private markets. This is important because it shows that these investments can be valuable and should be offered for DC plans, not just DB plans. The DOL rule would change the current standard of unequal investment opportunity by providing a safeguarded environment for fiduciaries to offer some of the same advantages to 401(k) holders.
There are still some who are skeptical about defining fiduciary prudence and creating a safe harbor for fiduciaries to pave the way for confidence in alternative investment offerings. Critics are right that these investments are riskier and that caution is warranted. But these investments often offer greater returns, which can outweigh the risk. The Urban Institute, in a private equity investment simulation, found that account balances would increase. The “[simulation shows] that the availability of a [private equity] investment option in DC retirement plans would increase average account balances under 14 of our 16 scenarios.” Employees should have the freedom of choice to invest in assets with more upside and diversification for retirement savings.
With all investments, there is a risk. But more options create more diversification to shield against risk and—likely—more consumer savings as the savings compound over time. That is a step worth taking.
Leah Locke is a Policy Analyst with the American Consumer Institute, a nonprofit education and research organization. Follow Leah on X @leahmlocke