DOL issues proposed rule on investment selection in 401(k) plans
In the summer of 2025, President Trump signed an executive order (EO 14330) that directed the federal Department of Labor (DOL) to provide guidance related to the inclusion of alternative investments in 401(k) plans. The EO noted that 401(k) plan participants may have limited access to certain investment types, including alternative assets. The EO further noted that regulatory considerations and potential litigation risk may affect plan fiduciaries’ decisions regarding whether to include such investments in plan menus.
In March 2026, the US Department of Labor (DOL) issued a proposed regulation addressing fiduciary considerations in the selection of investment options for participants in employer-sponsored retirement plans. The proposal clarifies the steps plan fiduciaries should take when evaluating a broader range of investments, including alternative assets, and outlines process-based considerations for selecting designated investment alternatives consistent with ERISA’s prudence and loyalty standards.
Plan sponsors, particularly those evaluating whether to include more complex or alternative investment types (e.g., cryptocurrency) in a plan’s investment menu, may find the DOL’s proposal instructive. The proposal emphasizes the central role of the plan fiduciary and reinforces the importance of adhering to ERISA’s duty of prudence when selecting and monitoring investment options.
Defining alternative assets
The executive order defines alternative assets to include:
- Private market investments, including direct and indirect interests in equity, debt, or other financial instruments that are not traded on public exchange. This also includes those where the managers of such investments, if applicable, seek to take an active role in the management of such companies;
- Direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate;
- Holdings in actively managed investment vehicles that are investing in digital assets;
- Direct and indirect investments in commodities;
- Direct and indirect investments in projects financing infrastructure development; and
- Lifetime income investment strategies including longevity risk-sharing pools.
Safe harbor
ERISA’s section 404(a) duty of prudence requires a fiduciary to use a prudent process when selecting a designated investment alternative. The process has to consider the relevant facts and circumstances that, given the fiduciary’s investment responsibility or authority, the fiduciary knows or should know are relevant to the particular designated investment alternative.
The DOL’s proposed regulation describes a process-based framework that, if followed, may provide fiduciaries with a basis to demonstrate compliance with ERISA’s prudence requirements when selecting designated investment alternatives. It points to six factors that a plan fiduciary must “objectively, thoroughly, and analytically consider” when choosing plan investments. The DOL also provides examples to help fiduciaries. The six factors are:
Performance
The DOL says that a fiduciary must consider a reasonable number of similar investment alternatives and make a determination that the risk-adjusted expected returns of the investment under consideration are consistent with the plan’s objectives, enabling participants and beneficiaries to maximize their risk-adjusted returns net of fees and expenses.
Fees
The proposed regulation says that the fiduciary must review a “reasonable number” of similar alternatives and then determine that the fees and expenses of the proposed investment are appropriate. The fiduciary must take into account its risk-adjusted expected returns as well as any other value that the alternative brings to furthering the plan’s purpose. The DOL explains that “value” includes any benefits, services or features other than risk-adjusted return.
One example cited by the DOL demonstrates that a lifetime income feature’s value may justify higher total fees than a designated investment alternative without this feature.
Liquidity
The DOL requires any fiduciary looking to add an alternative investment to a plan’s menu to consider and determine that the investment will have sufficient liquidity to meet the plan’s anticipated needs at both the plan and individual level.
The DOL provides several examples for fiduciaries to consider, including one involving a deferred annuity contract under which allocations become fully committed after 90 days and any immediate withdrawals before age 65 result in a penalty and a market value adjustment.
The example illustrates a prudent process when the named beneficiary balances the restrictions on liquidity with the value of the guaranteed monthly payments under the annuity contract (recognizing that such guarantees help participants manage investment and longevity risk). The example concludes that the increase in the value of the monthly payments and the certainty of the insurer’s guarantee justify the restriction on liquidity.
Valuation
The DOL states that the fiduciary must consider and determine that the designated investment alternative has adopted adequate measures to ensure that the investment alternative can be timely and accurately valued in accordance with the needs of the plan.
Performance benchmarks
Under the proposed regulation, the fiduciary must appropriately consider and determine that each designated investment alternative has a meaningful benchmark. The fiduciary must also compare the risk-adjusted expected returns, net of fees, of the designated investment alternative to the meaningful benchmark. The term “meaningful benchmark” is defined as an investment, strategy, index, or “other comparator that has similar mandates, strategies, objectives, and risks to the designated investment alternative.”
Complexity
The DOL says that fiduciaries must appropriately consider the complexity of the designated investment alternative and determine that they have the skills, knowledge, capacity, and experience to fully understand the investment alternative so as to be able to discharge their obligations under ERISA and the governing plan documents.
Fiduciaries must also determine if they need to seek assistance from a qualified investment advice fiduciary, investment manager, or other individual in evaluating the investment alternative.
Plan sponsors should be mindful that this remains a proposed regulation. The proposal was subject to a 60-day public comment period following publication in the Federal Register which has now closed. The DOL received a significant volume of comments from industry stakeholders, reflecting strong interest in the proposal and its potential implications for defined contribution plans.
The DOL will now review these comments and may revise the proposal before issuing a final rule. While the timing of any final regulation is uncertain, rulemaking of this nature typically takes several months. We will continue to monitor developments and keep you informed as further guidance becomes available.
Plan sponsors should become familiar with EBSA’s 2026 enforcement priorities
The Employee Benefits Security Administration (EBSA) investigates potential ERISA violations in 401(k) plans, including missing participants, improper investment choices, and excessive fees. EBSA continues to focus its enforcement resources on areas that have the greatest impact on the protection of plan assets and participants’ benefits. Retirement plans found to be in violation of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) may be referred for enforcement litigation. Plan sponsors should therefore familiarize themselves with EBSA’s continuing and heightened enforcement priorities.
The following is an overview of EBSA’s 2026 retirement-plan enforcement priorities, particularly its focus on 404(c) plans, underfunded defined benefit plans, and the conduct of 3(21) and 3(38) fiduciaries.
Cybersecurity
Although EBSA issued updated cybersecurity guidance in 2024, it has recently identified cybersecurity as an enforcement priority. It seeks to promote what it describes as “cybersecurity practices for plans and service providers to protect sensitive information and reduce the risk of financial fraud and financial loss.”
When EBSA reviews a plan’s cybersecurity practices, it will focus on determining whether plan fiduciaries have adopted reasonable safeguards, such as policies that detail data protection and incident detection procedures. EBSA will examine whether these safeguards align with its cybersecurity best practice guidelines.
Investment selection in 404(c) plans
A new EBSA initiative called the 404(c) Enforcement Project focuses on whether plan fiduciaries adhere to a “reasonable process when choosing and overseeing the plan’s investment lineup.” Based on past activity, EBSA will be examining whether any conflicts of interest exist when fiduciaries select investment alternatives. Moreover, EBSA is likely to continue its focus on whether a plan’s investment selections are overly expensive compared to industry benchmarks and/or present too great a risk of loss to participants.
EBSA will also examine the actions of a plan’s investment policy committee, whether the plan has an investment policy statement, and other factors to determine whether fiduciaries have established and follow appropriate plan processes.
Fiduciary advice and management
The existing enforcement priority relating to conflicted advice has been expanded by EBSA so that it includes, more generally, a review of 3(21) and 3(38) fiduciaries at the service provider level. EBSA states that its goal with this priority is to mitigate “poor investment choices, high fees, and conflicts of interest.” Additionally, EBSA will assess whether plans that utilize third-party fiduciaries have appropriate procedures in place to vet and monitor those fiduciaries.
EBSA has stated that the areas it intends to examine under this priority will include:
- Conflicts of interest
- Undisclosed fees or improper compensation from plan assets
- Any form of investment manager or advisor fraud that affects plans and participants
- The adequacy of a plan fiduciary’s due diligence when it comes to service providers so that potential conflicts of interest are addressed
Underfunded defined benefit plans
EBSA states that a 2026 priority will be to review defined benefit plans to determine if they maintain adequate census data, adopt reasonable search practices, and provide appropriate notices to participants as they near normal retirement age or minimum distribution age.
Missing and late contributions
A 2026 priority of EBSA is to ensure that employee plan contributions are deposited into the plan trust in a timely manner. The sooner funds are deposited in the plan, the earlier they can be invested on plan participants’ behalf. Late deposits of salary deferral contributions must be reported on Form 5500 (Annual Return/Report of Employee Benefit Plan). These delays are considered “prohibited transactions” and may result in fiduciary liability and the assessment of excise taxes.
Ongoing EBSA enforcement priorities
Certain enforcement priorities will remain an ongoing focus of EBSA, while other activities will receive less attention. For example, the recent launch of the Retirement Savings Lost and Found Database has allowed EBSA to shift enforcement resources into other areas it deems a higher priority. In addition, Employee Stock Ownership Plans (ESOPs) are no longer an enforcement priority.
In light of EBSA’s 2026 enforcement priorities, plan sponsors should review their policies and procedures to ensure compliance with applicable retirement-plan requirements. Plan sponsors should also remain mindful that EBSA will continue to focus on its long-standing enforcement priorities. Required plan documents, minimum bond requirements, and required disclosures are several areas that are frequent targets of EBSA review. Plan sponsors who want help navigating these shifting and challenging enforcement priorities should work closely with their UBS Advisor.
PSCA research shows growth in plan design features and in employee participation rates
The Plan Sponsor Council of America’s (PSCA) 68th Annual Survey of 401(k) Plans,1 one of the retirement industry’s most comprehensive sources of benchmarking, finds that plan design features continue to evolve in response to changing economic conditions and new regulatory requirements. The survey examines the expansion of automatic features, the increase in the number of plans offering Roth options, growth in plan investment options, and how an increasing number of plans are providing plan access via mobile technology. The survey also provides plan sponsors with information regarding participants’ participation and contribution rates, employee deferrals, and hardship withdrawals.
Many plan sponsors are uncertain whether their plans are competitive and effective in attracting and retaining employees. How can you determine if your plan will help bring your employees closer to retirement security? One way to evaluate this is by benchmarking your plan against industry standards, such as the PSCA annual survey. The insights below highlight key 401(k) plan features and how they are being used, helping illustrate their prevalence and importance to participants.
Contribution rates
The survey illustrates that American workers are engaged in workplace retirement plans despite current high inflation rates putting some financial pressures on them. It found that 87.4% of eligible employees contributed to their 401(k) plan, up from 86.9% the prior year. Average employee deferrals were 7.7% of pay, a slight decrease from 7.8% in 2023. Average employer contributions were 4.8%, resulting in a total average savings rate of 12.5%.
A total of 81.0% of plans surveyed offer some form of employer match, including 52.5% that provide only a match and 28.5% that offer both matching and additional employer contributions.
Among plans permitting catch-up contributions, 69.3% of them extended their match to catch-up contributions. In terms of structure, 61.4% of plans provide a guaranteed match, while 38.3% use a discretionary matching approach.
Withdrawals and loans
The number of participants taking hardship withdrawals ticked upward for the second year in a row – 2.75% of participants took a hardship withdrawal in 2024. However, the percentage of participants taking plan loans declined.
Vesting schedules
The number of plans that offered immediate vesting increased significantly between 2023 and 2024, from 39.7% of plans to 44.1%. Some employers prefer to delay the vesting of matching contributions, opting for either a one-, two-, or three-year cliff vesting schedule or a graduated vesting schedule in even increments over a period of up to six years. The survey found that 26.5% of plans with 1 – 49 participants use six-year graduated schedules while 22.8% of the largest plans (5,000 or more participants) use a three-year cliff vesting schedule for matching contributions.
Plan use of automatic features
Plans are increasingly adopting automatic features. The survey found that 64% of plans now use automatic enrollment and 75% of those plans automatically increase participants’ deferral rates over time.
Increase in investment options
The survey found that the average number of investment options offered by plans was an all-time high of 23. Retirement plans have been steadily adding investment options to their lineups over the past five years.
Access to Roth increases
Approximately 95.6% of retirement plans now offer Roth 401(k) contributions. In addition, 60% of plans permit in-plan Roth conversions while 20% offer Roth treatment of employer contributions.
Growth in managed accounts
There has been a significant growth in the number of plans that offer managed account options. Currently, 55% of plans offer this option, compared to 44% just three years ago.
Implementing SECURE 2.0 provisions
The SECURE 2.0 Act of 20222 added a requirement to the catch-up contribution rules that impacts higher-paid participants in a retirement plan.3 A catch-up contribution is an elective deferral over the 402(g) limit that employees over age 50 may be allowed to make if their plan permits it. The new rule states that highly paid individuals (those who earned above a certain threshold of FICA wages in the prior year) must make catch-up contributions on a Roth basis. This requirement also applies to super catch-up contributions for participants aged 60 to 63.
The PSCA survey found that nearly all plans (97.6%) are preparing for the Roth treatment of catch-up contributions while 73% of plans have already adopted the “super catch-up” feature for employees aged 60 – 63. In addition, 20% of plans offer Roth employer contributions, a notable jump from the 13% of plans that offered this option in 2023.
The survey also identified several other SECURE 2.0-related provisions that are worth noting, including the fact that 36% of plans have adopted the $1,000 per year emergency withdrawal provision. However, the survey did note that very few plans (1.3%) have introduced pension-linked emergency savings accounts (PLESA). Likewise, only a small percentage (1.9%) of retirement plans have opted to match student loan payments paid by participating employees.
Your UBS advisor can be an invaluable resource when it comes to developing plan metrics and implementing strategies to drive improved participation, deferral, and investment performance numbers.
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