Most workers in a 401(k) plan never choose where their money goes. They get auto-enrolled, and a plan fiduciary picks the default fund on their behalf. According to Vanguard’s 2024 survey of its recordkeeping clients, roughly 60% of every dollar flowing into 401(k) plans lands in one of those default options. Now the Department of Labor wants to let fiduciaries add private equity and cryptocurrency vehicles to those default lineups, protected by a new legal safe harbor that would shield them from breach-of-duty lawsuits if they follow a documented selection process.
The proposed rule’s public comment period closed in early April 2026. As of late May 2026, the Employee Benefits Security Administration is reviewing those submissions before drafting a final rule and forwarding it to the Office of Management and Budget for a second review. The outcome will reshape what sits inside the retirement accounts of tens of millions of workers who never actively chose their investments.
What the proposed rule actually does
Filed as FR Doc. 2026-06178, the rule modifies the regulatory framework under 29 CFR 2550.404c-1, which governs participant-directed retirement plans. Under the existing regime, plan fiduciaries face significant litigation exposure when selecting default investment options. As the National Association of Plan Advisors has documented, a steady stream of ERISA fee-and-prudence lawsuits filed against large plan sponsors over the past decade has made fiduciaries reluctant to stray from conventional stock and bond index funds.
The new safe harbor would shift that risk calculus. If a fiduciary follows a defined, documented selection process, the rule would grant a presumption of compliance with ERISA’s prudence standard, even when the chosen default includes asset classes like private equity or digital-asset vehicles, and even if the investment later loses money.
Critically, this proposal builds on top of the existing Qualified Default Investment Alternative (QDIA) framework under 29 CFR 2550.404c-5, which already provides a safe harbor for fiduciaries who place participants in target-date funds, balanced funds, or managed accounts. The new rule would effectively expand the universe of what can sit inside those defaults without stripping the fiduciary’s legal protection.
The proposal traces directly to an executive order that directed federal agencies to expand access to alternative assets for 401(k) investors. That directive explicitly named vehicles investing in digital assets among the categories agencies should open up. The Labor Department’s rule is the first concrete regulatory response, translating a White House policy goal into a specific legal shield for the fiduciaries who control plan menus.
In its news release, the Labor Department framed the safe harbor as a way to “modernize” default investment options while keeping fiduciary duties of prudence and loyalty intact. The agency stressed that the proposal does not endorse any particular asset class. Instead, it positions the change as a clarification: fiduciaries may consider alternatives, including digital-asset vehicles, as long as they apply the same disciplined evaluation they would use for traditional investments.
The process fiduciaries would need to follow
To qualify for the safe harbor, plan sponsors would need to document a multi-step evaluation of any alternative-asset option before adding it to a default lineup. The proposal requires fiduciaries to assess the option’s fee structure, liquidity profile, valuation methodology, and underlying investment strategy. They would also need to compare those characteristics against more conventional alternatives available to the plan.
If that process is followed and recorded, the fiduciary receives a legal presumption that the selection met ERISA’s prudence standard. In practical terms, a participant who suffers losses in a default fund containing private equity or crypto would face a much higher bar to win a lawsuit against the plan sponsor.
One detail the proposal does not address: whether participants auto-enrolled into a default containing alternatives would receive enhanced notice or a simplified opt-out mechanism beyond what current QDIA rules already require. Under existing regulations, participants must be told they have been placed in a default and given a window to redirect their contributions. But those notices rarely describe the underlying asset classes in detail, and nothing in the proposed rule text mandates additional disclosure when the default includes illiquid or volatile holdings.
OIRA records confirm the procedural timeline. The proposed rule entered interagency review on January 13, 2026, and cleared that review on March 24. The Labor Department published it in the Federal Register one week later, opening a comment window that closed in early April.
What remains uncertain
Several big questions hang over the rule as it moves toward finalization.
No public data from Form 5500 filings shows how many plans currently allocate default money to alternative assets, so the real-world baseline is unclear. Major recordkeepers and plan sponsors have not made public statements in the rulemaking docket about whether they intend to adopt the safe harbor once it takes effect. And the Labor Department has not published quantitative projections estimating how much participant money could shift into alternatives as a result.
The comment docket, based on submissions timestamped before the deadline, reflected a range of positions but remained relatively thin. Some commenters raised concerns about the complexity and opacity of private equity fee structures, which often layer management fees, performance fees, and fund-of-fund charges in ways that are difficult for even sophisticated investors to parse. Others questioned whether digital-asset markets, which remain subject to evolving and fragmented regulatory oversight, can meet ERISA’s standards for prudence and diversification.
Supportive commenters argued the opposite: that limiting defaults to public stocks and bonds deprives long-horizon savers of potentially higher-return, less-correlated asset classes that institutional investors like pension funds and endowments have used for decades.
“The concern is that auto-enrolled participants have no idea what they own,” said Jason Roberts, CEO of the Pension Resource Institute, a consultancy that advises plan fiduciaries on regulatory compliance. “If you layer in illiquid alternatives or crypto exposure inside a target-date fund, the disclosure burden on sponsors goes up significantly, and the current notice requirements were not designed for that.”
Perhaps the most consequential open question is whether the final rule will include hard guardrails. The proposal as published does not set concentration limits, minimum liquidity thresholds, or enhanced fee-disclosure mandates for alternative-asset options within defaults. The text references “appropriate diversification” and “reasonable expenses,” but those phrases leave wide room for interpretation when applied to a target-date fund that blends low-cost index funds with a locked-up private equity allocation or a volatile crypto sleeve.
What workers and plan sponsors should watch as EBSA drafts the final rule
The strongest evidence in this rulemaking comes from primary government documents: the Federal Register filing, the executive order, OIRA’s review log, and the Labor Department’s press materials. Together, they confirm the rule’s existence, its legal basis, and the administration’s intent to widen the menu of assets that can appear in 401(k) defaults without automatically triggering fiduciary lawsuits.
What the record does not yet reveal is how the market will respond. Without public commitments from large plan sponsors or recordkeepers, it is unclear whether the safe harbor will trigger a wave of crypto and private equity exposure in default funds or sit mostly unused. The lack of quantitative impact estimates leaves practical questions unanswered: how much additional risk participants might bear, how fees will compare to existing low-cost index defaults, and whether current disclosure rules give workers enough information to understand what is inside their retirement accounts.
The next procedural milestone is EBSA’s review of the comment record and drafting of a final rule, followed by a second OMB review. Based on typical rulemaking timelines, the earliest a final rule could take effect is late 2026, though contested issues in the comment record could push that into 2027. For the roughly 70 million Americans with active 401(k) accounts, according to Investment Company Institute data, the outcome of that process will matter long before most of them ever hear about it.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
