June 1, 2026
The Honorable Daniel Aronowitz
Assistant Secretary
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue NW
Washington DC 20210
Docket No. EBSA-2026-0166-0001
Re: Fiduciary Duties in Selecting Designated Investment Alternatives (RIN 1210-AC38)
Dear Assistant Secretary Aronowitz,
National Taxpayers Union, the nation’s oldest organization representing the interests of taxpayers, appreciates the opportunity to comment on the Department of Labor’s (DOL) proposal to improve the process that plan fiduciaries use to evaluate investments for inclusion in 401(k)s and other defined contribution plans under the Employee Retirement Income Security Act of 1974 (ERISA). The new rule provides clarity to fiduciaries on how to evaluate various investment options in a sound way, effectively treating different asset classes equally. This should eventually allow fiduciaries the opportunity to include alternative investments in 401(k) investment portfolios, which—if invested in a prudent manner—should allow for higher returns on a less volatile investment mix for plan participants.
We applaud the Department for creating a fair, objective process for investigating the prudence of allowing products into investment plans. According to the proposed rule, fiduciaries must “objectively, thoroughly, and analytically consider, and make determinations on factors including performance, fees, liquidity, valuation, performance benchmarks, and complexity.” If these six factors are carefully considered using a sound process, this proposed rule would provide fiduciaries with safe harbor provisions that would limit their liability in legal actions regarding investment decisions.
This process, with some revisions that we propose in these comments, will offer the prospect of more robust account values for workers and retirees once alt investments are allowed in portfolios. Studies have shown that the typical 401(k) participant could receive an extra $200 per month, while another noted that inclusion of alt investment in plans could increase eventual retirement wealth by over 10%, substantially improving fund performance.
Expanding eligible assets will also help diversify Americans’ retirement holdings beyond publicly traded stocks and bonds, which should reduce volatility, expand investment options in light of shrinking choices in public equities, and possibly even serve as a sound hedge against cyclical or sectoral investment declines. This combination of higher returns and better resiliency for retirement accounts will be especially important for taxpayers in coming years, as the impending insolvency of the Social Security Trust Fund increases the reliance of millions of Americans on privately-funded retirement savings plans. Furthermore, state and local public employee pension systems, whose finances are backed by taxpayers, could benefit from a less volatile investment climate that is hospitable to diversification.
While we believe that the proposed rule goes a long way toward improving the outcomes of Americans’ retirement plans, we believe that some improvements could be made to these draft rules to make them even better for taxpayers.
These potential improvements include:
- Ensuring that the final rule contains appropriate liquidity risk while promoting asset-neutrality.
The current language of the proposed rule encourages investment alternatives not structured as mutual funds to be subjected to investment restrictions imposed by the Investment Company Act of 1940 (the “40 Act”). This would, among other things, require investment alternatives to limit illiquid asset allocations to no more than 15% of any plan. This expectation has the effect of pushing against the overall direction of the proposed rule, where ERISA imposes no inherent restrictions or limitations on the class or type of assets that may be offered in an ERISA-subject plan. Defined benefit plans regularly allocate levels above 15% to illiquid investments—sometimes ranging up to 30%. We believe that other language in the rule will strongly encourage appropriate investment allocation behavior, ensuring that plans are prepared in a way that is responsive to the needs of plan participants, especially in regard to liquidity requirements. There is no need to limit potential returns for investors as it pertains to appropriate investment choices.
- Allowing for more realistic, but appropriately addressed, conflicts language in the final rule.
Sometimes rulemaking can benefit from having wording adjusted for real-world circumstances, and the “conflicts” language in this proposed rule represents one of those times. It is generally impractical, if not entirely impossible, to create a fully “conflict-free” process for allocating plan funding between asset classes. Staff involved in the selection process will likely have access to more information than others and will generally benefit from more successful allocation strategies. Even the most sophisticated institutional investors today would encounter challenges with the conflicts language as they develop defined benefit and other larger plans.
- Allowing fiduciaries to be expected to satisfy certain factors “when applicable,” noting that these factors should not be considered “non-exhaustive.”
The current rule language creates a non-negligible risk of frivolous lawsuits, simply based on the level of review used for each investment alternative. An investment may be relatively straightforward, such as one featuring a flat fee structure, or more complicated, like one that uses an incentive fee system. Alternatives may need different levels of review to adequately cover the six factors the proposed rule expects to be covered. Limited changes in wording could resolve this issue. Removing “non-exhaustive” wording and adding language using the term “when applicable” could greatly lessen the risk of litigation simply for not satisfying an open-ended list of potential items that could merit any consideration when evaluating investment alternatives.
- Acknowledging that fiduciary understanding of investments precludes the need for advice from an investment advisory fiduciary to meet safe harbor requirements.
One likely unintended consequence of the current wording of this proposed rule is the increased expectation of the use of third-party investment advisory fiduciaries to meet safe harbor requirements. Some highly experienced firms will likely have ample internal experience to successfully analyze investment products at a level that ensures investor assets are protected in a way that also allows for higher asset growth.
We recommend that the wording in the rule be changed to allow for internal review when fiduciaries are qualified to do it, to avoid unnecessary lawsuits.
- Clearly noting that the final rule uses examples for each factor in an illustrative way, and not as a way to preclude other investment options and structures.
This final concern might seem to be a minor quibble, but nonetheless, could invite litigation by activist law firms against fiduciaries who attempt to use non-standard investment alternatives. Adding wording that makes clear that listed examples are illustrative in nature, and not meant to create limited and explicit investment consideration pathways, would help solve this issue.
Critics of this proposed rule claim that retirement savers are not looking for innovative products, and instead want safe assets even at the cost of missing out on significant long term gains. We disagree with that assessment. The proposed rule provides the opportunity to achieve significantly higher upside returns for investors, with little increased risk.
With a few judicious revisions, this rule will improve retirement outcomes for millions of Americans. Risks, fees, and liquidity concerns will likely all be mitigated in the course of assessing investment alternatives against the six factors described by the proposed rule. Fiduciaries will be encouraged to provide appropriate disclosure requirements, using plain language and easy to understand information.
Thank you for your efforts in creating an investment rule that reflects the realities of the modern American economy. A few limited revisions can help provide more protections for fiduciaries to take advantage of this new rule, encouraging them to create plans that maximize retirement security at a minimum of investment risk. This rule will help millions of Americans live more comfortably in retirement, further promote prosperity among our seniors, reduce the strain on government benefit programs, and grow the greater American economy.
We appreciate your consideration of these comments. If you have any questions, or if your staff would like to discuss further, we would welcome the opportunity to engage on this important issue.
Sincerely,
David Timmons
Senior Policy Manager
National Taxpayers Union
dtimmons@ntu.org