Private Fund Insights Blog

Note to readers: This is a follow-up post to our January 2026 post “401(k) Plans as LPs: Implications for Stakeholders as Private Markets Access Broadens.”

Following through on its previously stated commitment, and in response to a direction from the Trump administration, the U.S. Department of Labor is setting the stage for 401(k) plans and similar defined contribution plans to offer private equity, private credit, and other alternative investment exposure to retail investors. Its proposed rule, released on March 31, 2026, creates a process-driven “prudence” safe harbor for plan fiduciaries selecting designated investment alternatives. The goal is to give fiduciaries a clearer path to including diversified options with exposure to private markets without rewriting ERISA’s core fiduciary standards.

A new safe harbor for investment selection

The proposal centers on a safe harbor for plan fiduciaries selecting designated investment alternatives for a plan’s core menu. Rather than blessing any particular asset class, the rule focuses on how fiduciaries make decisions, specifying factors that must be considered in an “objective, thorough, and analytical” manner when evaluating an investment option.

The factors named in the proposal include: performance (including risk-adjusted results), fees and expenses, liquidity relative to participant needs, valuation methodology and reliability, appropriate benchmarks and complexity and operational risk. A fiduciary that documents a process walking through these elements for a given option gets a presumption of satisfying ERISA’s prudence standard for that selection.

The safe harbor applies only to designated investment alternatives, not to assets accessed through brokerage windows or self-directed accounts. The focus is on the curated menu: target date funds, balanced funds and other managed allocation products that might incorporate private fund exposure as part of a diversified strategy.

What this means for private fund access

As we previewed in our prior blog post in January, retail participants should not expect to pick individual private funds from a 401(k) lineup. The proposal contemplates private equity and other alternatives being used inside diversified, professionally managed vehicles — most notably target date funds, white-label multi-asset funds and similar structures.

This matters for defined contribution fiduciaries who have been wary of private markets. The fear has long been that higher fees, less liquidity and complex valuation invite second-guessing in litigation, particularly against the backdrop of “excess fee” and underperformance cases. The safe harbor is designed to reduce that risk, so long as fiduciaries follow and document the required process.

The capital formation implications are straightforward: if the rule is finalized in something close to its current form, 401(k) and other defined contribution plans may become a more significant channel for private equity, private credit and related strategies. That will depend on plan sponsor appetite and platform constraints, but the regulatory door is opening.

The six-factor lens: What fiduciaries will look for

Because DOL’s proposed safe harbor is built around these six factors, fund managers should expect due diligence and RFPs from plan fiduciaries to follow the same structure:

• Performance: Fiduciaries will consider both absolute and risk-adjusted outcomes over relevant horizons, comparing the option against a “reasonable number” of alternatives. For private strategies, that means robust time-series data, risk measures, and public-market-equivalent analyses — not just headline IRRs.
• Fees and expenses: The question is not whether an option is cheap in absolute terms, but whether the overall cost structure is justified by the strategy and support provided. Management fees, carried interest, fund-level expenses, platform or wrapper fees and any revenue‑sharing all need to be presented intelligibly alongside mutual funds and collective trusts.
• Liquidity: This gets evaluated against participant trading and distribution behavior. Closed-end private funds do not naturally fit an environment of daily trades and frequent rebalancing. The proposal effectively pushes private markets into defined-contribution-ready formats: sleeves inside more liquid multi-asset vehicles, controlled allocation limits and clear liquidity management tools at the wrapper level.
• Valuation: Defined contribution plans depend on regular, reliable pricing, so valuation practices will face scrutiny. Fiduciaries will need comfort that methodologies are well-governed, consistently applied, subject to oversight and, where appropriate, supported by independent third parties.
• Benchmarking: This remains difficult for alternatives, but the safe harbor pushes fiduciaries to identify and document appropriate comparisons. Managers who propose thoughtful benchmarks — and candidly describe their strengths and weaknesses — will make that job easier.
• Complexity and operational risk: This factor gives fiduciaries license to step back and ask whether they truly understand a structure and its operational demands. Fund-of-funds arrangements, leverage, derivatives exposures, cross-fund relationships and side pockets all need to be mapped and explained in terms a plan committee can defend in minutes and investment policy statements.

Practical steps for private equity and venture capital sponsors

Fund sponsors cannot claim the safe harbor themselves; it belongs to plan fiduciaries as the test will be applied at the retail plan level. The work for fund sponsors will be more focused on product design and marketing, and managers now have a framework to make it significantly easier for fiduciaries to fit their products into the offerings for 401(k) and defined contribution plan investors, assuming the DOL’s proposal is enacted without material changes.

That means designing defined-contribution-appropriate wrappers (target date series, multi-asset collective trusts, and the like) with clear, repeatable inputs to each of the six factors. Performance data should anticipate safe-harbor-style comparisons. Fee structures should be decomposed into a total cost number and explained in plain language. Liquidity constraints and tools must be spelled out, including how they function under stress.

On the operational side, have written valuation policies, governance descriptions and independent attestations ready to drop into a fiduciary’s file. Prepare benchmarking exhibits and suggested language for investment policy statements and committee minutes up front. Many managers will find it useful to assemble a dedicated “ERISA safe harbor packet” structured around the six factors, kept current for defined-contribution-platform versions of their products.

Expect investment management agreements, participation agreements and side letters to evolve. Fiduciaries will press for reporting covenants keyed to the six factors, audit and valuation rights and cooperation provisions for participant inquiries or litigation. Review your standard forms now rather than waiting for bespoke asks.

Impact on existing institutional investors

As previewed in our prior blog post, Institutional LPs (pension plans, insurance companies, endowments, foundations and sovereigns) could be affected as a downstream result of the broadened access to retail investment for fund managers. These investors have long had access to private funds on negotiated institutional terms, and have helped to shape what is “market” for how these private funds operate. The DOL proposal does not directly change the regulatory regime for institutional LPs, but it could reshape the market they operate in.

Increased defined contribution demand may influence fund capacity and investor mix. If managers launch defined-contribution-oriented sleeves, feeders, or parallel vehicles, they will need to decide how to allocate between traditional institutional capital and new defined contribution channels. Some institutions may welcome a broader investor base; others may worry about dilution of access or pressure on deal flow allocations in capacity-constrained strategies.

Managers’ need to satisfy defined-contribution-level process and disclosure expectations can also raise the floor on transparency and operational rigor, which is a clear benefit to traditional LPs. Enhanced valuation documentation, more structured performance and risk reporting and clearer fee breakdowns created for defined contribution fiduciaries may spill over into the standard package for all investors. At the same time, institutional LPs may need to negotiate how far defined-contribution-driven governance features (certain reporting rights, liquidity accommodations at the wrapper level) extend into flagship institutional funds.

There is also potential for alignment and tension around liquidity. Defined-contribution-oriented vehicles tend to build in liquidity features that traditional closed-end institutional products have not offered. Institutional investors will want assurance that liquidity management tools used in defined contribution platforms (credit lines, pacing adjustments, secondary sales, gating mechanisms) do not adversely affect their own economic position or create conflicts around portfolio management. Alternatively, traditional LPs may need to take a different approach toward allocating to assets more closely aligned with what defined contribution plans will have access to, such as interval funds or other evergreen structures.

Institutional investors may also see new co-nvestment or secondary opportunities as managers broaden their product toolkit to support defined contribution flows. A requirement for structured allocation and rebalancing mechanisms could generate incremental deal flow that sophisticated LPs can access. For some institutions, that may offset concerns about sharing manager attention with a larger defined contribution investor base.

Next steps

The DOL has invited comments on the proposed rule, and stakeholder input from industry and investor advocates is expected to be substantial. Fund managers have desired access to retail capital for years, and the preeminent trade group representing traditional Institutional LPs has already expressed a desire to press for additional clarity in an effort to protect their interests. Points of debate will include how prescriptive the DOL’s six-factor safe harbor becomes in practice, how the adopting release treats closed-end strategies and illiquid assets and whether further guardrails are needed around participant/investor communications.

Even if the final rule adjusts the details, the direction is clear: ERISA fiduciaries now have the early stages of a roadmap to offer diversified alternatives in defined contribution menus, provided they can show a disciplined process. Sponsors who build their products, disclosures, and operational support around that process now will be better positioned when plan sponsors and consultants start asking which managers are “defined-contribution-ready.”

Managers and investors interested in learning more about the potential implications of 401(k) investment into private funds should contact a member of Robinson Bradshaw’s Private Funds & Investments Practice Group.