For plan fiduciaries seeking to add alternative investments to 401(k) lineups, the Department of Labor’s recently proposed rule, which offers a regulatory safe harbor, would make the proposition easier. However, the protections provided by the proposed safe harbor are limited and do not offer complete immunity, according to numerous sources.
The DOL proposal introduces a six-factor test that plan sponsors must use during investment selection to qualify for the safe harbor. The factors are: performance, fees, liquidity, valuation, benchmarking and complexity. According to Fred Reish, a counsel at the Ferenczy Benefits Law Center, this test alone sets a high standard for fiduciaries. Additionally, the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo eliminated the so-called Chevron doctrine, which had previously required courts to defer to federal agencies’ interpretations when there were questions about how statutes were interpreted. As a result, the proposed rule already imposes a rigorous test, and courts are not required to treat the safe harbor as anything more than one perspective on prudence.
“That’s a lot of conditions,” Reish says. “So, in my mind, this is not really a safe harbor.”
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