Department of Labor proposes rule for including alternative assets in 401(k)s

The Department of Labor has proposed a rule regarding how plan sponsors and fiduciaries can include alternative assets in 401(k) retirement accounts.

The proposal is in response to President Donald Trump's executive order, released in August, which directed the Labor Department and the Securities and Exchange Commission to facilitate expanded access to alternative assets in 401(k)s. Alternative investments are a broad category that includes real estate, cryptocurrencies and private-market assets, among others.

"This proposed rule will show how plans can consider products that better reflect the investment landscape as it exists today," said Labor Secretary Lori Chavez-DeRemer in a statement.

Although 401(k) plans are already not prohibited from including such assets, fears of lawsuits challenging their investment decisions have kept most plan sponsors on the sidelines.

The Labor Department rule creates a so-called "safe harbor" that shields plan sponsors from litigation. It identifies six factors for a plan fiduciary to "objectively, thoroughly, and analytically consider" when selecting alternative investments. The six factors are performance, fees, liquidity, valuation, performance benchmarks and complexity.

The rule is subject to further review, including a 60-day public comment period, before it can be finalized.

It comes as private credit markets are under stress from investor redemptions and concerns about overexposure to software investments amid artificial intelligence disruptions.

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