If there’s one thing plan sponsors should never forget, it’s this: innovation doesn’t suspend fiduciary responsibility. With all the recent buzz about private equity, private credit, and other alternative investments creeping into 401(k) plans, regulators are reminding the industry that ERISA still runs the show.
The Department of Labor is working toward clearer guidance on how fiduciaries evaluate and monitor alternative investments inside defined contribution plans. That timing is no coincidence. As Wall Street pushes more complex products into retirement plans, the DOL wants to make sure plan sponsors don’t confuse “permitted” with “prudent.”
Alternative investments are not illegal under ERISA. They never were. But ERISA requires a disciplined process: understanding fees, risks, liquidity, valuation methods, and how an investment fits the needs of the participant population. That burden doesn’t disappear because a fund has a famous name or because it’s wrapped inside a managed account.
For plan sponsors, this is where trouble can start. Alternatives often come with higher fees, limited liquidity, and opaque pricing. If participants can’t easily understand what they own, fiduciaries need to understand it even better. Documentation, committee minutes, and advisor analysis will matter more than ever.
This regulatory focus should also be a warning shot to advisors. Recommending alternatives isn’t about being cutting-edge or trendy. It’s about proving that the decision improves retirement outcomes and not just marketing brochures.
The takeaway is simple. The door to alternative investments may be opening wider, but the fiduciary standard isn’t loosening. If anything, it’s tightening. In the 401(k) world, complexity demands caution—and prudence is still the law of the land.
