From the Field: A Fiduciary's Case for Private Assets in DC Plans

The comment period for the Department of Labor’s proposed rule on Fiduciary Duties in Selecting Designated Investment Alternatives has generated a substantial body of feedback, spanning the philosophical to the highly technical and reflecting a wide spectrum of support, skepticism, and constructive suggestion. We’ve read through a lot of it, and the range of thinking is worth engaging seriously. Rigorous debate about how fiduciaries should evaluate complex investments, what guardrails best serve participants, and how the regulatory framework should evolve is exactly the kind of engagement that produces better policy.

Our perspective is grounded in decades of work as a fiduciary, co-fiduciary, sub-advisor, and independent financial expert in our pursuit to design better retirement plans and achieve better outcomes. We serve as a 3(21) or 3(38) investment menu fiduciary to over 25,000 plans, manage advice platforms for 250,000 plans offering managed accounts, construct custom models and target-date funds used as qualified default investment alternatives, and support nearly three million participants. We are not evaluating this question from the outside. We are helping to build the frameworks through which private assets can reach participants, and that vantage point informs our perspective on the DOL’s proposed rule and on what we believe the industry needs to keep moving in the right direction for the people we serve.

The DOL’s proposed rule establishes a voluntary six-factor safe harbor—covering performance, fees, liquidity, valuation, benchmarking, and complexity—that plan fiduciaries may use when selecting designated investment alternatives. It is asset-neutral by design, applying the same analytical framework to index funds, target-date funds, and investments with private asset exposure alike.

From our perspective as practitioners, the rule’s most important feature is what it does not do: it does not change ERISA’s standard of prudence. That standard has been process-based since 1979. Prudence under ERISA has never been an outcome guarantee; it has always been a question of whether the fiduciary followed a sound, documented process in making a decision. The proposed rule puts that standard into practice. It gives fiduciaries a structured, factor-by-factor framework to follow and, most importantly, a defensible record when they do. Calling that a relaxation of the standard misreads what the standard has always been.

The rule also correctly identifies what has been holding fiduciaries back. It is not a lack of expertise, a lack of available products, or a lack of interest in improving participant outcomes. It is litigation risk and regulatory ambiguity. Fiduciaries who have confidence in their investment thesis, who believe, based on rigorous analysis, that a modest private asset allocation within a managed offering could improve risk-adjusted outcomes for participants, have been deterred not by the merits but by the fear of defending that judgment in court.

Some commenters raised concerns about plan sponsor expertise, but that misunderstands how the fiduciary system is designed to function. ERISA’s 3(21) and 3(38) fiduciary framework exists precisely because plan sponsors are not expected to be investment specialists.  

In the context of private assets, the layered fiduciary structure in DC plans provides even more protection than is often recognized. Before a private investment reaches a participant in a professionally managed vehicle, it passes through multiple layers of qualified, accountable parties: the plan sponsor, RIAs and consultants advising the plan, CIT trustees with their own fiduciary obligations, and investment managers like Morningstar Retirement who independently evaluate whether the product belongs in the portfolios we manage. Every party in that chain carries reputational risk and is accountable, legally and professionally, for the judgments they make. That layered oversight is how the system is designed to work.

When a fiduciary selects a target-date fund managed by a qualified 3(38) investment manager, the complexity analysis appropriately focuses on the capabilities of that manager—their knowledge, their processes, their governance—not on whether the plan sponsor can independently reconstruct every underlying valuation. That is consistent with how ERISA’s delegation framework has always operated, and we believe it is the right model for private assets.

Private investments get treated like a different species in these discussions. That framing is misleading.

Consider what DC plans already hold. Bond funds routinely contain corporate, municipal, and structured credit instruments that may not trade for days or weeks and are valued using matrix pricing, rather than real-time market transactions. Stable value funds hold insurance company general account contracts and wrap agreements that have no exchange-traded price whatsoever. Real estate investment trusts carry illiquidity premiums and rely on appraisal-based valuations.  

DC plans have been managing the analytical demands of these investments for decades, without a dedicated regulatory framework for each one. Likewise, we have seen DB plans explore the use of private assets in their investments for some time. Why shouldn’t that growth potential be available to DC plan participants under the right governance and structure?  

Private assets raise the same questions about valuation methodology, liquidity management, and fee transparency. The difference is scale and complexity, not category. And the proposed rule’s six-factor framework is built precisely to accommodate that spectrum. The depth of analysis a fiduciary applies to a standard index fund is appropriately different from what they apply to a semi-liquid interval fund with a private equity sleeve. The framework scales with the investment, which is exactly what a workable standard requires.

There’s a practical point here that sometimes gets lost in the policy conversation: the safe harbor analysis should be conducted at the level of the designated investment alternative as a whole, not at the level of each underlying component. When a plan fiduciary selects a target-date fund, they are evaluating that fund—its manager, its processes, its overall risk and liquidity profile. The underlying sleeves are investment decisions made by the fund’s manager within the scope of their delegated authority. Holding the plan fiduciary responsible for independently replicating the manager’s valuation of every private credit position is neither practical nor what ERISA requires.

When it comes to private assets in DC plans, the industry debates whether participants need additional, investment-specific disclosures, or explanations of complex features delivered at the moment they make an investment election. It’s a reasonable instinct, but the existing framework already provides it.  

Plan participants are protected by a robust, layered set of disclosure requirements: 404(a)-5 fee disclosures, QDIA notices, blackout notices, summary plan descriptions, summary annual reports, and the participant-level quarterly statements now required under SECURE 2.0. These frameworks were designed specifically to ensure participants have material, decision-relevant information about their investment options, and they apply consistently across asset classes.  

The bigger issue is that the disclosure concern assumes a model most private asset implementations don’t actually use. In practice, participants will rarely select private assets directly. Exposure will sit inside professionally managed vehicles such as target-date funds or managed accounts where fiduciaries—not participants—control allocation. The disclosure framework that is most relevant in that structure is the one governing how fiduciaries select and monitor the vehicle. That is exactly what the proposed rule addresses.

Singling out alternatives for a disclosure requirement that applies to no other asset class would also cut against one of the rule’s own central design principles: asset neutrality. A regulatory framework that treats private assets as inherently more deserving of participant-level warnings than, say, a stable value fund or a high-yield bond fund sends a signal that is inconsistent with the rule’s stated intent.

Morningstar Retirement engages daily with the asset managers, recordkeepers, and advisory firms that are actively building the infrastructure for private assets in DC plans. What we see is deliberate, technically rigorous development aligned to DC requirements. 

The asset managers approaching this space responsibly are not leading with distribution conversations. They are coming to us with fiduciary questions: How will you evaluate this product? How does liquidity work inside a target-date fund with a semiliquid allocation? How does your managed accounts advice engine allocate to it, and how does it rebalance? These conversations are operational—not promotional—and they reflect the real constraints of the DC environment. 

Recordkeepers are building the operational infrastructure: daily valuation support, participant-level reporting, liquidity management protocols. Private asset managers are designing purpose-built vehicles—fund-of-funds CITs, semi-liquid evergreen structures, interval funds with DC-appropriate redemption windows—that are specifically engineered for the daily valuation, participant-level liquidity, and fee transparency requirements of the DC context. None of that is simple or fast. But it is happening, and it is happening because the parties involved understand that DC participants deserve the same quality of execution that institutional investors have long received. 

We are not advocates for any particular asset class or product. Our role is to evaluate every available investment through a disciplined, documented process and to allocate based on what the evidence supports, net of fees, for the participants we serve. When we look at private assets through that lens, and when we see the care with which the industry is working to make these investments work in the DC context, we believe the proposed rule provides exactly the right framework. It holds fiduciaries accountable through process. It rewards the work that’s already happening. And it removes the barriers that have kept DC participants from accessing tools pension funds have used for years. 

The industry has already begun building the infrastructure required to support private assets in DC plans. The regulatory framework now exists to support it. And the participants who stand to benefit—people whose retirement savings will finally have access to the same tools that pension funds have used for decades—deserve both. 

Twenty-plus years of fiduciary work in this market has taught us one thing above all else: process matters more than product. This rule gets that right.  

About Morningstar Retirement 

Morningstar Retirement offers research- and technology-driven products and services to individuals, workplace retirement plans, and other industry players. Morningstar Retirement serves as a 3(21) or 3(38) investment menu fiduciary to over 25,000 plans, manages advice platforms for 250,000 plans offering managed accounts, constructs custom models and target-date funds for use as QDIAs, and supports nearly 3 million participants. Associated advisory services are provided by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc.