How Fiduciaries Can Thoughtfully Assess Private Investments in DC Plans

On March 30, the Department of Labor (DOL) released its proposed rule addressing how fiduciaries should evaluate “alternative” investments within defined contribution (DC) plans. The proposal, titled “Fiduciary Duties in Selecting Designated Investment Alternatives,” follows the August 2025 executive order, “Democratizing Access to Alternative Assets for 401(k) Investors,” which broke from prior-era guidance that discouraged the inclusion of alternatives based on the belief that the representative plan sponsor lacked sufficient expertise—or access to such expertise—to perform the requisite due diligence on more complex and potentially riskier investments. The proposal will now undergo a public comment period in which stakeholders can weigh in.

Speaking at a Securities Industry and Financial Markets Association (SIFMA) event last August, Deputy Secretary of Labor Keith Sonderling outlined the Administration’s core objective: to avoid “regulation by litigation” by providing a sufficiently well-defined evaluation framework that fiduciaries could reference with greater confidence.

The recently proposed rule regarding alternative assets in 401(k) plans, which introduces a six-factor safe harbor for fiduciaries, is already being met with plenty of high-level philosophical debate. The factors address fees, liquidity, valuation methodology, performance, benchmarking, and “complexity.” This last factor is particularly notable because it requires fiduciaries to assess their own ability to evaluate a complex investment, or to determine whether responsibility should be delegated to a consultant or third party. In practice, it implores advisors to examine their own knowledge and capabilities when dealing with alternative assets in order to better serve plan sponsors and participants.

It is also worth noting that while much of the industry focus has been on private market funds, the proposal explicitly references crypto, infrastructure, and commodities. In fact, it does not restrict any product “insofar as the designated investment alternative might otherwise be illegal,” and could therefore be interpreted quite broadly.

Even when excluding the many unmentioned but “legal” options, we are still left with a very disparate group of investments. Crypto and private markets, for example, have more differences than similarities. The central feature of private market funds is that investments are appraisal priced and valued infrequently. Crypto, by contrast, is market priced and continuously valued. Private markets are illiquid; crypto is liquid. Private market managers engage in traditional investing and lending strategies where cash flows are expected and typically realized. Crypto is an entirely new and speculative asset with no expected cash flows. Well-established valuation methodologies exist for private equity and private credit, while crypto valuation is largely sentiment-driven, as most formal pricing models are econometric, short-term, and time-series based. Private markets tend to have substantial and often complex fee structures, while crypto exposures can be available through relatively inexpensive ETFs. The primary risk in private markets is underperformance net of fees; the primary risk in crypto is a severe loss of capital at precisely the wrong moment: near retirement.

For those of us on the ground, the takeaway is relatively straightforward: No asset class should be categorically excluded if a prudent process exists to evaluate it.

At Morningstar Retirement, we are not approaching this from 10,000 feet. We are practitioners. We serve 25,000 plans as a 3(21) or 3(38) fiduciary to the core menu and to custom models (often QDIAs), manage advice platforms for 250,000 plans offering managed accounts, and support nearly 3 million participants. Our role is to move beyond theory and high-level philosophical debates and help determine when and how private investments could be incorporated into professionally managed portfolios within 401(k) plans.

In this proposal, the Administration seeks to emphasize process over product: a sensible approach in a world where outcomes are never known and, in some cases, can only be estimated in broad brush strokes. This emphasis is also consistent with the foundations of ERISA law. The complexity of a representative semi‑liquid fund demands meaningfully more sophisticated diligence tools than those currently in widespread use.

The traditional hurdles to including private investments in DC plans—fees, liquidity, and transparency—are real, but they are not insurmountable. Private asset managers and recordkeepers are already doing much of the heavy lifting. They understand these constraints well and are actively designing purpose‑built vehicles, such as fund‑of‑funds collective investment trusts (CITs), that are better aligned with the daily valuation, liquidity, and transparency requirements of a modern 401(k).

In my role, I see this dynamic firsthand. When firms begin thinking seriously about product design, they come to us with practical questions :

• How will you as a fiduciary evaluate this asset class?
• How should liquidity be managed within a target‑date fund or managed account framework?
• How will your advice engine actually allocate to this investment?

These are not hypothetical questions. They are the building blocks of a better participant experience.

There are many highly intelligent voices in the industry, including some within Morningstar itself, who express more cautious or conservative views on the role of private investments. That skepticism plays an important and distinct role. As a firm known for independent research, we fully expect academic and analytical perspectives that differ from those rooted in implementation. But these perspectives are ultimately directed toward the same objective: better outcomes for investors.

Our vantage point is shaped by daily interaction with advisors and plan sponsors who already use private assets extensively in their endowment, foundation, or defined-benefit businesses and are asking a reasonable question: why shouldn’t DC participants have access to the same diversification and potential performance benefits? Over the past year, we have worked closely with asset managers, recordkeepers, and advisory firms and have seen the thoughtful and deliberate ways in which these solutions can be and are being implemented.

The DOL’s recent action reinforces what we have long believed: a plan fiduciary, supported by a prudent process, can evaluate private investments just as they would evaluate any other investment manager. Is it more difficult? Yes. Is it impossible? No. When designed appropriately for the DC ecosystem and when tailored to the needs of managed accounts and custom target‑date funds, private investments can become a meaningful tool for improving participant outcomes.

We should not be cheerleaders for any particular asset class. That is not our role. What we should champion is a disciplined, well‑documented process. The objective is not innovation for its own sake, but a commitment to thoughtfully evaluating every available tool that may help participants reach retirement with better outcomes.

The industry is actively working to address the structural challenges. As long as the diligence is deep and the process is prudent, private investments may well earn a clear seat at the table.