The Department of Labor wants private equity, private credit, and real estate inside your 401(k), and at the PLANSPONSOR National Conference in Nashville this week the timeline came into focus: the EBSA head said the agency will move quickly to finalize its investment-selection rule, with a final version possible by year-end. The proposed safe harbor lists six factors a plan fiduciary should weigh, and two of them are liquidity and valuation. Here is the problem nobody on the dais connected out loud. The same semi-liquid private credit funds being lined up for retirement menus are, right now, gating redemptions and trading at double-digit discounts to their own stated value. The diligence the DOL is about to require is failing its live test in the retail market this quarter.
Key Takeaways
- The DOL’s proposed safe harbor (Fiduciary Duties in Selecting Designated Investment Alternatives, March 30, 2026) gives 401(k) fiduciaries a six-factor process for adding alternatives: performance, fees, liquidity, valuation, benchmarking, and complexity. Comments closed June 1; a final rule could land by year-end.
- Two of those six factors, liquidity and valuation, are exactly what broke in the 2026 retail private credit market. Our redemption tracker shows the largest non-traded funds prorating withdrawals against their caps for two straight quarters.
- Publicly traded business development companies trade at 10% to 20% discounts to their reported net asset value, which turns the DOL’s “valuation” factor from a checkbox into a live disagreement about what these assets are actually worth.
- The structural tension is that a 401(k) needs daily valuation and participant-level liquidity, while the underlying private assets offer neither. The target-date wrapper hides that mismatch; it does not remove it.
- Plan sponsors who add alternatives under the safe harbor will own the documentation burden, and a thin liquidity-and-valuation file is precisely what plaintiffs’ firms have turned into more than $1 billion in fee-case settlements since 2016.
What the DOL Safe Harbor Actually Says
On March 30, 2026, the Employee Benefits Security Administration proposed a rule titled Fiduciary Duties in Selecting Designated Investment Alternatives. It does not mandate alternatives, and it does not, as the former EBSA head reminded the industry, push them. What it does is build a process-based safe harbor: follow the steps, and a fiduciary earns a legal presumption of having met the ERISA duty of prudence when selecting an investment option, including asset-allocation funds that hold private equity, private credit, or real estate.
The rule names six non-exhaustive factors a prudent fiduciary should weigh:
- Performance
- Fees
- Liquidity
- Valuation
- Benchmarking
- Complexity of the investment alternative
The motivation is stated plainly in the proposal. EBSA wants to reduce the litigation risk that has made plan sponsors gun-shy. The proposal cites Plan Sponsor Council of America research showing more than 500 fee cases filed since 2016 and over $1 billion in settlements paid. The bargain on offer is straightforward: document the six factors, gain the presumption of prudence, and worry less about being sued.
Comments closed on June 1, 2026. At the Nashville conference this week, the message from regulators was that the agency intends to finalize quickly. Plan sponsors should expect a final rule to evaluate by the end of the year.
Why the Liquidity Factor Is the One That Will Bite
Performance, fees, and benchmarking are familiar territory for any committee that has run a fund search. Liquidity and valuation are where retirement plans and private assets fundamentally disagree, and 2026 has turned that disagreement into a case study.
A 401(k) plan is a daily machine. Participants move money, take loans, change allocations, and roll out, and the recordkeeping system needs a price and the cash to settle every business day. Private credit and private equity were not built for that. They are built on lock-ups, quarterly redemption windows, and caps on how much can leave at once.
We track how those caps are holding up in the Trading Market Signals Private Credit Redemption Monitor. The reading this quarter is not reassuring for anyone about to write a liquidity memo. Blackstone’s BCRED drew repurchase requests near 10% of shares against a 5% cap in its second-quarter tender and prorated the rest. BlackRock’s flagship non-traded private credit fund breached its own 5% cap for the first time since it launched in 2022. Across the category, Robert A. Stanger & Co. recorded the first net outflow on record in the first quarter. These are the wrappers, or close cousins of them, that asset managers want to package into target-date series for the DC market.
The standard answer is that a 401(k) never holds the illiquid fund directly. It holds a diversified target-date fund that carries a small private sleeve, maybe 5% to 15%, and the daily-liquid public holdings absorb participant flows. That works until enough participants head for the exit at the same time the private sleeve is gated and the public sleeve is down. The wrapper smooths the mismatch in calm markets. It does not delete it. A fiduciary documenting the liquidity factor needs to model the bad day, not the average one, and the redemption data is the evidence of what the bad day looks like.
How Should a Fiduciary Document the Valuation Factor When the Price Is in Dispute?
Valuation sounds like the most technical of the six factors. It is actually the most contested, and the public market is keeping score.
Non-traded BDCs report a net asset value on a schedule the fund controls and let investors redeem at that NAV, subject to the caps. Publicly traded BDCs, holding very similar books of first-lien corporate loans, are priced every second the market is open. As of mid-June, several traded at 10% to 20% below their own reported NAV. We walked through that dislocation in detail in our analysis of private credit’s liquidity reset.
For a retail investor, that gap is an opportunity or a warning. For an ERISA fiduciary about to certify the valuation factor, it is a documentation problem with teeth. If the liquid version of nearly the same risk trades at 85 cents while the fund marks itself at 100, which number goes in the file? Pick the fund’s NAV and a plaintiff’s expert will point at the public discount. Pick the public price and the manager will argue their book is different. Either way, the committee needs a defensible, written rationale, and “the manager told us it was worth par” is not one.
This is the heart of the matter for plan sponsors. The safe harbor offers protection in exchange for process, and the process is only as strong as the hardest factor to defend. In 2026, that factor is valuation, and the evidence that it is hard is sitting in public market prices every day.
What the Conference Got Right About Guaranteed Income
The Nashville agenda was not only about alternatives. The other current running through it was guaranteed income, and there the trajectory is real even if adoption is slow.
Assets in target-date funds with embedded annuities reached roughly $42 billion across 13 series by the end of March 2026, up nearly 70% from a year earlier, with BlackRock’s LifePath Paycheck gathering more than $25 billion since its 2024 launch. Vanguard’s series embedding the TIAA Secure Income Account became available to map into plans in the second half of 2026.
The demand signal is softer than the product launches suggest. In an MFS survey, only 17% of DC plan sponsors called themselves very or extremely likely to add a guaranteed income solution in the next 12 to 18 months, and 43% of those holding back cited a basic lack of understanding as the reason. The gap between product supply and sponsor comfort is the real story, and it rhymes with the alternatives debate: the industry is building vehicles faster than committees can build the diligence to defend them.
What Plan Sponsors Should Do Before the Final Rule Lands
The safe harbor is not final, and nothing requires a plan to add alternatives. That makes the next six months a window to prepare rather than react. A practical sequence:
- Treat liquidity as a stress test, not a label. Before any private sleeve goes near the menu, model a quarter where participant redemptions spike while the private holdings are gated and public markets are down. If the target-date provider cannot show you that scenario, that absence is your answer.
- Resolve the valuation question in writing, in advance. Decide how the committee will reconcile a fund’s reported NAV against observable public-market prices for comparable assets, and document the methodology before you need it. The redemption monitor and public BDC discounts are a usable reference point.
- Map the six factors to a real file, not a checklist. Each factor needs a memo a plaintiff’s expert cannot dismiss in a sentence. Liquidity and valuation deserve the most pages.
- Separate the income conversation from the alternatives conversation. Guaranteed income and private markets are arriving together in the sales deck, but they raise different fiduciary questions. The longstanding DOL framework for alternatives in 401(k)s sets the baseline; the new safe harbor changes the process, not the underlying duty to monitor.
The DOL is offering plan sponsors a clearer path and a litigation shield. The catch is that the shield only holds if the documentation behind it is real, and the two factors most likely to be tested are the two the 2026 market is stress-testing for free, in public, right now.
Three Questions for Your Plan Committee
- If we added a target-date series with a private credit sleeve, can our provider show us the redemption and pricing behavior of that sleeve during a stressed quarter rather than only its long-run average return? If the answer is a brochure rather than data, the liquidity factor is not documented.
- When the fund’s reported NAV and the public-market price of comparable assets disagree by 15%, what is our written methodology for which number we rely on? Decide before the safe harbor is final, not during a deposition.
- Are we evaluating guaranteed income and alternatives as one decision because the vendor packaged them that way, or as two distinct fiduciary questions? Bundling the sales pitch does not bundle the duty.
Sources: U.S. Department of Labor / EBSA proposed rule “Fiduciary Duties in Selecting Designated Investment Alternatives” (March 30, 2026; comments closed June 1, 2026); PLANSPONSOR National Conference (Nashville, June 2026); Plan Sponsor Council of America (fee litigation data); Robert A. Stanger & Co. (Q1 2026 non-traded BDC flows); MFS DC plan sponsor survey; Morningstar and PLANADVISER (target-date embedded annuity assets); Trading Market Signals Private Credit Redemption Monitor.
About Me
Associate Editor of financial news at Market signals where he writes and edits original analysis in and around the wealth management, as well as other parts of the financial markets and economy. He has more than five years of experience editing, proofreading, and fact-checking content on current financial events and politics.
