DOL's alts safe harbor trades fiduciary judgment for paperwork

Ali Khawar wants the Labor Department to withdraw its proposed alternatives rule and start over; the objection he brought to an Institute for the Fiduciary Standard discussion on Wednesday is that the rule would weaken the fiduciary duty it claims to clarify. Khawar ran the department's Employee Benefits Security Administration through the first half of the Biden administration and spent about two decades at Labor before that.

The rulemaking traces to an August 2025 executive order directing Labor to widen plan investors' access to alternative assets while also looking for ways to curb ERISA litigation. In March, the department followed with a proposal creating process-based safe harbors for plan fiduciaries, who would weigh performance, fees, liquidity, valuation, benchmarks and complexity before committing plan money to a fund holding private equity, private credit, cryptocurrency or other alternatives. Khawar said he has heard the final rule could arrive before year-end.

“It is not a process statute,” he said of ERISA, and his reading of the proposal is that a committee which documents its process well enough would be insulated from liability for the outcome. A safe harbor rewards the record of a decision rather than the decision itself. The department, in his telling, is trying to accomplish two things at once: more private-market access in workplace plans, and less fiduciary exposure to lawsuits.

Those two goals pull the same lever in opposite directions: liability does not evaporate when a rule lifts it, it settles somewhere, and in Khawar's account it settles on the participant. “This is risk shifting from fiduciaries to participants,” he said, and he was specific about where the shift will surface—lower account balances and more anemic growth.

Five of the six factors on that list—performance, fees, liquidity, benchmarks, complexity—can be known before a plan commits a dollar, while valuation, the factor that decides what a participant's account balance says, is the one that has to be taken on faith. A safe harbor that treats all six as boxes to be checked makes the hardest question look like the easiest one.

The proposal's second half—the part plan sponsors have been waiting for—is built, as Khawar describes it, to encourage courts to defer to a fiduciary's investment decisions, which is the litigation-curbing half of the August 2025 order and a broader change than the access question the rule is filed under. A standard that asks whether a decision was prudent becomes, under a safe harbor, a standard that asks whether the file was complete.

The 401(k) channel is the destination for a decade of private-market distribution building, and the platforms that own the wrapper capture the premium; this rule is the gate to the wrapper still unbuilt, bringing capital that arrives on payroll schedules rather than on price into a plan system whose committees have no exit valve when a mark disappoints. That is a different buyer than the wealth channel, and it is the buyer private credit has been positioned to receive.

It arrives at an awkward moment for the asset class: the markdown PWD has been tracking has not happened, and interval-fund inflows have postponed the first clearing price rather than avoided it. A payroll-fed channel with a safe harbor behind it would postpone it further, because the committee buying the sleeve is not marking it to anything.

Khawar also questioned whether smaller plans have enough information to evaluate complicated private-market offerings, and the committee room is where that concern bites. The safe harbor enumerates what a fiduciary should consider while asking nothing about whether the answers were right. Small plan committees have the thinnest bench in the system for interrogating a general partner's marks, which suggests the plans most likely to move first will not be the ones best able to price what they buy.

For the advisors and consultants who sit with those committees, the proposal reads differently: that list of factors is the diligence a plan's outside advisor already produces, and a finalized safe harbor turns process into product, with every meeting minuted against a checklist carrying the department's imprimatur. Plan advisory is already a documentation business—committee minutes, investment policy statements, fee benchmarking—and this rule would elevate the parts of it that are cheapest to produce.

The second-order effect lands on the advisory relationship itself—a client holding a private credit sleeve inside a 401(k) has an illiquid position with a manager-set mark sitting in the middle of the balance sheet an advisor uses to plan withdrawals, and the safe harbor gives the advisor no more visibility into that mark than it gives the participant. Plan advisors already sell process; after this rule they would be selling process around an asset class whose reported value nobody in the chain can independently check.

Khawar's remedy—withdraw and repropose—would restart a comment file the department has been building toward a final rule that he says could land before year-end, though the department has not signaled whether it will. Watch the text when it comes: if the process factors survive intact and a mid-size plan adds a private credit sleeve next year, this argument gets settled on participant statements, not in a hearing room.