IAA Supports DOL Proposal on Retirement Plan Investment Options

June 1, 2026

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Assistant Secretary Daniel Aronowitz
Office of Regulations and Interpretations
Employee Benefits Security Administration
Room N-5655
U.S. Department of Labor
200 Constitution Avenue NWWashington, DC 20210

Re:      Fiduciary Duties in Selecting Designated Investment Alternatives (RIN 1210-AC38)

Dear Assistant Secretary Aronowitz:

The Investment Adviser Association (IAA)^[1] appreciates the opportunity to comment on the proposed rule titled, Fiduciary Duties in Selecting Designated Investment Alternatives (Proposal).[2] The proposed rule would implement President Trump’s August 2025 Executive Order, Democratizing Access to Alternative Assets for 401(k) Investors (Executive Order), which instructed the Department of Labor (Department) to facilitate investments for defined contribution retirement plans in a range of alternative assets, including private market investments, real estate, actively managed investment vehicles, lifetime income, and infrastructure, among other things.[3] While the Executive Order focused on alternative assets, the Department’s proposal is broader. It would establish an asset-class and strategy-neutral framework that neither favors nor disfavors any particular investment option or strategy. Instead, fiduciaries would remain subject to important and sound guardrails, including considerations related to performance, fees, liquidity, valuation, benchmarking, and complexity, consistent with the Employee Retirement Income Security Act of 1974’s (ERISA) longstanding focus on prudent process.

The IAA strongly supports the Department’s efforts to protect retirement investors and to preserve fiduciaries’ ability to exercise informed judgment in selecting designated investment alternatives (DIAs). As fiduciaries, investment advisers must use their professional expertise and judgment to serve clients’ diverse financial objectives in clients’ best interest.

ERISA requires plan fiduciaries to discharge their duties “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims.”[4] Courts have consistently interpreted this duty of prudence as a process-based standard, one that is evaluated based on the fiduciary’s investigation and decision-making at the time an investment is selected, rather than through hindsight based on subsequent investment performance.[5]

The IAA has long advocated for policy and regulation that remain neutral as to investment factors, strategies, and products.[6] Regulatory approaches should neither explicitly nor implicitly favor or disfavor particular asset classes, products, or strategies, including active or passive management. Advisers should be able to consider, and investors should have access to, the full range of investment options that can help investors meet their financial goals, consistent with their best interests. We are pleased that the Proposal reflects this longstanding Department approach.[7]

The Proposal also appropriately extends beyond alternative assets by establishing a broader, asset- and strategy-neutral framework for fiduciaries selecting DIAs. This approach reflects the Department’s view that guidance focused solely on alternative assets could suggest that such investments are either favored or disfavored.

The Department further emphasizes that the Proposal is intended to reduce regulatory burdens and mitigate litigation risk, consistent with the Executive Order’s direction to prioritize approaches that curb such burdens and risk. In line with that objective, the IAA believes that fiduciaries who follow a prudent, well-documented process should not be second-guessed based on outcomes, where they have acted in good faith and in accordance with applicable standards of care. Regulatory clarity around the exercise of fiduciary judgment would further strengthen investor protection by supporting better decision-making, more tailored plan menus, and more disciplined documentation. At the same time, because the Proposal is focused principally on the fiduciary duty of care and the process for evaluating investment options, it is important to make clear that ERISA’s duty of loyalty remains a critical overlay. Fiduciaries must act solely in the interests of participants and beneficiaries, and any exercise of fiduciary judgment must remain grounded in that obligation.

I. Executive Summary

The IAA strongly supports the Proposal, which we believe reflects a thoughtful and well-reasoned approach. We commend the Department for advancing a framework that emphasizes fiduciary prudence, flexibility, and investor protection. At the same time, we offer several targeted recommendations to enhance clarity, preserve fiduciary discretion, and ensure the Proposal operates as intended.

Comments

1. The IAA Commends the Department for Preserving Fiduciary Discretion Through a Principles-Based Framework. We strongly support this principles-based approach, which affords fiduciaries to use their professional judgment to act in the best interests of plans and plan participants. ERISA appropriately remains neutral regarding the types of DIAs included in a plan menu, provided fiduciaries adhere to a prudent process standard and act solely in the interest of the plan. The Proposal appropriately reinforces that fiduciaries that engage in an objective, thorough, and analytical process can rely on their determinations.
2. The IAA Strongly Supports Establishing a Process-Based Safe Harbor to Support Prudent Fiduciary Decision-Making. We strongly support the introduction of a prudent process-based safe harbor that outlines six non-exhaustive factors for fiduciaries to consider when selecting DIAs. Providing a presumption of reasonableness, and corresponding deference, when fiduciaries follow this structured, prudent process is a meaningful and constructive step. This approach can help reduce second-guessing of fiduciaries’ judgment and enhance investor protection by providing fiduciaries with a clearer framework for exercising their best judgment when offering investment options to plans and plan participants.

Recommendations

1. The Department Should Place the Illustrative Safe Harbor Examples in the Preamble or Other Subregulatory Guidance Rather than in the Rule Text. We recommend that the Department remove detailed, fact-specific examples from the regulatory text and instead include them in the preamble to the Proposal (Preamble) or other subregulatory guidance. While the examples are intended to illustrate how fiduciaries may satisfy their obligation to act prudently, embedding them in the rule itself risks creating rigidity in a framework that is intended to be principles-based, process-oriented, and adaptable to evolving market conditions.
2. The Department Should Recognize the Full Value of Active Management. While we support the Proposal’s broad definition of “value” and its recognition of diversification benefits of active management, we urge the Department to confirm that the value of active management extends beyond diversification. Active strategies also support downside protection, price discovery, and overall market efficiency, and should be recognized accordingly.
3. The Department Should Confirm That Fiduciaries May Use Reasonable Methodologies to Evaluate Risk-Adjusted Returns. We recommend confirming that fiduciaries may use any reasonable methodology to evaluate risk-adjusted returns, provided the methodology is followed and documented as part of a prudent process.
4. The Department Should Clarify the Role of Liquidity Standards. The Proposal’s reference to Investment Company Act Rule 22e-4 may unintentionally favor certain investment structures. We recommend clarifying that this reference is illustrative and not prescriptive, and that fiduciaries retain flexibility to determine appropriate liquidity standards.
5. The Department Should Confirm the Role of Investment Advice Fiduciaries. The Proposal’s frequent references to third-party fiduciaries could be misinterpreted as a de facto requirement. We recommend confirming that while a plan’s engagement of an investment advice fiduciary is encouraged and may support a prudent process, it is not required, and its absence should not create negative inferences. The Department should also make clear that the Proposal does not impose any additional legal responsibilities on the investment advice fiduciary.
6. The Department Should Clarify the Safe Harbor for Managed Account Fiduciaries. The Department should clarify that ERISA section 3(38) fiduciaries providing managed account services may rely on the safe harbor and receive the same protections and regulatory clarity as other fiduciaries that follow the required prudent process. Managed account fiduciaries exercise discretionary authority in selecting and managing investments for participants, and the final rule should make clear that the safe harbor applies equally to those fiduciary decisions when the conditions of the rule are satisfied.
7. The Department Should Adopt a Principles-Based Approach to Independent Valuation. The requirement for “conflict-free” independent valuation may be overly rigid, particularly for alternative assets where some level of manager input is unavoidable. We recommend that the Department adopt a more flexible, principles-based approach that evaluates valuation independence as part of a holistic oversight framework. Specifically, the Department should replace references to “conflict-free independent valuation” with “independent valuation procedures reasonably designed to identify, manage, and mitigate conflicts of interest.”

II. Comments

1. The IAA Commends the Department for Preserving Fiduciary Discretion Through a Principles-Based Framework

   The IAA commends the Department for advancing a Proposal that appropriately maintains neutrality with respect to the types of DIAs that may be included in a plan lineup, provided that fiduciaries satisfy ERISA’s prudent process standard. We strongly support this principles-based approach, which preserves fiduciary discretion and enables plan-specific decision-making grounded in the best interests of plans and plan participants. By avoiding overly prescriptive requirements, the Proposal appropriately recognizes the wide variation in plan design, participants, and investment objectives.

   Consistent with ERISA’s longstanding framework, the Proposal properly centers fiduciary compliance on prudent process rather than outcomes. Fiduciaries should be evaluated based on the care, skill, prudence, and diligence under the circumstances then prevailing that they apply in making and monitoring investment decisions. A disciplined, objective, and well-documented process allows fiduciaries to consider a range of relevant factors, including risk, return, fees, and diversification, and to adjust to evolving market conditions without unduly constraining the universe of permissible investment options.

   The Proposal also appropriately affirms that fiduciaries who engage in a prudent process may rely on the conclusions reached through that process. This clarification is important. It reduces interpretive uncertainty and litigation risk and reinforces that ERISA does not mandate particular investment outcomes, but rather a sound decision-making framework. Providing this assurance will better enable fiduciaries to exercise informed judgment when selecting and monitoring DIAs, consistent with their statutory obligations.

   The Proposal’s neutrality with respect to asset classes and investment strategies, including the selection between active and passive management, is essential to constructing appropriate investment menus and permits fiduciaries to include active, passive, or blended strategies where appropriate, based on a prudent, case-by-case assessment.

   ERISA does not, and should not, favor one investment strategy, asset, or product over another. Fiduciaries must retain the flexibility to evaluate investments based on the specific characteristics and needs of their plan and participants.

2. The IAA Strongly Supports Establishing a Process-Based Safe Harbor to Support Prudent Fiduciary Decision-Making

   The IAA strongly supports the proposed process-based safe harbor that identifies six non-exhaustive factors for fiduciaries to consider when selecting DIAs. A clear, structured framework grounded in a prudent process provides meaningful guidance while preserving the flexibility fiduciaries need to address the particular facts and circumstances of plans and plan participants. By focusing on relevant considerations, rather than prescribing specific outcomes, the safe harbor appropriately aligns with ERISA’s longstanding emphasis on process.

   We further support establishing a presumption of prudence where fiduciaries follow the process outlined in the Proposal. This approach reinforces the longstanding principle that fiduciary conduct should be assessed based on the care, skill, prudence, and diligence applied in the decision-making process, not on the performance of any individual investment. Clarifying this standard would enhance certainty and give fiduciaries greater confidence to exercise informed judgment in selecting and monitoring DIAs in the best interests of the plan and plan participants.

   Importantly, a process-based safe harbor can help mitigate the risk of hindsight-driven litigation that may otherwise deter fiduciaries from exercising appropriate discretion. Reducing uncertainty around potential liability would encourage fiduciaries to undertake thorough, objective analyses and offer a broader range of suitable investment options in the plan and plan participants’ best interests where warranted. In this respect, the Proposal appropriately advances both sound fiduciary governance and the interests of plans and plan participants.

III. Recommendations

1. The Department Should Place the Illustrative Safe Harbor Examples in the Preamble or Other Subregulatory Guidance

   As drafted, paragraphs (g) through (l) of the proposed rule incorporate extensive, fact-specific safe harbor examples into the rule itself. While we appreciate the Department’s effort to provide detailed examples illustrating how fiduciaries may satisfy their obligation to “act accordingly,”[8] we strongly urge the Department to reconsider embedding these examples in the regulatory text. Although intended to provide clarity, codifying such examples risks undermining the Proposal’s stated principles-based framework.

   Examples of this nature are inherently time-bound. They reflect current market practices and product structures that will inevitably evolve. Embedding them in the regulation creates a significant risk that they will become outdated, incomplete, or misaligned with future developments. Because any revision to regulatory text generally requires notice-and-comment rulemaking, the Department would be constrained in its ability to update these examples in a timely manner. This rigidity is particularly problematic in the context of rapidly changing investment markets, where fiduciaries must retain flexibility to respond to new strategies, products, data, and methodologies.

   Moreover, placing detailed examples in the rule text risks elevating them beyond their intended illustrative function. Courts and litigants may treat these examples as de facto standards that define the outer bounds of prudence, rather than as non-exhaustive illustrations. This could have the unintended effect of inviting hindsight-based challenges where fiduciaries deviate from the specific fact patterns described in the proposed rule.

   For these reasons, we recommend that the Department remove the examples from the proposed rule text and instead include them in the Preamble or other subregulatory guidance. This approach would preserve their value as illustrative tools while allowing the Department to revise, expand, or replace them as market practices evolve—without the need for additional rulemaking. It also would better align with ERISA’s longstanding, process-based framework, which emphasizes fiduciary judgment based on the relevant facts and circumstances rather than adherence to prescriptive models.

   Retaining the core regulatory standard – requiring fiduciaries to give appropriate consideration to the enumerated factors and to act accordingly – without embedding detailed examples in the rule text would produce a more durable and adaptable final rule.

2. The Department Should Recognize the Full Value of Active Management

   We support the Proposal’s appropriately broad definition of “value”[9] and its recognition that diversification can enhance participant outcomes. A flexible, principles-based understanding of value is consistent with ERISA’s core requirement that fiduciaries employ a prudent process. Such an approach appropriately permits fiduciaries to evaluate DIAs based on a range of relevant factors, including risk-adjusted return potential, fees and expenses, liquidity, and diversification characteristics, rather than limiting consideration to a narrow or prescriptive set of metrics. This framework better enables fiduciaries to construct investment menus that reflect the varied needs, time horizons, and risk tolerances of plan participants.

   At the same time, we respectfully urge the Department to clarify that the potential value of active management is not limited to its contribution to diversification. For example, paragraph (h)(5) of the proposed rule describes a scenario in which a plan fiduciary engages an investment advice fiduciary to evaluate several small-cap funds—half actively managed and half passively managed. While the passive funds are similarly priced to one another, and the active funds are similarly priced to one another, the active funds carry higher fees overall. The fiduciary selects the best-performing active fund and the best-performing passive fund as DIAs.[10] As presented, the example suggests that the inclusion of both options is justified by diversification benefits across the plan’s investment menu. While this may be true, a fiduciary may also reasonably determine that an actively managed fund provides value through factors beyond diversification and select an active option over a passive option.

   Active strategies can play a distinct and important role in risk management, including mitigating downside exposure during periods of market stress, managing portfolio volatility, and responding to evolving market conditions through fundamental analysis and dynamic portfolio construction.[11] Explicit recognition of these attributes would help ensure that fiduciaries may appropriately evaluate the full range of potential benefits associated with different investment approaches, consistent with their duty of prudence under ERISA. For instance, through fundamental research and forward-looking analysis, active managers incorporate new information into security prices, facilitating a closer alignment between market valuations and underlying economic fundamentals. Acknowledging this source of value will provide a more balanced framework and reinforce that fiduciaries may consider both active and passive strategies, as appropriate.

   Consistent with these principles, we recommend that the Department clarify in the accompanying example that the evaluation of “value” may encompass not only diversification benefits but also differences in risk management capabilities, return potential net of fees, and other qualitative and quantitative attributes relevant to the plan’s objectives. Such clarification would better reflect the realities of fiduciary decision-making and avoid any unintended implication that higher-cost strategies may be justified solely on diversification grounds.

3. The Department Should Confirm That Fiduciaries May Use Reasonable Methodologies to Evaluate Risk-Adjusted Returns

   The Proposal appropriately identifies performance – including consideration of risk-adjusted returns over an appropriate time horizon – as a central factor in a fiduciary’s evaluation of DIAs.[12] We recommend that the Department confirm that fiduciaries may use any reasonable, well-established methodology to evaluate risk-adjusted returns, consistent with the Proposal’s emphasis on fiduciary discretion, flexibility, and a process-based framework. The Proposal repeatedly affirms that ERISA prudence is grounded in a contextual evaluation of “relevant facts and circumstances” and does not prescribe uniform outcomes or analytical techniques.[13] In practice, fiduciaries appropriately employ a range of analytical tools – such as Sharpe ratios, information ratios, and other comparative performance measures – selected based on the characteristics of the investment, the relevant benchmark, and the objectives of the plan. Confirming that no single metric is required would reinforce the Proposal’s principles-based approach and avoid inadvertently constraining fiduciaries’ ability to conduct context-specific analyses.

   We also recommend, consistent with the Proposal’s safe harbor framework, that the Department emphasize that whatever methodology is selected should be applied “objectively, thoroughly, and analytically,” in a consistent manner, and documented as part of the fiduciary’s decision-making process. The Proposal appropriately centers the duty of prudence on sound process – requiring fiduciaries to consider relevant factors, apply them consistently, and maintain appropriate documentation – and provides that fiduciaries who follow such a process are entitled to deference. Clarifying that the evaluation of risk-adjusted returns should be assessed through this lens – focusing on reasonableness and consistency – will provide meaningful guidance while preserving fiduciaries’ ability to exercise informed judgment.[14]

4. The Department Should Clarify the Role of Liquidity Standards

   The Proposal’s reference to Investment Company Act Rule 22e-4[15] in connection with liquidity risk raises potential interpretive concerns that we recommend the Department address. Although the reference appears intended to illustrate an existing regulatory approach to liquidity risk management, it could be understood as suggesting that Rule 22e-4 provides a relevant benchmark for fiduciaries’ evaluation of all DIAs. Such an interpretation would be inconsistent with the Proposal’s emphasis that fiduciaries must give “appropriate consideration” to relevant factors based on the “facts and circumstances” and exercise their judgment “within the scope of their fiduciary discretion,” rather than adhere to prescriptive standards.

   We therefore recommend that the Department clarify that its reference to Rule 22e-4 is illustrative only and does not establish any requirement, safe harbor condition, or implied benchmark for plan fiduciaries. For example, the Department could state that “references to Rule 22e-4 are illustrative only and do not require fiduciaries to apply Rule 22e-4 classifications, methodologies, limits, or liquidity-risk-management program requirements to DIAs that are not registered investment companies.”

   This clarification is important because fiduciaries should not be viewed as required to apply Rule 22e-4’s specific classifications, methodologies, or limits when selecting and monitoring DIAs, particularly given the distinct statutory and regulatory framework applicable to registered investment companies (RICs). Additionally, the Department should recognize that daily liquidity is not necessary for every DIA on a plan menu. Certain investment options may appropriately include limited liquidity as part of their structure, particularly given the long-term investment nature of retirement accounts. The Department should make clear that a DIA need not be fully liquid on a daily basis to be prudent. Features such as quarterly redemptions or, in appropriate circumstances, even less frequent liquidity, may be permissible where the plan fiduciary prudently determines that the liquidity terms are consistent with the plan’s needs and are justified by corresponding benefits, such as access to an illiquidity premium, enhanced diversification, or other long-term investment advantages.

   The Department should also clarify that frameworks developed under the Investment Company Act do not translate neatly to other investment vehicles commonly used in retirement plans, such as collective investment trusts (CITs)[16] and other bank-maintained trust structures.[17] Specifically, we are concerned that the Preamble could be read to limit fiduciaries’ ability to use more appropriate liquidity measures and instead require them to rely on measures that may not be suitable in particular circumstances and applying Rule 22e-4 concepts in this context could create confusion or inappropriate expectations.[18] Investment Company Act rules are designed for daily redeemable pooled vehicles with specific operational and disclosure regimes, and do not account for the different liquidity profiles, participant flows, and fiduciary considerations applicable to trusts used in retirement plans.

   Consistent with the Proposal’s principles-based approach, fiduciaries should instead be permitted to evaluate liquidity as part of a prudent process that takes into account the relevant facts and circumstances, including the characteristics of the investment, its structure, its role within the plan’s investment lineup, and the reasonably anticipated needs of participants and beneficiaries. As with other factors identified in the Proposal, liquidity should be considered alongside risk and return characteristics, fees and expenses, and diversification benefits in determining whether an investment is reasonably designed to further the purposes of the plan.

   Clarifying the non-prescriptive nature of the reference to Rule 22e-4, and confirming that Investment Company Act frameworks are not intended to apply to trust-based retirement plan vehicles, would reinforce the Proposal’s central premise that ERISA’s duty of prudence is satisfied through a prudent process and that fiduciaries are entitled to deference when they have appropriately considered relevant factors and made determinations within the scope of their discretion. Such clarification would help avoid unintended constraints and ensure that fiduciaries retain the flexibility to evaluate a broad range of DIAs.

5. The Department Should Confirm the Role of Investment Advice Fiduciaries

   The Proposal’s references to third-party fiduciaries, including investment advice fiduciaries within the meaning of section 3(21) of ERISA,[19] would benefit from clarification. While these references appropriately acknowledge that fiduciaries may seek expert assistance as part of a prudent process, their frequency could be read to imply that engaging such fiduciaries is expected or necessary to satisfy the duty of prudence. This interpretation would be inconsistent with the Proposal’s emphasis that fiduciaries must act based on the relevant facts and circumstances and exercise independent judgment within the scope of their fiduciary discretion, rather than follow any prescribed approach.

   Under ERISA, a plan fiduciary must act prudently and with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use under similar circumstances.[20] Where a fiduciary does not possess the requisite skills or expertise to prudently evaluate a particular investment, the fiduciary may have a duty to seek assistance from qualified outside experts. Whether such assistance is necessary depends on the facts and circumstances, including, for example, the nature and complexity of the investment, the plan’s size and resources, and the fiduciary’s own expertise.

   We recommend that the Department confirm that engaging a section 3(21) investment advice fiduciary is one permissible means of satisfying the requirement to give “appropriate consideration” to relevant factors but is not required in all cases. Consistent with ERISA’s principles-based framework, plan fiduciaries should retain discretion to determine whether, and to what extent, to rely on third-party expertise. The absence of a third-party fiduciary should not give rise to any negative inference regarding whether the fiduciary has employed a prudent process.

   At the same time, we believe it is important for the Department to affirmatively recognize the role that investment advisers can play in supporting prudent decision-making. Investment advice fiduciaries subject to ERISA’s fiduciary standards provide independent, expert analysis of DIAs, including evaluation of risk and return characteristics, fees and expenses, and other relevant factors. Their involvement can enhance the rigor and documentation of the fiduciary process and assist plan fiduciaries in making determinations that are reasonably designed to further the purposes of the plan.

   Finally, we recommend that the Department confirm that the Proposal does not impose any new or additional legal obligations on investment advice fiduciaries beyond those already established under ERISA. Confirming that existing fiduciary standards continue to apply would avoid confusion regarding the scope of their responsibilities while reinforcing that all fiduciaries, whether plan fiduciaries or investment advice fiduciaries, remain subject to the same duty to act prudently and solely in the interest of plans and plan participants.

   Confirming these points would reinforce the Proposal’s core principle that ERISA’s duty of prudence is process-based, preserve fiduciary flexibility, and appropriately recognize the valuable – but not mandatory – role of investment advice fiduciaries in assisting plan fiduciaries in carrying out their responsibilities.

6. The Department Should Clarify the Safe Harbor for Managed Account Fiduciaries

   The Department should clarify that ERISA section 3(38) investment managers providing managed account services may rely on the safe harbor and receive the same protections and regulatory clarity as other fiduciaries that follow the required prudent process. As drafted, the Proposal appears primarily focused on arrangements where participants select individual investment options from a curated plan menu. That framework is important, but it does not fully account for managed account arrangements in which an ERISA section 3(38) investment manager exercises discretionary authority to construct and manage individualized or model-based portfolios for participants.

   We believe the final rule should go further by expressly covering managed accounts offered by ERISA section 3(38) investment managers in paragraph (m)(1) of the rule text. The supplementary guidance suggests that the definition of a DIA may extend to managed account services that qualify as DIAs, but that intent is not clearly reflected in the proposed regulatory text. In addition, neither the rule text nor the Preamble clearly addresses whether managed accounts outside the DIA context are eligible for safe harbor protection. The Department should clarify that they are.

   This clarification is appropriate because ERISA section 3(38) investment managers providing managed account services perform the same type of fiduciary analysis that the safe harbor is designed to recognize. These fiduciaries evaluate performance, fees, liquidity, valuation, benchmarking, and complexity, and they do so not only at the individual investment level but also at the portfolio level. In that context, they must consider diversification benefits, correlation effects, asset allocation, participant-specific circumstances, and the aggregate impact of fees and expenses. These are precisely the types of prudent analyses that should receive the benefit of the safe harbor when the rule’s conditions are satisfied.

   Accordingly, we respectfully request that the Department revise the definition of “designated investment alternative” to make clear that the safe harbor applies to managed accounts managed by an ERISA section 3(38) investment manager. For example, paragraph (m)(1) could be revised as follows:

   (m) Designated investment alternative. (1) The term “designated investment alternative” means any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts, including a qualified default investment alternative within the meaning of 29 CFR 2550.404c-5, and including separately managed accounts managed by an investment manager, as defined under section 3(38) of ERISA.

   This clarification would better align the final rule with its underlying principles by ensuring that fiduciaries engaged in discretionary managed account services receive the same safe harbor protections when they follow a prudent process as outlined in the Proposal.

   Additionally, in the Proposal, managed accounts are addressed only in connection with the “complexity” factor, and the Department uses them in an example that concludes that the fiduciary’s process does not satisfy the safe harbor.[21] Based on the specific facts presented in the example used – a single fiduciary acting without advisory support and selecting a product with limited incremental benefit relative to cost – we do not take issue with that outcome. The example, however, does not reflect how managed account services generally function in today’s marketplace. These programs typically incorporate a wide range of participant-level inputs beyond age, including contribution rates, account balances, compensation, and tenure drawn from recordkeeper and employer systems. Participants also generally have the ability to supplement those data with individualized information about their preferences and financial circumstances. As drafted, the example may therefore unintentionally convey an incomplete view of managed accounts that is not aligned with how they are commonly structured or delivered.

   Managed accounts can also provide benefits beyond portfolio construction, including personalized guidance on contribution behavior, retirement timing, Social Security claiming strategies, and retirement income planning. Evaluating these services primarily through asset allocation outcomes – particularly by comparing them only to target date funds – risks understating their broader potential value. In addition, participants who elect managed accounts may otherwise choose self-directed investing, making that comparison relevant when assessing overall value. We encourage the Department to revisit this example, either by supplementing it with an illustration showing how a fiduciary could reasonably evaluate and select a managed account service based on both costs and prospective benefits across multiple dimensions, or by reframing the current example to better reflect common marketplace practices.

7. The Department Should Adopt a Principles-Based Approach to Independent Valuation

   The Proposal’s use of the term “conflict-free” independent valuation in paragraph (j) of the proposed rule warrants clarification to ensure it is applied consistently with the Proposal’s broader, process-based framework. As reflected in the examples, the Department appropriately recognizes that fiduciaries may rely on valuation methodologies that are “conflict-free, independent, and rel[y] on the application of widely recognized and utilized accounting standards,” including Financial Accounting Standards Board (FASB) Accounting Standards Codification 820 (ASC 820) on Fair Value Measurement.[22]

   Without further clarification, however, the “conflict-free” language could be read to impose a rigid or categorical valuation requirement that may not be practicable for certain asset classes, particularly those without a generally recognized market, such as private equity, private credit, real estate, and other illiquid or bespoke strategies. Certain investment options may lack readily available pricing, transparent benchmarks, or consistent secondary market activity, which can make valuation and comparative analysis more complex. These features do not necessarily make an investment inappropriate, but they do require strong fiduciary guardrails. In these circumstances, fiduciaries should carefully evaluate the valuation methodology, the controls supporting that methodology, the independence and reliability of pricing inputs, and any conflicts, limitations, or assumptions that could affect the information provided. A prudent process will ensure that these guardrails are sufficiently robust to support a reasonable determination that the investment is appropriate for the plan and in participants’ interests.

   We recommend that, consistent with the example in paragraph (j)(2),[23] fiduciaries be permitted to rely on valuation processes that incorporate ASC 820-compliant methodologies, including methodologies involving significant unobservable inputs, provided that the overall process is supported by appropriate controls, governance, and written representations that the fiduciary reads, critically reviews, and understands. This clarification would help ensure that fiduciaries can prudently evaluate asset classes where market-based pricing is limited, while still requiring them to assess potential conflicts, valuation assumptions, and the reliability of the information on which they rely.[24]

   Importantly, the Proposal itself recognizes that some degree of manager involvement in valuation may be appropriate, including where a manager, acting in good faith, adopts alternative valuation procedures in response to a documented temporary emergency. For example, a potential conflict could arise where a manager’s compensation, performance fees, or ability to market a fund depends in part on valuations of illiquid or hard-to-value assets that the manager helps determine. In that circumstance, the fiduciary should assess whether appropriate controls, oversight, documentation, and independent review mechanisms are in place to support the reliability of the valuation process. This recognition underscores that the relevant inquiry is not whether any conflict exists, but whether the fiduciary has appropriately considered the valuation process and determined that it is sufficiently reliable and not adversely affected by conflicts of interest in a manner that could impair risk-adjusted returns.[25]

   Consistent with the Proposal’s emphasis on an “objective, thorough, and analytical” process, fiduciaries should be permitted to evaluate the independence and reliability of valuation practices by considering a range of relevant factors, including the use of ASC 820 valuation techniques, the role of independent pricing services or third-party valuation agents, the existence of governance and oversight mechanisms, the frequency and consistency of valuations, and the transparency and documentation of methodologies.

   The IAA respectfully recommends that the Department replace references to “conflict-free, independent valuation” with “independent valuation procedures reasonably designed to identify, manage, and mitigate conflicts of interest.” This clarification would confirm that valuation need not involve the complete absence of manager input. Rather, fiduciaries should be permitted to evaluate the overall valuation framework prudently, including the controls, governance, methodologies, and oversight used to address potential conflicts.

   Such an approach would better align with ERISA’s process-based framework and would be consistent with ASC 820 and other widely recognized valuation standards. It would also reinforce that fiduciaries may rely on reasonable valuation processes, including written representations and established accounting frameworks, provided they do not know, or have reason to know, information that would cause them to question the reliability of those valuations.

***

The IAA strongly supports the Department’s efforts to protect retirement investors and preserve fiduciaries’ ability to exercise informed judgment in selecting DIAs, with several recommendations that we believe will improve the final rule. Adopting these recommendations would preserve fiduciary discretion while strengthening the prudent, well-documented decision-making processes that protect plans and plan participants. We appreciate your consideration of our comments on these important issues. Please do not hesitate to contact the undersigned at (202) 293-4222 if we can be of further assistance.

Respectfully Submitted,

/s/ Gail C. Bernstein
Gail C. Bernstein
General Counsel and Head of Public Policy

/s/ William A. Nelson
William A. Nelson
Director of Public Policy and Associate General Counsel

[1] The IAA is the leading organization dedicated to advancing the interests of fiduciary investment advisers. For more than 85 years, the IAA has been advocating for advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the majority of our industry. Together, the IAA’s member firms manage more than $57 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org.

[2] Fiduciary Duties in Selecting Designated Investment Alternatives, 91 Fed. Reg. 16088 (Mar. 31, 2026), available at https://www.federalregister.gov/documents/2026/03/31/2026-06178/fiduciary-duties-in-selecting-designated-investment-alternatives.

[3] Democratizing Access to Alternative Assets for 401(k) Investors, 90 Fed. Reg. 38921 (Aug. 12, 2025), available at https://www.federalregister.gov/documents/2025/08/12/2025-15340/democratizing-access-to-alternative-assets-for-401k-investors.

[4] 29 U.S.C. § 1104.

[5] See, e.g., Sacerdote v. N.Y. Univ., 9 F.4th 95, 107 (2d Cir. 2021) (stating that courts “must judge a fiduciary’s actions based upon information available to the fiduciary at the time of each investment decision and not from the vantage point of hindsight” (internal quotations omitted)).

[6] See, e.g., IAA Letter to the Department, Financial Factors in Selecting Plan Investments (RIN 1210-AB95) (July 30, 2020), available at https://www.investmentadviser.org/resources/comments-on-dol-esg-proposal/ (“[l]imiting or favoring one type of an investment or investment process over another limits the ability of qualified investment professionals to fulfill their fiduciary duties. It is both inappropriate and inconsistent with any fiduciary standard that applies to investment advisers, including ERISA’s standards of care and loyalty, for the Department essentially to prescribe what investments those fiduciaries may or may not recommend to their clients”).

[7] ERISA has not historically prescribed specific investment types for retirement plans, apart from emphasizing diversification.

[8] The proposed rule does not contain the “and act accordingly” language that is in the Investment Duties Regulation. 29 C.F.R. § 2550.404a-1. In lieu of the “and act accordingly” language, the proposed rule sets forth six relevant factors and safe harbor examples demonstrating what it means for a fiduciary to “act accordingly” – and therefore to be prudent – in the circumstances addressed in the examples.

[9] Proposal at 16096. The term “value” includes “any benefits, features, or services other than risk-adjusted returns net of fees.”

[10] Proposal at 16098.

[11] See, e.g., K.J. Martijn Cremers, Jon A. Fulkerson, Timothy Brandon Riley, How the SPIVA U.S. Scorecard Understates the Performance of Actively Managed Mutual Funds (May 4, 2026), available at https://www.investmentadviser.org/wp-content/uploads/2026/05/ssrn-6710358.pdf; Russ Wermers, Active Investing and the Efficiency of Security Markets, Journal of Investment Management (Jan. 2021), Vol. 19, No. 1, available at https://joim.com/active-investing-and-the-ef%EF%AC%81ciency-of-security-markets/; and K.J. Martijn Cremers, Jon A. Fulkerson, Timothy Brandon Riley, Challenging the Conventional Wisdom on Active Management, Financial Analysts Journal (July 18, 2019), Vol. 75, Issue 4, available at https://www.cfainstitute.org/en/research/financial-analysts-journal/2019/0015198X-2019-1628555.

[12] Proposal at 16096.

[13] Proposal at 16088.

[14] We recommend that any future monitoring guidance should confirm that, once a fiduciary has prudently selected a DIA, monitoring the DIA’s performance against an appropriate and meaningful benchmark should generally satisfy the requirement to evaluate risk-adjusted expected returns, net of fees, as part of the “performance” factor. Fiduciaries should not be required to repeat the full comparative analysis conducted at initial selection at each monitoring interval.

[15] 17 C.F.R. § 270.22e-4.

[16] CITs are an alternative to mutual funds for defined contribution plans. Like mutual funds, CITs pool the assets of investors and invest those assets according to a particular strategy. Unlike mutual funds, which are regulated under the Investment Company Act, CITs are regulated under banking laws.

[17] Proposal at 16098 (“For any [DIA] not described in the preceding sentence, such as a collective investment trust, the written representation must express that the [DIA] has adopted and implemented a liquidity risk management plan that is substantially similar to a program that meets the requirements of [the Investment Company] Act.”).

[18] The Department may also wish to reference the SEC Staff Statement Regarding Pooled Employer Plans, in which SEC staff stated that it would not object if a pooled employer plan treats itself as a single employer plan for purposes of the Investment Company Act and relies on the single trust exclusion in Section 3(c)(11) to avoid registration as an investment company. The statement also recognizes that CITs typically do not register as investment companies under the Investment Company Act because they rely on the Section 3(c)(11) exclusion for collective trust funds maintained by a bank and consisting solely of assets of certain employee benefit plans. SEC, Div. of Inv. Mgmt., Staff Statement Regarding Pooled Employer Plans (May 4, 2026), available at https://www.sec.gov/newsroom/speeches-statements/im-staff-statement-pooled-employer-plans-050426.

[19] 29 C.F.R. § 2510.3-21.

[20] 29 U.S.C. § 1104.

[21] Proposal at 16103. In the example, the named fiduciary selects as the plan’s qualified default investment alternative a managed account service designed to create a customized portfolio targeted to each participant’s unique financial circumstances. The named fiduciary, that does not understand the design of the service and does not seek professional advice, provides only the age of each participant to the service and does not provide, or permit participants to provide, additional information about their unique financial circumstances. As a result, the service creates a portfolio for each participant that is materially similar to the portfolio that the participant would obtain through the plan’s target date fund, which has substantially lower fees. This example demonstrates a flawed selection process in which the named fiduciary appears to not understand how the designated investment alternative delivered value to the plan and therefore failed to operationalize it accordingly.

[22] FASB ASC Topic 820, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, No. 2022-03 (June 2022), available at https://storage.fasb.org/ASU%202022-03.pdf.

[23] Proposal at 16142.

[24] The Proposal also includes references to Rule 2a-5 under the Investment Company Act. We recommend that the Department clarify that Rule 2a-5 should not be applied to investment vehicles that are not registered under the Investment Company Act. While Rule 2a-5 may provide a useful point of reference for RICs, non-Investment Company Act vehicles may appropriately rely on different valuation frameworks and processes.

[25] Proposal at 16100.