The proposal to open up alternative to 401(k)s could weaken ERISA protections and shift risk to retirement savers, he said.
By Tracey Longo
The Labor Department should scrap its proposed alternative-investments rule because it could fundamentally weaken what it means to be an ERISA fiduciary, according to a former top official at the agency.
“The proposal that it promulgated I thought was not very good and really needs to be reproposed,” Ali Khawar, former principal deputy assistant secretary of labor for the Employee Benefits Security Administration (EBSA), said during an Institute for the Fiduciary Standard discussion on Wednesday.
Khawar, who spent about 20 years at the Labor Department and led EBSA during the first half of the Biden administration, said his concerns go beyond whether private equity, private credit, cryptocurrency and other alternative investments belong in workplace retirement plans. He argued the proposal would give fiduciaries too much protection from liability as long as they follow the prescribed process.
“It is not a process statute,” Khawar said of ERISA. “You don’t get to just check a box and say, ‘OK, well, I asked some questions.’ The actual answers matter.”
President Donald Trump set the rulemaking in motion with an August 2025 executive order aimed at giving 401(k) investors greater access to alternative assets. The order told DOL to clarify how fiduciaries can offer funds containing alternatives while also looking for ways to curb ERISA litigation. DOL followed in March with a proposed rule establishing process-based safe harbors for plan fiduciaries. Under the proposal, fiduciaries would evaluate factors including performance, fees, liquidity, valuation, benchmarks and complexity.
Khawar, who said he has heard the final alternatives rule could arrive before year-end, argued the administration is trying to accomplish two things at once: increase retirement-plan access to private markets and other alternatives while reducing fiduciaries’ exposure to lawsuits.
The result, he said, is a framework intended to give fiduciaries greater protection from liability and encourage courts to defer to their investment decisions.
“This is risk shifting from fiduciaries to participants,” he said.
The danger is that those left holding the proverbial bag will be plan participants, Khawar said. “It’s going to show up in lower account balances for them. It’s going to show up in more anemic growth,” he said.
Khawar also questioned whether smaller retirement plans have enough information to properly evaluate complicated private-market investments. The proposed rule assumes fiduciaries can obtain necessary information from investment providers, he said, but does little to create standardized transparency.
That may work for a multibillion-dollar retirement plan with sophisticated investment staff, but it is a different proposition for a company with 50 employees, he said.
“If I were still at the department, probably the first thing I would be trying to do would be working, looking at my own regulatory authority, talking to folks at the SEC and other regulators, and trying to figure out how you can create more standardized transparency for investors in these markets,” Khawar said.
Without it, “the risk that people are going to be taken for a ride is just too high,” he said.
Khawar said he is not arguing that alternatives should be prohibited from 401(k)s. In fact, he noted that the Biden administration also accepted that fiduciaries could include private-market investments under appropriate circumstances.
“The pure question of, like, should they be allowed to? I mean, the Biden administration said yes,” he said. “That’s not really the question on the table.”
The real question, Khawar said, is how a fiduciary determines when an alternative investment is appropriate and whether participants are receiving enough value to justify potentially higher costs.
He also took aim at a broader change underway at EBSA.
Khawar said the agency's overall staff has fallen roughly one-third since he left the DOL in January 2025, with enforcement staffing down almost 40%.
EBSA already lacked sufficient resources to oversee millions of employee benefit plans before those reductions, Khawar said.
What happens next could determine whether the rule survives another administration.
If a final rule closely resembles the proposal, Khawar said a future Democratic administration would almost certainly scrutinize whether to retain, revise or repeal it.
“It’s going to be very hard to defend it” because the proposal is “so tailored and so responsive to only one set of stakeholders that it really shouldn’t survive,” Khawar said.