A Proposed Trump Rule Could Weaken a Key 401(k) Protection - Here's Why It Matters

Generally, your employer decides which types of funds and investments you could choose inside your workplace 401(k). However, now the Trump administration is moving to change the legal rules governing those decisions, and this shift could weaken workers' ability to challenge poor, costly, or risky options. If your account sits at the center of your retirement plan, the consequences could compound for years. The safeguard at stake is one most workers rarely consider until something goes wrong.

Under the Employee Retirement Income Security Act, or ERISA, employers and other plan fiduciaries must act prudently and put participants' interests first when selecting and monitoring investments. An April 2026 Department of Labor bulletin shifted enforcement priorities toward the most serious misconduct and directed investigators to avoid unfairly second-guessing employers' process-based fiduciary decisions.

Here's what that change could mean for your savings.

ERISA currently gives workers a path to accountability

Employers select the financial providers, target-date funds, mutual funds, and other choices available in a 401(k), but participants typically bear the investment costs and losses. ERISA's fiduciary rules provide an important check by requiring plan managers to carefully investigate and monitor investments and act for workers' benefit.

Employees could use those protections to challenge plans containing unnecessarily expensive funds or poorly monitored services. A lawsuit doesn't guarantee workers would win, but the possibility of legal action gives employers a powerful reason to keep fees and investment quality under scrutiny.

The new safe harbor would focus heavily on process

The Labor Department's proposed rule lays out factors fiduciaries should evaluate, including performance, fees, liquidity, valuation, benchmarks, and investment complexity. An employer that follows and documents a prudent process could receive "significant deference" if workers later challenge the decision.

That doesn't necessarily erase the right to sue, and the department argues that the rule still demands a rigorous and objective review. Critics such as former Labor Department official Ali Khawar contend that this rule change effectively lowers the standard for "everything." Following the rules could become a check-the-box exercise, protecting a bad result as long as the employer could show that it completed the required steps.

Complex investments could potentially bring higher fees and risks

President Trump's August 2025 executive order called for greater access to private equity, private credit, real estate, cryptocurrency, commodities, and other alternative assets.

While these investments may provide diversification or higher potential returns, they may also carry larger fees, limited liquidity, less-transparent valuations, and risks that are difficult for everyday savers to evaluate. Even small cost differences matter: The Labor Department estimates that paying 1 percentage point more in annual fees could reduce a hypothetical worker's account balance by about 28% over 35 years.

Those risks could be particularly easy to overlook when alternative assets are held within an all-in-one target-date fund. Many workers automatically use these funds and may not realize that the holdings, fees, or liquidity have changed. A familiar retirement date printed on the label doesn't guarantee that the investment remains simple or inexpensive.

The official leading the change has industry ties

Daniel Aronowitz, the Labor Department official overseeing ERISA enforcement, previously founded and led Encore Fiduciary, a company that underwrote liability insurance for employee benefit plans.

However, ProPublica reports that his former firm helped protect large employers against the same kinds of worker lawsuits the proposed rule could make more difficult. That history doesn't prove wrongdoing, but it has fueled concerns that the regulatory shift favors employers and the financial industry over plan participants.

The change isn't final, and employers may hesitate

ProPublica reports that the proposed regulation would likely face legal challenges, while some employers may remain cautious about adding complex products that could upset workers or create administrative problems.

That hesitation matters because almost three-quarters of Americans already hold favorable views of 401(k)s and similar workplace accounts, according to Investment Company Institute research. More options aren't automatically better, especially when a plan already provides diversified, low-cost stock, bond, and target-date funds.

Bottom line

Would you recognize a major change if private assets, cryptocurrency, or new layers of fees appeared inside your target-date fund? You don't need to abandon your 401(k), but you should read plan notices, review expense ratios, and compare current holdings with prior disclosures.

Watch for changes to your plan's default fund, ask human resources how new investments were vetted, and avoid selecting an unfamiliar option solely because it promises diversification or higher returns. Staying informed could help protect your nest egg and lower your financial stress while the proposed rule and expected court challenges play out.

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