What’s at Stake in the DOL Proposal Directing Assets to TDFs That Include Alts?

Robert Massa was deep into the Department of Labor’s sweeping proposal on investment selection when one number jumped off the page: $178 billion.

The figure represents the projected annual flows into target-date funds that include alternative investments, according to the DOL’s estimate, which did not specify how long that estimate would take to come to fruition or for how long it would last. Still, it forced a moment of pause. For Massa, managing director of retirement at Prime Capital Retirement, the implication was not just scale, but consequence. He wondered what that influx would do to the underlying structure—and quality—of the investments inside these funds?

His concern mirrors one expressed more broadly within the retirement industry: Whether adding alternatives to TDFs—funds that comprise approximately 65% of new savings for millions of Americans, according to Vanguard—will enhance outcomes or subtly erode them.

“When you change a fund’s glide path, you change its character,” Massa says. “Your glide path is simple: It’s equities, cash, bonds. But you add an alternative—it’s not equity, it’s not cash, it’s not bonds. So you’ve changed the glide path. You can say you didn’t, but you did.”

A Proposal Aimed at Expanding Access

The DOL’s March proposal, satisfying the directive provided in President Donald Trump’s August 2025 executive order, seeks to clarify fiduciary duties and provide a safe harbor for plan sponsors that decide to include alternative investments—which may include private equity, private credit, real estate, infrastructure and digital assets—within defined contribution plans.

The goal of the proposal is to reduce litigation risk and encourage broader access to investments that traditionally only have wide adoption in institutional pension and endowment portfolios.

TDFs, which automatically adjust asset allocations over time, were specifically identified as a viable fit for alternative investments, as are other professionally managed investment vehicles, such as managed accounts. TDFs already dominate the retirement landscape, with assets reaching $4.8 trillion in 2025 after years of steady growth, according to Morningstar.

Small Allocations, Big Expectations

Based on industry estimates, the $178 billion figure would translate to roughly 3.7% of TDF assets allocated to alternatives. That relatively small slice has become central to the debate.

Proponents argue that even limited exposure to alternatives could enhance diversification and smooth returns over time. But skeptics question whether such a small allocation can meaningfully deliver on those promises.

“Most of the time, private market returns are relatively in line with public markets,” Massa says, noting that while some private investments outperform, they are outliers. “So how much excess return are you really going to get from 3%?”

If they are meant to provide diversification or higher returns, a minimal allocation may fall short while still introducing additional complexity for plan sponsors and participants, critics say.

Ron Surz, president of Target Date Solutions, says “sprinkling a little bit of alts in is not going to move the needle.”

Structural Shifts Beneath the Surface

That said, even a small allocation to a new asset class could have outsized effects on how target-date funds are constructed. Alternative investments have long been eligible to be used in DC plans, but adoption has been minimal, which Trump and the DOL proposal seek to change.

Traditionally, TDFs rely on a mix of public equities, bonds and cash, gradually shifting more money into bonds (regarded as safer assets) as investors approach retirement. Introducing alternatives alters that balance—even if the shift appears incremental.

Stephen Rosenberg, a partner in the Wagner Law Group, expects DC plan investment changes to occur quietly, within existing products, rather than through entirely new offerings. Instead of launching new funds, providers may simply replace a portion of traditional holdings with alternative exposures.

“Now you’ll have 3.5% less public equities and 3.5% of private investments,” he says.

That approach could make adoption easier for plan sponsors, but it also raises questions about transparency for participants, many of whom are automatically enrolled into their employer’s retirement plan, defaulted into a TDF that serves as the plan’s qualified default investment alternative, and may not actively monitor changes.

Even the fiercest supporters of adding alternatives to DC plans insist the investments are not meant for all participants and are most suitable for employers whose participants are already familiar with the asset class.

The Case for Alternatives—If Done Carefully

Supporters of the DOL’s proposal emphasize that what it would provide plan sponsors is less about specific asset classes and more about improving the investment tool kit available to fiduciaries.

Jeremy Stempien, a portfolio manager at PGIM, says the proposal reinforces a principle long embedded in ERISA: that investment decisions should be guided by a disciplined, process-driven approach, rather than by rigid rules.

“Our view is that increased focus on alternative assets is a good thing,” he says, pointing to the investments’ potential role in diversification and long-term portfolio construction.

However, he also cautions against expecting rapid change. DC plan sponsors historically have adopted innovations slowly, and widespread integration of alternatives is likely to take time.

BlackRock, for example, intends to launch its first LifePath Target Date Fund with private market investments later this year, the company announced in its most recent earnings call, signaling that even the largest investment firms are taking some time to integrate alternatives into TDFs.

“We think it’s going to be a slow climb,” Stempien says.

Adoption May Lag Ambition

Despite the attention focused on the DOL’s proposal, the market has yet to fully embrace inclusion of alternatives in target-date funds.

Fred Reish, a benefits attorney who counsels the Ferenczy Benefits Law Center, notes that no major target-date-fund provider currently includes such assets. While some firms may be developing new products—likely in the form of collective investment trusts—broad adoption will depend on industry leaders, he says.

“Until the major providers come out with funds that include alts, I don’t see how [the DOL’s projected inflows] can be achieved,” Reish says.

While firms like Fidelity, Vanguard, American Funds and T. Rowe Price have not yet announced TDFs including alts, firms like Empower have championed private assets, and a few traditional managers have partnered with alts managers to expand their private market capabilities into retirement channels.

However, the DOL’s rule is not finalized, and it has attracted more than 14,000 comments midway through its 60-day comment period. A lot could happen before the regulatory landscape is clear and more firms take interest.

For now, the $178 billion figure remains a projection and a provocation, encapsulating the scale of what is at stake.

As Surz says, the promise of alternatives is compelling—but far from certain.

“It’s an interesting story,” he says. “But the data doesn’t confirm it. It’s not a clear home run.”

More on this topic:

	Private Assets in DC Plans: What to Expect in the Year Ahead
	What Kind of Near-Term Future Do Alts Actually Have in DC Plans?