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Understanding the New DOL Regulatory Update on Employee Benefit Plan Investments

The Department of Labor (DOL) has issued an important regulatory update that affects how employee benefit plans can invest in employer-related financial instruments. Published on June 18, 2026, this new guidance impacts small business owners and HR managers who maintain employee retirement plans. Here’s what you need to know to stay compliant.

What Is This Regulatory Update?

The DOL’s Employee Benefits Security Administration (EBSA) has announced a Prohibited Transaction Class Exemption (PTCE) 1985-68 that permits employee benefit plans to invest in customer notes of employers under specific conditions. This update clarifies and expands the investment options available to employer-sponsored retirement plans, such as 401(k)s and pension plans.

In practical terms, this means that employee benefit plans can now potentially invest in promissory notes or other debt instruments issued by their employers, provided they meet certain requirements outlined by the DOL. This regulatory change was submitted for OMB review under the Paperwork Reduction Act of 1995, ensuring proper oversight and public comment periods.

Which Businesses Does This Affect?

This regulation primarily impacts:

• Small businesses that offer 401(k) plans or other defined contribution retirement plans
• Companies with employee stock ownership plans (ESOPs)
• Employers considering alternative financing through employee benefit plans
• Organizations with pension plans that invest in employer securities

If your business maintains any type of retirement plan or employee benefit plan, this update warrants your attention. Even if you don’t currently use this exemption, understanding it ensures you’re making informed decisions about your plan’s investment strategy.

What Must Employers Do to Comply?

Compliance with this regulatory update requires employers to understand the specific conditions under which their employee benefit plans can invest in company notes. The DOL has established clear guidelines that plans must follow to utilize this exemption. Failure to comply could result in prohibited transaction penalties and potential ERISA violations.

Employers must maintain proper documentation showing that any investment of plan assets in employer notes meets the established criteria. This includes maintaining records of plan valuations, investment decisions, and fiduciary approval processes. Working with qualified legal counsel and HR professionals is essential to ensure your plan remains compliant.

Three Practical Compliance Steps

Step 1: Review Your Current Plan Documents

Examine your existing employee benefit plan documents to understand current investment restrictions and opportunities. Consider using LegalZoom employment agreements and plan documentation services to ensure your documents align with current regulations. Your plan documents should clearly outline what investments are permissible under this new exemption.

Step 2: Establish Documentation Procedures

Create a system for tracking and documenting any plan investments in employer notes. This includes maintaining valuations, board approvals, and fiduciary decisions. Implement HR software like BambooHR HR software to organize and maintain compliance documentation systematically. Proper record-keeping protects your organization in audits and regulatory reviews.

Step 3: Consult with ERISA Professionals

Engage with attorneys specializing in ERISA and employee benefits law to review how this exemption applies to your specific situation. They can help you understand whether investing in employer notes makes sense for your business and ensure all transactions comply with the new guidelines.

By taking these steps, you’ll position your business to take advantage of new opportunities while maintaining full regulatory compliance. Stay informed about updates from the Federal Register and consult with professionals to protect your employees’ retirement security.