Alternative Investments May Be Coming to 401(k) Plans

On August 7, 2025, President Trump signed an executive order directing the Department of Labor (DOL) to investigate how alternative investments, including private assets and cryptocurrency, might become more easily accessible to investors in work-based retirement plans. Celebrated by some and criticized by others, the order paves the way for retirement savers — and at least some of their more than $12 trillion in plan investments — to access investment options traditionally reserved for professional money managers and “accredited investors.”1

Background

The 2025 executive order

With the release of the August 2025 executive order titled, “Democratizing Access to Alternative Assets for 401(k) Investors,” the second Trump administration opened the door to additional types of private assets, including private market investments, interests in real estate, digital assets, commodities, projects financing infrastructure development, and lifetime income strategies such as longevity risk-sharing pools.

The order gave the Secretary of Labor 180 days to reexamine past and current guidance on a plan sponsor’s obligations under the Employee Retirement Income Security Act of 1974 (ERISA) — the law that governs these types of plans — related to asset allocation funds that include alternative assets. The DOL was directed to consult with the Treasury Department, the Securities and Exchange Commission (SEC), and other federal regulators. The order also directed the Secretary to “seek to clarify the Department of Labor’s position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets under ERISA.”6

Possible advantages and added risks

Many industry insiders have praised the order, with one legal professional saying that it offers a “significant potential positive” by “helping fiduciaries have more clarity about process steps they can take to support the fulfillment of their fiduciary duties.”7

The American Retirement Association said that it is “increasingly important for retirement plan fiduciaries to have the flexibility to consider a range of asset classes to meet participants’ needs.”8 And according to the Investment Company Institute (ICI), “Retirement savers are the ultimate long-term investors and would benefit from the diversification offered by the inclusion of private assets.”9

Critics point out that private assets are less transparent than publicly traded securities, their fees are generally higher, and they tend to experience more extreme volatility. Moreover, because they are intended for long-term strategies, they tend to have less liquidity than other assets — e.g., private equity cannot be sold for a specific period of time. Theoretically, that could mean that if a large number of plan participants decides to sell their fund shares simultaneously, such as during a market downturn, the investment managers may have trouble selling enough of the fund’s holdings to meet the high demand.10

Critics also contend that including private assets in retirement plan investment funds will place an additional burden on plan sponsors to manage their costs carefully and educate their employees about the additional risks associated with private assets.11

Interestingly, it appears as though it may literally take an Act of Congress for the federal government’s own defined contribution plan — the Thrift Savings Plan (TSP) — to offer investments that include private assets. According to a spokesperson for the Federal Retirement Thrift Investment Board, the TSP’s five current investment options are “required by law” and “no others are permitted.” The TSP is the nation’s largest defined contribution retirement savings plan.12

What happens next?

Although the executive order opens the door a bit wider to plan sponsors who wish to offer alternative investments to their employees, chances are retirement plan investment menus won’t change quickly. Since the legal liability remains, sponsors will likely wait for more specific guidance from the DOL before taking action. Even then, employers may continue to err on the side of caution.

Diversification and asset allocation are strategies used to help manage investment risk; they do not guarantee a profit or protect against investment loss.

All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.

Each alternative asset type involves its own unique risks and may not be suitable for all investors. Because of the complexities of these various assets, it would be wise to seek guidance if you want to include alternative assets in a portfolio.

1, 7, 8, 9, 10, 11) PLANSPONSOR, August 7, 2025

2) Plan Sponsor Council of America, June 24, 2025; sec.gov, September 9, 2025

3, 10) PLANSPONSOR, August 4, 2025

4) dol.gov, September 16, 2025

5) U.S. Department of Labor Information letter 06-03-2020; U.S. Department of Labor Supplement Statement, December 21, 2021; ICI, August 12, 2025

6) The White House, August 7, 2025

10) The Wall Street Journal, August 21, 2025

12) PLANSPONSOR September 8, 2025