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

Private assets are securities that do not trade on public markets. As a result, they face less regulation and generally carry higher risk than publicly traded securities. Investors typically design these assets for long-term strategies.

Investment professionals, such as pension fund managers, often use private assets to diversify portfolios, pursue competitive returns, and hedge against certain risks. In most cases, only accredited investors—individuals with high income or net worth—can invest in private assets. These investors can generally afford to take on greater risk in pursuit of long-term goals. In 2022, fewer than one in five U.S. households met accredited investor criteria, according to the Plan Sponsor Council of America.

Private Assets in Retirement Plans

PLANSPONSOR reports that retirement savings plans have included private assets since 1978. However, adoption remains limited. The 2025 PLANSPONSOR Recordkeeping Survey found that only 3.9% of plan sponsors offered investments containing private assets in 2024, up from 2.2% in 2023.

This low participation rate largely reflects fiduciary concerns. The Department of Labor (DOL) considers plan sponsors fiduciaries who must offer a diversified investment lineup designed to “minimize the risk of large losses.” Failure to meet this obligation can expose sponsors to legal liability.

Shifting Guidance from the Department of Labor

In 2020, during President Trump’s first administration, the DOL issued guidance stating that diversified funds containing private equity—one type of alternative asset—could be appropriate for certain retirement plans, provided plan sponsors possessed sufficient knowledge and expertise.

President Biden’s Labor Department reaffirmed that position in a 2021 Supplemental Statement but added a cautionary note, warning that most plan sponsors likely lacked the expertise to evaluate private equity investments in individual account plans. On August 12, 2025, the Trump administration’s DOL rescinded this Supplemental Statement.

The 2025 Executive Order

In August 2025, the Trump administration issued an executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors.” This order expanded the range of private assets that retirement plans could potentially include.

Eligible assets now include private market investments, real estate interests, digital assets, commodities, infrastructure financing projects, and lifetime income strategies such as longevity risk-sharing pools.

The order directed the Secretary of Labor to review existing guidance within 180 days regarding fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA). The review requires consultation with the Treasury Department, the Securities and Exchange Commission (SEC), and other federal regulators.

The order also instructed the DOL to clarify its position on alternative assets and outline an appropriate fiduciary process for offering asset allocation funds that include such investments.

Potential Benefits and Added Risks

Many industry professionals have welcomed the executive order. One legal expert described it as a “significant potential positive,” noting that clearer guidance could help fiduciaries better fulfill their responsibilities. The American Retirement Association emphasized the importance of flexibility in asset selection to meet participant needs. The Investment Company Institute added that retirement savers, as long-term investors, could benefit from the diversification that private assets provide.

Critics, however, highlight several concerns. Private assets typically offer less transparency, charge higher fees, and experience more pronounced volatility than public securities. These investments also tend to have limited liquidity. For example, private equity holdings cannot be sold for a set period.

During market downturns, widespread withdrawals by plan participants could strain fund managers’ ability to sell assets quickly enough to meet demand. Critics also argue that including private assets increases the administrative burden on plan sponsors, who must carefully manage costs and educate employees about the associated risks.

Federal Constraints on the Thrift Savings Plan

Interestingly, the federal government’s own retirement plan—the Thrift Savings Plan (TSP)—cannot currently include private assets. According to the Federal Retirement Thrift Investment Board, federal law restricts the TSP to its existing five investment options. The TSP remains the largest defined contribution retirement plan in the United States.

What Happens Next?

Although the executive order broadens potential access to alternative investments, retirement plan menus are unlikely to change quickly. Legal liability concerns persist, and many plan sponsors will likely wait for more detailed DOL guidance before acting. Even then, employers may continue to take a cautious approach.

Important Considerations

Diversification and asset allocation strategies help manage investment risk, but they do not guarantee profits or prevent losses.

All investments involve risk, including the potential loss of principal. No investment strategy guarantees success.

Each alternative asset class carries unique risks and may not suit all investors. Given their complexity, investors should seek professional guidance before including alternative assets in a portfolio.

Sources

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) Department of Labor, September 16, 2025
5) U.S. Department of Labor, 2020–2025 guidance
6) The White House, August 7, 2025
10) The Wall Street Journal, August 21, 2025
12) PLANSPONSOR, September 8, 2025

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