New Opportunities for 401(k) Investors: How Policy Changes Could Open the Door to Alternative Assets
On Aug. 7, Pres. Donald Trump signed an executive order titled Democratizing Access to Alternative Assets for 401(k) Investors, aimed at expanding the investment choices available to participants in defined contribution retirement plans under the Employee Retirement Income Security Act of 1974 (ERISA).
Objective of the Order
The order addresses the disparity that can exist between retirement savers and institutional investors, many of whom already benefit from alternative investments such as private equity, real estate, private credit, and digital assets.
The administration cites regulatory complexity and litigation concerns, as well as potentially restrictive fiduciary guidance, as obstacles that have prevented plan sponsors from offering alternative assets. The order directs agencies to allow workers potential access to funds that may offer higher net risk-adjusted returns and broader diversification.
Key Directives
The order calls on the Department of Labor (DOL) to reevaluate its guidance on fiduciary duties under ERISA when considering alternative asset inclusion. This includes potentially establishing safe harbors that clarify what constitutes prudent decision-making by fiduciaries.
The DOL must also work with the Treasury and Securities and Exchange Commission (SEC) to assess whether regulatory changes are needed at those agencies to support the order’s objectives.
Risks and Considerations for Investors
While alternative asset exposure could enhance diversification, experts warn of several potential downsides. Private assets can carry high management fees and lack the daily pricing and transparency found in public markets. Without standard pricing mechanisms, certain alternatives, particularly private equity and real estate, can present valuation challenges, and digital assets such as cryptocurrency can be volatile. Additionally, plan sponsors will need clear fiduciary guidance to manage the legal and operational risks associated with offering these investments while fulfilling their duties under ERISA.
Implementation Mechanisms
Currently, most 401(k) plans aren’t structured to offer direct access to alternative assets. The order likely signals future development of structured or managed vehicles, such as targeted alternative asset allocation funds or managed accounts, that providers can integrate into retirement offerings.
Conclusion
By granting 401(k) participants access to private markets, this executive order could lead to diversification and return opportunities currently reserved for institutional investors. This effort could serve to modernize retirement plans and help reflect today’s range of investment choices. However, these benefits can come with added complexity as risk, cost, and execution questions remain.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Patricia L. Hutchinson
Director of Retirement Plan Services
AIF®, MBA