Alternative Investments and Higher Education: A Potential Shift for University Retirement Plans
A 2025 executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors” sparked renewed discussion about expanding access to alternative investments through defined contribution retirement plans. Since then, the Department of Labor (DOL) has proposed guidelines to help plan fiduciaries evaluate whether alternative investments belong in a plan’s fund lineup. If the DOL accepts the proposed rule, alternative investments could begin appearing in defined contribution plans as early as the end of 2026.
What’s Driving Interest in Alternative Investments?
Before considering how alternative investments could affect retirement plans, it helps to understand what is driving interest in these strategies. The executive order identifies the following types of alternative assets:
- Private market investments: Direct or indirect investments in equity, debt, or other financial instruments that are not traded on public exchanges. These investments may include strategies in which investment managers take an active role in managing the underlying companies.
- Direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate
- Holdings in actively managed investment vehicles that invest in digital assets
- Direct and indirect investments in commodities
- Direct and indirect interests in projects financing infrastructure development
- Lifetime income investment strategies including longevity risk-sharing pools
Historically, alternative investments have been more widely available to institutional investors than individual investors. According to the executive order, approximately 90 million Americans participate in defined contribution plans that currently do not offer access to alternative investments. Alternatives are often used in portfolios to add diversification and potential growth opportunities. However, they can also come with trade-offs, including liquidity constraints, less regulation, and potentially higher fees.
The Employee Retirement Income Security Act
ERISA, the Employee Retirement Income Security Act, was introduced in 1974 to establish federal regulations for private-sector retirement plans, including plans that are not sponsored by the government. A private university retirement plan is one example. ERISA was designed to protect investors and beneficiaries by requiring plan sponsors to act as fiduciaries and make decisions in the best interests of plan participants.
In 1979, the DOL clarified that fiduciaries must give “appropriate consideration” when selecting investment options, including factors such as risk and return, liquidity, and diversification. Under the current proposed rule, fiduciaries evaluating alternative investments would consider the following:
- Expected performance
- Fees and expenses
- Liquidity
- Valuation
- Benchmarking
- Complexity
These considerations are intended to help protect employees’ retirement assets while allowing plan fiduciaries to weigh the potential benefits and risks of adding alternative investments.
What does this mean for university retirement plans?
First, the plan sponsor – in this case, the university – must continue to meet DOL fiduciary guidelines. The plan fiduciary would ultimately decide whether to include alternative investments in the plan’s investment lineup. Second, even if the proposal advances, universities and other plan sponsors would likely take time to evaluate alternative investments before adding them to retirement plan lineups.
Finally, if alternative investments become available within a retirement plan, participants may wish to work with a financial advisor to evaluate them in the context of their overall financial goals, risk tolerance, and investment strategy.
While the proposed rule could expand access to alternative investments within defined contribution plans, many questions remain about how and when these options might be implemented. For university retirement plans, any future changes will continue to be guided by fiduciary oversight, participant interests, and careful evaluation of potential risks and benefits. As the regulatory landscape evolves, plan sponsors and participants should stay informed about developments that could affect retirement plan investment options.
Savant University Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois, serving clients in academia nationally. Our advisers have specific and in-depth knowledge about university employee benefit programs and retirement plans. We work with university faculty, physicians, and other professionals. We are not associated with any university, or any retirement vendor and we have no access to your private retirement or personnel information. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.savantwealth.com.
Lillie F. Perry
Financial Advisor
CFP®