Alternative Investments: 401(k) Access and Regulatory Changes
Democratizing Access to Alternative Investments for 401(k) Investors
Explore how new policies are democratizing access to alternative investments for 401(k) plans, including benefits and regulatory updates.
President Trump signed an Executive Order on August 7, 2025, titled “Democratizing Access to Alternative Assets for 401(k) Investors”. The new policy states, “It is the policy of the United States that every American preparing for retirement should have access to funds that include investments in alternative assets when the relevant plan fiduciary determines that such access provides an appropriate opportunity for plan participants and beneficiaries to enhance the net risk-adjusted returns on their retirement assets.”[1]
What Plan Sponsors Need to Know:
- Executive Order Does Not Require 401(k) Plans to Offer Alternative Investments: It directs federal agencies to reduce potential regulatory barriers for plan sponsors should they deem alternative investments appropriate for their plans’ participants.
- “Alternative Investments” Include: Private market investments (equity, debt, real estate); actively managed investment vehicles investing in digital assets; commodities; infrastructure and lifetime income investment strategies. Alternative investments, as a category, may provide diversification benefits and potential for enhanced risk-adjusted investment performance to portfolios when allocated appropriately for investors with the requisite timeline.
- Re-examining Past Policy: The order mandates the Secretary of the Department of Labor (DOL) to review and clarify the DOL’s position on alternative assets, including “the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets under ERISA.” Prior DOL guidance in a Supplemental Statement in 2021 suggested that the majority of plan sponsors would not have the requisite experience to analyze private investments (specifically, if they did not also manage a defined benefit pension plan with such investments). -Update: As of 8/12/2025, the DOL has rescinded the 2021 guidance.
- Additional Policy Guidance Pending: The executive order also instructs the Securities and Exchange Commission (SEC), in consultation with the DOL Secretary, to consider ways to facilitate access to investments in alternative assets for participant-directed defined contribution retirement plans. The order goes on to suggest the facilitation may include consideration of revisions to existing SEC regulations and guidance relating to accredited investor and qualified purchaser status that set minimum requirements for individual and institutional investors to invest in certain private investment vehicles.
What Plan Sponsors Should Consider:
- “Prudent Expert Standard”: Fiduciaries are charged with applying the prudent expert standard to investment decisions impacting their plan’s participants. As prescribed by ERISA and its regulations this means making decisions “With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims” – Section 404(a)(1)(B), Employee Retirement Security Act of 1974, as amended (ERISA)
- Plan Sponsor’s Investment Committee Knowledge: Alternative investments are often more complex than investment vehicles typically found in 401(k) plans, such as mutual funds and collective investment trusts. Many committees will have a learning curve if considering alternative investments for their plans. The depth of knowledge to support a prudent process will call for engaging a qualified retirement plan advisory firm with an investment team seasoned in alternative investments. We believe that even if a committee has experience with alternative investment via their company’s defined benefit plan or personal experience, the characteristics of alternative investment products designed for 401(k) plans will require an additional layer of knowledge.
- Appropriate for Your Plan’s Participants: The fundamental question Plan Sponsors will face is whether alternative investments are appropriate for their unique group of plan participants whether in the plan’s lineup and/or self-directed brokerage window. If the plan sponsor determines alternative investments may be appropriate for some participants, they could direct them to the plan’s self-directed brokerage window (or consider adding a window to their plan if not currently offered).
- Alternative Investment Products for 401(k) Market: Public announcements about products in development lean towards those intended to be a sleeve in Target Date Fund series or other asset allocation funds rather than a separate option in the plan’s lineup. Whether part of another fund or a separate option, Plan Sponsors and their fiduciary investment advisors will retain the prudent expert standard of care with a fiduciary duty to evaluate and monitor the product.