401(k)s may use alternative investments: Labor Department proposal
A sign is displayed at the Department of Labor Frances Perkins Building on June, 2025, in Washington.
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The Department of Labor on Monday proposed a rule that would allow 401(k) plans to more easily include alternative assets such as cryptocurrency, real estate and private market assets.
The proposal is in response to President Donald Trump‘s executive order, released in August, which directed the Labor Department and the Securities and Exchange Commission to facilitate expanded access to alternative assets in 401(k)s.
“This proposed rule will show how plans can consider products that better reflect the investment landscape as it exists today,” Labor Secretary Lori Chavez-DeRemer said in a statement.
Proponents say including alternative investments in 401(k)s could provide retirement savers with greater diversification away from public markets and potentially higher returns. But some financial advisors have expressed concerns that many 401(k) investors lack the knowledge or experience to incorporate these more sophisticated investments, which can be riskier and more costly.
The Labor Department proposal comes as private credit markets are under stress from investor redemptions and concerns about overexposure to software investments amid artificial intelligence disruptions.
Although 401(k) plans are already not prohibited from including alts, fears of lawsuits challenging their investment decisions have kept most plan sponsors on the sidelines, Labor Department officials said on a press call Monday morning.
The Labor Department rule creates a so-called safe harbor that can help shield plan sponsors from litigation. It identifies six factors for a plan fiduciary to “objectively, thoroughly, and analytically consider” when selecting alternative investments. The six factors are performance, fees, liquidity, valuation, performance benchmarks and complexity.
The rule is subject to further review, including a 60-day public comment period, before it can be finalized.
Why alts uptake in 401(k) plans may be slow
Even if finalized, adoption of the rule is likely to be slow, experts say.
“We remain skeptical that this will encourage fiduciaries to include alternatives in 401K plans until the courts have concurred that this language protects advisors from litigation,” Jaret Seiberg, financial services and housing policy analyst at TD Cowen, wrote Monday in a research note. “That means it could be several years before we see the real impact from this proposal.”
Erin Cho, a partner with the law firm of Mayer Brown in Washington, D.C., said the proposed rule does not change how alts can be included in 401(k) options. Investors can “only obtain limited exposure” through vehicles such as target-date funds, she said.
“Under this proposed rule, plan participants are not going to wake up one day and find a bunch of standalone private equity funds, private credit funds, crypto funds on the menu of their 401(k) plan,” Cho said.
Andrew Oringer, partner and general counsel in The Wagner Law Group’s New York City office, said the Labor Department proposal wouldn’t undo existing rules around the need for investors to be “accredited” to access standalone private-equity and other alts funds.
Along the same lines, employers would have to figure out how to offer alternative funds without running afoul of “nondiscrimination” rules in 401(k) plans, Oringer said. Those rules aim to prevent higher-income employees from accessing a benefit that’s unavailable to lower earners.
Alts funds are also relatively illiquid, meaning they may not be equipped, as structured, to easily handle withdrawals from 401(k) investors, Oringer said.
“You still need the practical impediments [for alts funds] to be sheared away,” Oringer said. “And for that you’d really need action from the SEC, and possibly even legislative action.”
Why alts may not work for the typical 401(k) investor
Even if alts were to become available, some financial advisors say most 401(k) investors would be better off without them.
The typical investor is better suited to owning an index fund with broad exposure to the stock market, a strategy that often outperforms professional investors and helps keep investment expenses low, Josh Brown, CEO of Ritholtz Wealth Management, said in an interview with CNBC in October.
“The average investor by definition does not need alternative assets in their portfolio,” Brown said.
There’s “absolutely no chance” 401(k) investors would get access to the best alts managers or the best funds, Brown said. Even if they did, they’d “pay through the nose for it” because they don’t have the buying power to reduce investment fees, he said.
“You are not the sovereign wealth fund of Norway,” he said. “You will not be treated that way.”
The Labor Department’s proposal builds on other actions the Trump administration has taken to ease uptake of nontraditional asset classes among a broader pool of retail investors.
For example, the Labor Department in May rescinded guidance put in place during the Biden administration that urged employers to be cautious before adding cryptocurrency and related digital assets like bitcoin, nonfungible tokens and meme coins to 401(k) plans.
At the time, the Biden labor officials cautioned employers to exercise “extreme care” before making such investments available to their workers, citing “serious concerns” about the prudence of exposing investors’ retirement savings to crypto, given “significant risks of fraud, theft, and loss.”
