Key Takeaways
- • The Department of Labor on Monday proposed a rule that would make it easier for 401(k) plans to include alternative assets such as cryptocurrency, real estate and private market assets, per CNBC.
- • The proposal responds to a President Donald Trump executive order released in August directing the Labor Department and the Securities and Exchange Commission to expand access to alternatives in 401(k)s.
- • The rule creates a safe harbor to shield plan sponsors from litigation, identifying six fiduciary factors: performance, fees, liquidity, valuation, performance benchmarks and complexity.
- • The proposal is subject to a 60-day public comment period before it can be finalized, and analysts expect adoption to be slow; TD Cowen's Jaret Seiberg said it could take several years to see real impact.
- • Legal experts at Mayer Brown and The Wagner Law Group say the rule does not change accreditation requirements or nondiscrimination rules, and standalone alts funds would still face liquidity and structural barriers.
Summary
The Department of Labor on Monday proposed a rule that would allow 401(k) plans to more easily include alternative assets, including cryptocurrency, real estate and private market assets. The proposal responds to an executive order issued by President Donald Trump in August, which directed the Labor Department and the Securities and Exchange Commission to facilitate expanded access to alternative assets in retirement plans. Labor Secretary Lori Chavez-DeRemer said in a statement that the rule "will show how plans can consider products that better reflect the investment landscape as it exists today."
According to Labor Department officials, 401(k) plans are already not prohibited from including alternatives, but fears of lawsuits challenging investment decisions have kept most plan sponsors on the sidelines. The proposed rule creates a safe harbor intended to shield plan sponsors from litigation. It identifies six factors that a plan fiduciary should "objectively, thoroughly, and analytically consider" when selecting alternative investments: performance, fees, liquidity, valuation, performance benchmarks and complexity. The rule faces further review, including a 60-day public comment period, before it can be finalized. The proposal arrives as private credit markets face stress from investor redemptions and concerns about software exposure amid artificial intelligence disruption.
Analysts and attorneys caution that uptake is likely to be slow. Jaret Seiberg, financial services and housing policy analyst at TD Cowen, wrote in a research note that fiduciaries will likely remain skeptical until courts confirm the language protects advisors from litigation, suggesting it could be several years before the impact is seen. Erin Cho, a partner at Mayer Brown, said the proposal does not change how alternatives can be included in 401(k) options, with investors able to "only obtain limited exposure" through vehicles such as target-date funds. Andrew Oringer of The Wagner Law Group noted that accreditation requirements for standalone private equity and other alts funds remain, that employers must avoid violating nondiscrimination rules, and that the illiquidity of alts funds creates practical barriers that would likely require SEC or legislative action.
Some advisors question whether alternatives suit typical 401(k) participants. Josh Brown, CEO of Ritholtz Wealth Management, said in an October CNBC interview that most investors are better served by low-cost index funds, and that retail 401(k) participants would be unlikely to access top alternatives managers or pay competitive fees. The proposal also builds on prior administration actions; in May the Labor Department rescinded Biden-era guidance that had urged employers to use "extreme care" before adding cryptocurrency and related digital assets to 401(k) plans.
According to Labor Department officials, 401(k) plans are already not prohibited from including alternatives, but fears of lawsuits challenging investment decisions have kept most plan sponsors on the sidelines. The proposed rule creates a safe harbor intended to shield plan sponsors from litigation. It identifies six factors that a plan fiduciary should "objectively, thoroughly, and analytically consider" when selecting alternative investments: performance, fees, liquidity, valuation, performance benchmarks and complexity. The rule faces further review, including a 60-day public comment period, before it can be finalized. The proposal arrives as private credit markets face stress from investor redemptions and concerns about software exposure amid artificial intelligence disruption.
Analysts and attorneys caution that uptake is likely to be slow. Jaret Seiberg, financial services and housing policy analyst at TD Cowen, wrote in a research note that fiduciaries will likely remain skeptical until courts confirm the language protects advisors from litigation, suggesting it could be several years before the impact is seen. Erin Cho, a partner at Mayer Brown, said the proposal does not change how alternatives can be included in 401(k) options, with investors able to "only obtain limited exposure" through vehicles such as target-date funds. Andrew Oringer of The Wagner Law Group noted that accreditation requirements for standalone private equity and other alts funds remain, that employers must avoid violating nondiscrimination rules, and that the illiquidity of alts funds creates practical barriers that would likely require SEC or legislative action.
Some advisors question whether alternatives suit typical 401(k) participants. Josh Brown, CEO of Ritholtz Wealth Management, said in an October CNBC interview that most investors are better served by low-cost index funds, and that retail 401(k) participants would be unlikely to access top alternatives managers or pay competitive fees. The proposal also builds on prior administration actions; in May the Labor Department rescinded Biden-era guidance that had urged employers to use "extreme care" before adding cryptocurrency and related digital assets to 401(k) plans.
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