Employees can invest alternative assets into their 401(k)s. Here's what to know

The Department of Labor has proposed a significant regulatory expansion of 401(k) investment options by formally enabling retirement plans to include alternative assets—a development that directly responds to the Trump administration's executive order from August 2025 aimed at democratizing access to private markets for retail investors. The proposed rule would allow 401(k) plans to offer cryptocurrency, real estate, private equity, private credit, and other non-traditional assets alongside conventional publicly traded securities and fixed income instruments.

The regulatory shift reflects recognition among federal policymakers that alternative assets have become central to modern investment strategy. The Securities and Exchange Commission has acknowledged that "private markets have become an important avenue for investors seeking greater access to investment opportunities and an expanded menu of investment products for portfolio diversification." This sentiment is reinforced by concrete market activity: major custodians and plan administrators including Vanguard and State Street have publicly committed to offering private equity options within 401(k) frameworks, while a federal court upheld Intel's decision to include private funds in its corporate retirement plan despite litigation challenging the fees and risks involved.

The regulatory and market momentum represents a departure from years of hesitation. Although the Department of Labor clarified in 2020 that private equity could be incorporated into multi-asset class vehicles such as target-date funds, most plan sponsors have remained cautious about offering direct alternative asset exposure. That reluctance has stemmed primarily from uncertainty regarding fiduciary obligations, fee justification, and litigation risk under the Employee Retirement Income Security Act (ERISA).

Proponents argue that expanding access democratizes wealth-building tools previously available primarily to high-net-worth individuals, institutional investors, and public pension participants. By incorporating alternatives, 401(k) investors could achieve greater portfolio diversification away from public equities and potentially realize higher long-term returns. However, financial advisors have raised substantive concerns: retail 401(k) investors—who collectively manage assets across approximately 70 million accounts—may lack the sophistication to evaluate complex, illiquid, higher-risk investments; alternative assets typically carry elevated fee structures; and liquidity constraints may prove problematic for retirement savers requiring capital access. Fiduciaries will need to demonstrate that alternative investments improve net outcomes after accounting for cost, risk, and liquidity limitations under ERISA's strict standards.