On August 7, 2025, President Trump issued an executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors.” The order asks the relevant federal agencies to clarify the obligations of Employee Retirement Income Security Act plan fiduciaries when considering alternative assets as potential investment options for defined contribution plans. So private funds may end up in 401ks. Maybe. Is it a good idea?
ERISA doesn’t prevent 401ks from having alternative investments. It does impose a fiduciary standard on the plan sponsor. One of the big fiduciary issues is fees charged to the 401k participants. Lots of alternative assets have much higher fees than ETFs. Dealing with the fee load for alternative investments versus the dealing with the fee load for mutual funds and ETFs will be a tough needle to thread.
How about the tax issues? Lots of alternative investments generate income as capital gains. By investing through a 401k you turn that capital gains back into ordinary income when you take a distribution. Of course that is true for most assets in a 401k.
How about liquidity? One of the good matches between many alternative assets and 401ks is liquidity. That money is put into the 401ks for the long term by the participants. Retirement is years away. Although increasingly, 401k participants are using them as rainy day funds. Even so, participants do rebalance. (Shouldn’t we all do so on a regular basis.) Rebalancing requires liquidity.
Valuation is an issue. Alternatives have infrequent valuation periods compared to the ETFs and mutual funds. How do you rebalance when you’re not sure about valuation?
Capital calls. Private equity has capital calls and distributions over a long period of time. I’m not sure how that would work with a 401k plan.
There are lots of complicated regulatory issues.
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