On August 7, 2025, President Trump issued an Executive Order (“Order”) directing the Department of Labor (“Department”) and U.S. Securities and Exchange Commission (“SEC”) to, no later than February 3, 2026, issue rules or guidance – potentially including a safe harbor – intended to encourage the inclusion of alternative assets, such as private equity, cryptocurrency, and real estate, in investments offered in 401(k) plans. Interestingly, lifetime income investment strategies, such as longevity risk pooling, are also described as alternative assets potentially opening the door to the development of a new class of investments designed specifically to address retiree income from 401(k) plans. Whether investments that contain alternative assets can or will be more widely offered in employer-sponsored 401(k) plans will depend on whether the agencies are able to craft rules that offer sufficient clarity and certainty regarding the fiduciary processes plan fiduciaries are to follow in considering investment in such assets while standing up to likely judicial scrutiny. Additionally, alternative investment firms will want to consider the implications of direct or indirect investment by 401(k) participants who enjoy protections under the Employee Retirement Income Security Act of 1974 (“ERISA”).
Background
Under ERISA, retirement plan fiduciaries have certain fiduciary duties with respect to the plan, including the duty to act prudently, the duty to act solely in the interests of plan participants and beneficiaries, the duty to diversify plan investments to minimize the risk of losses, and the duty to act in accordance with the plan terms, to the extent consistent with law. These fiduciary duties extend to selection of plan investments. Fiduciaries are responsible for losses that result from a breach of those duties.
With respect to defined benefit pension plans, while plan fiduciaries are responsible for plan investments, the performance of a particular investment does not change the benefits that participants are entitled to under the plan. Instead, plan investments impact the amount the plan sponsor is required to fund. If investment performance is poor, and the plan funding decreases, the plan sponsor generally must contribute more money to the plan.
With respect to a participant-directed individual account plan, such as a 401(k) plan, plan fiduciaries are responsible for selecting the menu of investments in which participants can invest their retirement accounts. Participants then choose how to invest their retirement funds within the menu of options. A participant’s benefit is his or her account balance upon retirement, and so is directly impacted by the performance of the investments selected under the plan.
Many defined benefit plan fiduciaries include alternative assets, such as private equity funds, in the investment lineup to drive returns and diversify the plan’s portfolio. In contrast, investments that include alternative assets are less common in 401(k) plans.
Prior subregulatory guidance
The Order is not the first time the executive branch has weighed in on alternative assets in 401(k) plans. In a June 3, 2020 Information Letter, the Department under the first Trump administration advised that a plan fiduciary could, in a manner consistent with ERISA’s fiduciary duties, offer private equity investments within professionally managed asset allocation funds (such as target date funds) offered in participant-directed individual account plans. The Department made clear, however, that the fiduciary must follow an objective, thorough, and analytic process that considers all of the relevant facts and circumstances. In particular, the Department instructed fiduciaries to consider:
- Whether adding the investment would offer plan participants more diversified investment options within an appropriate range of expected net returns and diversification of risks over a multi-year period,
- Whether the asset allocation fund is overseen by plan fiduciaries or investment professionals that have the experience and ability to manage the asset allocation fund that includes private equity given the nature of private equity investments,
- Whether the asset allocation fund has limited the private equity allocation in order to address the characteristics of the private equity investment and the participant population, and to permit valuation of the investment and liquidity for benefit distributions and changes to plan investments.
The Department also made clear that the plan fiduciaries have a duty to monitor the investments to ensure they continue to be prudent, and in the participants’ best interest.
On December 21, 2021, the Department—then under the Biden administration— issued a Supplemental Statement that tempered the June 3, 2020 Information Letter. In this Supplemental Statement, the Department clarified that the Information Letter should not be interpreted as an endorsement for the inclusion of private equity in most 401(k) plans. The Department further expressed its view that the Information Letter is one-sided from the perspective of the private equity industry and does not adequately describe the concerns of other stakeholders. Finally, the Department reiterated the need for plan fiduciaries to possess sufficient skills, knowledge, and experience to fully consider the appropriateness of a private equity investment in the plan and suggested that only fiduciaries of large plans that also have experience with private equity investments in defined benefit plans are likely to have the requisite experience.
Executive Order
In a dramatic shift from the previous administration, President Trump’s Order seeks to encourage access to alternative assets in 401(k) plans. The Order defines alternative assets to include:
- Private market instruments, such as equity or debt, including private equity investments companies that involve active management of a portfolio company
- Real estate
- Digital assets
- Infrastructure financing
- Lifetime income investment strategies such as longevity risk pooling
The Order directs the Department to “prioritize actions that may curb ERISA litigation that constrains fiduciaries’ ability to apply their best judgment in offering investment opportunities relevant to plan participants.” In particular, the Order directs the Department to, within 180 days:
- Reexamine prior and current guidance regarding fiduciary duties under ERISA in connection with offering investments in asset allocation funds that include alternative assets, including whether to rescind the 2021 Supplemental Statement described above,
- Clarify the Department’s position on alternative assets, and the appropriate fiduciary process for considering offering asset allocation funds that include asset alternatives, and
- Propose rules, regulations, or other guidance, including possible “appropriately calibrated safe harbors,” regarding the duties a plan fiduciary owes participants under ERISA when deciding whether to make available an asset allocation fund that includes asset alternatives.
The Order further directs the Department to consult with Treasury, the SEC, and other agencies as necessary. Further, the SEC shall, in consultation with the Department, consider ways to facilitate access to alternative investments through rulemaking and other guidance relating to accredited investor and qualified purchaser status.
Thompson Hine Takeaways
Alternative assets as a component of an allocation fund are not new; ERISA does not categorically prohibit 401(k) plans from including such investments among investment options under a plan. However, these investments have not been widely offered in 401(k) plans. The Order seeks to change that, and, while tucked in at the end of long paragraph in the Order, the key to achieving an expansion of alternative assets in 401(k) plans is minimizing litigation risk.
Fiduciaries are tired of being sued or hearing the stories of their peers facing suits that are extremely expensive and time consuming to defend even though they have followed a prudent and loyal process consistent with their obligations under ERISA. Over the past two decades, litigation against plan fiduciaries has exploded. Many lawsuits accuse fiduciaries of breaching their duties to plan participants by selecting investment options with allegedly excessive fees. While ultimately such claims may not be successful if brought to trial, it is not uncommon for complaints to make it past a motion to dismiss to discovery, increasing the cost of litigation – and settlement – significantly; a risk that may be further enhanced following the U.S. Supreme Court’s decision in Cunningham v. Cornell University. Inclusion of alternative assets – many of which carry higher fees and are more illiquid, but can also enjoy a higher return – in a 401(k) plan may be a bridge too far for many plan fiduciaries without strong guidance from the agencies to use as a shield.
Therefore, the devil will be in the details of the rulemaking or guidance that comes from the Order’s directive to promulgate rules or guidance that prioritize curbing litigation. If the Department can put forth a fiduciary safe harbor addressing the consideration of alternative assets in 401(k) plans that is usable and likely to stand up to judicial scrutiny, fiduciaries may be more willing to consider including alternative assets in a plan’s investment menu. Of course, any safe harbor could be challenged in court or reversed by a future administration. Given the historical political instability on this issue, fiduciaries may still be hesitant to take action that may open them up to legal action in a different political climate. It’s also worth noting that the Department has been notoriously reluctant to offer safe harbors of any kind – even with respect to fiduciary processes to be followed with respect to missing or nonresponsive participants, which seems particularly ripe for a practical safe harbor.
In addition to addressing litigation risk, securities rules regarding accredited investor or qualified purchaser status (for example) may need to change to accommodate different investment structures that work in a 401(k) plan. Moreover, investment managers will need to consider the impact of holding 401(k) plan assets on the overall investment fund, and whether there are sufficient 401(k) assets in the investment fund to deem the entire fund plan assets under ERISA. We will continue to monitor the regulatory developments regarding alternative assets in 401(k) plans.