A sign is displayed at the Department of Labor Frances Perkins Building on June, 2025, in Washington.
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The U.S. Department of Labor (DOL) has proposed a new rule designed to make it easier for 401(k) retirement plans to offer alternative investments, such as cryptocurrency, real estate, and private market assets like private equity and private credit. This move, announced on Monday, directly responds to an executive order issued by President Donald Trump in August, which tasked the Labor Department and the Securities and Exchange Commission (SEC) with expanding access to these non-traditional assets for everyday retirement savers.
“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 stated.
Understanding the Proposed Safe Harbor
Currently, 401(k) plans are not explicitly prohibited from including alternative assets. However, a significant barrier has been the fear of litigation. Plan sponsors and fiduciaries, concerned about potential lawsuits alleging breaches of their duty to act prudently under the Employee Retirement Income Security Act (ERISA), have largely avoided these investments.
The new proposal aims to address this by creating a formal “safe harbor.” This legal provision would protect plan fiduciaries from liability, provided they follow a specific, analytical process when selecting and monitoring alternative investments. The rule outlines six factors fiduciaries must objectively consider: performance, fees, liquidity, valuation methodology, appropriate performance benchmarks, and the investment’s complexity.
This structured framework is intended to provide clarity and reduce legal ambiguity. The proposal is now open for a 60-day public comment period before it can be finalized.
Why Adoption May Be Slow, Despite the Rule
Even if finalized, experts widely anticipate that the integration of alternative assets into mainstream 401(k) menus will be a gradual process, not an immediate shift.
“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,” wrote Jaret Seiberg, financial services and housing policy analyst at TD Cowen, in a research note. He suggests it could be “several years” before the rule’s full impact is realized, as legal validation through the courts may be necessary.
Legal and structural hurdles also remain. Erin Cho, a partner at Mayer Brown in Washington, D.C., clarifies that the rule does not change the fundamental mechanics of how alternatives can be accessed. “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,” she said. Access would likely remain indirect, potentially through multi-asset vehicles like certain target-date funds that already have limited exposure.
Furthermore, Andrew Oringer, partner and general counsel at The Wagner Law Group, points to several practical impediments. Standalone private equity and hedge funds typically require investors to be “accredited,” a status based on income or net worth that most 401(k) participants do not meet. Plan sponsors would also need to navigate complex IRS “nondiscrimination” rules to ensure benefits aren’t disproportionately favoring highly compensated employees. Additionally, the illiquid nature of many alternative assets—which can lock capital up for years—poses a direct conflict with the daily liquidity expectations of a 401(k) system. Resolving this would likely require further action from the SEC or even Congress, Oringer noted.
The Suitability Question: Are Alts Right for the Average Saver?
Beyond regulatory and structural challenges, a core debate persists about whether alternative investments are suitable for the typical 401(k) investor.
“The average investor by definition does not need alternative assets in their portfolio,” argued Josh Brown, CEO of Ritholtz Wealth Management, in a prior CNBC interview. He contends that for most people, a simple, low-cost portfolio of broad-market index funds is a more effective, lower-cost, and higher-probability strategy for building retirement wealth over time.
Brown is also skeptical about the terms retail investors would receive. There is “absolutely no chance” 401(k) investors would gain access to the top-tier alternative fund managers or the most favorable fee structures, he 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. ‘You are not the sovereign wealth fund of Norway,’ he remarked. ‘You will not be treated that way.’
The proposal is part of a broader policy shift by the Trump administration to reduce barriers for retail investors accessing a wider array of asset classes. This includes the DOL’s earlier reversal in May of Biden-era guidance that had urged extreme caution regarding cryptocurrency in 401(k)s, citing “serious concerns” about fraud, theft, and loss.
As the rule moves through the comment period and potential judicial review, it sets the stage for a complex evolution in retirement investing—one that pits the promise of diversification and higher returns against the fundamental principles of prudence, accessibility, and cost-effectiveness for the average worker.
