On August 7, 2025, President Trump signed an executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors,” designed to open the use of alternative investments, including private equity and actively managed investment vehicles investing in digital assets, in 401(k) plans. While such investments currently are not per se impermissible in 401(k) plans under ERISA, historically they have been avoided.
Role of the DOL
The executive order directs the Department of Labor to reexamine current guidance and issue regulations regarding the appropriate fiduciary process for selecting asset allocation funds containing alternative investments. The order defines alternative assets as follows:
- Private market investments, including direct and indirect interests in equity, debt, or other financial instruments that are not traded on public exchanges, including those where the managers of such investments, if applicable, seek to take an active role in the management of such companies;
- Direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate;
- Holdings in actively managed investment vehicles investing in digital assets;
- Direct and indirect investments in commodities;
- Direct and indirect interests in projects that finance infrastructure development; and
- Lifetime income investment strategies, including longevity risk-sharing pools.
The executive order directs the DOL, within 180 days of the date of the order, to revisit previous guidance and clarify its position on alternative investments. The order instructs that “[s]uch clarification must aim to identify the criteria that fiduciaries should use to prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments.”
Role of the SEC
The executive order directs the Securities and Exchange Commission to “consider ways to facilitate access to investments in alternative assets,” including revisions to “regulations and guidance relating to accredited investor and qualified purchaser status.” Any amendments to the accredited investor/qualified purchaser rules would require the SEC to strike a balance between broadening access to alternative investments and ensuring investor protection.
Significance for Plan Sponsors and Fiduciaries
Plan sponsors and fiduciaries should carefully focus on the specific operative language of the executive order. While the order explains the administration’s policy favoring the use of alternative investments, including the list of specific alternative investments noted above, it should be noted that the order does not require the DOL to consider the use of direct stand-alone alternative investments. It directs the DOL only to provide guidance on selecting funds that include alternative assets. We expect that upcoming DOL guidance with respect to private equity and other alternatives will be limited to their role as a component of an asset allocation strategy within a professionally managed investment strategy.
Absent more expansive guidance, plans considering alternative investments generally can focus on collective investment trusts (CITs) or other professionally managed accounts. A CIT trustee is an ERISA section 3(38) fiduciary that takes over the responsibility for selecting, monitoring, and retaining the alternative investments. The plan-level fiduciary remains responsible for the selection of the CIT itself, which would be an investment option on the plan’s menu. It is common for CIT trustees to engage subadvisors with expertise in specific investment strategies. Illiquidity issues with private funds can also be solved through a CIT that includes liquid investments in its mix. Managed accounts can be structured to operate in a similar manner.
Significance for Asset Managers
It is important to note that the executive order itself does not change current law. Asset managers looking to tap into the 401(k) market, through accepting CIT investors or otherwise, should remain cognizant of ERISA’s plan asset regulation. That regulation provides that, except in the case of publicly offered securities or securities issued by an investment company registered under the Investment Company Act of 1940, when a plan invests in equity interests of an entity, “its assets include both the equity interest and an undivided interest in each of the underlying assets of the entity.” As more 401(k) plan assets are invested in funds containing alternative assets, particularly private equity, the risk is greater that a fund manager could unknowingly become an ERISA fiduciary via operation of the plan asset regulation’s “look-through” rule. Fortunately, there are a number of exceptions to look-through treatment, so this risk can be mitigated through careful planning and operations.
A fund can be deliberately structured in a manner that is ERISA-compliant, generally at the fund’s inception. ERISA would need to be considered in developing fee structures and valuation procedures for hard-to-value assets. Even in ERISA-compliant funds, managers will need to understand ERISA’s prohibited transaction rules and ensure that they do not engage in nonexempt prohibited transactions. Finally, as noted above, SEC direction is needed to the extent that alternatives are made available to retail investors.
Carlton Fields’ Financial Services Regulatory group is working together to monitor and analyze this ongoing development, from all relevant regulatory perspectives. Stay tuned for additional articles on related topics.
