On August 7, 2025, President Trump issued a long-rumored executive order (the “Order”) that calls for expanded access to private equity and other alternative investments for 401(k) plans and their participants. The Order arrives at a time when interest in such products is high, and we expect it to create further momentum behind the design and launch of new funds for this market. While it does not actually change the substantive requirements of ERISA, the Order directs the U.S. Department of Labor (“DOL”) in conjunction with the U.S. Securities and Exchange Commission (“SEC”) and the Department of the Treasury (“Treasury”) to work together to facilitate greater availability of these asset classes to 401(k) investors. The existence of the Order is already adding to the activity in this area, and we believe this is a key time for asset managers who are interested in taking advantage of the opportunity to break into the 401(k) market.
We have been working with many clients—both private fund managers and target date fund (“TDF”) managers—to create alternatives products for the retail space for over a decade. We believe that even without further guidance from the DOL and its counterpart agencies, managers already possess the tools to successfully design and offer these products, which plan fiduciaries can select from in accordance with their duties under ERISA. These offerings can take many different forms including collective investment trusts (“CITs”), interval funds and portions of TDFs—all of which can meet the unique liquidity and valuation needs of 401(k) plans. While any changes that may result from the Order will be welcome, we do not believe it is necessary to wait for new guidance.
The remainder of this Alert discusses five action items for managers interested in alternatives to consider now, and five key takeaways from the Order.
Immediate Action Items for Managers
- The Order Is a Call to Action; Managers Must Strike While the Iron Is Hot – This Order marks a watershed moment for defined contribution plan sponsors and asset managers and should promote rapid innovation in this area. Given the nature of 401(k) investing, which tends to have a longer time horizon (where plan sponsors typically conduct RFPs for managers only every several years), managers that are seeking to tap into this market will want to have products in place in the next year or two in order to have the widest opportunity to win retirement plan mandates. There is no need to wait for the agencies to issue guidance in our view. Instead, it would be better to proceed with product design now, while remaining flexible so as to adjust product offerings once the DOL or other agencies provide additional clarification.
- Inventory Current Capabilities and Determine What Must Be Built Out – Managers that operate alternative products in the 401(k) space will need to be able to deploy capital rapidly and consistently in order to serve the needs of 401(k) investors. We believe that CITs can provide a good starting point for designing products with the flexibility to serve this market (especially in light of the heightened fee sensitivity of the retirement plan market); however, if a manager wants to use these vehicles, it will either need to have an in-house trust company or find a partner to do that in order to meet the need. In addition, managers will generally need to be able to offer or source ongoing investment opportunities, and perpetual capital vehicles such as interval or tender offer funds may help to fill this need.
- Think Through the Challenges of 401(k) Plans’ Unique Liquidity and Valuation Issues – ERISA has a safe harbor that mostly insulates plan fiduciaries from liability for investment losses, but it only applies to plans that offer at least three options that permit participants to change their investment elections at least once a quarter and “with respect to each investment alternative made available by the plan…permits participants and beneficiaries to give investment instructions with a frequency which is appropriate in light of the market volatility to which the investment alternative may reasonably be expected to be subject.”1 The DOL has never provided specific guidance on what it considers to be an appropriate liquidity threshold, and most plan sponsors that rely on this safe harbor currently choose to offer only the most liquid investment options possible (i.e., daily liquidity provided by mutual funds, ETFs and separate accounts).
- Unlike a traditional fund of funds, the amount of investible capital in a TDF is uncertain and will change over time because (i) individual participants subscribe and make continual monthly and/or annual contributions; (ii) participants normally have an ability to withdraw frequently; and (iii) the glide path will shift allocations over time.
- Being able to manage liquidity while executing on alternatives will be key. If a manager plans to use a structure with an alternatives sleeve, the sleeve will not have to provide daily liquidity itself, but it will need to have a consistent and predictable model in place for striking and reporting a daily NAV to facilitate the TDF’s daily liquidity. This means someone will need to be responsible for striking a daily NAV on the illiquid alternative assets.
- Review Relationships with Particular TDF Providers or Design Products that Can Be Plugged into Multiple TDFs – Products offered under the Order will require the expertise and infrastructure of a TDF (that is a CIT) and alternative investment funds below. Some alternative asset managers are already forming relationships with a single TDF provider, whereas other managers have been developing products meant to serve as investments that can “plug in” to multiple TDFs to gain exposure to specific alternative strategies (e.g., real estate, private equity or private credit). In either case, as alternative asset managers think through which channels to offer their products, they will need to leverage existing relationships or cultivate new ones with TDF providers. Asset managers may also look to leverage existing relationships with large 401(k) plan sponsors who may be interested in offering customized TDFs with alternatives.
- Be Mindful of Fiduciary Decision-making – In the typical asset allocation fund structure, the CIT TDF and the alternatives sleeve will each be subject to ERISA and their respective managers will be ERISA fiduciaries. In addition, a plan fiduciary will need to be comfortable offering the asset allocation vehicle with alternatives. When forming partnerships and designing products, it is critical to be mindful of the need for fiduciary compliance at each level, and to facilitate the plan fiduciary’s decision-making process.
Key Takeaways from the Order
Near the end of President Trump’s first term, the DOL issued an information letter in 2020 (the “2020 Letter”) that clarified its views on incorporating private equity as part of a broader diversified investment option for defined contribution plans. The 2020 Letter demonstrated the DOL’s recognition of the role that private equity and other alternative asset classes can play for participants by enhancing diversification of investment risk, facilitating potentially greater returns and providing investment options whose performance may be less correlated to the traditional options available to plan participants. According to the guidance, a plan fiduciary would not violate its ERISA duties solely by offering TDFs and other professionally managed asset allocation funds with a private equity component as a designated investment alternative for the plan, as long as appropriate care was taken (See our Alert here for a discussion of the conditions outlined in the 2020 Letter). The 2020 Letter’s neutral approach to asset selection signaled to the market that as long as plan fiduciaries adhere to a prudent process for evaluating the risks and benefits associated with a given investment, the fact that an investment integrated private assets would not be considered per se imprudent.
In 2021, the DOL—at the time, under the Biden administration—revisited its 2020 Letter with a supplemental statement (“2021 Supplement”) that left in place the prior guidance but also warned of misreading the 2020 Letter as an endorsement of the idea that incorporating private equity or other alternative investments in a typical 401(k) plan would generally be appropriate. The 2021 Supplement focused on the applicability of the prior guidance to smaller plans and their fiduciaries, and it emphasized how plan fiduciaries selecting products that include private equity need to have the particular skills, knowledge and experience to evaluate the performance and fees of the underlying private fund portfolio. The 2021 Supplement explained how if the plan fiduciary does not possess this expertise, it may need to seek assistance from a qualified investment manager or other investment professional. It reiterated the importance of a plan fiduciary (i) engaging in an objective, thorough and analytical process for evaluating investment products with a private asset component and (ii) ensuring that the plan fiduciary possesses the requisite expertise to determine that the investment is (and continues to remain) prudent for the plan. Despite its cautionary tone, the 2021 Supplement was arguably no more than a reiteration of ERISA’s fiduciary principles as applied to investment decision-making.
Like the 2020 Letter and the 2021 Supplement, the Order does not substantively change the law and the attendant duties that ERISA plan fiduciaries have on behalf of participants. However, it reframes the issue of access to alternatives from a question to an affirmative right that all plan participants should have, where appropriate.2 It is even plausible to read the Order as saying that the administration takes the view that all plan fiduciaries should at least be considering the appropriateness of offering exposure to alternatives to their plan participants, instead of ignoring these types of products just because they are new or different from the funds a plan currently offers.
Separately, the Order directs the DOL to consider whether to rescind the 2021 Supplement, which was misconstrued by some as prohibiting 401(k) plans from investing in alternatives and arguably caused a chilling effect in the industry. The prospect of rescinding this guidance further evidences the Order’s overarching goal of eliminating barriers—real or perceived—to accessing alternatives by defined contribution plans.
Why It Matters –One of the biggest hurdles to overcome in offering alternatives to 401(k) plan investors is the pervasive litigation risk that has ensnared hundreds of ERISA plans over the last decade (as discussed in Key Takeaway #2). While the Order cannot eliminate the risk of getting sued, it should provide plan sponsors with some comfort in being able to say that access to alternatives reflects the official view of this administration, which might help sway sponsors where they would not have considered such asset categories previously.
As mentioned above, 401(k) plans are the subject of frequent class action lawsuits that target investment fees and service provider expenses, and we believe that this litigation risk has made plan sponsors hesitant to offer access to products containing private equity or other alternatives. Lawsuits alleging defects in the prudence of menu design and monitoring (which includes allegations that the investment options were too expensive) have become commonplace, and these cases often settle for large sums.
Despite these trends, there has been only one resolved case to date that has involved a defined contribution plan that invested in private equity and alternatives (Anderson v. Intel Corp. Investment Policy Comm., 579 F. Supp. 3d 1133 (N.D. Cal. 2022). In Intel, the plaintiffs claimed that the custom TDFs on the plan lineup, which included private funds, were imprudent because they underperformed and charged significantly higher fees than what the plaintiffs considered to be “peer” or “comparable” funds. The court dismissed the case in a powerful opinion, saying that simply labeling funds as peer or comparable is insufficient, and that they also had to demonstrate how the comparators had similar aims, risks and rewards to the funds at issue (See our Alert here for further information about this decision). Moreover, as the Ninth Circuit explained in its recent decision to affirm the lower court’s dismissal, “the fact that different kinds of funds with distinct objectives and approaches carried different fees does not by itself demonstrate imprudence. […] Anderson’s comparison to off-the-shelf funds that did not seek to mitigate risk to the same degree as Intel’s funds is not enough to show that the Intel funds’ fees were excessive to the point of imprudence.” (Anderson v. Intel Corp. Investment Policy Comm., 137 F.4th 1015, 1023 (9th Cir. 2025).
The Order recognizes how the specter of litigation has been a historical impediment to 401(k) plans expanding into alternatives and that the DOL must find ways to reduce this threat so that plan fiduciaries can feel less constrained in determining which investments are suitable for their participants.
Why It Matters – The combination of Intel and the Order’s directive to the DOL to address the litigation risk should help weaken the argument that alternative investments are too risky and exotic, and therefore, harder for a plan sponsor to select for 401(k) accounts. If an ERISA fiduciary adheres to a diligent process for evaluating and selecting investments that results in a determination that a particular investment is reasonably designed as part of the portfolio to further the purposes of the plan, then it should not be an issue for them to select a bespoke product like a custom TDF with alternatives exposure or a fund offered by a TDF provider that incorporates alternatives. As the district court explained in Intel, ERISA requires fiduciaries to act prudently, but it does not require that fiduciaries mimic the industry standard when making investments. Furthermore, an argument that the decision to provide exposure to alternatives represents a deviation from market practice should hopefully become less relevant as alternative investing becomes more widely accepted among plans going forward.
The Order broadly defines “alternative assets” as including:
- Private funds – 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;
- Real estate – Direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate;
- Cryptocurrencies – Holdings in actively managed investment vehicles that are investing in digital assets;
- Commodities – Direct and indirect investments in commodities;
- Project Finance and Infrastructure – Direct and indirect interests in projects financing infrastructure development; and
- Lifetime Income Products – Lifetime income investment strategies including longevity risk-sharing pools.
Notably, for cryptocurrency investments, the “direct or indirect” qualifier is not used and the Order limits digital currency holdings to actively managed funds. Nonetheless, it is clear that the Order takes an expansive view of what sorts of asset categories can be considered for 401(k) plans.
Why It Matters – One of the DOL’s first substantive actions on ERISA plan investments since President Trump’s second term commenced was its decision to rescind Biden-era guidance from 2022 that directed fiduciaries to “exercise extreme care” before they consider adding a cryptocurrency option to a 401(k) plan investment menu (Compliance Assistance Release (“CAR”) No. 2025-01) (See our Alert here for details). In the 2022 guidance, the DOL questioned the appropriateness of exposing a 401(k) plan’s participants to direct investments in cryptocurrencies or other products whose value would be tied to cryptocurrencies as a result of the significant risks of fraud, theft and loss that had been associated with the asset class. This signified a major deviation from the DOL’s traditional approach of not being paternalistic when it comes to selecting and reviewing investments and instead placing the focus on the process a fiduciary uses for making these decisions. CAR 2025-01 restores the DOL’s historical approach by “neither endorsing, nor disapproving of, plan fiduciaries who conclude that the inclusion of cryptocurrency in a plan’s investment menu is appropriate.”
Reading the Order in tandem with CAR 2025-01, it is clear that the DOL has fully reverted to its historic neutral approach to plan investment selection. There is a stronger argument now for the proposition that the universe of permissible investments for an ERISA plan is wide and that the DOL is supporting fiduciaries in their investment decision-making, without limiting choices based on investment type. When the chosen strategy is the result of the plan fiduciary appropriately balancing potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments, it is not for the DOL to impose prohibitions or put its thumb on the scale.
As just noted, the Order contemplates a wide array of investment categories as qualifying as alternative assets; however, it also envisions that exposure will be facilitated via asset allocation funds (such as CIT TDFs). Specifically, the Order tasks the DOL with undertaking the following directives (among others) within the next 180 days:
- Reexamining its past and present guidance regarding a fiduciary’s duties under ERISA, in connection with making available to participants an asset allocation fund that includes investments in alternative assets;
- Clarifying its position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets under ERISA; and
- Clarifying the duties that a fiduciary owes to plan participants under ERISA when deciding whether to make available to plan participants an asset allocation fund that includes investments in alternative assets.
In accordance with the 2020 Letter, many of the alternatives products that managers have developed in recent years utilize an asset allocation fund structure where alternatives exposure is limited to a sleeve in a CIT TDF or a managed account (whether it is a single manager of a TDF or multiple managers). The structure outlined here depicts an example of the TDF approach for offering alternatives.
Why It Matters – Having a safe harbor for offering alternatives (which would likely build upon what the DOL described in its 2020 Letter) could help managers looking to enter the 401(k) market—with the caveat that any sort of relief the DOL provides is commercially workable. That said, we think there is no reason to wait for this guidance in order to design and offer products. Instead, managers would be better suited to move forward with development now, and then adapt and conform their offerings whenever the DOL ultimately provides additional guidance.
In addition to the items mentioned in Key Takeaway #4, the Order directs the DOL to consult with the SEC, Treasury, and other federal regulators as necessary to carry out the policy objectives of the Order, including, as to parallel regulatory changes that may be incorporated by such other federal regulators. It also calls on the SEC, in consultation with the DOL, to consider ways to facilitate access by, for example, “consideration of revisions to existing SEC regulations and guidance relating to accredited investor and qualified purchaser status.” Unlike the DOL directives with their 180-day deadlines,3 the Order does not require the SEC or Treasury to take specific actions by a certain date. Instead, the Order conveys the message that while the agencies need to collaborate in expanding alternatives access for retirement plans, it is the DOL that will be sitting in the regulatory “driver’s seat.”
Recently, members of the SEC have shown serious interest in exploring ways to promote greater investment diversification for retail investors. For example, at the Third Annual Conference on Emerging Trends in Asset Management in June, SEC Commissioner Hester Peirce explained how the SEC’s “rules and regulations along with Commission staff positions have contributed to keeping retail investors out of the private markets” and that the SEC “should consider how to amend the ‘accredited investor’ definition in the Commission’s rules so that more people are eligible to invest in the private markets” and help the “many retail investors who resent being cut off from an increasingly large segment of the market.”4 Furthermore, with respect to inclusion of alternative investments in retirement savings plans, the SEC’s Office of the Investor Advocate noted in its latest report to Congress where it announced its policy objectives for fiscal year 2026, how the Investor Advocate will consider, among other things, the “interplay between the investor protection issues in this area (i.e., limited liquidity and reduced disclosure) and the often complex issues that arise under ERISA, such as fiduciary duties, when defined contribution plans offer these investment products.5
Why It Matters – If the Order had mandated the issuance of tri-agency regulations or guidance to move forward, that could significantly delay being able to bring products to market. That said, in light of the SEC’s already elevated interest in this area, the Order’s calls for collaboration and the suggestions of measures the Commission can pursue should provide further momentum for new guidance being adopted.
