The Thoughtful Fiduciary’s Guide to Alternative Assets for 401(k) Investors

President Donald Trump issued an Executive Order on Aug. 7, 2025, expanding access for 401(k) plan investors to alternative assets. This alert provides a summary of what the order does and does not do, and offers fiduciaries and others who work with 401(k) plans a framework for evaluating next steps.

The order does:

  • Direct Department of Labor (DOL) to Review Past and Present Guidance: The DOL must review past and present guidance regarding fiduciary duties associated with making “alternative assets” available for investment by retirement plan participants and already rescinded prior guidance that was skeptical of the appropriateness of alternative assets in defined contribution plans. Alternative assets subject to the order are private market investments (equity or debt) not publicly traded (e.g., private equity and hedge funds), real estate, digital assets (e.g., crypto currencies), commodities, infrastructure finance and lifetime income investment strategies, including longevity risk-sharing pools.
  • Require DOL to Issue New Guidance: The order requires the DOL to issue guidance “clarifying” the department’s position on alternative assets and the fiduciary process associated with offering them as investment options. The DOL is encouraged to identify criteria fiduciaries may rely upon when evaluating potentially higher expenses against the objectives of obtaining greater long-term net returns and broader diversification of investments. The order contemplates that the government could issue safe harbors that fiduciaries may rely upon when they evaluate alternative assets as well as actions to curb litigation.
  • Promote Interagency Cooperation: The DOL and Securities and Exchange Commission (SEC) will work together as needed to carry out the order.
  • Provide SEC Support: The SEC must consider ways to facilitate access to alternative assets by defined contribution plan participants, which may result in revisions to SEC accredited investor and qualified purchaser standards.

The order does not:

  • Change ERISA Fiduciary Standards: ERISA’s fiduciary standards of prudence and loyalty do not change. The existing fiduciary standards and processes applicable to the evaluation of investment options continue to apply to the evaluation of alternative assets.
  • Require Inclusion of Alternative Assets in Retirement Plans: Fiduciaries are under no obligation to include any asset class, traditional or alternative, as an investment option under their retirement plans.
  • Provide Guidance or Safe Harbors: The order directs the DOL to evaluate its standards and issue new guidance and instructs the SEC to clear securities law red tape, but neither agency has issued guidance yet.

In light of the order, companies should consider the following:

  • Update Fiduciaries: As with any legal development impacting retirement plans, provide fiduciaries and others who work with the company’s retirement plan an update regarding the order. Consider leveraging legal support and including investment advisers and/or managers in the discussion.
  • Monitor Forthcoming Guidance: The order indicates the Trump administration will pay increased attention to alternative assets. Continue to watch for new guidance from the DOL and SEC and evaluate its impact when released.
  • Understand Alternative Asset Classes: Many, if not all, of these alternative asset classes may be foreign to fiduciaries since they historically have not been included as investment options in defined contribution plans such as 401(k) plans. Fiduciaries should work with their investment advisers to understand the strategy, underlying assets, risk profile, liquidity opportunities, valuation considerations, fees and other costs associated with the alternative assets contemplated by the order. Alternative asset classes tend to have their own lexicon that can present a learning curve. For example, private equity asset managers earn “carry” while real estate funds take a “promote.” Both words refer to a profits interest arrangement constituting part of the fee earned by asset managers.
  • Understand Investment Requirements: Fiduciaries should review investment policy statements or guidelines, which frequently dictate a list of permissible asset classes for a plan and the procedure to follow to facilitate a prudent review of any new investment option. Fiduciaries interested in including new asset classes may need to update policies or guidelines.
  • Tread Carefully: The Biden administration looked skeptically at including alternative asset classes as retirement plan investment options. While the current administration is open to their use in defined contribution plans, companies should know the pendulum may swing the opposite direction in a few years. Fiduciaries should take a lesson from the pingpong nature of ESG guidance emanating from the DOL since the Clinton administration when thinking about how quickly to jump into alternative assets. Basing decisions on the pecuniary interests of plan participants following a well-documented, methodical and prudent evaluation process is critical to protect plan participants and fiduciaries.

Fiduciaries of defined contribution plans should expect to encounter new product offerings over the coming months and years. The most likely initial offerings of alternative assets will come in the form of target date funds that include such assets as a portion of the total asset allocation mix, but there are some “pure” alternative asset funds in the works.

Fiduciaries may wish to revisit the offerings available under self-directed brokerage accounts, as many already provide access to some or all of the alternative asset classes covered by the order.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

© McGuireWoods LLP

Written by:

McGuireWoods LLP
Contact
more
less

PUBLISH YOUR CONTENT ON JD SUPRA NOW

  • Increased visibility
  • Actionable analytics
  • Ongoing guidance

McGuireWoods LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide