Laying the Groundwork for Private Equity, Crypto in Your 401(k) Plans

Will there be a rapid groundswell of private-equity and cryptocurrency offerings in employee-sponsored retirement plans following U.S. President Donald Trump’s recent executive order about facilitating access to alternative investments in 401(k) plans?

Not exactly, experts say — but that doesn’t mean organizations shouldn’t start having conversations about if these changes make sense for them and how to eventually implement them.

Shortly following the Aug. 7 executive order, “Democratizing Access to Alternative Assets for 401(k) Investors,” the Department of Labor (DOL) rescinded its 2021 statement saying most fiduciaries of 401(k) and similar plans were likely not suited to evaluate and incorporate private-equity investments in those plans.

Earlier this year, the DOL also rescinded guidance discouraging fiduciaries from including cryptocurrency options in retirement plans. And shortly before the release of the executive order, the Securities and Exchange Commission (SEC) indicated it would no longer cap private-fund investments at 15% in retail closed-end funds, indicating the types of policy and oversight shifts that may continue to emerge.

Secretary of Labor Lori Chavez-DeRemer has 180 days from the date of the executive order to provide updated guidance about the inclusion of alternative assets in defined-contribution retirement savings plans. However, even after that step, additional guidance from the Treasury Department and SEC — the latter requiring a public comment period — may take several more months before formal regulations are implemented, said Matt Cohen, a partner at Seyfarth Shaw LLP, a law firm that includes alternative investment vehicles among its specialties.

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• Decision Framework: Do Alt Assets Have a Place in Your 401(k)?

The Outlook: Private Equity and Crypto

Types of alternative assets that may be impacted by these changes include private equity and private credit, real estate, digital assets such as cryptocurrency, commodities, infrastructure investments and lifetime income vehicles such as longevity risk-sharing pools.

“When we’re talking about this new era of adding alternative investments, I think primarily where the energy is going to go is private equity and then crypto,” said Lisa A.K. Kirchenbauer, the founder and president of Omega Wealth Management, a financial planning and advisement firm. “The rest of it is even more obtuse, and the education required to get plan participants comfortable with being able to invest may be a hurdle that most plan sponsors don’t want to bother with.”

However, Kirchenbauer pointed out cryptocurrency is the trickiest area compared to what she described as more “traditional” alternative investments. The lack of full regulation on cryptocurrency creates more liability for a fiduciary plan sponsor.

“You might see some plan sponsors and custodians get comfortable with your traditional alternative investments in a somewhat diversified fund structure, but crypto is a whole different ball game,” she said. “There’s a lot to work through on this. Conceptually, it sounds cool — it’s 2025; we’re moving forward — but the ERISA world is a different world. There are going to be a lot more hoops.”

The Employee Retirement Income Security Act (ERISA) is a federal law that protects the interests of participants in private-industry employee benefit plans, including retirement and health plans.

Augmented Fiduciary Duties

Incorporating alternative investments in workplace retirement plans creates elevated levels of fiduciary duty for those overseeing 401(k)s and similar plans. Such individuals are tasked with ensuring participants’ plan assets are responsibly managed and protected.

“The level of risk involved in the investment profile for a private-equity fund versus an equity ETF [exchange-traded fun] or other freely tradable securities is completely different — it’s apples and oranges,” Cohen said. “It’s great to provide everyone the option, but it will require having certain protections in place.”

As an example: Private equity and other types of alternative investments can be less liquid, requiring invested funds to be “locked up” for a period of time — often years. That means a participant would be blocked from liquidating and withdrawing invested funds during that period, which could impact individual retirement account (IRA) rollovers or required minimum distributions as workers enter retirement.

“Many people have a 401(k) to have liquidity later in life, so how do you provide that liquidity when some of these private funds have 10- or 12-year lockups?” Cohen noted. “It’s a double-edged sword. There is the fiduciary duty to analyze whether or not to offer the option of private funds to your plan participants but then also the fiduciary duty of making sure your plan participants are protected, informed and understand how the investments work and who the fund sponsors are.”

Next Steps for Organizations

Businesses may find there is significant interest among their workers in accessing these offerings. Recent research from global investment manager Schroders showed almost half (45%) of 401(k), 403(b) and 457 workplace retirement savings plan participants said they would invest in private equity or private debt if it were made available in their employer’s plans. That’s up from 36% interest in 2024. However, most participants don’t anticipate seeing those options in their plans for several years or more.

Employers looking to make sense of these changes should keep an eye out for additional guidance in the coming months and years — from the DOL, Treasury Department and SEC. In the meantime, Cohen and Kirchenbauer offered direction for deciding whether these shifts make sense for your organization and for laying initial groundwork:

• Determine if your corporate investment committee is on board with offering alternative investments as part of your organization’s plan.
• Find out if your investment provider will include alternative assets at all in its platform.
• Assess employee familiarity and interest, and consider other relevant factors such as average employee age and time until retirement.
• Explore education and training needs and opportunities — for plan participants and those individuals overseeing your plan.

Regardless of your conclusions about alternative assets at this moment, pondering the question offers a good opportunity to conduct a full review of the options you currently extend to workers, Kirchenbauer said.

“In this particular circumstance, we really need more detail on what’s going to be expected of plan providers — the trustees of the plan, the fiduciaries — because that may drive the decisions for a company deciding to add this or not add it,” she said. “Plan sponsors are going to need to wait for more guidance before they spend too much time on this.”

Editor’s Note: Additional Content

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