Trump Executive Order Expands 401(k) Access to Private Equity and Alternatives

In August, President Donald Trump signed an executive order aimed at expanding 401(k) retirement plan investment options to include private equity and other alternative assets. This initiative directs the Department of Labor and other federal agencies to review and adjust regulations to enable these investments, which have traditionally been limited to high-net-worth investors and institutional portfolios. Proponents argue that this change could increase diversification and improve returns for average retirement savers.

At the Employee Benefit Research Institute’s Virtual Policy Forum, experts discussed the potential impacts of this policy shift. The inclusion of private market assets in defined contribution plans like 401(k)s is seen as a form of democratization, providing everyday investors access to investment vehicles previously restricted to wealthier individuals. Market studies suggest that reallocating even 10% of retirement assets to alternatives could transfer trillions from traditional investments to alternative vehicles over the next decade.

Surveys indicate strong public support for the executive order, with a majority of retirement plan participants expressing a preference for investment menus that mirror those available to institutional investors. However, concerns persist regarding the higher fees, limited transparency, regulatory challenges, and illiquidity associated with alternative asset classes. Consumer advocacy groups and some policymakers caution about the risks these factors pose to retirement plan participants.

Fiduciaries overseeing retirement plans must balance these opportunities and risks, acting prudently and in the best interest of plan participants as mandated by ERISA regulations. Industry leaders emphasize that private market investments in 401(k) plans are expected to be offered through professionally managed, diversified, and multi-asset solutions that address liquidity and transparency requirements rather than direct investment in private equity.

Plan sponsors and financial services firms are currently engaging in educational activities to understand the implications of this executive order and explore potential implementation strategies. While interest is growing, stakeholders acknowledge that the market is primarily in the early stages of evaluating how to integrate alternative investments into retirement plan offerings effectively.