President Trump signed an executive order on Thursday that aims to make it easier to include alternative assets like private equity, cryptocurrency and real estate inside 401(k) and related employee retirement plans. Together, the accounts hold $12.2 trillion in retirement savings.
The order directs the Labor Department, which oversees retirement plans, to re-evaluate its fiduciary guidelines related to these investments, as well as to clarify its position on the proper process when offering funds that include alternative assets.
There is nothing explicitly prohibiting plan operators from adding these types of investments now, and it is still too early to know how aggressively federal regulators will interpret Mr. Trump’s green light and what the implications may be. But the embrace of alternatives is a significant shift from the Biden administration, which issued a warning about the dangers of crypto investing, something the Trump administration recently rescinded.
Still, the underlying law governing retirement accounts, the Employee Retirement Income Security Act, isn’t changing. Known as ERISA, it requires fiduciaries — the employers or plan administrators entrusted with the plans — to act solely in the best interests of employees, which includes choosing prudent investment options.
Are Bitcoin and other volatile digital assets prudent investments? Regardless of any executive order, it’s a case that employers would need to consider and be able to defend, and they tend to tread carefully across all asset types.
Even though crypto has become increasingly available to mainstream investors through vehicles like exchange-traded funds, it remains a rare in retirement plan menus. Private equity, which involves investments that are not publicly traded, isn’t widely accessible to retirement investors at the moment, but some large financial services companies, including BlackRock, are developing products that contain them, including a target-date fund that is expected to be released in the first half of next year.
Arthur Laby, vice dean and a professor at Rutgers Law School, said executive orders are meaningful because they “add an important ingredient into the complex recipe” that determines when a fiduciary, such as an employer, has failed to uphold its duty. The orders can shape the national debate and direct federal agencies on how to carry out laws or policies — but they have limits.
“Executive orders can be influential, but they do not necessarily erase well-developed fiduciary law jurisprudence honed by the courts over many decades,” Mr. Laby added.
Employers have long been fearful of being sued for investment options that can be viewed as imprudent, or simply too expensive, which is why the shift isn’t expected to set off a rush to significantly overhaul 401(k) plan menus or load them up with digital assets like crypto, for example.
Betterment, an investment advisory firm that provides employer 401(k) plans and separately, cryptocurrency portfolios, does not make digital assets a standard option in its own 401(k) offerings.
The management and investment selection of 401(k) plans are “governed by fiduciary rules, which require an employer — and any adviser they may be working with — to review the investments to ensure they have fair fees and performance in line with general market returns,” said Edward Gottfried, a vice president at Betterment, which manages $19 billion in retirement assets.
Labor Secretary Lori Chavez-DeRemer applauded the order, noting that the department wants to ensure that alternative-asset investments are more accessible to plan participants.
“This executive order further supports our efforts to improve flexibility and eliminate unfair one-size-fits-all approaches,” she said in a statement.
If more employers begin to wade into alternatives, legal experts say, they will need to do even more vetting given that many of these investments, by nature, are more opaque.
“The whole nature of private equity is it’s private, not public,” said Jerome Schlichter of Schlichter Bogard & Denton, a law firm in St. Louis, who gained a reputation for suing employers over retirement plans that workers thought were mismanaged and too expensive.
“If fiduciaries consider putting these kinds of funds in their plans, they’ll have to do much more work, a much deeper dive and much more investigation into what those underlying private equity investments are and their fees,” he added.
The executive order also directs Ms. Chavez-DeRemer to consult with Treasury Secretary Scott Bessent, the Securities and Exchange Commission and other federal regulators to determine whether regulatory changes should be made in other agencies to help carry out the order.
“The executive order seems like it’s more of a starting gun,” Mr. Gottfried of Betterment added.