Benefits

401(k) Alternative Investments: New Risks and Rewards for Employers

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Last Updated: August 11, 2025

3 minute engagement

On Aug. 7, 2025, President Trump signed an executive order expanding 401(k) plans’ ability to include alternative investments – such as private equity, real estate, and cryptocurrencies – broadening options beyond traditional stocks and bonds.

Jaime Magyera, Head of Retirement at BlackRock, called the executive order “a major step forward in modernizing retirement plans for everyday savers” in a recent LinkedIn post. She emphasized that expanding access to private market investments will help Americans better prepare for retirement. Magyera noted that BlackRock is already working on solutions to thoughtfully integrate these assets into 401(k) plans.

However, it’s important to note that the executive order sets a policy direction rather than immediate changes.

It directs federal agencies – primarily the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) – to develop new rules and guidance by early 2026, including possible regulatory safe harbors that protect fiduciaries who prudently offer alternative investments in 401(k) plans. These safe harbors aim to reduce litigation risk and clarify due diligence standards.

Plan sponsors shouldn’t expect immediate changes – final rules are still pending, and implementation will follow once they are issued.

With the executive order in place, employers and finance teams need to start preparing for the governance and operational challenges that will come once the new regs take effect.

What Employers Need to Know About 401(k) Alternative Investments

Alternatives haven’t been allowed in 401(k) plans before because they’re illiquid assets and hard to price. That means these investments can’t easily be turned into cash, and it’s often difficult to know exactly what they’re worth at any moment.

Finance teams should begin preparing for higher-risk, higher-cost options. These investments usually come with complex fees and longer redemption periods, requiring finance teams to rethink plan liquidity and participant transactions.

Governance Risk on the Rise

Finance teams will need to strengthen their due diligence to meet ERISA fiduciary duties. Failing to review these investments or communicate their risks to employees could expose employers to legal liability.

The standard for prudence is higher with alternative investments, making thorough documentation of decision-making essential.

Vendor Oversight and Operational Complexity

Finance teams need to carefully evaluate fees, liquidity restrictions and valuation methods. They should work with recordkeepers and investment advisors to ensure alternative investments fit into the plan and comply with all regulations. Because these assets are not easily sold, processing participant transactions can take longer and may require specialized reporting.

Cost and Communication Concerns

Alternative investments usually have higher fees than traditional funds, which raises questions about their value to participants.

If these investments perform poorly or unexpectedly lose money, employees may become dissatisfied. That’s why clear and ongoing communication is essential. Employers need to make sure participants understand these options are voluntary and may not be right for everyone.

Employers must ensure participants are fully informed about the risks and suitability of alternative investments. These options require active enrollment – they are not automatic.