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Executive Order Could Open Door for Alternative Investments in DC Plans

By Strategic Retirement Partners

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On August 7, President Trump signed an executive order (EO) directing the Secretary of Labor to, among other things, “reexamine the Department of Labor’s guidance on a fiduciary’s duties regarding alternative asset investments in ERISA-governed 401(k) and other defined-contribution plans.”i  This is a stance widely seen as encouraging the consideration of alternative assets in defined contribution plans, including 401(k)s and 403(b)s.

Here’s What You Really Need to Know:

  • The EO states that it is “the policy of the United States that every American preparing for retirement should have access to funds that include investments in alternative assets.” That policy is, however, conditioned to situations when the plan fiduciary determines that such access provides an appropriate opportunity for plan participants to enhance their net risk-adjusted returns.
  • While no action is necessary or required from the EO for plan fiduciaries, it sets in motion the possibility of a less restrictive regulatory view on “alternative” assets, such as private markets, private credit, real estate, and digital assets.
  • The EO calls out “burdensome lawsuits that seek to challenge reasonable decisions by loyal, regulated fiduciaries” as well as “stifling Department of Labor guidance” that it says has “denied millions of Americans opportunities to benefit from investment in alternative assets.”

While investments in alternative assets have long been a part of defined benefit plans and endowments, their use by defined contribution plans hasn’t been as widespread. Specifically, alternative assets have been viewed as relatively illiquid, difficult to value, less transparent to benchmark and evaluate, and with higher fees than more traditional defined contribution investment options.

Let’s Dive In…

Background Regarding Private Equity

In June 2020, the Department of Labor (DOL) published an information letter requesting guidance on the inclusion of private market investments in a designated investment alternative (DIA) (including custom target-date funds).ii The 2020 guidance identified factors that plan fiduciaries should consider when evaluating DIAs with a private equity component, and concluded that a plan fiduciary would not violate ERISA fiduciary duties solely because the fiduciary offers a fund with a private equity component.

In December 2021, the DOL supplemented, but did not revise the earlier 2020 letter, in response to comments received.iii  That supplemental statement cautioned that its earlier communication was not “balanced with counter-arguments and research data” concerning the risks of private equity investments and proceeded to note those potential issues, including a lack of standardized performance metrics, potentially inadequate disclosures to plan participants, and liquidity restrictions.  It also warned that only a “minority of situations” would likely involve plan-level fiduciaries with appropriate experience evaluating private equity investments and particularly cautioned smaller plans who might not have appropriate experience with private equity. This was widely viewed as a cautionary signal regarding these types of investments, though not a prohibition.

Background Regarding Cryptocurrencies

On March 10, 2022, the DOL issued Compliance Assistance Release No. 2022-01 regarding 401(k) plan investments in cryptocurrencies.  While this did not prohibit consideration of those investments, it directed plan fiduciaries to exercise “extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.”iv On May 28, 2025, the DOL rescinded that prior guidance on cryptocurrency in full explaining that prior to the 2022 release, it had usually articulated a neutral approach to particular investment types and strategies and positioned the new guidance as restoring that historical approach by “neither endorsing, nor disapproving of, plan fiduciaries who conclude that the inclusion of cryptocurrency in a plan’s investment menu is appropriate.”v

In rescinding that prior guidance, the DOL reminded plan fiduciaries that ERISA itself requires that a fiduciary curate a plan’s investment menu “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims” for the “exclusive purpose” of maximizing risk-adjusted financial returns to the plan’s participants and beneficiaries.

What’s Next

Over the next 180 days, the Secretary of Labor has been directed to “clarify” the DOL’s position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets. The Secretary of Labor has also been tasked to consult with other agencies (Treasury and the Securities and Exchange Commission) “to determine whether parallel regulatory changes should be made at those agencies to give effect to the purpose of the Order.”  It also directs the SEC “to facilitate access to alternative assets for participant-directed defined-contribution retirement savings plans by revising applicable regulations and guidance.”

Considerations for Plan Sponsors

Given the likely outcome of this direction, plan fiduciaries should assess whether such investments align with the needs of the plan’s participants and beneficiaries. This may require an evaluation of the level of sophistication of participants in the plan to understand such investment options. In doing such an evaluation and considering such early discussions, plan fiduciaries should note that there is a specific reference in the EO regarding the inclusion of private market investments as part of an asset allocation fund, rather than a stand-alone investment option on the plan menu, though of course the review and final recommendation might be different.

 

[i]The White House, “Democratizing Access to Alternative Assets for 401(k) Investors” (2025) https://www.whitehouse.gov/presidential-actions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/

[ii] U.S. Department of Labor, “Information Later 06-03-2020” (2020), https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020

[iii] U.S. Department of Labor, “U.S. Department of Labor Supplement Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives” (2021), https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020-supplemental-statement

[iv] U.S. Department of Labor, “Compliance Assistance Release No. 2022-01″ (2022), https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01

[v] U.S. Department of Labor, “Compliance Assistance Release No. 2025-01″ (2025), https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2025-01

contribution options
contribution options

Note: Catch-up contributions can either be made on a pre-tax, or post-tax (Roth) basis, depending on what your specific plan allows. However, beginning in 2026, individuals making $145,000 or more can only make catch-up contributions on an after-tax (Roth) basis.

Deadlines to Keep in Mind: December 31 each year.

Consider Contributing to a Health Savings Account

A health savings account (HSA) can be a great way to help you set money aside for healthcare expenses in retirement, but it also offers several tax advantages today. Here’s why HSAs are
sometimes called the “triple tax advantage”:

  1. Contributions are pre-tax (or tax-deductible) – just like your retirement plan
  2. Growth is tax-free; any interest, dividends or investment gains are not taxed
  3. Withdrawals are tax-free when used for qualified medical expenses (things like doctor visits, prescriptions, dental, vision, or even over-the counter items)

Deadlines to Keep in Mind: December 31 of each year.

Note: While many employers offer an HSA benefit, yours may not. Be sure to confirm whether an HSA is available to you. Even if an HSA is not available through your employer, you may still be able to contribute to an HSA directly if you have a high-deductible health plan.

year end tax tips

Avoiding Tax Penalties

Two of the most common, and costly, retirement account penalties to watch for are:

  1. Early Withdrawals: If you withdraw funds before age 59½, you will be subject to a 10% early withdrawal penalty
  2. Required Minimum Distributions (RMDs): If you’re 73 or older in the current year, the Internal Revenue Service (IRS) requires that you take a calculated portion from your retirement account by December 31 (with an exception for your very first one, which can be delayed until April 1 of the following year)
    • Missed RMDs may trigger a penalty of up to 25% of the amount not withdrawn, plus income tax owed on the distribution
    • The IRS provides worksheets and calculators to help determine your required withdrawal amount, and your retirement plan recordkeeper may also help calculate your RMD amount

To calculate the amount that you must withdraw, see Retirement topics – Required minimum distributions (RMDs) | Internal Revenue Service

Deadlines to Keep in Mind: RMDs from traditional IRAs and most workplace plans must be taken by December 31(first-time RMD takers may have until April 1 of the following year)

Other Year End Considerations

  • Roth vs. Pre-Tax: If you expect higher tax rates in the future (e.g., in retirement), consider Roth contributions now so that you’ll pay taxes today but avoid them later
  • Consolidating Old Accounts: If you have retirement accounts from previous employers, consider consolidating for easier management and potentially reduced fees
  • Charitable Giving from Retirement Accounts (Qualified Charitable Distributions, QCDs): If you are age 70½ or older, you can donate up to $108,000 per year directly from your IRA to charity, reducing your taxable income and satisfying your RMD

Action Items for Participants

For participants who are still employed:

  • Review your year-to-date contributions to see if you can afford to contribute more, and
    adjust your contribution amounts to take advantage of additional tax deductions
  • Check your eligibility and status for catch-up or super catch-up contributions
  • Review and update beneficiary designations
  • Gather and organize tax documents related to your retirement accounts

For participants in retirement:

  • Confirm you’ve taken (or scheduled) your annual RMD, if applicable
  • Review and update beneficiary designations, as even in retirement, it is important to keep this information current
  • Gather and organize tax documents related to your retirement distributions

 

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