- Trump’s order paves the way for 401(k) investments in crypto, private equity, and real estate.
- Survey shows one in four workers has only a year or less of income saved for retirement.
- Critics caution against increased risk, minimal liquidity, and complicated fee structures for savers.
President Donald Trump has signed an executive order that has the potential to transform the way Americans invest in retirement, allowing 401(k) plans to invest in alternative assets like cryptocurrencies, private equity, and real estate. The directive instructs the Securities and Exchange Commission, the Department of Labor, and the Treasury Department to revise the definition of permitted investments under the Employee Retirement Income Security Act of 1974.
This change is set to expand the range of options available to retirement savers beyond the traditional mix of stocks, bonds, cash, and select commodities like gold. While these conventional allocations will remain, workers could soon diversify into digital and private markets.
The move builds on a May decision by the DOL’s Employee Benefits Security Administration to rescind guidance from the Biden era that warned plan fiduciaries to exercise “extreme care” before adding cryptocurrency options to 401(k) menus. U.S. Secretary of Labor Lori Chavez-DeRemer welcomed the policy shift, stating that the federal government “should not be making retirement investment decisions for hardworking Americans.”
The push for broader investment flexibility comes at a time when confidence in retirement readiness is faltering. A recent survey by Northwestern Mutual found that one in four workers with retirement savings has set aside only a year or less of their current annual income.
Half of respondents believe they are somewhat or very likely to outlive their savings, and more than a third have taken no action to address that risk. Just 16% expressed strong confidence that their retirement funds would last for the rest of their lives.
Uncertainty Clouds Market Outlook
The policy shift could open the door for alternative asset managers to tap into trillions of dollars in U.S. retirement savings. Advocates state that it will increase investment opportunities and generate a chance of higher yield. However, opponents caution that it may also bring in more risk, illiquidity, and complicated fee systems to retirement portfolios.
One such, Christopher Bailey, director of retirement at Cerulli Associates, cautioned that these asset classes have never been tested in a severe market downturn. “There are liquidity concerns, issues around fees, among others,” he said, noting the potential for volatility to strain retirement accounts.
Speaking to Reuters, Philitsa Hanson, head of product for equity and fund administration at Allvue Systems, said the conversation is missing an important point. “I don’t think people are talking enough about the potential for higher fees,” she noted. Hanson added that the executive order “raises more questions than answers” and will require careful planning to determine how such assets can fit within 401(k) structures.
Legal uncertainty adds another layer of complexity. A lengthy lawsuit over Intel’s inclusion of hedge funds and private equity in its retirement plans lasted seven years before being dismissed. Consequently, attorneys at Debevoise & Plimpton warn that without additional regulatory safeguards, plan sponsors could face similar prolonged litigation, making some providers hesitant to embrace the change.
From Policy to Practice
Turning policy into practice will take time. The Labor Department must first issue updated guidance before major providers such as Fidelity and Vanguard can create compliant funds for employers. Developing these products, revising plans, and integrating new asset classes into existing systems could take years.
Past experience suggests a cautious rollout. When certain private investment restrictions were eased in 2020, adoption was limited. Many providers hesitated, citing high costs, legal exposure, and the challenge of fitting illiquid assets into platforms designed for securities traded daily.
Thus, industry analysts are expecting a slow start, particularly for cryptocurrency allocations within retirement accounts. While the executive order creates new possibilities, its success is set to depend on how effectively providers address issues of cost, transparency, and investor protection. Until then, adoption is likely to be gradual, with meaningful change unfolding over the long term.
