The Trump administration’s recent executive order directing the Department of Labor to open 401(k) plans to alternative investments like private equity and cryptocurrency may sound appealing, but from a legal perspective, this policy shift creates serious problems for plan sponsors and puts workers’ retirement savings at unnecessary risk.
What’s Happening
On August 7, 2025, President Trump signed an executive order called “Democratizing Access to Alternative Assets for 401(k) Investors.” The order tells the Department of Labor to make it easier for 401(k) plans to offer investments like private equity, real estate funds, and cryptocurrency—investments that have traditionally been available only to wealthy individuals and institutions.
The administration argues that regulatory barriers have unfairly prevented 90 million Americans from accessing these potentially lucrative investments. But there’s a big problem with this logic.
The Legal Problem for Plan Sponsors
Under federal law (specifically ERISA), companies that sponsor 401(k) plans have a legal duty to act like prudent experts when choosing investments for their employees. They must put workers’ interests first and choose investments that are appropriate and reasonably priced.
This becomes nearly impossible with alternative investments because they are:
- Hard to understand: Private equity deals are complex and secretive—you can’t just look up their value like you can with a stock
- Extremely expensive: While a typical stock fund charges about 0.5% in fees, private equity typically charges 2% plus takes 20% of any profits
- Risky and illiquid: Your money can be locked up for years with no guarantee of returns
How can a plan sponsor fulfill their legal duty to choose prudent investments when they can’t properly evaluate what they’re buying?
The Worker Protection Problem
Federal retirement law exists to protect ordinary workers who aren’t investment experts. Most 401(k) participants don’t understand the difference between stocks and bonds, let alone complex private equity structures.
Introducing these sophisticated investments to everyday workers could be disastrous. The promise of “getting rich” in private markets could lead people to put too much of their retirement savings into investments they don’t understand, potentially wiping out decades of careful saving.
There’s also a quality issue: the best private equity deals go to big institutional investors. What’s left for 401(k) plans are likely the investments that sophisticated buyers don’t want.
Legal Risk Hasn’t Gone Away
While the executive order signals political support for these investments, it doesn’t change the underlying legal standards. If workers lose money in alternative investments, companies can still be sued for breach of their legal duties.
The complexity of these investments makes it much harder and more expensive for companies to defend their decisions, requiring:
- Extensive expert analysis
- Specialized consultants
- Complex monitoring systems
- Detailed worker education programs
A Safer Approach
Instead of rushing into complex alternatives, plan sponsors should stick to what works: low-cost, diversified funds that workers can understand, combined with good education about retirement saving basics.
If alternative investments are offered at all, strict protections should be required:
- Limit them to no more than 5-10% of someone’s account
- Require extensive education before workers can invest
- Cap the fees these investments can charge
- Require regular monitoring and reporting
Bottom Line
While giving workers access to more investment options sounds good in theory, the reality is that most alternative investments are complex, expensive, and inappropriate for typical retirement savers.
Companies sponsoring 401(k) plans should be very cautious about adding these investments, regardless of political pressure. Their primary legal obligation is to protect workers’ retirement security, not to provide access to every investment product Wall Street wants to sell.
The safest and most prudent approach remains simple: stick to low-cost, diversified investment options that workers can understand and that have a long track record of helping people build retirement wealth. When it comes to retirement savings, boring is often better.
Disclaimer: The author is an ERISA attorney, not a financial advisor. This article is intended for informational and educational purposes only and does not constitute legal or financial advice. Readers should consult with qualified legal and financial professionals regarding their specific circumstances.