Up to now, federal regulation has largely kept the riskiest kinds of investments out of your 401(k). That could be about to change.
Last August, President Trump issued an executive order titled “Democratizing access to alternative assets for 401(k) investors.” To implement his order, the U.S. Department of Labor announced a proposed rule change March 30, and took public comment on it through June 1. The overwhelming majority of the 47,103 comments received were opposed to the rule change. But now that the department has satisfied that notice-and-comment requirement, it could finalize the rule in the coming months.
The change has to do with employer-sponsored “defined-contribution” retirement plans. Those plans are called 401(k)s based on the section of the 1978 federal tax law that authorized their creation. Each pay period workers (and sometimes their employers) contribute funds to a 401(k) plan; the funds are invested and their value grows tax-free until the employee retires. Workers are given a menu of investment choices, but employers (or employer and union trustees in the case of collectively bargained plans) choose which items are on the menu.
Traditionally, the menu of investment choices for workers participating in a 401(k) has included low-risk options like bond funds, higher-risk options like stock market mutual funds, and “target-date” funds that mix bonds and stocks and shift the mix towards safer bond investments as a target retirement date nears.
Both bonds and stocks produce income and are “liquid” — easily sellable — in markets that are regulated for the protection of investors. That’s much less the case with so-called alternative assets. What’s an “alternative asset”? As defined by Trump’s executive order, alternative assets include:
“holdings in actively managed investment vehicles that are investing in digital assets” (for example, cryptocurrency)
“private market investments … that are not traded on public exchanges” (i.e., hedge fund and private equity investments);
“direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate”;
“direct and indirect investments in commodities” (like gold, oil, or soybeans);
“direct and indirect interests in projects financing infrastructure development”; and
“lifetime income investment strategies including longevity risk-sharing pools” (i.e. annuities).
Up to now, 401(k) plans haven’t given workers options to invest in those things because under a 1973 law known as ERISA, plan sponsors and trustees have a legal obligation as “fiduciaries,” meaning that they have to act prudently in the interest of beneficiaries. Trump’s list of alternative investments includes purely speculative assets that don’t generate income (such as cryptocurrency and commodities) and assets like hedge funds and real estate that, while they do produce income, lack transparency and liquidity and carry high fees.
Those mostly haven’t been in 401(k) plans because plan sponsors feared they would be sued for offering imprudent investments that expose participants to dangerous levels of risk. With the advent of cryptocurrency, the Biden administration Department of Labor removed any doubt: In 2022 it issued guidance directing plan fiduciaries to exercise “extreme care” before adding cryptocurrency to investment menus on the grounds that such investments would expose workers’ retirement savings to significant risks of fraud, theft, and loss. The Trump administration rescinded that guidance in May 2025.
Now, the Trump administration’s proposed rule would open the door to alternative investments by saying that plan sponsors can satisfy their fiduciary duty just by going through certain procedural steps.
That would be little more than a “box-checking exercise,” said the attorneys general of California, Illinois, Oregon, New York, and Pennsylvania in a letter to the Department of Labor, which was joined by attorneys general from 19 other states and the District of Columbia.
“The proposal, if finalized, would harm workers and retirees because it aims to increase their exposure to risky, volatile, and poorly understood ‘alternative assets’ like cryptocurrency and private credit, which could result in catastrophic financial losses.”