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As the Trump administration pushes to open 401(k) plans to risky alternative investments, the heavy machinery of the banking industry highlights the potential dangers for workers’ retirement savings.NYC TodayPresident Trump and his Labor Secretary Lori Chavez-DeRemer are pushing to allow cryptocurrencies and private equity funds in 401(k) retirement plans, despite warnings from experts about the risks of these volatile and opaque investments for small investors. Employers have historically avoided these ‘alternative investments’ due to fiduciary duties and liability concerns, but the administration is seeking to ‘unwind regulatory overreach’ and provide a ‘safe harbor’ for plan sponsors.
Why it matters
Allowing risky alternative investments like crypto and private equity in 401(k) plans could expose millions of Americans’ retirement savings to significant volatility and potential losses. Employers have good reason to be cautious, as they can be sued for imprudent investment choices that harm workers’ nest eggs.
The details
The Labor Department under the Biden administration previously warned that most 401(k) plan sponsors ‘are not likely suited to evaluate the use of [private equity] investments.’ Only about 4% of plans offered alternative investments as of 2024, due to the threat of lawsuits over high fees and other fiduciary failures. Experts like Warren Buffett have also raised concerns about the lack of transparency and ‘honest’ returns in the private equity industry.
- In 2020, then-Labor Secretary Eugene Scalia issued an opinion allowing private equity in 401(k) plans.
- In 2021, the Biden Labor Department warned employers against offering private equity in retirement accounts.
- As of 2024, only about 4% of 401(k) plan sponsors offered alternative investments.
The players
Lori Chavez-DeRemer
The current U.S. Labor Secretary who is pushing to open 401(k) plans to cryptocurrencies and private equity funds.
Warren Buffett
A renowned investor who has warned his own shareholders about the lack of transparency and ‘honest’ returns in the private equity industry.
Eileen Applebaum
A researcher at the Center for Economic and Policy Research who notes that employers have fiduciary duties to make prudent investment choices for their workers’ retirement accounts.
What’s next
The Labor Department under the Biden administration is expected to face pressure from the Trump administration and private equity/crypto industry to finalize regulations that would provide a ‘safe harbor’ for employers to offer these alternative investments in 401(k) plans.
The takeaway
Allowing risky and opaque alternative investments like cryptocurrencies and private equity funds in 401(k) retirement plans could expose millions of Americans’ life savings to significant volatility and potential losses. Employers have good reason to be cautious about these investments given their fiduciary duties to act in the best interest of their workers.