Inside the DOL’s Plan to Open Up Alternative Assets in 401(k)s

Not so private now, eh?

Alternative investments have long been the domain of the ultra-wealthy, institutions and government pensions. Now, the Department of Labor is asking: Why not everyone else? The DOL’s Employee Benefits Security Administration proposed new guidance Monday aimed at making it easier for 401(k) plans to include alternatives by reducing regulatory burdens and limiting litigation risks for fiduciaries. “This is how we will unlock and unleash the full potential of America’s voluntary employee benefit system,” EBSA Assistant Secretary Daniel Aronowitz said during a media event Monday. He emphasized that the agency is not endorsing specific assets but seeking to “level the playing field” and broaden investment options.

Asset managers and industry groups have pushed for this shift, arguing that private equity, private credit, crypto and other alternatives can offer diversification and stronger long-term returns. Some firms are already rolling out semi-liquid funds tailored for defined contribution plans. Still, demand from everyday investors may be overstated. “I’m never going to say there’s zero people asking for this, but I think the marketplace for it is small,” said Robert Massa, managing director at Prime Financial Capital.

Alt-together Now

While alternatives are not prohibited in 401(k)s, they remain rare. Their complexity, limited liquidity and narrower regulatory oversight, have kept most plan sponsors away. Nearly all government plans and more than two-thirds of corporate defined benefit plans use alternatives, compared to just 4% of defined contribution plans, according to the proposal.

President Donald Trump first outlined the regulatory concept in an executive order last summer, and now regulators are taking steps to follow through on it: 

• Under the proposed rule, when selecting investment alternatives, plan fiduciaries would need to thoroughly consider factors including performance, fees, liquidity, valuation, performance benchmarks and complexity.
• The rule also aims to address fear factors and create safe harbors to protect plan sponsors from litigation.

“Many of the lawsuits filed in the last 10 to 15 years have been filed against responsible fiduciaries who followed a prudent fiduciary process,” a DOL spokesperson said during the media event.

What’s the Problem? Despite the potential benefits, many advisors remain skeptical. Alternatives can be difficult to value, uneven in performance and harder to sell quickly. “They are not as easy to sell and redeploy as public funds,” said Tom Balcom, founder of 1650 Wealth Management, noting this could pose issues for investors needing to make hardship withdrawals.

Conflicts of interest are another concern. With private equity firms deeply embedded across the financial system, advisors worry about hidden pressures influencing investment decisions. Massa warned that the dynamic could mirror patterns seen before the 2008 financial crisis, when firms pushed products that weren’t always in clients’ best interests. “I’d like for someone to convince me this is a good idea,” Massa said. “But I’m just not there yet. I see too many pitfalls.”