Alternative Assets in 401(k) Plans

October 2025

Nate Moody, CPFA

Over the past few years, there has been growing debate in the retirement plan industry about expanding 401(k) investment menus to include “alternative assets” such as private equity, private credit, and even cryptocurrency.

In August 2025, President Trump signed an executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors,” which directs the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to actively facilitate the inclusion of alternative assets such as private equity, private credit, real estate, commodities, and digital assets into defined contribution plans. This order explicitly requires the DOL to reassess and clarify fiduciary duty guidance under ERISA, propose new rules, and consult across agencies to develop updated standards and potential safe harbor protections for plan sponsors who include alternative assets in diversified investment options.

While the idea of giving retirement plan participants access to a broader investment universe may sound appealing, we feel it also raises serious fiduciary, regulatory, and practical questions.

The Case for Alternative Assets

Supporters of this movement make several legitimate arguments. The first is structural: the capital markets themselves have changed. Over the past two decades, the number of publicly listed companies in the United States has declined by nearly 40%, while the number of private companies valued at over $1 billion has exploded. Companies are staying private and staying private for longer. Much of today’s innovation and growth is happening before a company ever reaches the public markets.

That shift means 401(k) investors, who have traditionally relied on publicly traded mutual funds and index funds, may be missing out on a significant portion of modern economic growth. Advocates for private market access argue that this exclusion weakens diversification and limits participants’ ability to capture the full range of potential returns available across the global economy.

From a theoretical standpoint, proponents often point to Modern Portfolio Theory (MPT), which argues that diversification across multiple asset classes can improve a portfolio’s risk-adjusted return. In principle, adding private equity or private credit could expand the efficient frontier by introducing non-correlated sources of return. However, this argument assumes that all assets can be efficiently priced, transparently valued, and easily traded. Private assets fail many of those tests.

Private market valuations are based on periodic appraisals, not real-time pricing. Information asymmetry is substantial, liquidity is limited, and performance dispersion between managers is extreme (often referred to as a ‘Power Law’ distribution). These factors undermine the mathematical foundation that MPT relies on to balance risk and reward. The idea of private equity as a “diversifier” in a daily-valued, participant-directed 401(k) plan remains more theory than reality.

The Fiduciary Challenges

Under ERISA, plan fiduciaries are required to act prudently, solely in the interest of participants, and with the care, skill, and diligence of an expert. Meeting that standard is difficult when dealing with complex and opaque asset classes. Private equity and private credit vehicles are typically structured for institutional investors, not individual participants. They involve multi-layered fees, long lock-up periods, and limited disclosure. Determining a fair market value on a daily basis is often impossible. Recordkeepers and custodians must adapt systems to accommodate irregular valuations and delayed pricing, which increases operational risk.

Cryptocurrency, meanwhile, introduces a different set of fiduciary hurdles. The DOL’s Compliance Assistance Release 2022-01 specifically warned plan sponsors against offering crypto within 401(k) plans, citing concerns over volatility, valuation, and participant protection. While a few recordkeepers and fintech firms have developed “cryptocurrency windows,” the regulatory consensus remains clear: these assets carry substantial fiduciary exposure.
Adding complex investments also raises litigation risk. Although that particular Compliance Assistance Release has since been rescinded, courts have repeatedly shown that fiduciaries are held to a high standard when selecting and monitoring plan investments.

If a private fund or digital asset underperforms or collapses, fiduciaries could face claims that the investment was imprudent from the outset.

Industry Context: Independence Matters

This debate over alternatives also exposes an important trend within the advisory landscape itself. Many of the largest national retirement advisory firms are now owned by private equity firms, which have a vested interest in promoting private market access. Some firms even manage or distribute private market products through affiliated entities, raising potential conflicts of interest.

When an advisory firm’s owners also manufacture investment products, it becomes difficult for plan sponsors to discern where the line between objective advice and product sales truly lies. This blurring of roles threatens the core fiduciary principle of independence.

At Lebel & Harriman, our independence is intentional and unwavering. We are not owned by a private equity firm and have no financial ties to investment manufacturers or recordkeepers. Our only obligation is to our clients, their participants, and our people. That independence allows us to evaluate industry trends, like alternative assets, objectively with fiduciary prudence as our guide rather than commercial interest.

A Cautious Path Forward

Innovation in the retirement industry is not inherently negative. Over the years, features once viewed as novel (e.g. target date funds) have become foundational to improving participant outcomes. There may come a time when certain private market exposures or tokenized assets can be prudently implemented in defined contribution plans. But the path to that point requires significant regulatory development, stronger valuation standards, better liquidity structures, and more transparent fee models. Until those safeguards exist, plan sponsors should remain cautious.

Complexity does not equal sophistication, and access does not guarantee benefit. Fiduciary prudence demands a careful, evidence-based approach. At Lebel & Harriman, we continue to believe that independence, transparency, and disciplined governance are the cornerstones of sound fiduciary decision-making.

Sources

1. KPMG, “Executive Order: 401(k) Investor Access to Alternative Assets” (September 2025)
2. U.S. Department of Labor, Information Letter to Groom Law Group Re: Private Equity in 401(k) Plans (June 3, 2020).
3. PitchBook Data, Inc., US VC Valuations Report, Q2 2024.
4. Jay R. Ritter, “Why Has IPO Activity Declined?” European Financial Management, Vol. 26, No. 2 (2020).
5. Eugene Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance, Vol. 25, No. 2 (1970).
6. Harry Markowitz, “Portfolio Selection,” Journal of Finance, Vol. 7, No. 1 (1952).
7. U.S. Department of Labor, Compliance Assistance Release No. 2022-01: 401(k) Plan Investments in ‘Cryptocurrencies’ (March 10, 2022).
8. U.S. Department of Labor, ERISA Fiduciary Standards under Section 404(a)(1)(B).

Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. | 130 Springside Drive, Suite 300, Akron, OH 44333–2431 | Telephone: (800) 765‑5201 | Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.

This material is for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or investment advice. You should consult your own tax, legal, and accounting advisors before making any decision.