What Exactly Changed?
The order sets a few wheels in motion:
- The Department of Labor (DOL) is being asked to revisit old guidance and spell out how plan fiduciaries (the folks who oversee retirement plans) can responsibly add alternatives to the menu. Think of it as giving them a clearer playbook – and maybe some legal cover – for including these assets.
- The SEC has been told to take a fresh look at its rules on who qualifies to invest in certain funds. If “accredited investor” thresholds are eased, everyday savers could gain access to options that were previously off-limits.
- Other agencies, like the Treasury, will work alongside the DOL and SEC to make sure the new framework is consistent.
So, while nothing changes overnight, the stage is set for 401(k)s to look very different in the coming years.
Why This Matters
Here’s the big picture:
- More choice for savers. Instead of being limited to stocks, bonds, and index funds, workers could add slices of private equity, real estate, wine, whisky, art or even crypto to their retirement mix. For younger investors with long time horizons, that could mean more growth potential.
- Diversification. Alternatives often behave differently from the stock market. In theory, adding them can smooth out the bumps of traditional equity investing.
But let’s not sugarcoat it:
- Complexity. These aren’t simple index funds. They can come with higher fees and longer lock-up periods.
- Risk. If a private equity fund underperforms – or a crypto bet goes south – 401(k) balances could take a hit.
- Legal headaches. Fiduciaries have to tread carefully. If they pick the wrong alternatives, they could face lawsuits from unhappy plan participants.
What the Industry Is Saying
Unsurprisingly, asset managers are licking their chops. Firms like BlackRock and Empower are already exploring retirement products that include private equity or private credit. Private equity giants, in particular, see this as their ticket into the massive $10 trillion 401(k) market.
Advisors, meanwhile, are a bit more cautious. Many are worries that they will lose business to those who understand the alternatives space with some suggesting that, if alternatives are allowed, they should only make up a small slice of a portfolio – and preferably through diversified, professionally managed vehicles.
What Happens Next
For now, this is more of a roadmap than a rulebook. Agencies will spend the next few months drafting guidance, rules, and (possibly) safe harbours that make it clear how alternatives can fit into retirement plans.
In the meantime, here’s what plan sponsors and fiduciaries should be thinking about:
- Do their current plan documents even allow for alternatives?
- Which recordkeepers and platforms could support them?
- How would they manage the risks and explain them to everyday savers?
As clarity emerges, we’ll likely see a slow but steady rollout, with the biggest, most sophisticated plans dipping their toes in first.
The Bottom Line
This executive order could mark the start of a new era in retirement investing in the US. For some, it’s a chance to tap into markets that were once out of reach. For others, it’s toom much of a change into markets they do not know enough about.
Either way, your 401(k) menu might look a lot more interesting in the years ahead.
