On August 7, 2025, President Trump issued an Executive Order (the "Executive Order") intending to expand access to alternative assets (such as private equity, real estate, private credit and digital assets) in defined-contribution plans (such as 401(k) plans) governed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA") by attempting to address "regulatory overreach" and "litigation risks" that have limited the offering of alternative assets in such plans.
The Executive Order:
- Directs the U.S. Department of Labor ("DOL") to reexamine its guidance (discussed briefly below) with respect to a fiduciary's duty under ERISA regarding alternative asset investments in ERISA-governed defined contribution plans;
- Instructs the DOL to clarify its position on alternative assets and the appropriate fiduciary process associated with offering asset allocation funds (e.g., target date funds) containing alternative asset investment strategies;
- Directs the DOL to consult with the Secretary of the Treasury, the Securities and Exchange Commission ("SEC"), and other federal regulators to determine whether parallel regulatory changes should be made at those agencies to give effect to the purpose of the Executive Order; and
- Directs the SEC, in consultation with the DOL, to consider ways to facilitate access to alternative assets for participant-directed defined contribution plans, including by considering revising existing SEC regulations and guidance.
More specifically, the Executive Order:
- Requires that the DOL take the following actions, and in so
doing that it prioritizes steps "that may curb ERISA
litigation that constrains fiduciaries' ability to apply their
best judgment in offering investment opportunities to relevant plan
participants":
- Seek to clarify within 180 days the "appropriate fiduciary process associated with offering asset allocation funds containing investments in alternative assets under ERISA";
- Identify the criteria that fiduciaries should use to prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments;
- Advises the DOL to consider issuing additional rules or guidance that "clarify the duties that a fiduciary owes to plan participants under ERISA" when deciding whether to make available to plan participants an asset allocation fund that includes investments in alternative assets; and
- Directs the SEC to work with the DOL to "consider ways to facilitate access to investments in alternative assets by participants in participant-directed defined-contribution retirement savings plans" and specifically calls attention to two existing SEC regulations and guidance relating to accredited investor and qualified purchaser status which have historically limited participant access to private asset funds based on their individual financial status.
It is also noteworthy that the Executive Order explicitly referenced digital assets (through actively managed vehicles that invest in digital assets) as an alternative asset. This follows a May 28, 2025, DOL recission of its 2022 compliance release that "previously discouraged fiduciaries from including cryptocurrency options in 401(k) retirement plans."1 The Executive Order also refers specifically to "asset allocation funds containing investments in alternative assets." While likely not intended to be an exclusive solution, it may imply recognition that asset allocation funds (including so-called "target date" and "lifecycle" funds) are likely the most efficient pathway forward given the existing legal challenges, the realities of private asset strategies' commercial parameters, and plan fiduciary expectations and obligations. Indeed, it may also be a tacit recognition of some of the high-profile product launches that have followed this model.
A copy of the Executive Order may be found here and of the accompanying Fact Sheet here. What follows is a brief overview of the historical legal and structural challenges, a discussion of prior efforts and a comparison with the potential sweep of the Executive Order, some initial considerations, and conclusions.
Background
Overview of Legal Constraints
The structural legal constraints associated with the offering of alternative assets in participant directed 401(k) plans are not new, but they are complex. First, open-end registered mutual funds—mainstays of many 401(k) plan lineups—do not often work well with many alternative asset strategies because of securities law requirements addressing liquidity that do not correspond to the inherent illiquidity of those strategies and related securities law limits these rules impose on the investments a mutual fund may hold in private assets. Second, the search for vehicles that qualify for an exemption from the registration and compliance requirements for registered mutual funds, such as Section 3(c)(7) of the Investment Company Act of 1940, as amended (the "40 Act"), raise separate concerns. Common exceptions from 40 Act registration, such as the Section 3(c)(7) exception, are often unhelpful in the 401(k) plan context because of SEC staff positions that preclude investment by participants that do not meet certain financial eligibility tests. Moreover, the solutions to those challenges often produce countervailing pressures on a 401(k) plan's tax qualified status. By limiting alternative fund access to only those plan participants that are eligible for the Section 3(c)(7) exception, there is a risk that the plan could be in violation of the Code's discrimination rules—a predicate for tax-exempt status.
Some strategies may be managed in a way that do not require registration under the 40 Act or reliance on the Section 3(c)(7) exception. Generally speaking, bank collective funds, or collective investment trusts, have their own separate exception from 40 Act registration without the limitations that make the Section 3(c)(7) exception unavailable for most 401(k) plans. The tradeoff, however, is that bank collective funds are "plan assets" subject to ERISA's fiduciary responsibility and prohibited transaction rules. While some alternative assets strategies can work within ERISA's restrictive parameters (although often with a lot of effort), others have proved much more challenging.
Finally, and perhaps most importantly, is liquidity—and cost. ERISA imposes substantial disincentives on selecting investment options with limited liquidity. Most 401(k) plan investment options have daily liquidity whereas alternative assets strategies generally do not permit daily liquidity because they hold private assets that are not easily valued. Additionally, alternative asset exposure is generally more expensive than traditional 401(k) investment strategies.
Earlier Efforts to Address 401(k) Plan Access to Private Assets
This is not President Trump's first foray into this challenging world. In 2020, an information letter was issued by the DOL under the first Trump administration (the "2020 Information Letter") relating to the use of private equity investments within professionally managed asset-allocation funds (e.g., target date funds) that are often used as investment alternatives for 401(k) plan participants and beneficiaries. Although the information letter broke little new legal ground, it gave encouragement to those seeking offer private assets in 401(k) plans. Certainly, as we discussed this development,those that may have been concerned that the use of private equity investments for 401(k) plans was somehow inherently inconsistent with ERISA were instead comforted. In many circles, the 2020 Information Letter seemed to have been viewed as a signal in favor of the possible inclusion of private equity strategies for 401(k) plans.
This 2020 Information Letter was followed by a subsequent information letter under the Biden Administration (the "2021 Information Letter"). The 2021 Information Letter offered a more reserved tone than the 2020 Information Letter. The Biden Administration believed that it needed to follow up the 2020 Information Letter "to ensure that plan fiduciaries do not expose plan participants and beneficiaries to unwarranted risks by misreading the letter as saying that PE—as a component of a designated investment alternative—is generally appropriate for a typical 401(k) plan," expressing concern that absent such a pronouncement, "the representations [offered in the 2020 Information Letter] were not balanced with counter-arguments and research data from independent sources."
As we detailed in our OnPoint,the 2021 Information Letter cautioned "against application of the [2020] Information Letter" in the plan-related context, stating that "plan-level fiduciaries of small, individual account plans are not likely suited to evaluate the use of PE investments in designated investment alternatives in individual account plans." Referring to the SEC pronouncement, it also reminded market participants that the 2020 Information Letter contemplated that "[i]n no case would the private equity component of the asset allocation fund be available as a vehicle for direct investment by plan participants and beneficiaries on a standalone basis. The [2020] Information Letter cautioned that direct investments in private equity investments present distinct legal and operational issues for fiduciaries of ERISA-covered individual account plans" [emphasis supplied].
Why this Executive Order May Be Different from Prior Efforts
At first glance, the Executive Order appears to follow in the tracks of the 2020 Information Letter and leaves open the question as to whether it will proceed beyond it. Both appear to focus attention on solutions in which 401(k) plans primarily access alternative assets through "target date" fund or "asset allocators" managed by a third party and where the alternative strategy is one among many other components of a diversified investment option. Indeed, some recent high-profile product announcements would appear to validate that this approach has found commercial success. The Executive Order will likely be met with enthusiasm by those market participants and plans, as well as others considering this approach.
However, the Executive Order is also potentially more even far-reaching. The 2020 Information Letter was just that: an expression of a point of view. An information letter is only "a written statement . . . that does no more than call attention to a well-established interpretation or principle of [ERISA], without applying it to a specific factual situation."2 Thus, the 2020 Information Letter did not rise to the level of regulatory or sub-regulatory guidance. It was neither a regulation nor even a DOL advisory opinion letter. And, as mentioned above, the point of view detailed in the 2020 Information Letter itself broke little new legal ground, even though it did generate a significant amount of energy and discussion.
The Executive Order, by contrast, is a directive from the White House across multiple agencies. Moreover, it is a command to take specific action, which of course must now proceed through each agency's normal regulatory process. It is specific and proactive in that it calls for action items (i) that include timelines and deadlines, (ii) within the context of a stated policy objective, (iii) with regulatory guidance rather than a mere recitation of a point of view and (iv) with the possibility of one or more agencies taking important steps to help broaden access to an important asset class while safeguarding the protections of individual 401(k) participants.
The Executive Order also more broadly acknowledges the potential litigation "fear factor" that many plan fiduciaries face when considering exposure to alternative asset classes—`a sort of "ERISA market-failure." It refers to "burdensome lawsuits that seek to challenge reasonable decisions by loyal, regulated fiduciaries," "stifling Department of Labor guidance" and rules which promote the "encouragement of lawsuits filed by opportunistic trial lawyers." One stated purpose of the Executive Order is to promote a "correction" in the existing calculus of fiduciaries, so that they are able to carry out their responsibilities in accordance with ERISA's high standards of prudence without being unduly paralyzed by the threat of litigation.
That said, the Executive Order is by no means an automatic pass on prudence, and in fact it re-emphasizes that fiduciaries "must carefully vet and consider all aspects of private offerings, including investment managers' capabilities, experiences, and effectiveness managing alternative asset investments." Its language also suggests that regulators should explore ways to help fiduciaries prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments.
No less potentially impactful is that the Executive Order specifically calls out possible changes to accredited investor and qualified purchaser status by the SEC "to accomplish the policy objectives of this order." Both definitions impose financial qualifications on investors in private funds unregistered under the 40 Act. And separate SEC changes, like those discussed in this recent OnPoint, should not be discounted, particularly where they proceed in parallel with the stated policy objective.
Conclusions
While much has yet to be developed, the Executive Order represents a potentially meaningful first step forward in broadening access to private assets in 401(k) plans, and in addressing legal uncertainty for fiduciaries that wish to include alternative assets in participant-directed 401(k) plans. It will likely be cheered by many, including plan sponsors seeking to obtain long-limited access to alternative asset investments in participant-directed 401(k) plans, fund sponsors, and plan participants themselves. Stakeholders will have ample opportunity to provide input and comments on the next steps of rulemaking and/or other guidance that will come in time. Meanwhile, the Executive Order's tip-of-the-hat to "asset allocation" funds, while by no means an exclusive solution, is consistent with the thinking in the earlier 2020 Information Letter and 2021 Information Letter and has the advantage of being confirmed by recent commercial developments. More to come.
Footnotes
1 DOL News Release at https://www.dol.gov/newsroom/releases/ebsa/ebsa20250528
2 ERISA Proc. 76-1, § 3.01
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