Benefits Insights

The conversation around alternative assets in 401(k) plans is gaining momentum, driven by regulatory developments, product innovation, and a growing willingness among plan sponsors to consider broader investment options. To understand where things stand—and where they may be headed—it helps to start with the ERISA framework that governs defined contribution plans.

How Did We Get Here?

Historically, alternative assets—including private equity, private credit, real estate, and hedge-style strategies—were largely out of reach for defined contribution plan participants. These investments were typically reserved for institutional investors and high-net-worth individuals, due in part to their complexity, liquidity constraints, and fee structures.

Over time, that landscape began to shift. Policymakers and regulators increasingly recognized that alternatives could play a role in improving long-term retirement outcomes—particularly in an environment marked by market volatility, inflation concerns, and the need for greater diversification.

That shift came into sharper focus in August 2025, when the Executive Order titled “Democratizing Access to Alternative Assets for 401(k) Investors” encouraged broader consideration of private investments in participant-directed plans.

Shortly thereafter, the Department of Labor issued proposed regulations taking a more neutral stance, reinforcing that alternative assets are not prohibited under ERISA so long as they are evaluated through a prudent fiduciary process. Together, these developments have renewed attention on how—if at all—alternative assets should be incorporated into defined contribution plans.

What Are Alternative Assets?

While definitions vary, alternative assets generally refer to investment strategies that fall outside traditional public equities and fixed income.

In the 401(k) context, these investments are rarely offered as standalone options. Instead, they are typically accessed indirectly—through diversified funds or professionally managed structures—which helps address some of the operational and liquidity challenges that would otherwise arise.

Importantly, including alternative assets in a retirement plan does not represent a departure from ERISA principles. Rather, it requires fiduciaries to apply those same principles to investment types that may look—and behave—differently from traditional mutual funds.

ERISA Section 404: The Fiduciary Lens

As with any plan investment decision, the analysis begins (and ultimately ends) with ERISA Section 404 and its core duties of prudence and loyalty.

Fiduciaries are judged less on outcomes and more on the process used to evaluate, select, and monitor investments. When alternatives are part of that discussion, the process typically becomes more involved, given the distinct features of these investments. The proposed regulations offer a safe harbor that applies not only to alternative investments but also to the overall plan investment selection process.

Under the proposed safe harbor, fiduciaries must focus on several core considerations:

Performance

Evaluating expected performance in the context of the overall portfolio—recognizing that alternative investments may behave differently from traditional asset classes.

Fees

Assessing whether fee structures (which may be layered or higher) are reasonable in light of the services provided and the potential diversification or return benefits.

Liquidity

Ensuring the plan can continue to meet participant needs, including daily transactions, withdrawals, and required distributions.

Valuation

Understanding how assets are valued, particularly where pricing is less frequent or model-based, and how that information is communicated to participants.

Performance Benchmarks

Determining whether meaningful benchmarks exist to evaluate ongoing performance.

Complexity

Evaluating whether the plan’s governance framework—and its advisors and service providers—can effectively manage the additional operational and communication complexity.

The inclusion of alternative assets in a 401(k) plan is not a one-size-fits-all proposition. ERISA does not require simplicity, but it does require thoughtful, well-documented decision-making.

For some plans, alternatives may offer meaningful diversification and long-term benefits when implemented carefully. For others, the added complexity, liquidity considerations, or cost may outweigh those potential advantages. Much depends on the plan’s participant base, investment objectives, and governance structure.

The evolving landscape for alternative assets in 401(k) plans reflects a broader re-examination of how retirement plans are designed and governed. Regulatory developments have opened the door to innovation, but ERISA continues to serve as the guardrail that ensures participant interests remain paramount. Plan sponsors should consult with their legal counsel to determine how to incorporate this guidance into their plan investment decisions. Stay tuned for updates as the DOL has received nearly 40,000 comments on these proposed regulations.