Background: Why alternatives have been excluded from 401(k) plans, and why that might change

Historically speaking, 401(k) plans have helped Americans save for retirement by offering the opportunity to invest in publicly traded equity and fixed income securities, usually via mutual funds, collective investment trusts (CITs), or self-directed brokerage accounts. Alternative asset classes—including private equity (PE), private credit, commodities, and cryptocurrencies—have been unavailable through most 401(k) plan lineups. While these alternatives may potentially position investors for gains beyond those offered by plain vanilla stocks and bonds, for retirement plan participants they also present several challenges: These alternatives may offer less liquidity, higher volatility, higher fees, and greater complexity, raising the challenge for plan sponsors of how to govern these additional plan investments and satisfy the fiduciary standards under the Employee Retirement Income Security Act (ERISA).

Still, the landscape may be poised to change. In August 2025, President Donald Trump signed executive order (EO) 14330, directing the Department of Labor (DOL) to develop guidance on fiduciary duties for holding alternative investments in defined contribution (DC) plans. The order, dubbed Democratizing Access to Alternative Assets for 401(k) Investors, aims to allow retirement plan participants the option to invest in asset classes typically only available to institutions and high-net-worth individuals.¹ The DOL released their comprehensive proposed rule in response to EO 14330 on March 30, 2026, opening a 60-day comment period before releasing final guidance for plan fiduciaries.²

EO 14330 rescinded a 2021 White House statement urging caution about the use of alternative assets in 401(k) lineups.³ Under ERISA, plan sponsors remain liable for imprudent investment decisions regardless of executive orders or DOL guidance. Therefore, in light of the chilling effect of (often frivolous) retirement plan litigation, plan sponsors need to carefully and thoughtfully digest the DOL’s guidance to proactively manage their legal risk.

As a pension consultant, I’ve watched large defined benefit (DB) pension plans add alternative assets to their strategic asset allocations to diversify from publicly traded securities and reach for more return with the same or lower volatility in some cases. While employers await more guidance, here are some of the pros and cons to consider when deciding whether to add crypto, PE, private credit, and other non-traditional asset classes to 401(k) plan investment menus.

The pros and cons of adding crypto, PE or private credit, and other alternatives to 401(k) lineups

Given that not all alternatives are created equal, let’s explore a few of the most discussed alternatives to see how they might be viewed through the lens of the DOL’s asset-neutral proposed fiduciary rule. As four asset classes in particular—crypto, commodities, PE, and private credit—frequently make headlines for their outsized investment returns and losses, it is worth assessing the unique options they present in the context of retirement plans and the likelihood plan sponsors will ultimately choose to add them to fund lineups.

Cryptocurrencies (digital assets)

Several options exist via mutual funds and exchange-traded funds (ETFs) for this asset class to be folded into a 401(k) plan in theory.

Pros: Despite recent challenges to bitcoin’s investment thesis, some investors still see it as “digital gold,” a potential hedge against inflation and debasement of the U.S. dollar. Proponents argue that a small allocation limits the downside while offering asymmetric potential returns if the cryptocurrency continues on its historical trajectory. Also, limiting cryptocurrencies to be a small part of an actively managed fund adds a layer of oversight that could mitigate fiduciary risk.

Cons: There is no income derived from the asset. It also has no intrinsic value, with its worth solely tied to what the next buyer will pay. Smaller cryptocurrencies aren’t as liquid, which may result in higher transactions costs and lower investment capacity. Crypto custody also is very different from traditional stocks and bonds, with the bankruptcy of FTX and other custodians enough to make many companies cautious. Some conclude that if direct investment in crypto is included in 401(k) menus, then almost anything could be included given the view that investing in crypto is highly speculative.

Outlook for 401(k) inclusion: An unlikely choice for plan sponsors due to a lack of income generation, which could undermine fiduciary obligations and adherence to the prudent person standard.

Commodities

This asset class offers a mixed bag when it comes to making a fiduciary case. But there’s a wide choice of options for 401(k) plans, with mutual funds and ETFs available that are focused on energy holdings (oil and natural gas), precious metals (gold, silver), industrial metals (copper, aluminum, lithium), agriculture (corn, soybeans, wheat), and soft commodities (coffee, cotton, sugar).

Pros: Commodities offer real economic grounding with industrial applications. They offer inflation protection, portfolio diversification, structural demand from the energy industry, and liquidity.

Cons: Commodities do not generate income other than underlying demand, and there are costs associated with holding funds that invest in futures due to roll costs or storage costs associated with holding physical commodities. Commodities tend to be much more volatile than stocks and bonds, and when they fall out of demand, their drawdowns can be significant.

Outlook for 401(k) inclusion: A selective approach favoring commodities that plan fiduciaries believe will be in demand for long periods of time—commensurate with the goals of a retirement program—has the most appeal for sponsors that want to offer this source of diversification. Plan sponsors could position a diversified fund with a basket of commodities as an inflation hedge to balance a portfolio that is otherwise invested heavily in traditional stocks and bonds.

Private equity

Of all the alternative asset classes, PE holds perhaps the most promise for 401(k) plans. PE comes with a fiduciary pedigree that crypto lacks, meaningful historical usage by large pension plans and endowments, and functions as a diversifier for publicly traded stocks and bonds.

Pros: PE generates real income and cash flows through operational improvements and earnings growth, which is a fundamental distinction compared to cryptocurrency or commodities. In addition, many institutional investors believe it offers greater risk-adjusted returns than public market investments. However, one of the biggest points that people offer as a reason to invest in PE is that it offers diversification from the highly correlated U.S. public equity market. This diversification can be a boon for institutional investors looking for equity-level returns with less-realized portfolio volatility, but questions remain as to whether this outcome is due to the lack of price discovery inherent in a private market (compared to publicly traded equity).

A related reason for 401(k) plan sponsors to consider adding a PE allocation is that some very large private companies have avoided public stock offerings for longer than we’ve historically seen, which means the only way to access the growth in certain industries and/or technology subsectors may be through a PE allocation (including a subset of PE known as venture capital).

Cons: For 401(k) plans, PE may pose several challenges:

• Fees: These can be significant, at around 2% annually of assets under management, plus 20% of profits. This is in stark contrast to the low-cost index funds often found in 401(k)s.
• Liquidity: As funds typically lock up investments for seven to 12 years, this may be an issue for people needing to draw on assets as they approach retirement. For younger plan participants who have longer investment horizons, this problem may be of less concern.
• Lack of valuation transparency: PE holdings are valued quarterly by the fund manager using internal models reviewed by committees established by the PE firm, which presents a lag and potential conflict of interest compared to public equity. Meanwhile, 401(k) recordkeeping demands daily asset values based on trades in the open market, which is highly transparent and reliable by comparison.
• Lack of access to top managers: Most highly regarded PE firms are selective about their investors, making them historically inaccessible to the general public. This is one of the key underlying issues behind the president’s executive order to increase access by opening up investment through 401(k)s. If your retirement plan is fortunate enough to choose the best PE managers, increased access to this asset class can pay off. On the other hand, if the PE manager added to your 401(k) plan is a lower-caliber manager, then it may lead to underperformance.
• Early losses: PE investments tend to follow a J-curve, with losses and cash outflows during the early years before the longer-term strategy bears fruit, generates profits, and is reflected in the investment value. A 401(k) plan participant needing to withdraw money in the early years could lock in losses.

Outlook for 401(k) inclusion: While PE has some drawbacks, the risk-adjusted returns and asset diversification potential may be appealing to retirement plan sponsors. Its historical success with large institutional investors gives it a leg up, especially versus other alternatives like cryptocurrency. Aside from asset-neutral guidance from the DOL for plan fiduciaries, 401(k) investment advisors will need to offer products that help address issues of liquidity and valuation transparency.

While it’s possible that some 401(k) sponsors will offer direct access to PE investment as a single option, the sponsor will need to consider whether:

1. The direct PE investment option satisfies the standard of prudence as outlined in the latest DOL proposed rule from March 30, 2026.
2. The PE fund’s liquidity satisfies the ERISA safe harbor provision that 401(k) participants must be allowed to transfer or sell any investment at least quarterly, which runs counter to the PE model of holding investments for seven to 12 years on average.

To address some of the overarching concerns around PE, especially in the early years of adoption, employers may choose to limit direct investment in PE to a specific percentage of someone’s 401(k) balance or push employees to access direct PE investment through self-directed brokerage accounts instead of through the plan’s investment menu.

The most likely entry for PE into 401(k) plans is through a target date lineup, where the PE allocation is part of a broader strategic asset allocation and liquidity is managed at the target date fund level.

Private credit

Private credit includes direct lending, generally to middle-market companies; asset-backed lending; and mezzanine, distressed, real estate, and infrastructure debt. This asset class is appealing to 401(k) plans for similar reasons to PE, yet it also presents several potential issues.

Pros: Private credit can generate robust income, with a lower volatility than PE. Private credit funds typically offer a substantial yield premium to the type of fixed income present in most 401(k)s today. It also frequently carries floating interest rates tied to the Secured Overnight Financing Rate (SOFR), meaning yields rise and fall with interest rates, offering an attractive alternative to fixed-rate bonds, whose prices rise and fall in the opposite direction of interest rates. Compared with PE, private credit has lower volatility and sits further up the capital structure, meaning investors have priority in the case of bankruptcy.

Cons: The disadvantages of private credit are similar to those of PE:

• Liquidity: Investments are not liquid, typically with three- to seven-year time frames for closed-end structures. Some funds marketed to individuals have semi-liquid characteristics, where investments are locked up for an initial period of one to two years with quarterly liquidity thereafter as long as redemptions don’t exceed a set percentage of the total fund’s value (typically 5%). But in general, the lack of liquidity presents practical problems for 401(k) plans.
• Credit risk: This may be a problem with mid-market companies, whose defaults generally rise when the economy sours.
• Opacity: As with PE, what could a 401(k) recordkeeper use for a daily value when loans are marked quarterly?
• High fees: These are typically 1% to 1.5%, in addition to performance fees of 10% to 15% of returns above a hurdle rate.
• Loan complexity: Items such as covenant structure, payment-in-kind toggles (allowing the payment of interest with debt), leverage ratios, and intercreditor agreements might make it difficult for plan sponsors to conduct meaningful due diligence, while ERISA participant disclosures would also be a challenge.
• Concentration: Recently, private credit has faced growing concerns about concentration in data centers. However, given the generally high credit quality of their tech tenants and demand from the artificial intelligence (AI) boom, this concern has yet to materialize into systemic defaults.

Outlook for 401(k) inclusion: Similar to PE, private credit presents a diversification opportunity for 401(k) plans but comes with the core concern of liquidity and transparency of risk for an otherwise new asset class to the average 401(k) investor. Given the liquidity concerns, average 401(k) plan participants will likely gain first exposure to private credit through target date strategies. Then, depending on whether liquidity can be increased, we may see broader adoption in 401(k) plans.

The big picture on alternatives in DC retirement plans

The 2025 executive order creates a catalyst for alternative assets becoming available in more 401(k) plans. The possible investment vehicles offer a wide range of both opportunities and disadvantages.

To emphasize the investment opportunity for 401(k) plans, let’s consider the growing size of the PE market. By one measure, the value of PE funds registered with the Securities and Exchange Commission surpassed $7 trillion in 2025.⁴ To put the size of PE funds in context, the entire U.S. public equity market is estimated to be $70 trillion in size, with about 80% of that concentrated among the 500 largest publicly traded companies. The consistent growth of PE funds is a trend that cannot be overlooked and may offer a relief valve for the concern about the supply-demand imbalance in the U.S. public equity market.

However, plan sponsors will need to tread carefully, given the expanding litigation landscape under ERISA in recent years, which shows tremendous liability for substantial damages. In Tibble v. Edison International, for example, the Supreme Court held that fiduciaries have a continuing duty to monitor investments and remove imprudent ones.⁵ The case significantly expanded litigation exposure given that an investment that began as prudent can become imprudent and expose the sponsor to fiduciary risk if they don’t remove it timely.

Litigation risks with alternative assets could include claims for excess fees, imprudent process, liquidity mismatch and gating, valuation and disclosure, conflict of interest and duty of loyalty, and monitoring failure. This might be enough to convince many plan sponsors to shy away from alternative asset classes.

However, the aforementioned DOL proposed fiduciary rule (March 30, 2026) offers clarity for how plan sponsors can satisfy their ERISA duty of prudence on a wider array of asset classes. We will learn more during the 60-day comment period (ending June 1, 2026) on whether the proposed rule addresses enough concerns for employers to add alternative asset classes to their 401(k) lineup.

In conclusion, I expect the early movers on this issue will first add alternative assets as a small allocation within target date funds, along with increased third-party scrutiny of valuations. Then, depending on the level of any subsequent litigation activity, we may eventually see plan sponsors add standalone options as well.

¹ Exec. Order No. 14330, 3 C.F.R. 38921 (2025). Retrieved April 21, 2026, from https://www.whitehouse.gov/presidential-actions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/.

² Prop. Rule No. 06178, 29 C.F.R. 2550 (2026). Retrieved April 21, 2026, from https://www.federalregister.gov/documents/2026/03/31/2026-06178/fiduciary-duties-in-selecting-designated-investment-alternatives.

³ Employee Benefits Security Administration. (December 21, 2021; rescinded August 12, 2025). U.S. Department of Labor supplement statement on private equity in defined contribution plan designated investment alternatives. Department of Labor. Retrieved April 21, 2026, from https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020-supplemental-statement.

⁴ Securities and Exchange Commission. (April 9, 2026). Visualization: Private fund statistics. Retrieved April 21, 2026, from https://www.sec.gov/data-research/statistics-data-visualizations/private-fund-statistics.

⁵ Tibble v. Edison International, 575 U.S. 523 (2015). Retrieved April 21, 2026, from https://www.scotusblog.com/cases/case-files/tibble-v-edison-international/.

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