Employers weigh alternative assets in 401(k)s cautiously

U.S. employers are approaching alternative investments in 401(k) plans with caution , even as a proposed Department of Labor rule under the Trump administration is designed to make it easier to add products such as private equity and cryptocurrency. The rule, issued on March 30, aims to create a safe harbor for plan sponsors by setting out six criteria to use when assessing investment options, including performance, fees, and liquidity.

Despite that framework, legal experts and consumer advocates have questioned whether the proposal would meaningfully reduce litigation exposure under the Employee Retirement Income Security Act of 1974 (ERISA). Their concern is that the rule’s protections may be limited in practice, leaving employers and other plan fiduciaries vulnerable if participants later claim the selection or monitoring process was flawed.

The policy debate is unfolding against a major industry push to broaden access to alternatives within workplace retirement plans. Wall Street firms including Apollo and KKR have argued that opening the door to these assets could help diversify portfolios for participants in the roughly $12 trillion 401(k) market, and they have promoted the idea that such investments may offer more stable returns.

Critics have countered that alternatives can be illiquid, complex, and expensive, and that these features may shift risks onto individual savers. Senator Elizabeth Warren has raised concerns that adding such products could expose retirement participants to undue risk, particularly as some alternative-asset markets show signs of instability.

For employers, the central issue is liability. The proposed rule would presume fiduciary duties are met if sponsors follow the outlined evaluation process, but it would not prevent lawsuits. Plaintiffs could still challenge whether the process was properly applied or whether the resulting investment choices were prudent, meaning the safe harbor may not function as a full shield in court.

That uncertainty is heightened by a 2024 Supreme Court decision that eliminated the Chevron doctrine, which had required courts to give deference to federal agency interpretations in many cases. With less automatic deference to regulators, employers and their advisers may see greater legal ambiguity around how courts will treat the Department of Labor’s approach when ERISA disputes arise.

Smaller employers face additional hurdles. The source material notes that many lack the in-house expertise to conduct deep due diligence on non-publicly traded assets, which can increase reliance on consultants. That reliance can also raise the risk of ending up with higher-cost, lower-performing products, adding another layer of concern for plan sponsors weighing whether to expand beyond traditional public-market offerings.