President Donald Trump signed an executive order directing the U.S. Department of Labor to review fiduciary guidance under the Employee Retirement Income Security Act (ERISA) to facilitate the inclusion of alternative assets, such as cryptocurrencies, private equity, and real estate, in 401(k) and other defined-contribution retirement plans.
This move aims to expand investment options for the roughly $12.5 trillion held in these accounts, potentially allowing mainstream savers access to digital assets like Bitcoin through vehicles such as exchange-traded funds (ETFs). The order also instructs the Labor Department to collaborate with the Treasury Department and the Securities and Exchange Commission (SEC) to assess necessary regulatory changes and clarify fiduciary responsibilities for offering these assets.
Proponents, including asset managers like BlackRock and industry leaders, argue this could enhance diversification and yield higher long-term returns, with private equity historically averaging 13% annual returns compared to the S&P 500’s 10.6% since 1990. The crypto industry, which strongly supported Trump’s 2024 campaign.
However, critics, including financial experts and Senator Elizabeth Warren, warn of significant risks due to the volatility, high fees, lack of transparency, and illiquidity of alternative assets. Private equity, for instance, often involves long lockup periods, and cryptocurrencies are known for sharp price swings, which could jeopardize retirement savings if not carefully managed.
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Employers and plan sponsors remain cautious, as ERISA requires fiduciaries to prioritize employees’ best interests, and the complexity of these assets may increase litigation risks. While firms like BlackRock plan to launch 401(k) target-date funds with 5-20% private asset allocations in 2026, experts advise limiting such investments to 5-10% of portfolios.
The changes won’t take effect immediately, as federal agencies must revise rules, a process that could take months or longer. Permitting cryptocurrencies in 401(k) plans could drive significant capital into digital assets, potentially boosting prices and mainstream adoption.
Access to alternative assets like crypto, private equity, and real estate could enhance returns, as private equity has historically outperformed traditional stocks (13% vs. 10.6% annually since 1990). However, volatility and illiquidity pose risks to retirement savings.
Asset managers like BlackRock, planning 5-20% allocations to alternative assets in target-date funds by 2026, may see increased demand for crypto ETFs and other vehicles, spurring innovation in financial products. Crypto’s price swings could destabilize retirement portfolios if not capped (experts suggest 5-10% allocation limits).
Poorly timed investments may lead to significant losses for retail investors. ERISA’s strict fiduciary standards require plan sponsors to act in employees’ best interests. Offering high-risk assets like crypto could expose employers to lawsuits if investments underperform, necessitating clearer regulatory guidance.
Mainstream access to crypto via 401(k)s may encourage speculative investing among less-experienced savers, increasing the need for financial literacy programs to mitigate risky decisions. While diversification could improve long-term returns, losses from volatile assets could jeopardize retirement funds, particularly for those nearing retirement age.
The order reflects the crypto sector’s growing political clout, having backed Trump’s 2024 campaign. This could lead to further pro-crypto policies, strengthening the industry’s lobbying power. Critics like Warren may rally for counter-legislation or stricter regulations, creating political friction over retirement plan reforms.
Many plan sponsors may delay offering these assets due to legal and administrative complexities, limiting near-term adoption. While the order could democratize access to high-growth assets, it introduces significant risks and regulatory hurdles, requiring careful implementation to balance opportunity with retirement security.