Upon the White House’s request, fiduciaries will be permitted to include alternative assets in retail 401(k)s. The DOL will soon make public its guidance on their responsibilities. These guidelines will define the next wave of litigation.
Here is where to look and what to expect.
The historical perspective
The 2020 Trump Information Letter
In June 2020, an initial letter from the first Trump administration issued an information letter declaring that fiduciaries of individual accounts could include a modest component of professionally managed diversified alternative assets.
The selection had to consider the likely net returns, the plan population, the need for withdrawals/reallocations upon life events, a suggested limit of 15% for allocation into open-ended funds, the appropriateness of independent valuations, the sophistication of the fiduciary, and the adequacy of disclosures.
The 2021 Biden Supplemental Information Letter
Eighteen months later, in December 2021, the Biden administration did not withdraw the letter but issued a ‘supplemental’ letter, which cautioned fiduciaries against such alternatives.
The August 2025 White House announcement:
In its August 2025 executive order, the White House orders the DOL to review the guidance to fiduciaries of 401(k) and other defined contribution retirement plans, so that they can vet and eventually offer managers of private offerings.
The alternative assets include private equity and credit, real estate, digital assets, commodities, project finance, life insurance & longevity pools.
The document explicitly cites ‘opportunistic trial lawyers’ who ‘stifle innovation’. It aims to protect the issuers by ‘reducing their regulatory burden’ and their ‘litigation risk’.
The release required the DOL to review ERISA fiduciary duties and set new “prudence” language to take into account the benefit of diversification within 180 days. The DOL is to liaise with the SEC and regulators to revise rules and enforcement guidance.
The likely business consequences
In the relatively short term, we can expect:
- a surge of new products getting into semi-liquid funds (with periodic liquidity),
- the use of collective investment trusts (not just mutual funds) in 401(k)s,
- and cooperation agreements between plan sponsors and asset managers (see, this article or that article)
These products and cooperation agreements will all depend on how the DOL will deploy the new regulations.
The key areas to look at:
The DOL’s new guidance, expected in February 2026, should define how ‘access’ translates into ‘defensibility’.
The key elements to look at will be:
- Liquidity: Fiduciaries must synchronize two opposite needs. Managers need multi-year consistency in many of these assets (to finance 30-year-long projects), while retail investors need higher liquidity, notably for changing life events or market changes.
- Valuation: Illiquid assets have imprecise valuations. Should fiduciaries use third-party valuations or incorporate market prices, as we expect to see the equivalent issue in consumer finance? How should fiduciaries handle stale pricing, smoothing, and ‘who signs off’ questions?
- Fee and expense transparency: Cheap ETFs have eaten away mutual funds. Complex structures and alternatives are not only fat, they are also opaque. Moreover, fund-of-funds layer costs. Private fund managers are rubbing their hands, thanks to these long-lobbied developments. It is acceptable to make profits, but fees must be reasonable and transparent.
- Conflicts: Can fiduciaries manage assets too? It would be reasonable for Blackstone and BlackRock to offer 401(k)s, and distribute their portfolios directly to retail investors. But if fiduciaries and money managers remain separate, who will monitor cross-trades, side letters, and relationships between service providers?
- Disclosures: Will the fiduciaries’ disclosure be more marketing-oriented or more transparency-oriented?
What could go wrong?
Distributing alternative assets to retail opens the door to a range of legal matters.
- Liquidity and valuation disputes: Large construction projects generally have solid accounting foundations. Their valuations are influenced by slowly-changing macroeconomic factors (a change in long rates, a competing highway). Even if the asset itself is illiquid, the valuations will remain stable and proper. COVID’s impact on valuations of office space shows that Real Estate is already much more volatile. But what to say about Bitcoin and more complex cryptocurrencies/instruments, which still escape regulatory definitions and everybody’s understanding? Combining volatile prices with illiquidity is a guarantee for future litigation around valuation and timing.
- Process claims: Was the fiduciary competent to make this or that offering? Was the decision process appropriate? Were there back-door fees? Questions will arise around the parties’ behaviors, decisions and alignments.
- Fees: Were the fees appropriate for the investment and the investor? Which fees were included and which were not in the marketing (especially fund-of-funds or GP/LP structures)? Which were insufficiently disclosed, and which were ‘hidden’? To what extent do fees impact suitability?
- Suitability: Puerto Rico bonds weren’t too good for retirees, nor were UBS Yes strategies. There will be some large and disappointing private credit investments (example: Tricolor Auto case) and some surprises. What to expect of third-class cryptocurrencies, which a ‘diversified’ crypto fund must invest into? FTX was deemed perfectly safe, after all, and so was Madoff.
- Conflicts: Affiliated managers will be expected to attract flow from fiduciaries. Will a new form of 12b-1 fees influence allocations and recommendations? Are cross-holdings a permissible way to materialize incentives?
Can we count on the fiduciaries and the managers to remain balanced in their new offer to retirees? What will be the protection mechanism for those “rare” and “unintentional” abuses?
The White House certainly aims to cut off those pesky ‘opportunistic trial lawyers’ at the knees…
References
- 2020 DOL Information Letter
- Supplement Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives
- Democratizing access to alternative assets for 401(k) investors
- President Orders Department of Labor and Securities and Exchange Commission to Democratize Access to Alternative Assets for 401(k) Plans
- Private Lenders From Blue Owl to Blackstone Ready for 401(k) Win
- Goldman, T. Rowe to sell alternative investments for wealthy by year end, retirement accounts next year
- Private Credit, Consumer Risk, and the First Real Test of Valuations.
- The Tricolor Auto Fraud Case: Data Integrity Failures, Structured Finance Risk, and Litigation Fallout | Navesink International
2 Responses
Good question!
Here are some suggestions, from our good friend ChatGPT:
– Search on “Securities & Investment”: https://www.opensecrets.org/industries/lobbying?cycle=2022&ind=F07 (Summary)
– Search the same topic, for lobbying: https://www.opensecrets.org/industries/indus?ind=F07
They both show an increase in teh last few years.
– Also, a search on Private Equity”: https://www.opensecrets.org/industries/contrib?cycle=2024&ind=F2600 That’s $320 mil on lobbying just for 2023-2024. All the big names are there: Blackstone, Bain, Apollo, Carlyle…
Gontran: How much lobbying money was spent on the effort to ‘democratize alternative assets’ ?? Nice info!