President Donald Trump‘s executive order directing financial regulators to include alternative investments in retirement plans like 401(k) funds could change the makeup of Americans’ investment portfolios.
Trump signed the executive order on Thursday, and the White House provided a fact sheet directing the Labor Department to reconsider its guidance on alternative assets in 401(k) and defined-contribution retirement plans. Additionally, the agency will work with the Treasury Department and Securities and Exchange Commission to determine whether regulatory changes are needed to carry out the purpose of the order.
The order defines “alternative assets” as applying to private market investments; direct or indirect real estate interests, commodities and infrastructure projects; digital assets held in actively managed investment vehicles; and longevity risk-sharing pools. Federal regulators will have to go through the rulemaking process, meaning that the new investment options may not be available until 2026.
Broadening the types of assets that can be held in 401(k) and similar retirement plans offers new investment opportunities for those saving for retirement – though the new asset classes can experience more volatility than other investment categories and thus should be approached with caution as investors consider the best way to diversify their portfolios.
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“Private investments in 401(k) plans have the potential to improve participant outcomes by providing individuals access to the same range of investments as professional institutional investors, which seek to provide enhanced long-term returns and added diversification,” said Ari Jacobs, global head of investments at Aon, following the announcement.
“Implementation of these solutions requires thoughtful and robust analysis of key factors such as manager skill, fees, liquidity and valuation.”
“Interest among plan sponsors in private investment options that includes private credit, private equity, infrastructure and real estate continues to grow,” Jacobs said, adding that the industry has made “significant progress in developing these solutions” to meet the needs of defined contribution plans.
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Peter von Lehe, head of investment solutions for Neuberger Berman, said the firm believes “including private markets in professionally managed retirement products, such as target date funds, allows for prudent exposure to alternatives – potentially enhancing returns and diversification – without requiring individual investors to manage the complexities or liquidity constraints themselves.”
He said the firm’s research suggests that a 10% private equity allocation to a target date fund would meaningfully improve the fund’s risk-return profile, boosting wealth accumulation at retirement with a larger annuity stream to increase retirement income.
“Private market investments are not suitable for every investor due to their illiquidity and complexity, but a professionally managed allocation can help ensure suitability and support stronger long-term outcomes for plan participants,” he added.
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Leanna Haakons, financial commentator and president of Black Hawk Financial, told FOX Business the change “begins to put everyday retirement savers on the same playing field as institutional investors, granting access to strategies and asset classes once reserved for pension funds, endowments, and ultra-high-net-worth portfolios.”
“Allowing the inclusion of alternative investments such as real estate, private equity, venture capital, and digital assets creates vastly expanded diversification opportunities and the potential for higher long-term returns,” Haakons said.
“However, investors must also contend with liquidity constraints, higher management fees, and the need for financial education and due diligence; that makes this a powerful opportunity that demands careful, informed participation,” she noted.
Haakons added that the actual availability of the new alternative investment options in plans is unlikely to be widely available until next year because of the regulatory processes and guidance that will have to be developed, while investment firms will have to ensure their products are compliant before they roll out to retirement plan sponsors.
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