Executive Order on Access to Alternative Assets for 401(k) Investors

Key Insights

• Clarifies what the new Executive Order on 401(k) access to alternative assets actually means for plan sponsors and fiduciaries

• Explains that ERISA investment standards remain unchanged despite new discussions around private market exposure

• Outlines how advisors can guide clients through evolving opportunities and compliance considerations

Given the amount of headlines and news coverage, it is only natural that plan sponsors and employer plan fiduciaries have questions about the new White House Executive Order on Access to Alternative Assets for 401(k) Investors—and the growing conversation around private market exposure in DC plan investments. Plan advisors can generate significant value by helping their clients separate the buzz from the facts and understand what the Executive Order and related agency action can’t—and can—do.

Executive Action Cannot Change the ERISA Investment Standard

The Executive Order and follow-up Department of Labor (“DOL”) and other agency action cannot–and will not–alter the standard for selecting and monitoring investment options within a plan lineup. This standard is both strict and well-established. Fiduciaries must act solely in the interest of plan participants, with the exclusive purpose of maximizing risk-adjusted returns, net of fees. That principle applies universally, regardless of whether an investment includes public or private market assets.

This means that if a responsible fiduciary conducts a prudent evaluation process that evaluates all of the relevant facts and circumstances and reasonably determines that a target date fund (TDF) with private market components meets the ERISA standard, that option may be added to the plan.

Executive Action Can Provide Directionally Helpful Commentary

Any ERISA investment decision must be supported by a prudent process that considers all relevant facts and circumstances. Investments with private markets exposure raise unique issues (e.g., liquidity and valuation) that should be evaluated as part of the determination as to whether the investment is reasonably likely to maximize risk adjusted financial returns, net of fees. The prior Trump Administration DOL issued guidance on such considerations, and it can be expected that the current DOL will issue further guidance in response to the Executive Order.

Advisors will want to continue to monitor these developments, particularly as new asset allocation funds with private market exposure come to market. Regardless of what investment is ultimately selected, advisors should have the expertise to evaluate the available universe of investments, including ones with private market exposure and the unique issues they raise.