Senators Raise Alarm Over Executive Order Paving Way for Access to Alts in 401(k)s

A group of senators, led by Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.), has voiced serious concerns over an executive order that aims to increase access to private market funds and cryptocurrencies within defined-contribution retirement plans like 401(k)s.

According to the order, a combination of “regulatory overreach and encouragement of lawsuits” has limited 401(k) participants to asset classes with lower returns compared to those achieved by public pension funds and other institutional investors.

Signed by President Trump on Aug. 7, the move was applauded by groups including the Institute for Portfolio Alternatives as a first step in leveling the playing field – putting all retirement savers on track to take advantage of portfolio diversification, reduced volatility, and inflation-resistant returns afforded by alts.

But in a new letter to the U.S. Department of Labor and the U.S. Securities and Exchange Commission, the senators warned the action “exposes hard-earned savings to volatile financial instruments, while attempting to rebrand them as ‘alternative assets,’ although they lack transparency and have exaggerated claims of high returns,” and could lead to financial harm for millions of Americans who rely on their retirement savings to “live in dignity and self-reliance as they age.”

The letter outlines concerns about private investments – specifically their lack of transparency and oversight compared to public markets – particularly focusing on illiquidity and long lock-up periods, valuation issues and the lack of standardization, and high fees which can erode long-term returns. Further, the letter cites data suggesting that private markets may not outperform publicly traded stocks like the S&P 500, and references a U.S. Government Accountability Office study, which shows that cryptocurrency has been up to 12 times more volatile than the S&P 500.

Finally, the policymakers raise concerns about potential conflicts of interest within the administration, referencing reports that the Trump family’s crypto ventures could yield substantial financial profit following the move to open up retirement plans to digital assets.

The letter concludes by asking the DOL and SEC to answer a series of questions regarding how they will ensure plan sponsors maintain their fiduciary duty, what research they’ve conducted on the risks and potential profits to the private equity industry and the Trump family, and what steps they will take to increase transparency and investor protection. Specifically:

1. How will you ensure that plan sponsors maintain their fiduciary duty while allowing them to buy private market and cryptocurrency products?
2. Has the DOL or the SEC conducted a study on how much the private equity industry will profit by gaining access to retail investors?
3. Has the DOL conducted an investigation into how much the Trump family will profit off of any potential cryptocurrency investments in our nation’s retirement plans?
4. Has the DOL conducted a study analyzing the risks of retail investors having access to the private markets and cryptocurrencies?
5. The executive order directs the DOL to propose rules that clarify the duties of a fiduciary. Does the DOL intend to write rules that lower the required due diligence for fiduciaries and curtail investors ability to hold fiduciaries accountable?
6. Which rule changes does the SEC and DOL plan to make to ensure better investor protection standards regarding private investments and cryptocurrencies?
7. What will the DOL and SEC do to increase transparency in the private markets and digital asset markets so workers who are investing their hard earned paychecks can safely save for retirement?
8. What long-term research, oversight and tracking will the DOL do in order to ensure that workers are not having decreased retirement savings by participating in private investments and cryptocurrencies in their retirement accounts?
9. How should a fiduciary account for the changing regulatory environment for digital assets when including them in a defined contribution plan?

The other signers to the letter are: Richard J. Durbin, D-Ill., Jeffrey A. Merkley, D-Ore., Christopher S. Murphy, D-Conn., Tina Smith, D-Minn., and Ron Wyden D-Ore. – all requesting that a response to the above questions be provided by Nov. 17.

Following the executive order, the DOL officially rescinded a Biden-era supplemental statement that discouraged fiduciaries from including alternative assets in 401(k) retirement plans. More recently, a group of nine Republican senators wrote their own letter urging the DOL to implement the executive order, arguing that it’s time to grant millions of 401(k) holders the same access to alternative assets that is currently enjoyed by institutional investors.

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