Trump Executive Order Aims to Broaden 401(k) Investment Options

The president signed an executive order that could change how Americans invest their 401(k) retirement savings. The order directs the U.S. Department of Labor to re-evaluate existing regulations to make it easier for retirement plans to include alternative assets, such as real estate, cryptocurrency, and private equity – historically available to just institutional and high-net-worth, or accredited investors.

The executive order’s primary goal is to “relieve the regulatory burdens and litigation risk” that the administration believes have stifled investment opportunities for average Americans.

“My administration will relieve the regulatory burdens and litigation risk that impede American workers’ retirement accounts from achieving the competitive returns and asset diversification necessary to secure a dignified, comfortable retirement,” said the president within the executive order.

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.

“The IPA applauds this effort to establish better retirement outcomes for all Americans,” said Anya Coverman, president and chief executive officer of the Institute for Portfolio Alternatives. “For years, pension plans have enjoyed access to wealth-building private market investment – and have the positive returns to show it – while investors in 401(k)s and other defined contribution plans were left out.”

The order specifically instructs the Secretary of Labor to take several actions.

• Review guidance on a fiduciary’s responsibilities under the Employee Retirement Income Security Act of 1974, i.e., ERISA. The goal is to provide clarity on how fiduciaries can prudently offer alternative investments.
• Clarify DOL’s position on alternative assets and establish clear criteria for fiduciaries to “prudently balance potentially higher expenses against the objectives of seeking greater long-term net returns and broader diversification of investments.”
• The order instructs DOL to “prioritize actions that may curb ERISA litigation that constrains fiduciaries’ ability to apply their best judgment in offering investment opportunities to relevant plan participants.” ERISA cases often involve disputes over employee benefits, such as retirement and health plans, and include breaches of fiduciary duty, prohibited transactions, and other violations.
• Re-examine DOL’s December 2021 Supplemental Private Equity Statement and consider whether to rescind it.

The order also directs the U.S. Securities and Exchange Commission to make it easier for participants in workplace plans to gain access to alternative assets.

“This order levels the playing field, putting all retirement savers on track to take advantage of the portfolio diversification, reduced volatility, and inflation-resistant returns that alternative investments have to offer,” added Coverman.

In addition to access within workplace retirement benefits, there has been significant momentum to increase an individual’s ability to access alternative investments. The U.S. House of Representatives recently passed the Fair Investment Opportunities for Professional Experts Act, (H.R. 3394), which would expand accredited investor eligibility to individuals with certain licenses, education or job experience – both broadening access to alternative investments and supporting capital formation.

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