The Policy Shift

Alternative investments have traditionally been out of reach for the average retirement account, reserved instead for high-net-worth individuals and institutional investors. On August 7, 2025, President Trump issued an Executive Order entitled “Democratizing Access to Alternative Assets for 401(k) Investors”, signaling a major policy shift regarding access to alternative asset classes.

Only a few days later on August 12, 2025, The U.S. Department of Labor rescinded its December 21, 2021, Supplemental Statement, that discouraged fiduciaries from including alternative assets like private equity in 401(k) plan investment options. “Instead of allowing Washington bureaucrats to call the shots, we believe plan fiduciaries should decide which retirement investment options are best for hardworking Americans.” said the U.S. Secretary of Labor Lori Chavez-DeRemer in the official news release.

The Labor Department has removed a regulatory hurdle that had discouraged plan sponsors from offering such investments. This is expected to bolster more inclusion of private equity and other alternative assets in retirement portfolios, potentially increasing diversification and aligning with broader market trends.

“On the asset manager side, it’s a $12-trillion retirement market that they have previously not had access to. For them, there’s certainly a lot of opportunity,” said Morningstar analyst Jason Kephart.

Why Alternatives Matter for Retirement

Alternative investments are private assets that are not traded on public markets, such as private equity, venture capital, real estate, or private credit. Alternative investments often show low correlation with traditional asset classes like stocks and bonds, helping reduce overall portfolio volatility and improve risk-adjusted returns. Pensions and endowments have long relied on alternatives to outperform public markets, setting an institutional precedent.
The market rationale for inclusion is clear: diversification, inflation protection, and potential for enhanced long-term returns.

Types of Alternatives

The Executive Order provides an official definition of alternative investments, including:

  • Private market investments: direct and indirect interests in equity, debt, or other instruments not traded publicly,
  • Real estate: both equity and debt instruments secured by real estate.
  • Digital assets: holdings in actively managed investment vehicles investing in cryptocurrencies or related assets.
  • Commodities: direct and indirect investments in raw materials and goods.
  • Infrastructure projects: financing for large-scale development initiatives.
  • Lifetime income strategies: including longevity risk-sharing pools.

This means private equity, venture capital, private credit, real estate, infrastructure, commodities, hedge funds, and digital collectibles may now find a place in retirement planning and accounts.

Access to Alternatives

Under Section 2 of the “Democratizing Access to Alternative Assets for 401(k) Investors”, it states “It is the policy of the United States that every American preparing for retirement should have access to funds that include investments in alternative assets when the relevant plan fiduciary determines that such access provides an appropriate opportunity…” This reframes the issue of access to alternatives from a question to an affirmative right that all plan participants should have, where appropriate.

Up until now, employer-sponsored 401(k) plans have been largely limited to mutual funds, ETFs, and target-date funds, while self-directed IRAs offered some more flexibility. Through self-directed IRAs, investors could already access real estate, private equity funds, private placements, and even certain digital assets.
This policy change is closing the gap by bringing institutional-style options into mainstream 401(k) planning.

Retirement Accounts

Retirement accounts are tax-advantaged vehicles designed to help individuals build wealth for the future. In the U.S., these accounts fall into two main categories:

Traditional (Tax-deferred):

  • 401(k), 403(b), and 457 plans: employer-sponsored with potential matching contributions.
  • Traditional IRA: individual account with tax-deductible contributions (subject to income limits).
  • SEP-IRA and Solo 401(k): for self-employed individuals and small business owners.

Roth (Tax-free growth):

  • Roth IRA: contributions made with after-tax dollars, with tax-free withdrawals in retirement.
  • Roth 401(k): employer-sponsored plan with Roth tax treatment.

These accounts provide meaningful tax benefits, offering either upfront deductions in traditional plans or tax-free growth in Roth plans. They also set rules for contributions, withdrawals, and required minimum distributions, which generally begin at age 73, except for Roth IRAs during the owner’s lifetime.

Historically, retirement portfolios in these accounts have focused on stocks, bonds, and mutual funds, with very limited access to alternatives. Yet as workers face longer lifespans, greater market volatility, and the limits of traditional asset classes, alternatives present a powerful complement within tax-advantaged accounts. This is the beginning of a new era in portfolio construction and retirement planning.

Considerations for HNWI or UHNWI Investors

The strategic allocation to alternative investments is no longer an edge, but a core component of a prudent financial plan for high-net-worth individuals. While most HNWI already have alternative investments, adding them to their retirement planning can enhance returns, reduce volatility, and build a more resilient portfolio designed to withstand various economic conditions.

The recent executive order has opened up an enormous pool of assets in DC plans (billions in 401(k)s) to alternative asset managers. For individuals already investing in or running private equity, this could mean more capital and a corresponding rise in demand. As more capital is sought from DC plans, there could be pressure to differentiate via risk control, performance, etc. New funds may adapt to liquidity restrictions, transparency, or fee sensitivity may emerge. UHNWI may get earlier access than the general public to some of these funds.

As new fund structure emerge to serve 401(k)s, there may be an opportunity for private investors or UHNWI to seed them, take early positions, or even negotiate favorable economics before scale causes fee compression.

Since many changes depend on guidance/regulation rather than law, future court decisions or presidential administrations could roll back or limit parts of the executive order. UHNW should not assume permanence and should communicate to their fiduciary.

Legal, Tax, and Compliance Considerations For Investors

The expansion of alternatives into retirement accounts brings both opportunity and responsibility. Fiduciary duties remain the cornerstone—plan sponsors and advisors must exercise prudent judgment, conduct rigorous due diligence, and ensure that any alternative offerings are suitable for participants. The Department of Labor, SEC, and Treasury have broadened the official definitions of alternative assets, but they have also reinforced the importance of compliance, disclosure, and oversight.

Tax considerations are another critical factor. Certain structures can generate Unrelated Business Taxable Income (UBTI), which may undermine the tax-advantaged benefits of retirement accounts if not properly managed. In addition, liability concerns for fiduciaries persist, especially when offering complex or illiquid assets that require careful valuation and transparent communication.

Many retirement savers are unfamiliar with the risks and mechanics of alternative assets, making it essential for fiduciaries to prioritize clear explanations, balanced risk assessments, and ongoing support. By pairing expanded access with stronger compliance practices and participant education, investors and fiduciaries can navigate this evolving landscape with confidence.

Pros and Cons of Adding Alternatives in Your Retirement

Benefits:

  • Diversification,
  • Potential for enhanced returns,
  • Inflation hedging.

Risks

  • Illiquidity,
  • Higher fees,
  • Complexity of valuation and oversight.

Conclusion

The inclusion of alternatives in retirement accounts represents more than a regulatory change: it’s a paradigm shift. For investors, it offers diversification, inflation protection, and access to historically higher-return asset classes. For fiduciaries, it introduces both opportunities and responsibilities in education, compliance, and oversight. As retirement savers confront longevity risk, market volatility, and the limitations of traditional portfolios, alternatives now provide a powerful complement within tax-advantaged accounts. This shift marks the beginning of a new era in retirement investing.

Sophisticated investors who recognize these implications early and position accordingly will benefit from the transition. Those who view it merely as a regulatory footnote risk missing one of the most significant structural changes in private markets in decades.