US President Donald Trump signed an executive order on Thursday that could reshape how millions of Americans invest for retirement by expanding access to alternative assets, such as private equity, real estate, and cryptocurrency, in 401(k) retirement plans.
The order directs the Department of Labor, in coordination with the Treasury and the Securities and Exchange Commission (SEC), to re-examine existing retirement plan rules and consider allowing a broader range of investments in defined-contribution plans.
While the move does not immediately change how retirement accounts are managed, it sets the stage for federal regulators to begin rewriting rules under the Employee Retirement Income Security Act of 1974 (ERISA). The process could take months or more to complete.
Meanwhile, Democratic lawmakers, including Senator Elizabeth Warren, have expressed concern over the risks posed by alternative investments in retirement plans.
In a recent letter to a major retirement plan provider, Warren questioned how investors would be protected from high fees, lack of transparency, and unproven return claims associated with private equity.
A NEW ERA FOR RETIREMENT INVESTMENTS
Currently, most 401(k) plans are limited to traditional assets like stocks, bonds, and cash equivalents. The proposed changes could allow employers to offer mutual funds and other investment vehicles that include alternative assets, particularly private equity, real estate, and cryptocurrencies.
Supporters of the decision argue that younger savers stand to benefit the most from potentially higher long-term returns on riskier assets, especially in funds designed to become more conservative as investors near retirement.
Jason Kephart, an analyst at Morningstar, noted, “On the asset manager side, it’s a $12-trillion market they previously couldn’t tap. But for individual investors, the benefits are less certain, especially when factoring in additional fees, complexity, and lower transparency.”
Major financial firms like BlackRock, Blackstone, KKR, and Apollo Global Management have shown interest in the new opportunity, with BlackRock planning to launch a retirement fund that includes private equity and private credit assets as early as next year.
BENEFITS AND RISKS
The order opens the door for private equity and crypto fund managers to access a vast pool of retirement savings, estimated at USD 12 trillion. This could serve as a critical new funding source for firms whose traditional investment models have faced pressure from high interest rates in recent years.
However, the inclusion of high-risk, less-liquid investments in retirement plans has raised concerns.
These assets typically carry higher fees and fewer disclosure requirements compared to traditional investment options. Critics warn that they may not align with the financial interests of everyday savers.
WIN FOR CRYPTO INDUSTRY?
The executive order is seen as a major victory for the cryptocurrency sector, which heavily supported Trump’s 2024 campaign and has long pushed for greater acceptance in mainstream finance. Bitcoin rose 2 per cent to USD 116,542 on Thursday, nearly doubling since Trump’s re-election.
Under Biden, regulators treated crypto with caution due to its volatility. Trump’s directive signals a friendlier stance, underscored by the SEC dropping its lawsuit against Coinbase, seen as a broader easing of regulatory pressure.
Crypto leaders welcomed the move. “It was inevitable that bitcoin would make its way into American 401(k)’s,” said Swan Bitcoin CEO Cory Klippsten, predicting increased allocations by younger, tech-savvy investors.
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With inputs from agencies