How the 401(k) Alts Debate Raises Fiduciary Stakes

When President Donald Trump signed an executive order in August 2025 directing federal regulators to provide guidance on how fiduciaries can incorporate alternative investments into defined contribution plans, he did not change the law governing 401(k)s. But he certainly amplified the conversation.

The order requires agencies to clarify how plan sponsors can prudently include private equity, private credit and other alternatives in professionally managed multi-asset strategies like target-date funds and managed accounts. This has renewed interest in an asset class historically favored by pension funds, endowments and other large institutional investors, but largely missing from participant-directed retirement plans.

The lack of alternatives in DC plans is not due to regulatory prohibition—nothing in the Employee Retirement Income Security Act bars them—but, rather, plan sponsors’ fear of litigation. According to the 2026 PLANSPONSOR Benchmarking report, only 2.9% of plan sponsor respondents provided any investment options that include alternatives. Interviews with advisers and legal experts suggest that even favorable regulatory guidance may not lead to broader adoption of alternatives in DC plans.

Trump’s Push

The push for inclusion comes after years of lobbying from the private asset industry, seeking easier access to a pool of more than $12 trillion in retirement assets. It also comes as 2025 was the weakest year for alternative managers to raise capital in the U.S. since 2020, according to Pitchbook, hampered by a slowdown in exit activity from portfolio holdings and ongoing consolidation among managers.

For fiduciaries, however, the central question is not whether alternatives are now politically blessed or whether defined contribution plans should incorporate alternative assets. It is whether adding them alters the scope—or at least the intensity—of their duties under ERISA.

“We need to start with the fact that the fiduciary standard is the same, no matter what type of investment you’re talking about,” says Lisa Gomez, former assistant secretary of labor in charge of the Employee Benefits Security Administration and now president of LMG Collaborative Consulting Solutions. “That’s where we should all be focused.”

Interviews with investment managers, fiduciary advisers and former regulators suggest that while ERISA’s core standards of prudence and loyalty remain unchanged, incorporating alternatives into 401(k) lineups may raise the bar for practical application. Greater complexity, higher fees, valuation challenges and liquidity constraints mean that fiduciaries likely need more robust processes, deeper expertise and tighter documentation to withstand scrutiny if returns falter or litigation follows.

The Fiduciary Challenge

Kevin Crain, executive director of the Institutional Retirement Income Council, says that handling alternative investments will not require fiduciaries to deviate from their typical responsibilities: Adding alternatives “does add more layers to defining what prudency means,” he says, but it does not reinvent the fiduciary role.

Those layers include determining appropriate allocations across target-date vintages; understanding the collective trust structures commonly used for private investments; and assessing liquidity and pricing mechanics. Fiduciaries must also evaluate whether allocations should be uniform across vintages or vary depending on participants’ stage of retirement.

Plan sponsors may feel more comfortable delegating such complexity to a 3(38) fiduciary—“a lot of the risk, litigation and pressure … is first going to go to them,” Crain says—but he also notes that such delegation does not eliminate scrutiny on plan sponsors.

Crain advises plan fiduciaries to closely track regulatory developments, to model risk-return assumptions carefully and to ensure that liquidity and administrative operations remain smooth for participants.

As fiduciaries make those determinations, Jerry Prior, CIO of managed futures and chief operating officer at investment manager Mount Lucas Management, cautions that those same people will need to understand the nuances of private equity and private credit investments, which proponents argue enhance diversification and long-term returns.

“When people add privates, they think they’re getting diversification,” he says. “They’re not. They’re getting more of the same thing, just in a different structure.”

Because private assets are priced less frequently and lack daily market valuations, reported volatility can appear lower. But that does not mean the economic exposure is fundamentally different. In downturns, private markets are still exposed to recessionary pressures, Prior says, even if pricing lags obscure the immediate impact, which should be a part of a fiduciaries’ thought equation.

Other investment managers in alternative assets see the assets as driving both returns and risk reduction within a portfolio. Some stress that achieving equity-market diversification these days requires including private equity investments because more companies are staying private. 

Commissioner Mark Uyeda, of the Securities and Exchange Commission, for example, stressed the diversification benefits of investing in private assets when addressing an Investment Company Institute conference in New York. 

Process, Not Politics 

Andrew Oringer, general counsel at Wagner Law Group, emphasized that ERISA’s framework centers on process, not investment type. 

“ERISA is fundamentally a process statute,” he says. Courts generally defer to the judgment of a prudent, unconflicted fiduciary who engages in careful analysis and documentation. 

From Oringer’s perspective, incorporating alternatives represents “a difference in degree,” not “a difference in kind.” Higher-risk strategies warrant heightened diligence, stronger disclosures and potentially allocation limits—but they do not create an entirely new fiduciary framework. 

As regulatory guidance evolves, he expects that comfort levels with the asset classes will rise, particularly if liquidity and securities law issues are clarified alongside fiduciary considerations. 

Fees, Expertise, Documentation 

Gomez, meanwhile, stresses that fiduciary standards do not change with political momentum. 

Gomez instead urges fiduciaries interested in offering alternative investments to assess whether their advisers possess genuine experience negotiating and monitoring alternatives. In some cases, she says, retaining specialized counsel or outside experts may be necessary. 

Above all, she emphasizes documentation: If performance disappoints and litigation follows, the strength of the fiduciary’s documented process will likely determine the outcome. 

Gomez says fiduciaries should resist both hype and fear, instead focusing on whether they can responsibly evaluate and monitor the investments. 

“You shouldn’t be ruling something out simply because it is complex,” she says. “If it’s something that could really be beneficial and helpful, are you able to go down that road and figure this all out in a prudent and responsible way?” 

 

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