Move to open 401(k)s to private credit and crypto comes at awkward time
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The Labor Department on Monday proposed rules to open 401(k) plans to private equity, private credit, crypto and other alternative assets.
Why it matters: The move could unlock trillions of dollars in new investment for alternative assets — but critics warn that it could expose millions of retirement savers to higher risk and volatility.
Catch up quick: The proposed rules, from Labor's Employee Benefits Security Administration, have been long anticipated — a next step following President Trump's executive order in August.
- Current federal rules effectively discourage defined-contribution plans from investing in alternative assets by treating them as a fiduciary risk, exposing managers to potential litigation.
- The proposal outlines how plan managers can meet their fiduciary duties when considering these investments — giving them clearer legal cover.
Between the lines: Labor anticipates that most new alternative asset exposure would likely come through target-date funds.
- Private equity, hedge funds and crypto-related firms could see increased inflows, it says.
- Diversified fund structures could help improve returns for 401(k) investors while cushioning the risks posed by these less liquid investments, it says.
What they're saying: "This proposed rule will show how plans can consider products that better reflect the investment landscape as it exists today," said U.S. Labor Secretary Lori Chavez-DeRemer.
- Alternative investments are already common in public pensions: 99% of state and local defined benefit plans held them in 2022, according to the proposal.
- Investment giant BlackRock said it supports this and other policy initiatives "that thoughtfully expand access to investments historically out of reach, enhance diversification, and improve long-term outcomes, including for the more than 35 million Americans we help prepare for life after work."
Yes, but: The proposal comes at an awkward time for proponents.
- When Trump signed the executive order last summer, the $2 trillion private credit market was booming — and some early warnings at the time about loose lending have escalated into widespread investor jitters and battles for redemptions.
- Bitcoin at the time was trading at over $118,000. It has since fallen over 43%, to under $67,000.
The other side: "As cracks emerge in the private credit market, private equity returns fall to 16-year lows, and crypto keeps tumbling, President Trump has decided now is the time to stick all of these risky assets into Americans' 401(k)s," Sen. Elizabeth Warren (D-Mass.) said in a statement. "Anyone who cares about the financial security of working people should oppose this proposed rule."
What's next: The proposal is now subject to public comment.
