KEY POINTS
- President Donald Trump signed an executive order to enable Americans to invest their 401(k) retirement savings in alternative assets like private equity and cryptocurrency.
- The move is being praised by the administration as a “democratization” of investment but is criticized by experts who warn of higher risks, exorbitant fees, and a lack of transparency and liquidity.
- The plan faces a major hurdle from the legal liability it places on employers under ERISA, and is seen by critics as a political reward to the crypto and private equity industries, which have lobbied for access to this market.
WASHINGTON – President Donald Trump signed a sweeping executive order on Thursday that aims to clear the way for Americans to invest their 401(k) retirement savings in high-risk, high-reward alternative assets like private equity, cryptocurrency, and real estate, a move that could fundamentally reshape the nation’s retirement landscape.
The directive is being hailed by the administration and the financial industry as a “democratization” of investment, one that could give everyday savers access to the lucrative opportunities previously reserved for the ultra-wealthy. However, the move has been met with immediate and fierce criticism from consumer advocates and financial experts, who warn that it could expose the retirement accounts of millions of Americans to a dangerous new world of higher fees, lower transparency, and catastrophic risk.
The executive order signed in early August 2025, directs the Department of Labor, the Securities and Exchange Commission (SEC), and the Treasury Department to begin the long and complex process of rewriting the regulations under the Employee Retirement Income Security Act (ERISA) of 1974. This foundational law governs workplace retirement plans and, for decades, has guided employers to offer relatively safe and straightforward investment options like stocks and bonds.
A Potential Windfall for Savers and Wall Street
For the financial industry, the move is a monumental victory. It potentially unlocks a massive, previously untouched pool of capital for asset managers. The 401(k) market in the United States represents between $9 and $12 trillion in assets. Even a small allocation of this capital toward alternative assets would represent a multi-billion-dollar injection of funds for the private equity and crypto industries, which have lobbied for years for access to this market.
Proponents argue that this is a win for savers as well. They contend that traditional 401(k) plans, with their limited menus of mutual funds, have prevented everyday workers from participating in the high-growth potential of private markets. By allowing access to these assets, the administration says it is giving savers more opportunities to generate the high returns needed to secure a comfortable retirement.
The Hidden Dangers: Higher Risks, Higher Fees, and a Lack of Transparency
Critics, however, paint a far grimmer picture. They argue that these alternative investments are fundamentally unsuited for the average retirement saver for three key reasons.
First, they carry significantly higher risks. The value of cryptocurrencies can swing wildly, and private equity funds often invest in highly leveraged, non-public companies that have a higher rate of failure.
Second, they come with exorbitant fees. While a typical stock market index fund in a 401(k) might have an annual fee of less than 0.10%, private equity funds often follow a “2 and 20” structure—charging a 2% annual management fee on all assets and taking 20% of any profits. These fees can consume a massive portion of a saver’s long-term returns.
Third, these assets are opaque and illiquid. Unlike publicly traded stocks and bonds, which are priced in real-time and can be sold instantly, private equity and crypto assets are difficult to value and cannot be easily converted to cash. This lack of liquidity is a major problem for retirees who need to draw down their savings to live on.
The Employer’s Dilemma: A Legal Minefield
Perhaps the biggest hurdle to the widespread adoption of these new assets is the legal liability it would place on employers. Under ERISA, employers have a fiduciary responsibility to act in the best interests of their employees when selecting 401(k) investment options.
Many companies will likely be extremely reluctant to offer these new, riskier assets for fear of being sued by employees who suffer significant losses. This is not a theoretical concern. A similar, less forceful guidance from the Department of Labor during Trump’s first term that already permitted private equity in 401(k)s saw minimal adoption. Today, fewer than 10% of all retirement plans offer any type of alternative investment, a clear sign of the industry’s deep-seated caution.
A “Gift” to Industry Allies?
The political context of the decision has not been lost on critics. The move is widely seen in Washington as a reward to the crypto and private equity industries, which have become increasingly vocal and powerful supporters of the president. The executive order comes shortly after the SEC, under the Trump administration, dropped a high-profile lawsuit against the major cryptocurrency platform Coinbase, a move that was seen as a significant concession to the industry.
For now, no changes are imminent. The process of rewriting the complex rules governing ERISA could take months, if not years, and will almost certainly face legal challenges. But the president’s executive order has officially fired the starting gun on a battle that will determine the future of how Americans save for retirement, pitting the promise of higher returns against the profound risks of opening up the 401(k) system to Wall Street’s most volatile and complex products.
