401(k)s: Private funds with high fees target retirement accounts

The U.S. Department of Labor has published a proposed rule designed to make it easier for 401(k) and other defined-contribution plans to offer private-market and digital asset investments such as private equity, private credit, real estate and cryptocurrencies. The proposal outlines a process-based safe harbor for plan fiduciaries who follow specified steps when adding these alternative vehicles to retirement menus.

The move follows President Donald Trump’s August 7, 2025 executive order directing federal agencies to reconsider barriers that have historically limited the inclusion of alternative assets in workplace retirement plans. The Labor Department’s draft sets out factors plan sponsors should evaluate — including valuation, liquidity, fee structures and disclosure — before adding alternatives to fund lineups. Proponents argue the change could broaden investment choices for savers, while opponents say it risks exposing ordinary workers to opaque strategies and higher costs.

Markets reacted to the announcement with increased attention to crypto and private market sectors; some digital assets showed price movements after the news as market participants priced potential demand from retirement flows. Industry groups representing private fund managers welcomed the proposal as a long-sought opening to a sizable new investor base, noting the trillions of dollars held in defined-contribution plans that could flow into alternative strategies over time. Critics, however, emphasize that private funds typically carry higher fees, longer lock-ups and less transparency than mutual funds and ETFs.

Contextually, the proposal is part of a broader administration effort to “democratize” access to alternative investments while aiming to reduce litigation risk for plan sponsors who include them. The Department of Labor’s draft would not mandate alternatives for plan menus but would provide a framework intended to lower the regulatory hurdle for their inclusion. The rule is subject to a public comment period and will likely face scrutiny from lawmakers, retirement advocates and the courts.

Looking ahead, market participants expect a robust public comment phase and careful drafting before any final rule is issued. Pension consultants and legal advisers say that if the final regulation imposes strict governance, valuation and disclosure requirements, alternatives could be rolled into professionally managed target-date or similar vehicles with limited allocations. If not, critics warn plan participants could see retirement balances eroded by high fees and reduced liquidity. The coming months will determine whether the proposal becomes a significant reallocation channel for private managers or a contested policy change constrained by regulatory pushback.