What private assets in 401(k) plans mean for investors: ‘You’re only asking for trouble,’ one advisor says

Investors may soon have greater access to private assets — that is, investments that are not publicly traded — in their 401(k) or other workplace retirement plans. Financial advisors say that for many workers, the risks may outweigh the rewards. 

President Donald Trump is expected to sign an executive order on Thursday allowing alternative assets in 401(k)s, according to a senior White House official. The order instructs the Department of Labor to reexamine its guidance to employers and plan administrators on incorporating such assets into retirement plans.

Alternative investments are a broad category that includes real estate, cryptocurrencies and private-market assets, among others.

That last subset, also called private assets, can include equity and credit in private (not publicly traded) firms. Pension funds, insurance companies, sovereign wealth funds and high-net-worth individuals are traditional investors in these private markets.

Although an executive order to independent agencies does not change policy, it is a strong signal of Trump’s priorities and support of alternative investments in retirement plans.

During Trump’s first term, the Labor Department issued an information letter to plan fiduciaries, telling them that private equity may be part of a “prudent investment mix” in a professionally managed asset allocation fund in a 401(k) plan. Fiduciaries have a legal and ethical obligation to work in the best interest of investors by considering the risk of loss and potential gains associated with investments.

Thursday’s order instructs the Labor Department to clarify its position on the appropriate fiduciary process associated with such funds.

Some financial advisors are concerned that 401(k) investors lack the knowledge or experience to incorporate these more sophisticated, and often more costly, investments into their portfolios. 

“When you have an unsophisticated investor that doesn’t even understand the difference between a stock and a bond, and now all of a sudden you introduce the allure of getting rich in the private equity markets. You’re only asking for trouble,” said Charles Massimo, a Long Island, New York-based financial advisor and senior vice president at Wealth Enhancement. 

Retirement plans represent a significant market. Defined-contribution workplace plans — which include 401(k)s and 403(b) plans, among others — held $12.2 trillion as of the end of the first quarter of 2025, according to the Investment Company Institute, a trade association. About $8.7 trillion is in 401(k)s alone.

Advocates’ argument for incorporating such investments in workplace retirement plans is that they could provide retail investors with more diversification away from public markets, and a chance for higher returns.

“Retirement savers are the ultimate long-term investors and would benefit from the diversification offered by the inclusion of private assets,” Melissa Barosy, a spokesperson for the Investment Company Institute, said in an email. 

But such investments are complex. Investors may be restricted in their ability to cash out, experts say, and fees tend to be high.

The average exchange-traded fund carries a 0.51% annual management fee, about half the 1.01% fee of the average mutual fund, according to Morningstar data. Private equity firms typically collect a 2% management fee, plus 20% of the profit.

“If you’re going to introduce these types of investments, you really have to have a concerted effort to be educating both plan sponsors and retirement investors about what these things are,”  said Lisa Gomez, who served under the Biden administration as Assistant Secretary for Employee Benefits Security, the Department of Labor division that oversees private-sector workplace retirement plans.

Unlike publicly-traded assets, basic information on private equity investments — like what firms are in a fund and what their revenues and losses are — can be challenging to obtain.

“The rules aren’t as standard with private investments,” said Chris Noble, policy director at the Private Equity Stakeholder Project, a nonprofit watchdog organization.

That makes it hard to compare the values of private versus public assets. “I’d argue, because of that, [401(k) investors] are just fine with stock and bonds,” said Noble.

Some experts also question the quality of those private assets that could be offered to retirement investors.

Say you’re a major player in private assets, said financial advisor Massimo. In that scenario, he said, “I’m saving the best deals for my highest clients. It’s the deals I really can’t sell that I’m going to funnel off down to the participants that may not understand it or see it.”

The law governing 401(k) plans requires plan sponsors to act as fiduciaries. However, the Department of Labor could issue guidance stating that alternative investments meet this obligation, which would help shield employers from lawsuits, experts say.

“It also could reassure plan advisers that they will not face litigation for including alternatives in retirement accounts even though they are less liquid,” Jaret Seiberg, a policy analyst for TD Cowen, wrote in a policy note on July 16.

Private equity firms, including Apollo Global Management, BlackRock, Blackstone, and KKR have introduced new products to make inroads into defined contribution plans.