Policy Shifts Could Reshape 401(k) Investing

Jina Yoon | Chief Alternative Investment Strategist

Last Updated:

For decades, retirement savers had a fairly simple menu: stocks, bonds, and a few target date funds that combined the two in different proportions. Alternatives, such as hedge funds, private credit, and private equity, were not even an option unless you were a pension fund or ultra-high-net-worth investor meeting high-bar qualifications. That may change soon, as Washington is working on another big policy shift, this time particularly focused on alternative investments.

On August 7, 2025, President Trump signed an executive order called “Democratizing Access to Alternative Assets for 401(k) Investors.” The order requires the Department of Labor (DOL) to review its rules around alternatives in retirement plans and provide updated guidance within six months — by February 2026. As their first step, the DOL rescinded the 2021 statement that had previously discouraged fiduciaries from including alternative assets in 401(k) plans, aiming to reduce regulatory barriers and encourage broader adoption of alternative investments. The SEC has also been pulled in to review its definition of who counts as a “qualified” or “accredited” investor. This means the rules preventing everyday workers from investing in less liquid hedge funds and private market solutions might become more relaxed. If that happens, we could notice 401(k) plans start to include investment options like hedge funds, private equity, private credit, and even cryptocurrency.

It’s important to note, this does not mean investors will suddenly be able to log into their 401(k) and buy shares of a private equity fund directly. Even after the new rules and definitions come out next year, it will take time for plan providers and asset managers to build, approve, and offer their investment strategies. And the likely initial path is through packaged funds, such as target date funds, interval funds, or collective trusts that allocate a small portion to alternatives, with full adoption possibly taking years, as involved parties learn through trial and error. Additionally, it's important to note, this is not legislation approved by Congress, but a Presidential executive order, which is subject to potential litigation.

Even with the gradual roll out, the opportunity may be significant for both asset managers and investors to start preparing for the change.

For asset managers, the size and stability of 401(k) assets is very attractive. Even having investors shift a sliver of the $12 trillion 401(k) plans to alternatives could help them build out a more stable and diversified investor base and revenue channels. Success, however, will require investing in stronger oversight, retail flow-oriented infrastructure, and investor education.

For retirement savers, the upside is pretty clear. Alternatives give them more tools beyond the usual stock and bond mix, potentially achieving diversification and differentiated income and return generation through assets and strategies they never had access to previously. At the same time, it’s crucial for investors to understand the underlying strategies, the risk and complexity around liquidity and transparency, and the differences among managers and their offerings — ideally with guidance from a professional.

Important Disclosures

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International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

Bonds are subject to market and interest rate risk if sold prior to maturity.

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Jina Yoon

Jina Yoon is LPL Financial’s Chief Alternative Investment Strategist. Her investment career includes over 15 years of experience.