401(k) Alternative Investments: New Options Require Evaluation

“Expanding the 401(k) investment menu to include alternative investments marks a new frontier in retirement planning, offering greater access and opportunity, but it demands a holistic approach.”

A recent executive order may significantly broaden the investment options available within 401(k) plans by directing regulatory agencies to reconsider current restrictions on alternative assets. This shift could pave the way for plan sponsors to offer private equity, private credit, real estate, and digital asset investments within workplace retirement accounts. Expanding the 401(k) investment menu to include alternative investments marks a new frontier in retirement planning, offering greater access and opportunity, but it demands a holistic approach.

For investors who already hold alternative assets through private accounts or family offices, this development may provide an additional avenue for diversification. However, 401(k) plans tend to offer more limited and curated investment menus. These limitations may reduce access to specific strategies or managers that are available through other accounts, limiting the potential benefits of including alternatives in an employer-sponsored plan.

Alternative investments also carry distinct complexities. Private equity often requires long-term commitments and has limited liquidity. Real estate investments can be highly sensitive to interest rate changes and local market conditions. Digital assets add another layer of risk with volatility and regulatory uncertainty. These risks need to be evaluated against the retirement account objectives and risk tolerance before making sizing or allocation decisions.

Another important consideration is cost. Alternative investments usually come with higher fees than traditional mutual funds. Private equity funds often charge 1.5 to 2.5 percent in annual management fees, plus performance fees ranging from 15 to 20 percent of profits. Real estate and digital asset investments may involve similar or even higher costs. In a 401(k) context, where transparency and value are key, these fees must be evaluated

carefully.

Plan sponsors will also face new fiduciary responsibilities. Due diligence for alternative assets is more complex than selecting traditional funds and requires a thorough review of fund managers, investment strategies, risk profiles, and fee structures. Many alternative investments require a more sophisticated investor, so sponsors must also consider the education needs of plan participants.

As these regulatory changes unfold, we recommend viewing them as part of a broader planning discussion. While this development adds another tool to the retirement planning toolkit, strategic alignment with goals, risk tolerance, and tax situations remains essential. Early adoption will likely come from larger employers with the resources to evaluate and implement these new options. Altman Advisors is already doing this for small business owners and entrepreneurs, or clients’ current employer-sponsored retirement accounts, so that it can be fully integrated into their asset reporting and Financial Independence Plans. Contact us if you would like to consider adding alternative investments to your retirement plan.