Executive Order Opens 401(k) Plans to Private Equity

President Donald J. Trump has signed an executive order directing federal agencies to remove regulatory barriers preventing most 401(k) participants from investing in private equity and other alternative assets, backed by new White House research projecting significant economic benefits from the policy change.

The August 7 executive order affects more than 90 million Americans in employer-sponsored defined contribution plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), which sets minimum standards for most retirement plans.

White House Projects Major Economic Benefits

A Council of Economic Advisers (CEA) research paper released alongside the executive order finds that "defined contribution (DC) plan allocation to alternative investments can have significant benefits to plan participants (retail investors), fund managers, private companies (including small businesses), financial markets, and the real economy."

The CEA analysis projects that "retail investor access to private equity through defined contribution plans can result in a GDP benefit of up to $35 billion, or 0.12 percent of GDP." The research notes this "estimate quantifies the benefit from expanding access to private equity only; there may be an additional benefit from expanding access to other forms of alternative investments such as hedge funds or venture capital."

Benefits Projected Across All Age Groups

According to the CEA research, "across all age cohorts, we find that an allocation to private equity enhances portfolio risk-adjusted return (Sharpe ratio) and increases retirement wealth for defined contribution plan participants."

The analysis shows varying benefits by age: "Younger cohorts benefit more relative to older cohorts from an allocation to private equity. The two youngest cohorts see around a 2.5 percent increase in annuitized lifetime income while the gain to the two oldest cohorts is closer to roughly 0.5 to 1 percent."

The CEA concludes that "DC plan participants would benefit from diversification, higher risk-adjusted returns, and higher retirement income."

Administration's Policy Rationale

"More than 90 million Americans participate in employer-sponsored defined-contribution plans, and most of those are currently restricted from investing in alternative assets, unlike wealthy investors and retirement plans for government workers," according to the White House fact sheet accompanying the order.

The executive order argues that "burdensome lawsuits that seek to challenge reasonable decisions by loyal, regulated fiduciaries, and stifling Department of Labor guidance issued since my first term, however, have denied millions of Americans opportunities to benefit from investment in alternative assets."

The administration contends that current restrictions have "largely relegated 401(k) and other defined-contribution retirement plan participants to asset classes whose returns lack the very same long-term net benefits allowed for and achieved by public pension plans and other institutional investors."

Broader Economic Impact

Beyond individual retirement benefits, the CEA research identifies systemic advantages: "Fund managers and private companies would benefit from access to a large, growing, diversified, and stickier capital base. Financial markets would benefit from enhanced liquidity and price discovery."

The analysis suggests these benefits would "translate to a higher GDP," supporting the administration's broader economic growth objectives.

Regulatory Implementation Framework

The order gives the Department of Labor 180 days to "reexamine the Department of Labor's past and present guidance regarding a fiduciary's duties under" ERISA, specifically directing consideration of rescinding the December 2021 Supplemental Private Equity Statement.

The Securities and Exchange Commission is directed to "consider ways to facilitate access to investments in alternative assets by participants in participant-directed defined-contribution retirement savings plans," potentially including revisions to accredited investor and qualified purchaser requirements.

The executive order acknowledges that "fiduciaries of 401(k) and other defined-contribution retirement plans must carefully vet and consider all aspects of private offerings, including investment managers' capabilities, experiences, and effectiveness managing alternative asset investments."

Scope of Alternative Assets

The executive order defines alternative assets broadly to include:

• Private market investments, including private equity where managers take active management roles
• Real estate investments and real estate-backed debt instruments
• Holdings in actively managed investment vehicles investing in digital assets
• Direct and indirect commodity investments
• Infrastructure development project investments
• Lifetime income investment strategies including longevity risk-sharing pools

Congressional Concerns Raised

Some Democratic lawmakers have expressed reservations about expanding alternative asset access to retail investors. Sen. Elizabeth Warren (D-MA) wrote to financial firms earlier this year expressing concern about the sector's "weak investor protections, its lack of transparency, expensive management fees, and unsubstantiated claims of high returns."

Warren noted that "private funds usually charge around a two percent flat fee, with the ability to take an even larger cut — around 20 percent — when gains exceed a certain amount. In comparison, mutual fund fees are typically under one percent."

The Massachusetts senator also cited recent market developments, including that "fundraising by private equity hit a seven year low in the first quarter of 2025, $22 billion below the comparable figure for the same period last year."

Policy Context and Timeline

The White House frames the policy as part of President Trump's "Make America Wealthy Again" agenda and his commitment to make the United States the "crypto capital of the world." The administration notes it has already "rescinded guidance put place by the Biden Administration regarding digital assets."

Federal agencies have 180 days to complete their reviews and propose new guidance. The order specifies that implementation must be "consistent with applicable law and subject to the availability of appropriations."

Industry groups, consumer organizations, and retirement experts have not yet issued official responses to the executive order or the accompanying economic analysis.