Labor Department Strikes Private-Market 401(k) Fund Warning

The Trump administration began clearing the way for alternative assets in workplace 401(k)s by eliminating Biden-era guidance warning plans about the danger off-market funds posed to retirement-saver nest eggs.

Bloomberg Law

The US Labor Department said it was rescinding a 2021 supplemental statement that cautioned against private-market valuation risks, illiquidity, and lack of transparency.

Biden attached the statement to the strategy Trump’s DOL laid out during his first term, establishing guardrails plans could use to add private-market investments that satisfy strict oversight requirements under federal benefits law.

It’s the first regulatory shift the DOL’s Employee Benefits Security Administration has taken in response to President Donald Trump’s Aug. 7 executive order green-lighting alternative assets such as private equity and cryptocurrencies in workplace 401(k)s.

The DOL said Tuesday that Biden’s supplemental letter marked a departure from previous department norms dictating a neutral stance on specific types of investments and a principled-base approach to investment decision-making.

“This is just another example of how the Biden administration put their thumb on the scale to pick winners and losers,” Secretary of Labor Lori Chavez-DeRemer said in a statement. “Instead of allowing Washington bureaucrats to call the shots, we believe plan fiduciaries should decide which retirement investment options are best for hardworking Americans.”

The Biden guidance didn’t explicitly prohibit retirement plan decisionmakers—who are held to strict fiduciary standards—from adding private-equity funds to their plan menu lineups. It emphasized the high level of skill, knowledge, and experience fiduciaries or their advisers would need to provide private-market exposure within the strict confines of the Employee Retirement Income Security Act.

The supplemental letter coincided with a risk alert the US Securities and Exchange Commission issued during Trump’s first term that sought to address conflicts of interest, fees, expenses, and necessary policies and procedures to non-public financial information.

Since then, the Trump administration has cozied up to private-market asset managers and embraced the crypto industry. Businesses the president owns have begun buying up Bitcoin and both he and the First Lady have meme coins based on their own likenesses.

In May, the department withdrew Biden-era guidance that warned 401(k) about the risks of investing in cryptocurrency.

The executive order Trump signed instructed the DOL and SEC to take a look at existing regulations that served as barriers to alternative-asset 401(k) exposure and even consider legal protections that would help employers avoid ERISA litigation.

Assets the White House listed included private equity and credit, cryptocurrencies, real estate, and commodities shunned by 401(k) plans that usually invest in more conservative stocks and bonds.