Executive Order Targets Access to Alternative Assets in Retirement Plans

Implications and Considerations for Private Fund Managers

On August 7, 2025, President Trump signed an Executive Order (the “Order”) aiming to facilitate the use of alternative investment assets, such as private equity, real estate, venture capital, digital assets, and hedge funds, in 401(k) and other defined contribution plan investment options. The Order:

1. Directs the Secretary of Labor to:

• Review the Department of Labor’s (“DOL”) current guidance on a fiduciary’s duties regarding alternative asset investment in 401(k) and other qualified retirement plans governed by the Employment Retirement Income Security Act of 1974 (“ERISA”).
• Clarify the DOL’s stance on these investment assets and the fiduciary process for including them in a plan’s investment line-up.
• Coordinate with the Secretary of Treasury, the Securities and Exchange Commission (“SEC”), and other federal regulators to consider whether similar regulatory changes are needed across federal agencies to support the Order’s goals.

2. Directs the SEC to make it easier for participants in defined contribution retirement plans to access alternative assets as plan investments by updating applicable regulations and guidance.

The Order is expected to significantly expand access to alternative assets in qualified retirement plans. These types of investments historically have only been available to institutional and accredited investors.

In 2020, during Donald Trump’s first term, the DOL issued guidance allowing companies to offer certain private equity investments in qualified retirement plans. In 2021, under the Biden administration, the DOL issued subsequent guidance that warned against the earlier recommendation.

The renewed interest reflected in the Order may be a result of ongoing lobbying by private fund sponsors. Private funds have sought new sources of capital, as traditional institutional investors, like pension funds, approach their allocation limits to private markets. While qualified retirement plan sponsors are technically permitted to include private funds in their plan investment line-ups, employers have been hesitant to offer private fund options due to concerns over fiduciary liability under ERISA (defined below), high fees, and the risk of participant litigation. Clear, detailed guidance from the DOL and the SEC could mitigate these concerns among employers and fiduciaries by providing a roadmap for how such investments can be prudently included in qualified retirement plans. The guidance ideally would outline any safe harbors, including factors fiduciaries must consider when evaluating the prudence of offering alternative asset investment options in a qualified retirement plan.

Implications for Private Fund Managers:

While this development could signal a significant shift in the private market landscape, fund managers should evaluate whether their activities could give rise to fiduciary status under the ERISA. Heightened duties and restrictions accompany ERISA fiduciary status. An ERISA fiduciary is anyone who makes fiduciary decisions with respect to a plan and specifically includes anyone exercising discretion over plan investments and the assets of an ERISA plan. If a fund is deemed to hold ERISA plan assets, its general partner or managing member will be deemed an ERISA fiduciary. This designation carries strict duties, including a requirement to act prudently and solely in the interests of plan participants, and imposes broad prohibitions on conflicts of interests and related-party transactions.

Prohibited Transactions

This heightened fiduciary framework also brings into focus ERISA’s strict rules on prohibited transactions. Generally, prohibited transactions include conflicts of interest, self‑dealing, and related party transactions by parties in interest to a plan. The broad scope of these rules can result in a wide range of entities being designated as parties in interest, including unrelated entities that share an affiliation through mergers, acquisitions, or investment relationships. This is particularly relevant for private funds, as ERISA’s prohibited transaction rules apply to each ERISA plan investor’s undivided interest in a pro rata share of the fund’s underlying assets. Accordingly, many routine transactions by the fund—such as co-investments with an affiliate, the payment of management fees, or entering into loan agreements with a related entity—could inadvertently trigger a prohibited transaction, giving rise to excise taxes and attendant consequences.

Look-Through Exemptions

Generally, unless an exemption applies, when an ERISA plan invests in an equity interest of a non-publicly traded, non-registered fund, the fund’s underlying assets are treated as plan assets. This is commonly known as “look-through” treatment. To avoid look‑through treatment, private funds typically rely on one of three key exemptions: (1) the Venture Capital Operating Company (“VCOC”) exemption; (2) the Real Estate Operating Company (“REOC”) exemption; or (3) the Insignificant Benefit Plan Investor exemption. VCOCs and REOCs must meet specific investment activity thresholds and must hold and exercise management or development rights in their portfolio companies or properties. The Insignificant Benefit Plan Investor exemption applies when less than 25% of any class of the fund’s equity interests are held by “benefit plan investors”—and many private fund managers limit the contribution of benefit plan assets to remain under this 25% threshold.

Plan Asset Funds

If a fund intends to hold plan assets outside of the exemptions discussed above, it must address the fiduciary obligations in its governing documents. This includes formally appointing the fund manager/ERISA fiduciary as an “investment manager” under Section 3(38) and ensuring that the fund operates under a prohibited transaction exemption, such as the Qualified Professional Asset Manager (“QPAM”) exemption. Only certain entities—such as registered investment advisors—can be appointed as an “investment manager” under Section 3(38). In addition, the fund must include appropriate reporting and compliance covenants for ERISA investors.

Wrapper Funds

One approach to offering private fund investments while avoiding direct ERISA implications is through the use of registered wrapper funds or interval funds. These structures are generally investment companies registered under the Investment Company act of 1940 that invest in underlying private funds. Because the ERISA plan invests in the registered vehicle—not directly in the underlying private funds—the ERISA look-through treatment will not apply, and the private fund manager does not become an ERISA fiduciary. However, plan fiduciaries evaluating these structures must carefully assess the multiple layers of fees and expenses—from both the registered vehicle and the underlying private fund—as well as potential liquidity constraints and valuation complexities associated with the private holdings.

Key Takeaways:

In light of potential regulatory developments, private fund managers should closely monitor forthcoming guidance from the DOL and the SEC, as it may open significant opportunities within the retirement plan space. While litigation and fiduciary concerns remain key barriers, ongoing product innovation and strategic partnerships with retirement service providers can help address compliance and structural challenges. Fund sponsors hoping to capitalize on an influx of plan asset capital should be prepared to navigate enhanced disclosure, valuation, and ERISA-related obligations while remaining mindful of evolving regulatory and political dynamics.

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