Major US fund management firms are backing a proposal that would allow retirement savers to allocate portions of their 401(k) plans into alternative assets such as private credit and cryptocurrencies, according to a report by Reuters.
Investor groups and advisers though, are warning that the move could expose individuals to higher risk, fees and liquidity constraints.
The proposal, introduced by the US Department of Labor, would create a “safe harbour” framework intended to protect employers from legal liability when including alternative investments in retirement plan menus, provided they follow a defined due diligence process covering factors such as fees, performance, liquidity and valuation.
The consultation period on the rule has now closed, attracting more than 33,000 responses from asset managers, trade bodies and investor advocates. The Department of Labor will now review the submissions, with the potential to revise the proposal before it proceeds to White House review and possible finalisation.
Supporters of the change argue it could broaden access to asset classes that have traditionally been limited to institutional investors. The Managed Funds Association, representing parts of the alternative investment industry, said the reform could reduce regulatory friction and litigation risk, helping workers achieve stronger diversification and potentially higher long-term returns.
Industry groups such as the Investment Company Institute have also endorsed a cautious approach to implementation, suggesting that “modest” allocations to private markets could be incorporated into default target-date funds used by most 401(k) savers.
Some financial advisers echoed that view, arguing that private markets now represent a growing share of economic activity and that retail investors should have some exposure to them through retirement plans.
However, critics have raised concerns about whether the structure of alternative investment vehicles is suitable for mass-market retirement savings. The CFA Institute warned that retail investors may lack transparency and control over critical factors such as valuation methods, liquidity terms, and fee structures compared with institutional investors.
Other advisers highlighted the risk of liquidity mismatch, particularly in structures such as interval funds, where investor redemption rights may not align with the underlying assets, potentially creating stress during periods of market volatility.
The proposal comes amid a broader policy push to expand access to private markets, with regulators under pressure to balance innovation in retirement investing against the protection of long-term savings.
About 57% of U.S. private-sector workers participate in employer-sponsored retirement plans such as 401(k)s, which collectively hold an estimated $14.2tn in assets, underscoring the scale of capital potentially affected by the rule change.
The Department of Labor is expected to continue evaluating industry feedback before deciding whether to amend or advance the proposal toward final adoption.
