Trump's 401(k) Order: What Advisors Should Know

While guidance clarifications are expected from Labor, "more durable changes would ideally come via formal notice-and-comment rulemaking," the Raymond James analysts said.

The Securities and Exchange Commission is instructed under the order to work with Labor to consider revising existing SEC regulations and guidance relating to accredited investor and qualified purchaser status.

The order directs the SEC and DOL "to reform regulations including regulations aimed at curbing investor lawsuits — one of the biggest obstacles to democratization," said Igor Rosenblitz of Iron Road Partners, a risk consultancy in New York. "While a future administration could reverse the order, lasting change may come if democratization advances without triggering significant regulatory issues, or if changes are enshrined in rules rather than guidance."

Fiduciaries

The EO states 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. They do so to protect the Americans whose retirement accounts they administer and for whom they have fiduciary duties to invest safely and prudently."

Mark Iwry, former senior advisor to the Treasury secretary and current nonresident senior fellow at the Brookings Institution, told ThinkAdvisor Friday that while "this kind of Presidential endorsement of 401(k) plan investment types is highly unusual," at the end of the day, "advisors recognize it’s still about the basics: ERISA requires plan fiduciaries to act as prudent experts in selecting investments, retaining outside independent expertise if needed, diligently weighing all relevant factors, and using their best judgment to assess prospective risk-adjusted returns net of fees — all solely in the interest of plan participants and beneficiaries." 

The EO, according to Reish, "was obviously not written by a political type," adding that it was likely written by someone at Labor or someone from the private sector with experience with private funds. There's a good chance, Reish said, that Labor "will issue a checklist of the factors that should ordinarily be considered in evaluating a private fund, such as fees, transparency, valuation, conflicts of interest, and so on."

The American Retirement Association said the order "demonstrates a thoughtful and practical recognition of the evolving landscape of U.S. capital markets and underscores the importance of updating regulatory frameworks."

“For over five decades, fiduciaries have prudently selected financial products for retirement plans through the ERISA fiduciary process,” Brain Graff, ARA's CEO, said in a statement. "The decision to include various assets — whether public, private, or digital — should be guided by this rigorous process, rather than by regulatory limitations.”

As for crypto, the Raymond James analysts said that the order "likely creates material opportunities for crypto adoption at the institutional level, as 401(k) plans and administrators will now have clearer regulatory pathways to offer digital assets."

Advisors Weigh In

Crypto in 401k plans "will require significant amount of employee education so that they understand the risk/reward of these types of investments, even if they are investing through an ETF or mutual fund," said Daniel Lash, partner at VLP Financial Advisors in Vienna, Virginia. "Crypto has significantly greater volatility than the broad markets, such as the S&P 500. Understanding investment risk is important for any investor prior to investing in any particular investment type."

Carlos Salmon, partner at Wooster Square Advisors in New Haven, Connecticut, said that "education must be mandatory. If you want to invest in crypto or private credit inside a 401(k), you should be required to complete a learning module specific to that asset class and pass a short test. Ongoing education should also be required to maintain those allocations, similar to continuing education for professional licenses."

Further, Salmon said he was "not opposed to allowing alternative investments like crypto or private credit into 401(k)s, but guardrails are essential. Without them, participants could unknowingly take on risks they don’t fully understand. Recordkeepers should implement percentage caps on how much of a participant’s portfolio can be allocated to alternatives, similar to how broker-dealers and RIAs already use concentration limits for suitability."

Access to these products "should only be permitted for plans that have an advisor," Salmon continued, and the advisor "must hold advanced certifications, such as the CAIA or the CFA’s certificate in alternative investments. The advisor should also assume fiduciary responsibility for ensuring that all guardrails are properly implemented and actively monitored."