Alternative investments, like private equity, private credit, cryptocurrency, real estate, and infrastructure are gaining attention as potential additions to company-sponsored retirement plans such as 401(k)s. Thanks to recent regulatory shifts, these once-exclusive options may soon become more accessible to everyday retirement savers.
But with greater access comes greater responsibility. While alternative investments in 401(k) plans promise higher potential returns and diversification, they also carry unique risks including illiquidity, higher fees, volatility, and limited transparency. Here’s a balanced look at the latest developments, potential upsides, and critical downsides.
Recent Regulatory Changes Opening the Door to Alternatives in 401(k)s
In August 2025, President Trump signed Executive Order 14330, directing the Department of Labor (DOL) to reexamine fiduciary guidance under ERISA and facilitate broader access to alternative assets in retirement plans.
On March 30, 2026, the DOL proposed a landmark rule that would ease restrictions and provide safe harbors for plan fiduciaries considering alternative assets (including private equity, private credit, crypto, real estate, commodities, and infrastructure) as part of 401(k) investment menus.
This proposal aims to “democratize” access while still prioritizing participant protection. However, it does not mean alternatives will appear as standalone options in most plans right away. Experts expect they will first show up as smaller components inside broader asset allocation funds (such as target-date or balanced funds), often with strict limits on exposure.
Potential Benefits of Alternative Investments in 401(k)s
Adding alternatives could give 401(k) investors access to asset classes that have historically delivered strong returns and diversification beyond traditional stocks and bonds:
- Private Equity: Many companies stay private longer, allowing investors to capture growth before an IPO. Public pensions and endowments have long used this strategy successfully.
- Private Credit: Since the 2008 financial crisis, tighter bank lending standards have created opportunities for private lenders. Yields on private credit have often outperformed traditional fixed-income investments.
- Cryptocurrency, Real Estate, and Infrastructure: These areas have attracted strong investor interest due to potential for higher returns and inflation-hedging qualities.
For long-term retirement savers with high risk tolerance, these options could improve portfolio diversification and boost long-term growth.
Key Risks: What Could Go Wrong with Alternative Investments in Your 401(k)?
Despite the hype, alternative investments come with well-documented drawbacks, especially for retirement accounts where liquidity and transparency matter.
- Illiquidity and Redemption Restrictions Unlike stocks or bonds traded on the NYSE or Nasdaq, most alternative investments do not trade on regulated exchanges. Many funds only offer quarterly redemption windows and may limit how much of the fund can be redeemed at once. Recent examples include private credit funds restricting or halting withdrawals amid high redemption requests. Plan sponsors must ensure sufficient liquidity to meet participant needs (loans, hardship withdrawals, or required minimum distributions).
- Valuation Challenges and Volatility Illiquid assets are often valued using models rather than daily market prices, which can mask or delay volatility. Private credit has recently made headlines for liquidity strains and write-downs on many loans.
- Higher Fees Alternative investments typically carry higher expense ratios than traditional mutual funds or ETFs. Plan sponsors are required to disclose these fees to participants, something fee-conscious investors should review carefully.
- Cryptocurrency Volatility Bitcoin, for instance, is currently on a five-month losing streak as of late March 2026 and is at risk of setting a record with a sixth consecutive monthly decline. It has experienced 20%+ drawdowns 16 times since August 2010 and multiple 50%+ pullbacks. While crypto offers high-upside potential, it is likely not suitable for risk-averse retirement savers.
- Fiduciary and Legal Risks for Plan Sponsors 401(k) plans operate under a strict fiduciary standard. Many sponsors remain cautious about adding alternatives due to potential litigation risk, even with the new DOL safe harbors. As a result, broad adoption may take time.
Who Should Consider Alternative Investments in Their 401(k)?
These options are generally best suited for investors who:
- Have a long time horizon (10+ years until retirement)
- Can tolerate significant volatility and potential drawdowns
- Have other liquid assets outside their retirement plan
- Understand the higher fees and reduced transparency
Most experts agree that alternatives will likely appear only as a modest allocation (e.g., 5–15%) inside diversified funds rather than as core holdings.
Final Advice: Do Your Due Diligence
The DOL’s proposal is a step toward expanding retirement choices to the general public in areas that they have been traditionally locked out of. However, it doesn’t eliminate the core challenges of alternative investments. If your plan eventually offers them:
- Review the specific fund’s liquidity terms, fee structure, and historical performance
- Assess your personal risk tolerance, time horizon, and liquidity needs
- Consult a fiduciary advisor if needed
- Remember: higher potential returns always come with higher risk
Alternative investments in 401(k) plans could be a gamechanger for diversification, but only if you fully understand the many risks that could go wrong. Stay informed as the DOL’s proposed rule moves through the public comment period and potential finalization later in 2026.
About the Author
James Millington, CFP® is a Certified Financial Planner® and financial advisor at Landmark Wealth Management, LLC, a fee-only SEC registered investment advisory firm. He specializes in helping individuals and families develop comprehensive financial strategies to achieve their long-term goals.