It’s been over a month since the President signed an executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors.” On its face, it’s a directive to federal agencies: ease restrictions, clarify rules, and open the door for 401(k) participants to access a broader set of alternative investments.
To make sense of the order, we need to unpack three things.
What is a 401(k)?
What does it mean for the world of alts?
How does it affect LPs?
Pension plan 101
Before explaining a 401(k), we need to quickly distinguish between the two main pension structures:
Defined Contribution (DC): You and/or your employer contribute a set amount, and your retirement benefit depends on investment performance. The risk sits with the employee.
Defined Benefit (DB): Your employer promises a fixed payout, typically based on salary and years of service. The risk sits with the employer.
A 401(k) is a DC plan, created under the Internal Revenue Code section of the same name. It’s designed to encourage long-term saving with tax advantages. In aggregate, 401(k) assets total roughly $9 trillion, that's about the size of the eight largest sovereign wealth funds combined.
Are alts managers celebrating?
Kinda.
Private equity, venture, real estate, infrastructure, even digital assets were technically always on the table for 401(k) managers. The problem was litigation risk. Fiduciaries feared being sued by employees whose retirement savings were exposed to illiquid, complex strategies.
The new executive order aims to reduce that friction. It directs the Department of Labor to revisit past guidance, explore safe harbors, and clarify fiduciary duties under the Employee Retirement Income Security Act (ERISA). It even nudges the SEC to rethink accredited investor and qualified purchaser definitions. So basically, less legal gray area, more confidence for plan sponsors to allocate into alternatives.
What about LPs?
For LPs, the implications are nuanced.
Competition for access: Historically, alternative strategies have been reserved for institutions and wealthy individuals. If 401(k) capital starts flowing in, allocations to “blue-chip” managers may get tighter. The same LPs who once had preferred access might find themselves competing with millions of retirement accounts.
Diversification at scale: On the flip side, more capital flowing into the asset class could broaden strategies, deepen secondary markets, and further institutionalize private markets.
Operational complexity: Fiduciaries will still need to prove prudence, meaning more scrutiny on fund terms, fees, and risk disclosures. For GPs, that likely means even greater pressure to standardize and institutionalize reporting. For LPs, diligence will matter even more. It won’t just be about judging performance, it will also be about how the process is managed.
It’s obviously early days, and we’re just conjecturing here. Still, it’s a meaningful step, and we hope it drives a future where alternatives are more accessible, and the standards for transparency only rise higher.