Employees could use their workplace retirement plans to invest in cryptocurrencies, private equity and other “alternative assets” under a proposal released Monday by the Trump administration.
The plan is a victory for Wall Street, which has lobbied for wider access to these products, many of which have long been the domain of the wealthy and large institutional investors like pension funds and insurance companies.
Supporters say private funds can deliver better returns than stocks over the long run. Opponents say they carry greater risks, higher fees, and are harder to buy and sell quickly than typical retirement investments such as stocks and bonds. Proponents argue the potential financial return justifies the trade-off.
The proposal is a draft rule released by the Labor Department,and the department needs to collect public feedback on the measure before it would take effect.
“This proposed rule will show how plans can consider products that better reflect the investment landscape as it exists today,” U.S. Secretary of Labor Lori Chavez-DeRemer said in a statement. “This greater diversity will drive innovation and result in a major win for American workers, retirees, and their families.”
Monday’s proposal stems from an executive order President Donald Trump signed last summer, which said workers with employer-sponsored retirement plans were being shut out of the growth and diversification opportunities that alternative investments can offer. The Labor Department’s rule is also consistent with the administration’s broader deregulatory push, which aims to reduce financial-sector rules in a bid to juice economic growth.
The Labor Department suggested its plan would apply to roughly 721,000 retirement plans, covering about 118 million workers and holding more than $8.8 trillion in assets.
The plan arrives at an awkward time for the alternative asset industry, which has been facing tumult. Some significant players in the private credit space have moved to restrict investor redemptions, preventing investors from cashing out, a sign of stress in that market.
Sen. Elizabeth Warren (D-Massachusetts) attacked the proposal Monday, saying it would expose Americans’ retirement accounts to unduly risky assets.
“Americans facing an uncertain future in Trump’s economy will now have more reasons to question the security of their retirement savings — all so that Trump’s Wall Street buddies have another pile of cash to play with,” she said in a statement.
Under current law, the managers who oversee such retirement plans, known as fiduciaries, face legal uncertainty about when they can offer workers access to certain investment types, including more complex or higher-risk options. That uncertainty has made many plan managers cautious, limiting the choices available to workers, because they fear potential lawsuits if such moves lead to losses.
The Trump administration has vowed to change that dynamic, saying Monday that plan fiduciaries — and “not opportunistic trial lawyers” — should have the authority to decide which investment options to include in retirement plans.
“Policy changes to expand access to private markets investments could serve to improve diversification, democratize access, and offer more investment choices to the benefit of everyday retirement savers,” Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, a top Wall Street lobbying group, said in a statement.
Still, some attorneys cautioned that the rule’s effects would likely unfold gradually, as plan managers become more comfortable that their investment decisions won’t be challenged in court.
“By gradually reducing the amount of frivolous litigation over time, the hope is that the regulation will enable plan fiduciaries to consider a wider range of asset classes and investment alternatives for their plan participants,” said Erin K. Cho of the law firm Mayer Brown.
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