What’s in and What’s Out of Your 401(k) Account Under Trump

The Trump administration is putting its mark on workplace 401(k)s in a whirlwind of executive moves set to force retirement accounts to drop eco-friendly investments while clearing them to turn to nontraditional options like digital tokens and private equity.

The US Labor Department told a federal appeals court Wednesday it will replace a Biden-era rule allowing companies to consider environmental, social, and corporate governance investments on behalf of workers and retirees. Earlier in the day, DOL’s Employee Benefits Security Administration said it was rescinding cryptocurrency guidance Biden issued in 2022 that helped keep these assets off companies’ investment menus for their workers.

Meanwhile, the White House is considering a directive that would pave the way for illiquid, complex private-equity investments in 401(k)s, Bloomberg News reported May 21.

Taken together, the last week in Washington, D.C. could redefine what are and aren’t permissible investments for 70 million Americans saving nearly $9 trillion at work. Most retirement portfolios are concentrated in stocks and bonds, but the Trump administration is signaling renewed interest in alternative assets widely considered more volatile.

Retirement plan decision-makers held to the strictest fiduciary standards of conduct under common law have historically steered clear of any alternatives to time-tested securities because of lawsuit risk under the Employee Retirement Income Security Act.

Not only can the DOL sue a plan for breaking the law, but the 401(k) participants and beneficiaries can bring private claims too. Private plaintiffs’ have increasingly sued plans for choosing investments that charge excessive fees or failing to monitor their plan providers.

Federal regulators have less say over what goes on in the courtroom since the the US Supreme Court’s Loper Bright Enterprises v. Raimondo ruling overturning judges’ deference to reasonable agency interpretations where laws are ambiguous or silent. Still, it matters what agencies EBSA and the Securities and Exchange Commission consider prudent investments under the law.

Alternative Investments

Alternative investments live outside traditional regulatory controls and could make or break self-directed retirement portfolios, either leveling the playing field with wealthy investors or bogging down small-time savers with unmitigated risks.

Until recently, those risks had outweighed the potential for big returns, but now plan sponsors say the pendulum is swinging in their favor under Trump.

Securities and Exchange Commission Chair Paul Atkins, himself a crypto backer, recently said retail investors have missed out on lucrative closed-end funds that target private investments, such as hedge funds or private-equity funds.

He said he’s directed staff to begin drafting rule proposals related to crypto and will ask the commission to address a 23-year-old rule limiting access to funds with 15% or more in private equity to a $25,000 credited initial investment.

A bill that would eliminate that cap altogether cleared the House Financial Services Committee May 22.

Very few plans presently offer cryptocurrency, ESG, or private equity investments. The Government Accountability Office said cryptocurrency on 401(k) investment menus or through self-directed brokerage windows accounted for less than 1% of the market. Less than 3% of plans expose their investors to private equity, according to the American Retirement Association.

ESG-specific investments have grown over time, but also remain rare. The Trump administration’s decision to axe the Biden rule continues a tug of war between Democratic and Republican administrations over what “collateral benefits” can factor into investment choices under ERISA.

Trump, a vocal cryptocurrency proponent who issued his own meme coin dubbed $TRUMP, appears to favor certain investment alternatives over others.

In rescinding Biden-era cryptocurrency guidance, however, Labor Secretary Lori Chavez-DeRemer said the department was taking its thumb off the scales.

“We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats,” she said.