Alternative assets are investments outside traditional stocks, bonds, and cash. The category encompasses everything from private equity and real estate to commodities and digital currencies. For retirement investors, this expanded universe represents a fundamental shift in how 401(k) portfolios can be constructed, moving beyond the conventional 60/40 stock-bond allocation that has dominated defined contribution plans for decades.

The integration of alternative assets into 401(k) plans reflects both regulatory evolution and market demand. Institutional investors have long enjoyed access to private markets, with public and corporate pensions globally allocating approximately 23% of portfolios to private markets as of 2022. Now, regulatory changes and platform innovations are democratizing this access for individual retirement savers. The trend accelerated significantly following the August 2025 Executive Order aimed at expanding alternative asset access for 401(k) investors, signaling a new era for retirement portfolio construction.

For plan sponsors evaluating alternative investments in retirement accounts, understanding this landscape means recognizing both the diversification potential and the operational complexity these assets introduce. Innovative 401(k) providers are responding with new investment vehicles, enhanced participant education, and digital platforms designed to make alternatives accessible without overwhelming lean HR teams.

Types of Alternative Assets Available in 401(k)s

Private Credit involves direct lending to companies outside traditional banking channels, providing steady income streams and diversification from public fixed-income markets, though carrying credit risk and limited liquidity.

Digital Assets and Cryptocurrencies represent the newest frontier. Adding crypto to your investment policy statement has become increasingly relevant as digital assets gain legitimacy within retirement planning frameworks, though regulatory scrutiny and volatility concerns remain significant considerations.

Real Estate and REITs trade publicly, offering liquidity and diversification within real estate exposure. Unlike direct property ownership, REITs provide daily liquidity and professional management, making them suitable for retirement plans where participants may need fund access.

Private Equity and Hedge Funds are typically riskier and less liquid but may offer higher returns compared to traditional equity investments. These vehicles invest in non-public companies or employ sophisticated trading strategies, often requiring longer holding periods and higher minimum investments.

Commodities like gold, oil, and agricultural products offer inflation protection and low correlation with financial assets. Access within 401(k)s typically occurs through futures contracts, commodity-focused mutual funds, or exchange-traded products.

Most 401(k) platforms deliver alternative asset access through specialized vehicles designed for retirement plans. Collective investment trusts (CITs) and interval funds serve as preferred wrappers for packaging alternatives, offering more favorable fee structures and regulatory treatment than retail mutual funds.

Benefits and Risks of Alternative Investments

Alternative assets can have low correlation with stocks and bonds, helping smooth portfolio volatility across different economic environments. When public equity markets experience drawdowns, alternatives like private credit or real assets may maintain value, reducing overall portfolio volatility. Defined contribution plans can offer alternative assets, and interest in private equity and private credit is rising among institutional investors seeking to replicate endowment-style investing for participants.

However, fiduciaries should provide plain-English disclosures about key risks including illiquidity, valuation uncertainty, and expected holding periods. Unlike mutual funds offering daily redemptions, many alternative investments lock up capital for years. Private equity funds typically impose 7-10 year commitment periods, while interval funds may only allow quarterly redemptions with significant restrictions.

Higher fees characterize most alternative investments. While traditional index funds charge 0.03-0.15% annually, alternative investments commonly carry 1-2% management fees plus 10-20% performance fees on gains. Private assets often lack clear market prices, making valuations subjective and complex. Some alternative investments generate unrelated business taxable income (UBTI), which can trigger tax obligations even within tax-deferred retirement accounts.

Critically, inclusion of alternatives doesn't automatically improve outcomes—fiduciaries must weigh cost, risk, and liquidity against potential benefits for their specific participant population.

Recent Policy Changes Driving Access

On August 7, 2025, an executive order aimed to "democratize" access to alternative assets for 401(k) investors, representing the most significant policy intervention in this space. The order directed the Department of Labor to review and potentially revise guidance that had previously constrained alternative asset inclusion in defined contribution plans.

The DOL rescinded a 2021 supplemental statement that had cautioned fiduciaries about private equity in 401(k)s, removing regulatory ambiguity that had chilled adoption. By rescinding this guidance, the DOL effectively communicated that alternatives should be evaluated using the same prudent person standards as traditional investments, without inherent suspicion.

Case law has also evolved to support alternative inclusion. A federal court ruled in favor of Intel after its inclusion of private funds in its 401(k) was challenged by participants alleging imprudence. The Anderson v. Intel decision established important precedent that including alternatives doesn't automatically constitute a fiduciary breach, provided the plan sponsor followed appropriate due diligence and monitoring procedures.

Target-date funds are likely to be the initial vehicle to include alternative asset allocations, providing default investment option access without requiring individual participant decision-making.

How 401(k) Providers Offer Access to Alternative Investments

Collective investment trusts (CITs) and interval funds are preferred vehicles for packaging alternatives for retirement plans. CITs offer institutional pricing, favorable regulatory treatment under ERISA, and flexibility in portfolio construction unavailable to mutual funds. Interval funds provide periodic liquidity windows—typically quarterly—allowing some redemptions while maintaining the stable capital base alternatives require.

Target-date funds with alternative sleeves represent the most participant-friendly implementation approach. By embedding alternatives within professionally managed, age-appropriate portfolios, this method eliminates the need for individual participant decision-making about alternative allocations. Participants receive alternative asset exposure automatically as part of their default investment, with professional managers handling rebalancing and liquidity management.

Self-directed brokerage accounts already provide access to some alternative asset classes including publicly traded REITs, commodity ETFs, and in some cases, alternative mutual funds. This pathway suits experienced investors comfortable conducting their own due diligence. Understanding how to transfer a 401(k) to Bitcoin and what's actually possible within self-directed accounts helps clarify both opportunities and limitations of this approach.

Private markets windows represent a newer innovation where providers create specialized portals for alternative investments within the core 401(k) platform, offering more access than target-date funds alone while providing more structure than fully self-directed accounts.

Practical Steps for Plan Sponsors

Before evaluating alternatives, clarify what problem they're solving for your participants. Plans serving younger, financially sophisticated workforces with stable employment can tolerate more illiquidity and complexity than plans covering older workers or industries with high turnover. Assess participant financial literacy through surveys to gauge readiness for alternatives.

Based on participant profiles, determine whether CITs, interval funds, target-date funds with alternative sleeves, or brokerage windows best fit your plan. Most plans benefit from starting with target-date funds incorporating alternatives before offering broader self-directed alternative access.

Evaluate alternative investment managers using enhanced due diligence beyond what traditional equity or bond managers require. Examine track records across market cycles, transparency in valuation methodologies, redemption policies, and fee justification. Confirm that participant statements will clearly communicate performance and valuations.

Work with ERISA attorneys to establish prudent allocation limits—many plans cap alternative exposure at 5-10% initially. Document investment policy statement provisions governing alternative selection criteria, monitoring frequency, and conditions that would trigger removal. Establish valuation procedures meeting DOL requirements, particularly for assets without readily observable market prices.

Develop plain-English educational resources explaining what alternatives are, how they differ from traditional investments, and what risks participants should understand. Address liquidity restrictions, potential UBTI implications, and fee structures explicitly. Education should provide sufficient information for informed decision-making without recommending alternatives. Exploring comprehensive 401(k) resources throughout this process helps plan sponsors stay current on implementation best practices and emerging alternative investment options.

Best Practices for Managing Alternatives

Private assets often lack clear market prices, making valuations subjective and complex. Best practice involves third-party valuation verification at least annually, with more frequent reviews if material events occur affecting underlying holdings. Establish clear redemption policies before crises hit—define how redemption requests will be processed during market stress and communicate these policies when participants first invest.

Communication and participant education through webinars, factsheets, and interactive tools proves critical when adding complex alternative options. Avoid financial jargon—explain private equity as "investments in companies not traded on stock exchanges" rather than using technical terminology.

Establish quarterly investment committee reviews specifically addressing alternative investments. Monitor not just performance but also manager changes, strategy drift, fee changes, and participant utilization patterns. Document why alternatives remain appropriate for the plan even when performance lags—the decision to retain alternatives during difficult periods requires as much documentation as the initial adoption decision.

Ensure your investment advisor possesses alternatives expertise beyond traditional 401(k) investments. Confirm your custodian can hold, value, and report alternatives accurately on participant statements. Verify your recordkeeper understands alternative transaction processing and can handle partial liquidity events. Working with experienced advisorscan help navigate the complex decision-making around alternative investment management and potential removal.

Frequently Asked Questions about 401(k) Alternatives

Which 401(k) providers allow alternative investments?

Self-directed Solo 401(k) providers and select modern platforms now offer access to alternative assets including real estate, private equity, and cryptocurrency. Provider capabilities vary significantly—some offer only publicly traded alternatives like REITs while others provide access to interval funds, CITs with private market exposure, or self-directed brokerage windows supporting broader alternative selection. Major recordkeepers including Empower, Fidelity, and Principal have announced alternative investment capabilities, though specific offerings differ by plan size and design. Always review your provider's specific alternative asset menu, associated fees, educational resources, and compliance support before committing plan assets to alternatives.

What changed with recent regulatory updates on alternatives?

New regulations and executive actions have encouraged expanded access to alternative investments within 401(k) plans, making it easier for providers and participants to include private markets and other illiquid assets when managed prudently. The 2025 Executive Order directed the Department of Labor to remove regulatory barriers that previously made plan sponsors hesitant to offer alternatives. The DOL's rescission of cautionary 2021 guidance on private equity clarified that alternatives should be evaluated using standard prudent person principles rather than heightened scrutiny. Court decisions like Anderson v. Intel established that including alternatives doesn't automatically constitute fiduciary breach when proper due diligence occurs. These changes collectively reduced legal uncertainty and signaled policy support for democratizing alternative asset access in retirement plans.

What types of alternative assets are suitable for 401(k) plans?

Alternative assets commonly offered in 401(k) plans include real estate through REITs or direct property funds, private equity funds investing in non-public companies, hedge funds using sophisticated trading strategies, commodities providing inflation protection, cryptocurrencies and digital assets, and private credit involving direct lending. Suitability depends on multiple factors including plan structure, participant risk tolerance, financial sophistication, age demographics, and regulatory requirements. Target-date funds with modest alternative allocations (5-15%) suit most participants by providing professional management and automatic rebalancing. Interval funds and CITs work well for plans wanting dedicated alternative options without full self-direction complexity. Self-directed brokerage accounts suit sophisticated participants comfortable conducting their own due diligence. Plans should match alternative complexity to participant capabilities rather than offering access that might confuse or overwhelm participants.

What are the main risks and fees associated with alternatives?

Main risks include illiquidity meaning capital may be locked up for years with limited or no redemption options, valuation challenges since private assets lack transparent market pricing and may be valued subjectively, and potentially higher management fees (1-2% annually) plus performance fees (10-20% of gains) compared to traditional 401(k) options charging 0.03-0.50%. Participants should also understand expected holding periods—private equity often requires 7-10 year commitments while interval funds may allow quarterly redemptions with restrictions. Additional risks include complexity in understanding alternative investment strategies, potential for unrelated business taxable income (UBTI) triggering unexpected tax obligations, and the possibility that alternatives underperform traditional investments despite higher fees. Manager risk proves significant with alternatives since track records may be limited, strategies opaque, and regulatory oversight less comprehensive than mutual funds face. Redemption restrictions can create forced holding during financial emergencies when liquidity is most needed.

How can participants evaluate alternatives in their retirement portfolios?

Participants should assess several dimensions before investing in alternatives including risk tolerance—alternatives often exhibit different risk patterns than stocks and bonds with potentially higher downside but smoother reported volatility. Evaluate diversification benefits by understanding how alternatives correlate with existing holdings rather than assuming all alternatives provide the same diversification value. Carefully review fee structures including both management fees and performance fees, calculating how much investment returns must exceed traditional options to justify higher costs. Consider liquidity needs based on employment stability, emergency fund adequacy outside retirement accounts, and time horizon until retirement—longer horizons better accommodate illiquid alternatives. Review disclosure documents and educational materials provided by the plan sponsor to understand specific investment strategies, redemption policies, and risk factors. Consider starting with modest allocations (5-10% of portfolios) rather than large commitments until comfortable with alternative characteristics. Consulting with plan advisors or financial professionals can provide personalized guidance based on individual circumstances, though participants should ensure advisors understand alternatives beyond just traditional investments.