Major US fund managers back 401(k) access to alternatives

Major US fund managers are backing a U.S. Department of Labor proposal to allow employers to include alternative investments in 401(k) plan menus under a safe-harbour that limits employer legal exposure if they follow specified due diligence. The public comment period on the draft rule closed with more than 33,000 submissions from asset managers, trade groups, advisers and investor advocates.

The draft rule would permit plan sponsors to offer certain alternatives, including private credit and cryptocurrencies, if they document a review of fees, historical performance, liquidity terms and valuation methods. The Department of Labor’s draft lists factors fiduciaries should evaluate when deciding whether to add alternatives to plan lineups.

Supporters say the framework could broaden access to asset classes usually limited to institutions. The Managed Funds Association described the proposal as one that could “reduce regulatory friction and litigation risk,” and proponents say it may allow greater diversification and the potential for higher long-term returns. The Investment Company Institute recommended a cautious rollout and suggested that “modest” allocations to private markets could be incorporated into default target-date funds used by many 401(k) participants.

Critics raised concerns about transparency, fees and liquidity. The CFA Institute warned retail investors may face “limited transparency and less control over valuation methods, liquidity arrangements and fee structures.” Advisers pointed to liquidity mismatches in structures such as interval funds, where investor redemption rights may not match the timing of underlying asset cash flows, which can create stress in volatile markets.

Alternative investments often carry higher management or performance fees than mutual funds and exchange-traded funds, and valuations of private assets can rely on infrequent pricing that complicates fair-value assessments for retirement account statements. Opponents said those features could raise costs and risks for defined-contribution plan participants.

About 57% of U.S. private-sector workers participate in employer-sponsored retirement plans, which together hold an estimated $14.2 trillion in assets. The Department of Labor will review the public comments and may revise the draft before sending it for White House regulatory review. No timeline for possible finalisation has been provided.