The Trump administration is pushing a major change that could radically reshape how Americans save for retirement.
Last week, the Department of Labor filed a rule that would allow 401(k) plans to invest in high-risk assets, including cryptocurrency, private equity, hedge-fund-style products, private credit and other alternative investments once reserved for the wealthy.
The White House has framed it as “choice” and “liberation” for workers, but the move could turn ordinary Americans’ retirement savings into a high-stakes gamble, exposing millions to volatility and potential losses they may not be prepared to handle.
The 401(k) was created in the 1980s as a way for employees to gain direct exposure to the stock market. Unlike traditional defined-benefit pensions, which guaranteed a fixed income in retirement, 401(k)s shifted both responsibility and risk onto the employee. A well-diversified portfolio of equities, bonds and mutual funds allows for long-term growth and relative stability, adding high-risk alternative assets to the mix would fundamentally change the dynamics of retirement investing, potentially exposing savers to significant losses.
A group of Republican lawmakers praised the move, saying “that every American preparing for retirement should have access to funds that include investments in alternative assets” when the plan’s fiduciary decides it is appropriate.
High-risk alternative assets would fundamentally change how 401(k)s work. Private credit, for instance, has grown as banks have pulled back from lending. Firms such as Blue Owl Capital originate loans and package them into funds for investors seeking higher yields. These loans are lightly regulated and difficult to value. Defaults, valuation disputes and withdrawal limits can sometimes mask losses until the money is needed.
But private equity is usually reserved for wealthy investors because it is so risky. These funds often lock up your money for years and charge complicated fees. They aim for high returns, but their value can swing up and down a lot. For someone depending on a 401(k), this could make it hard to access money when it’s needed, potentially putting decades of retirement savings at risk.
Cryptocurrency is even more unpredictable. Even professionally managed crypto funds can change value quickly. Coins such as bitcoin or ethereum can lose or gain a lot in just hours or days. If your retirement account holds crypto along with private equity or private credit, a market downturn could hit multiple parts of your savings at the same time.
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Critics warn that most people don’t have the experience to safely manage these complex products.
The new rule would let employers add these high-risk investments to 401(k)s alongside regular mutual funds. Supporters say it would give workers a chance to earn higher returns. Critics, however, warn that most people don’t have the experience to safely manage these complex products. In the worst case, decades of savings could disappear, something that is almost impossible with traditional 401(k)s.
Fees can reduce your savings. Alternative investments often charge multiple layers of fees, including management and performance fees. Over time, even modest gains can be eaten up, leaving less money for retirement.
Adding risky investments to millions of 401(k)s could affect the broader market. History shows that when markets are connected, problems in one area can spread fast, hurting both big investors and ordinary people. Putting volatile assets in retirement accounts could make everyone’s money more vulnerable to sudden economic shocks.
For millions of Americans, what used to be a steady path to financial security could become a risky experiment. While it may sound exciting in theory, in practice it could turn retirement savings into a financial minefield.
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Lily Becker is a producer on “The Weeknight” for MS NOW.