Employees can invest alternative assets into their 401(k)s. Here's what to know

Rachel Faye Smith spoke with Employee Benefit News for an article on the U.S. Department of Labor’s proposed new safe harbor rule to encourage employers to include alternative investments, such as private equity, real estate, and cryptocurrencies.

Rachel notes, “They’re riskier. These are private funds that get their investments directly from investors on the private market and aren’t subject to the same level of regulatory scrutiny from the SEC that public funds receive.”

Prompted by a recent executive order, the rule would allow plan sponsors to expand beyond traditional mutual funds, provided they follow prudent selection processes under ERISA. If fiduciaries carefully document their decisions, they are presumed to act in participants’ best interests.

Rachel suggests that “benefit leaders start the process by meeting with a company’s retirement plan investment advisor or manager to discuss their approach to alternative investments. This could also be an ideal moment to review the committee’s fiduciary practices and ensure strong recordkeeping, detailed meeting minutes, and clear documentation of discussions and decisions. Consider arranging updated fiduciary training so all committee members understand their responsibilities.”

Read the full article (subscription required).