Expanding Opportunities in Alternative Assets for Defined Contribution Plans

The landscape of retirement investing is on the brink of transformation. A recent executive order from the Trump Administration¹ aims to open the doors for alternative assets—such as private equity, hedge funds, real estate, and permanent capital vehicles—to be included in defined contribution (DC) plans like 401(k)s. This policy shift, which instructs the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to review and reform existing regulations, is set to reshape how Americans save for retirement and what investment advisers and auditors must do to keep pace.

Why the Executive Order Matters

For years, DC plans have been the primary vehicle for U.S. retirement savings, yet their investment menus have remained largely limited to traditional stocks and bonds. Regulatory barriers and fiduciary concerns have kept DC plan sponsors from investing in private market investments, benefiting from diversification and potentially higher risk-adjusted returns.

The executive order seeks to address these limitations by:

• Broadening participant choice in retirement investment options,
• Improving diversification and risk-adjusted returns,
• Helping workers achieve better retirement outcomes.

By directing the DOL and SEC to reconsider rules that have discouraged DC plans from including alternative assets in their portfolios, the order calls for modernized guidance around fiduciary duties, disclosures, and plan administration. This could mean a new era of opportunities and challenges for both plan participants and the professionals who serve them.

Opportunities for Investment Advisers

Product Development and Innovation

Investment advisers and asset managers are poised to benefit from the ability to design and offer alternative investment products tailored for DC plans. These could include:

• Private equity and venture capital funds,
• Real estate investment trusts (REITs) and infrastructure vehicles,
• Hedge fund structures with enhanced liquidity,
• Permanent capital vehicles (PCVs) with transparent governance.

As these offerings are developed, advisers must balance innovation with the liquidity and daily valuation needs of DC plan participants. Traditionally, illiquid alternatives have been at odds with the requirements of DC plans, but new structures—such as “evergreen” funds and PCVs—are gaining interest for their potential to provide long-term capital appreciation and regular net asset value (NAV) calculations.

Expanded Fiduciary Role

With greater menu diversity, however, comes greater responsibility. Advisers will be critical in supporting plan sponsors and fiduciaries through the education, due diligence, and ongoing monitoring required for alternative asset strategies. Their expanded role will include:

• Evaluating manager credentials and track records (i.e., due diligence),
• Assessing investment risk and suitability for participant demographics,
• Recommending appropriate fund structures and governance models, and
• Providing clear disclosures to ensure informed decision-making.

Challenges and Considerations for Advisers

Liquidity and Valuation

The illiquid nature of many alternative investments presents challenges for DC plans, which require daily NAV calculations and periodic participant redemptions. Advisers must consider:

• Structures that allow for regular pricing (e.g., interval funds, semi-liquid vehicles),
• Use of independent pricing agents and fair value methodologies, and
• Enhanced participant education on withdrawal restrictions or gating mechanisms.

Fee Transparency and Comparability

Alternative assets often feature higher and more complex fee structures. Advisers must ensure:

• Transparent reporting of management and performance fees,
• Clear benchmarking of costs versus traditional assets, and
• Ongoing review of fee reasonableness and impact on retirement outcomes.

Operational and Regulatory Readiness

Advisers should prepare for increased scrutiny and evolving compliance standards, including:

• Enhanced due diligence processes,
• Robust controls and documentation, and
• Coordination with plan administrators and custodians.

Auditor Considerations

The executive order’s push for greater adoption of alternatives in DC plans will directly impact the audit process. Auditors must adapt to new complexities and risks, including:

Valuation and Pricing Risks

Auditors will face heightened challenges in testing the fair value measurements of private equity, hedge funds, and PCV holdings when included in a plan’s portfolio. Key actions would consist of:

• Reviewing management’s valuation methodology and assumptions,
• Testing the accuracy and completeness of third-party pricing reports, and
• Evaluating controls over NAV calculation and participant transactions.

Contract Review and Fee Analysis

With more complex investment agreements and fee arrangements, auditors should:

• Analyze key terms of partnership, subscription, and management agreements,
• Test fee calculations against contract provisions, and
• Assess the plan for compliance with ERISA and, where relevant, SEC guidelines.

Disclosure and Reporting

Auditors must conclude whether the plan’s financial statements and disclosures appropriately include:

• The basis for valuing the newly-allowable investments,
• Investment strategy, risks, and liquidity constraints,
• Performance measurement standards and fee arrangements, and
• Material risks and contingent liabilities.

Internal Controls and Due Diligence

As plan sponsors and administrators expand into alternatives, auditors will need to assess:

• The internal controls over the valuation of hard-to-value investments (i.e., Level 3 investments under Accounting Standards Codification Section 820).
• The design, implementation, and, if applicable, the operating effectiveness of internal controls,
• Documentation supporting investment decisions and ongoing monitoring, and
• The sponsor’s controls over service providers’ functions.

Looking Ahead: Best Practices and Recommendations

The executive order signals a new era of opportunity and responsibility for investment advisers and auditors. As the DOL and SEC implement reforms, practitioners should:

For Investment Advisers:

• Stay informed on regulatory developments and guidance,
• Proactively engage with plan sponsors to develop compliant, innovative offerings, and
• Invest in operational infrastructure to support new products.

For Auditors:

• Enhance technical capacity and staff training for auditing alternative assets,
• Update audit programs to address the new valuation, disclosure, and compliance risks,
• Collaborate with clients to identify and mitigate implementation challenges.

Conclusion

Broader access to alternative assets in DC plans promises greater diversification and the potential for improved retirement performance outcomes. However, success will depend on the ability of advisers and auditors to meet the challenges of product design, compliance, transparency, and risk management. By understanding the executive order’s implications and adopting best practices, these professionals can help plan participants benefit from an expanded universe of investment options while safeguarding plan assets from the risks arising from these newly permitted investments.

If you have questions about how these changes could impact your plan or need guidance on navigating alternative assets, contact CBIZ today.

Sources

1. https://www.whitehouse.gov/presidential-actions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/