The US Department of Labor has proposed a new regulation that aims to make it easier for 401(k) plan fiduciaries to include alternative assets such as private equity, venture capital, crypto, real estate, and more in participant-directed retirement plans. This includes online capital formation, securities issued under Reg CF, Reg A, and Reg D. Previously, President Trump issued an Executive Order declaring the change. It was titled “Democratizing Access to Alternative Assets for 401(k) Investors.”
ERISA fiduciaries may be able to select investment options for participant-directed plans such as 401(k) and 403(b) plans, including alternatives. The rule creates a safe harbor for plan sponsors and advisors to offer these assets.
In a letter submitted by the Crowdfunding Professional Association (CfPA), the group that advocates on behalf of online capital formation, CfPA Vice Chair Brian Christie expressed support for the change while arguing that the current draft does not go far enough to achieve its stated goals.
To quote the letter:
“As access to private market investments expands within retirement accounts, it is appropriate to consider how established, regulated frameworks for retail participation in private markets align with this objective, consistent with the goal of democratizing access reflected in E.O. 14330. This broader policy objective is supported by existing regulatory frameworks designed to facilitate retail participation in private markets, including SEC-regulated pathways.”
The caveat to the proposed rules, as submitted by the CfPA, is that they recommend, as a component of the safe harbor, whether the “alternative asset is offered through a regulatory pathway that provides standardized disclosure, eligibility standards for participation, and oversight by a federal regulator with jurisdiction over the offering.” The letter calls the proposed tests too vague and principles-based. A subjective determination could deter participation in certain assets, including those issued under securities crowdfunding exemptions.
The goal is to deliver better litigation protection and encourage the inclusion of alternative assets.
Liquidity is another area the CfPA would like to see greater clarification, noting that securities issued under Reg CF and Reg A support liquidity, the former can be bought/sold after one year, and the latter is unrestricted.
Christie shared the following comment on the proposed rule change:
“Expanding access should not mean lowering standards. Private equity and crypto groups are eager to access the trillions sitting in 401(k) accounts, but retirement savings should come with clear, consistent transparency. Reg CF and Reg A already provide regulated disclosure frameworks that give fiduciaries a real record to evaluate.”
Thousands of comments have been submitted to the proposal, which has a deadline of June 1st.
While many support the concept, some consumer advocacy groups and extreme progressive politicians have voiced their opposition, fearing consumers will be exposed to too risky assets.