The Trump Administration's Executive Order: Reshaping 401(k) Investing from Two-Fund Simplicity to Private Market Access

Introduction

401(k) retirement plans have undergone a profound transformation over the past four decades. What began as a basic two-fund construct has evolved into a multi-layered, professionally managed framework that now often includes target-date funds (TDFs) and a range of index-based strategies. As of Q1 2025, 401(k) plans held approximately $8.7 trillion in assets, representing a significant portion of the $43.4 trillion U.S. retirement market.

The August 7, 2025 Executive Order, issued by the Trump Administration, represents a watershed moment for 401(k) investing. By directing federal agencies to identify a new "safe harbor" for fiduciaries, the order seeks to remove the primary legal and regulatory hurdles that have long prevented broader access to alternative investments. This policy change opens the door to greater allocations in alternative assets, including private equity, private credit, digital assets, and infrastructure.

This report explores the historical evolution of 401(k) investment structures and analyzes how this new regulatory framework will shape the future. It examines the opportunities presented by the "democratization of alternatives," the growing fiduciary responsibilities, and the proposed guardrails that aim to foster innovation while protecting participant outcomes. Ultimately, this Executive Order represents a powerful step forward, unlocking a new frontier for retirement growth. It not only challenges the long-standing status quo but, by providing a clearer path forward for fiduciaries, promises to empower plan sponsors and participants with the tools needed to build more robust and diversified retirement portfolios.

Retirement Market Size

Below is a visualization of the US Retirement and DC Market.

Evolution of 401(k) Investment Structures

From Two-Fund Simplicity to Open Architecture

In the early years, 401(k) plans typically offered only two investment options: an equity fund and a money market fund. This simplicity reduced administrative burden but placed full responsibility for portfolio construction on participants, most of whom lacked financial expertise.

By the 1990s, plan menus expanded to diversified mutual fund lineups, introducing:

• Decision fatigue for participants

• Higher administrative costs for sponsors

• Increased fiduciary risk under ERISA due to broader due diligence requirements

This shift marked the transition from passive custodianship to active fiduciary management.

The Rise of Index Funds

As menus became more complex, cost and performance scrutiny grew. The underperformance of expensive active strategies catalyzed the rise of index funds, which offered:

• Lower costs

• Transparent, benchmark aligned approaches

• Defensibility in fee litigation

Index funds became the core of many 401(k) designs, especially under growing legal pressure over fees.

Target Date Funds (TDFs)

Target Date Funds emerged as a behavioral and structural solution, providing glidepaths that automatically adjust allocations as participants near retirement. The Pension Protection Act of 2006 cemented their role as Qualified Default Investment Alternatives (QDIAs).

Adoption stats:

• Offered in 97% of plans, with 95% using them as defaults (NEPC, 2021)

• Represent 44% of 401(k) assets, up from 28% in 2011 (NTSA)

TDFs bridge the gap between participant simplicity and institutional portfolio construction, making them a logical first stop for integrating private market, digital asset, and infrastructure allocations under the August 7, 2025 Executive Order.

Target Date Fund Adoption and Usage in DC Plans

Below is a visualization of the Target Date Fund Adoption

• Rapid growth post 2006: Directly linked to QDIA designation under the Pension Protection Act

• Near universal adoption by 2021: Positions TDFs as the delivery vehicle for alternative exposure

• Potential inflection point: 2025 Executive Order could mark the first major structural change to TDF allocations in nearly two decades

Why Now? The Economic and Political Forces Driving Change

The August 7, 2025 Executive Order is not an isolated event but the culmination of several powerful economic and political forces. The decision to expand 401(k) access to private and alternative assets is a direct response to a changing market landscape and increasing pressure from the financial services industry.

• Shrinking Public Markets: The number of publicly traded U.S. companies has declined by nearly 50% since the mid-1990s. As more companies stay private for longer, a significant portion of economic growth and innovation is happening outside of the public markets. By not having access to these assets, 401(k) participants were being left out of a key source of potential returns.

• The Search for Yield: In an environment of historically low interest rates and moderate public equity returns, plan sponsors and participants are actively seeking ways to enhance portfolio returns. The illiquidity premium offered by private credit and private equity provides a potential source of higher yield and diversification that is difficult to find in public markets.

• Industry and Political Momentum: The private equity and digital asset industries have actively lobbied for regulatory changes to open up the defined contribution market. The Executive Order reflects a shift in policy, directly contrasting with previous administrations' caution regarding such assets. It explicitly directs the Department of Labor to re-examine existing guidance, signaling a clear intent to facilitate this change.

Integrating Private and Alternative Assets: The Next Frontier

Private Equity and Private Credit

The new regulatory framework allows fiduciaries to incorporate private market strategies within 401(k)s, often via multi-asset structures like TDFs or Collective Investment Trusts (CITs).
Rationale:

• Enhanced diversification across cycles

• Historical outperformance:

  • U.S. pension plans: 11.0% net annualized returns over 20 years (Cliffwater)

  • MSCI Private Capital Index: 13% annualized since 2000 vs. 8% for Russell 3000

• Private credit yields often 2 to 5 percent above public bonds due to illiquidity premiums and complexity

Digital Assets and Infrastructure

While private equity and credit dominate industry focus, the Executive Order also includes digital assets and infrastructure projects in the definition of allowable alternatives.

• Digital assets: As of 2025, 69 cryptocurrencies are available within certain retirement accounts, primarily through brokerage windows. Adoption is limited, but safe harbor provisions could spur innovation.

• Infrastructure: Long duration, income producing assets align with retirement plan objectives and may be packaged within diversified alternative vehicles.

Fiduciary Standards and Legal Guardrails

The Executive Order’s safe harbor provisions are a potential game changer. They aim to:

• Reduce litigation risk for fiduciaries

• Provide clear due diligence frameworks for alternative allocations

• Encourage innovation without sacrificing participant protection

Current challenges:

• High profile lawsuits often target plans with elevated costs (commonly identified via Form 5500 filings)

• Attorneys actively scan filings to identify fee outliers

• Historical reluctance to add higher cost vehicles despite performance potential

Best practices:

• Transparent fee structures

• Continuous due diligence and documentation

• Integration into diversified vehicles to manage liquidity

Institutional Momentum: Key Market Signals & Early Movers

The Executive Order, while new, did not happen in a vacuum. Major players in the retirement and asset management industries have been anticipating this shift, with some already developing the solutions and strategies to capture this new market. Their actions serve as powerful signals that the democratization of alternatives is not just a regulatory theory but a tangible business opportunity that is reshaping the competitive landscape.

Redefining the Fiduciary Dialogue: Empower Retirement

Empower, a leading record keeper, is at the forefront of this shift, actively working to reframe the fiduciary conversation. CEO Ed Murphy has suggested that if employers have historically made investment allocation decisions involving private assets on behalf of their pension plan participants, it makes sense to consider similar options for the defined contribution system. He publicly asked, “If employers have been willing to make an investment allocation decision in private assets on behalf of their pension plan participants, why not consider it in the defined contribution voluntary system?” This commentary is a key signal that a major industry gatekeeper is proactively seeking to align the interests of plan sponsors with a new, expanded investment universe.

Collaboration at Scale: The Panorix Platform

The most concrete example of this momentum is the collaboration behind the Panorix platform, a solution designed for DC plans by a consortium of major financial firms. By bringing together the private credit expertise of Goldman Sachs, the glidepath and private equity knowledge of BlackRock, and the liquidity management capabilities of Wilshire Advisors, this partnership demonstrates how complex, multi-asset solutions are being built for the 401(k) market. This innovative, CIT-based structure is designed to seamlessly combine public and private markets, tackling key operational and fiduciary challenges by delivering a packaged, institutionally-managed solution.

The Evolving Distribution Strategy

With new products emerging, the distribution strategy for alternative assets is becoming increasingly targeted and sophisticated. Success hinges on a multi-pronged approach that recognizes the unique roles and needs of key industry stakeholders:

• Recordkeepers (e.g., Empower, Fidelity, Principal): These are the gatekeepers of the plan architecture. Distribution efforts must focus on demonstrating how a new offering can integrate seamlessly with their platforms, highlighting operational efficiency and fiduciary-safe structures.

• Consultants (e.g., Captrust, Mercer, NEPC): As powerful influencers of plan sponsor decisions, consultants need to be equipped with compelling research, case studies, and data on peer adoption trends. The messaging is centered on providing them with the white-labeled educational materials they need to make a strong case to their clients.

• Large Plan Sponsors ($1B+ in assets): These are direct buyers with sophisticated investment committees. The messaging for this audience emphasizes diversification benefits, custom structures, and expert liquidity management strategies that align with their long-term investment policy objectives.

• Pooled Employer Plans (PEPs): This new structure allows smaller employers to access institutional strategies. The focus for PEPs is on showcasing the benefits of scale, simplified onboarding, and operational ease, all while addressing the crucial element of cost efficiency.

Evolving Product Structures

The development of these new solutions is made possible by an evolving taxonomy of viable investment vehicles, each tailored to the unique demands of the DC market. The Defined Contribution Alternatives Association (DCALTA) outlines the following:

Conclusion

The 401(k) market is at a pivotal moment. The August 7, 2025 Executive Order opens the door to broader alternative allocations, from private equity and credit to digital assets and infrastructure. While the opportunities for enhanced diversification and potential returns are vast, success hinges on a delicate balance between innovation, fiduciary governance, and effective communication.

The new safe harbor provisions, once detailed by regulatory bodies, are expected to provide a clearer framework for fiduciaries, potentially mitigating the litigation risk that has historically created a chilling effect on alternative allocations. However, success is not guaranteed. The industry must navigate significant challenges related to higher fees, illiquidity, and the need for robust valuation and due diligence processes.

Firms that master the balance between offering access to these new asset classes and ensuring a transparent, cost-effective, and legally defensible approach will define the next generation of retirement plan success. This Executive Order is not the end of the journey but the first step toward a fundamental restructuring of how Americans save for retirement.

Additional reading: Democratizing Access to Alternative Assets for 401(k) Investors (August 7, 2025)

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