Crypto in your 401(k)? What Trump's executive order could mean for the way you save for retirement
President Trump signed an executive order to clear the way for Americans to add new types of investments to their 401(k) outside of traditional stocks and bonds, opening the door to higher-risk investments, such as cryptocurrency and private equity.
Supporters say access to these alternative investments can provide more opportunities for higher returns and protection from market swings. But experts say there are important caveats when it comes to these higher-risk options.
The president's order directs the U.S. Department of Labor and other agencies to redefine what's considered a qualified asset under 401(k) retirement rules. It's not that these types of investments aren't allowed now, but under current federal rules, plan sponsors must put assets inside of the plan that are in the best interests of the participants.
Those higher-risk options tend not to fit that bill, says Bryn Mawr Trust chief financial wealth officer Jamie Hopkins, and that's why they aren't common already in 401(k) plans.
Hopkins said these alternative investments present unique challenges. For example, because private companies aren't publicly traded, transparency is an issue. Access to the funds can provide another hurdle.
"Crypto and private markets all have different risks, one big one for private equity tends to be liquidity issues, just meaning that I can't sell them very easily," he said. "So if you decide you want to retire and leave the fund, one reason these have not been in place is the money's not there."
For asset managers and plan sponsors, private assets also come with many unknowns, he said.
"We have decades of information on how companies perform, how people price it, earnings, the fees associated with the management of it. Traditional metrics and benchmarking doesn't exist for [cryptocurrency] and that's also a challenge for private equity," Hopkins said.
"So for a fiduciary to say, 'What's my expected returns over this for the next five years, and I'm going to put it in a plan.' That's really hard to do today."
That's why Hopkins said it could take years before crypto and private equity become mainstream investments in individual retirement plans.
Once the Labor Department provides its new guidance, major retirement plan companies like Fidelity will then have to develop appropriate funds for employers to use. Employers will then need to revise their plan offerings. Ultimately whether employees choose to invest in these alternatives remains to be seen.
