CFPs, asset managers spar over DOL’s 401(k) rule

CFPs have come out swinging against a rule that would allow alternative assets in 401(k)s, according to comments submitted to the Department of Labor. 

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Backers of the rule, however, said opening the Employee Retirement Income Security Act of 1974 (ERISA) to alts could increase returns, and that advisors would not be compelled to use them.

The proposal is intended to implement President Donald Trump’s executive order, issued in August 2025, directing regulators to clear a pathway for alternative asset options, such as crypto, in 401(k)s.  A public comment period ended June 1, with both sides of the debate weighing in.

“The Department should ensure that any final rule strengthens participant protections without turning ERISA prudence into a check-the-box exercise,” Erin Koeppel, managing director of government relations and public policy counsel at the CFP Board, said in a statement. “Fiduciaries must continue to exercise sound judgment in light of the needs of plan participants, and the final rule should not create incentives to favor alternative investments that are not grounded in plan-specific, participant-focused analysis.”

The CFP Board recommended that the department emphasize that “both a careful process and a prudent outcome” are necessary to fulfill the ERISA duty of prudence, remove examples from the regulation itself and include them in guidance instead, give more complete guidance on the six factors listed in the proposal and preserve asset neutrality. Those six factors are performance, fees, liquidity, valuation, benchmarking and designated investment alternative’s complexity.

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Individual CFPs commented, warning that investors’ money will be at risk.

“When private equity and private credit funds run into trouble, they should not be able to use workers’ retirement savings as a source of new capital,” Seattle-based CFP Richard Simoneaux wrote in a comment on the proposal. “This rule makes it easier to do exactly that, while making it harder for workers to hold their employers accountable.”

“Protect the ill informed and uneducated investors from themselves. Don’t let them gamble with their retirement,” Frank Miller, a San Diego, California-based retired CFP, wrote in a comment. “Extreme volatility, lack of consistent regulation, and repeated market failures have demonstrated that crypto assets are not appropriate for retirement portfolios.”

However, another CFP, Gap Financial Services CEO Jarrod Winkcompleck, wrote in his comment that the proposal “doesn’t weaken those [ERISA] protections; it simply gives us more tools to help improve retirement outcomes.”

Meanwhile, the Investment Company Institute, a trade group representing the asset management industry, supported the proposal. The ICI said 401(k) participants will have better returns by being able to include private investments alongside public investments in their portfolios.

Mixed portfolios have lower annualized volatility of 5.3% to 5.5% than a public-only efficient frontier, which has 6.7% annualized volatility, according to research by the ICI of portfolios with annualized expected returns of 7%.

As for investor protection, the ICI said the safe harbor guardrails in the proposal are sufficient.

“To ensure that the rule achieves its intended goals without relaxing existing fiduciary duties, the safe harbor framework establishes appropriate guardrails to facilitate the broader incorporation of private assets into 401(k) plans,” ICI President and CEO Eric J. Pan said in a statement on June 1.

Despite the potential for “modest” outperformance in terms of investment returns, research by Morningstar found that there are significant liquidity challenges associated with including private investments in 401(k) plans. Collective investment trusts (CITs) are semiliquid and have a combination of public and private investments.

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The Employee Benefits Security Administration received nearly 40,000 public comments on the proposal. The department will take comments into consideration before making any changes or finalizing the rule.