Are 401(k) Plans Ready for Private Equity and Alternatives?

On August 7, 2025, President Trump issued an executive order allowing 401(k) plans to invest in private equity and other alternative assets. If regulators proceed, millions of U.S. retirement savers could gain access to asset classes traditionally reserved for institutional and high-net-worth investors.

While the announcement has generated excitement in the alternative investment industry, its implementation will require careful planning. Fund managers, custodians, administrators, and legal counsel will need to collaborate to address operational, regulatory, and tax considerations.

At Pinnacle Fund Services, we see this as both an opportunity and a challenge for the industry.

A First for 401(k) Investors

Historically, 401(k) plans have been limited to stocks, bonds, mutual funds, and similar investments. The August 2025 executive order changes that by allowing retirement accounts to access private equity and other alternative strategies.

The policy aims to expand investment options for Americans and potentially improve retirement outcomes. For private equity managers, this could mean a significant influx of new capital from retail retirement accounts.

However, the structure and compliance requirements of 401(k) plans differ greatly from those of traditional alternative investment vehicles. Industry participants will need to adapt their processes to make this new access a reality.

When Will the Policy Take Effect?

The executive order directs the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to issue updated rules and guidance within 180 days. by February 3, 2026.

Until these rules are finalized, 401(k) plan sponsors and fiduciaries should not expect immediate access to private equity offerings. Instead, the next several months will involve:

• Clarifying the types of alternative investments that will be permitted,
• Defining the fiduciary standards for including them in plans, and
• Establishing reporting and disclosure requirements.

This means the earliest practical availability for 401(k) private equity investing could be late 2026 or early 2027, depending on the speed of regulatory action and platform readiness.

The Role of Custodians and Administrators

To integrate private equity into 401(k) platforms, custodians and fund administrators must work closely together. Reporting systems will need to handle alternative investment data alongside traditional securities.

Alternative assets present unique operational challenges. Valuations may occur quarterly rather than daily, liquidity is limited, and subscription processes are more complex. Administrators will need to enhance technological infrastructure to track these investments accurately, reconcile capital accounts, and deliver timely investor reporting.

The successful onboarding of these assets into retirement accounts will depend on seamless technology integration between custodians, administrators, and fund managers.

Small Subscription Sizes and Manager Considerations

For many alternative investment managers, the decision to accept 401(k) investors will not be automatic. Contributions from individual participants are likely to be modest, especially compared to institutional commitments.

This creates an operational challenge: processing many small subscriptions can be costly and time-consuming. Managers will need to weigh the benefits of additional capital against the administrative burden.

Some managers may choose to create special feeder funds or share classes designed for retirement account investors. Others may opt to focus on existing institutional relationships.

Streamlined Subscription and Compliance Processes

To make small subscriptions feasible, the industry must simplify the subscription process. Completing lengthy documents and conducting accredited investor checks for numerous small investors is not sustainable without automation.

Counsel will play an important role in developing streamlined legal frameworks for these investments. Digital subscription platforms, integrated KYC/AML tools, and standardized investor questionnaires can reduce costs and improve efficiency.

The goal is to maintain compliance without sacrificing scalability.

Potential to Unlock Significant Capital

If implemented effectively, this change could unlock significant new capital for the alternative investment industry. As of mid-2025, U.S. retirement accounts hold more than $12 trillion in assets. Even a small reallocation to private equity could represent billions in fresh capital inflows.

For fund managers, this presents a chance to diversify their investor base and build relationships with a broader pool of investors.

Impact on Foreign Managers, Including Canada

The executive order’s effects will not be limited to U.S. managers. Foreign private equity and alternative investment managers—particularly those in Canada—could benefit from new access to U.S. retirement capital.

However, these managers will face additional considerations, including securities regulations, marketing restrictions, and tax treatment of U.S. retirement investors. Cross-border structures may be required to ensure compliance and tax efficiency.

Tax Considerations

Tax implications for 401(k) investments in private equity must be carefully reviewed. Certain structures could generate Unrelated Business Taxable Income (UBTI) for retirement accounts, potentially reducing the benefits of the investment.

Both managers and investors should consult tax advisors before proceeding. Structuring choices, including the use of blocker corporations, may be necessary to address these concerns.

Looking Ahead

The August 7, 2025 executive order allowing 401(k) plans to invest in private equity and alternatives is a groundbreaking development. It creates new opportunities for retirement savers and fund managers alike.

However, realizing its full potential will require coordinated efforts across the industry. Custodians, administrators, managers, and counsel must work together to create efficient, compliant, and investor-friendly solutions.

At Pinnacle Fund Services, we are ready to assist fund managers in adapting to this new landscape. Our expertise in fund administration, technology integration, and cross-border structures positions us to help managers seize this opportunity while managing the operational and regulatory complexities involved.

Conclusion

The move to allow private equity in 401(k) plans marks a historic shift in retirement investing. The potential benefits for both investors and managers are substantial, but the final outcomes will depend on regulatory review, and the path to implementation will require innovation, collaboration, and careful attention to compliance.

Contact Alex Chapman at [email protected] or call 1-203-308-4690 if you would like more information about the new executive order.