The Department of Labor (DOL) has recently taken a major step forward in the evolving regulatory environment for retirement plans. On August 12, 2025, the DOL officially rescinded its December 2021 supplemental guidance that had discouraged fiduciaries, especially of small 401(k) plans, from including private equity or other alternative assets in their investment menus. DOL+2asppa-net.org+2
For plan sponsors, this is more than just regulatory housekeeping—it represents a shift in what is considered acceptable under fiduciary duty and opens the door to broader investment options. But with opportunity comes risk. Below, Bernaducci & Kugelov outlines what sponsors must understand, how to respond, and how to prudently navigate this new horizon.
What Was Rescinded — And Why It Matters
The 2021 guidance had asserted that many plan fiduciaries—particularly those running small or individual-account defined contribution (DC) plans—were “not likely suited” to evaluate private equity or other alternative asset investments as designated investment alternatives. The guidance raised concern that many sponsors did not have the sophistication, resources, or governance structures required. DOL+2Morrison Foerster+2
With the guidance now rescinded, the DOL returns to a more neutral, principle-based approach—as originally reflected in its June 2020 Information Letter, which said that offering asset classes with private equity is not per se a violation of ERISA provided fiduciaries act prudently, with care, and follow all duties of loyalty, disclosure, and oversight. Morrison Foerster+2asppa-net.org+2
Key Implications for Plan Sponsors
This regulatory change has several immediate and medium-term consequences sponsors need to take into account:
1. Wider Range of Investment Options
Sponsors now have more latitude to include private equity, private real estate, venture capital, and other alternative assets as part of their 401(k) investment lineups. These can be offered either directly (where feasible) or via pooled/managed structures, target-date or balanced funds with alternative “sleeves.” Morrison Foerster+2DOL+2
2. Heightened Fiduciary Responsibility
Even though the restrictive guidance is gone, fiduciary duties under ERISA remain unchanged. Offering alternative assets does not relieve sponsors of rigorous standards for diligence, prudence, loyalty, and documentation. If risk, fees, valuation, or liquidity are mishandled, fiduciaries can still face litigation. Morrison Foerster+1
3. Increased Need for Governance and Expertise
Not all plan sponsors have in-house expertise on evaluating private equity or alternative investments. This means governance committees, investment policy statements (IPS), vetting procedures, and investment advisors become more critical. Sponsors may need to lean on external experts or outsource some functions to ensure they meet standards. Davis+Gilbert LLP+1
4. Transparency, Disclosure & Monitoring
Alternative assets often come with less liquidity, higher fees, complex valuation methodologies, and sometimes less frequent reporting than public securities. Sponsors will need to ensure that participants receive clear disclosures and that monitoring is robust. Morrison Foerster+1
What Plan Sponsors Should Do Now With Their 401(k) Plans
Given this shift, here are steps sponsors should consider implementing sooner rather than later. Bernaducci & Kugelov recommends a proactive approach.
1. Review Your Investment Menu and IPS
Audit existing funds (especially target-date / balanced funds) to see if they already include, or plan to include, alternative asset allocations.
Ensure your Investment Policy Statement reflects your fiduciary process for evaluating alternative assets—including criteria for manager selection, fee thresholds, liquidity standards, valuation practices, conflict-of-interest rules.
2. Gauge Participant Needs & Appetite
Conduct surveys or focus groups to understand whether participants might want exposure to alternative assets. Not every plan or participant base will benefit similarly.
Consider cohort demographics (age, time until retirement, risk tolerance) when deciding how or whether to offer alternatives.
3. Engage Expert Advisors
Bring in legal or ERISA counsel to help interpret the rescission and upcoming guidance under the new Executive Order.
Work with investment consultants or 3(38) investment managers who have direct experience in alternative assets. Their know-how can help manage risk, fees, valuation, and governance.
4. Address Disclosure & Participant Education
If you introduce alternative investment options, provide clear, easy-to-understand materials that explain: what alternative assets are; their benefits; what risks (illiquidity, valuation, fees) are involved; how they compare to public investments.
Update your plan’s disclosures, website, and participant statements if needed.
5. Monitor Regulatory Developments
An Executive Order titled “Democratizing Access to Alternative Assets for 401(k) Investors” directs the DOL, SEC, IRS and others to issue updated guidance and perhaps regulations within 180 days. Morrison Foerster+1
Keep an eye on proposals, safe harbor concepts, or litigation trends relevant to alternative assets.
Risks to Be Aware Of
While the rescission opens opportunities, plan sponsors should be mindful of potential pitfalls:
Fees and Cost Transparency: Alternative investments often include layers of fees; excessive fees can erode returns and draw scrutiny.
Illiquidity & Valuation Difficulties: Private equity or non-public real assets are by nature less liquid and harder to value frequently; participants expect daily valuations in most 401(k) plans.
Administrative / Operational Complexity: Ensuring your vendors, recordkeepers, and systems can handle the addition of alternative asset options.
Litigation Risk If Things Go Wrong: If a private equity option underperforms, or fees are perceived as excessive, or disclosures are lacking, plan fiduciaries may face lawsuits.
How Bernaducci & Kugelov Can Help Plan Sponsors
At Bernaducci & Kugelov, we understand that regulatory changes can feel overwhelming. Our role is to help plan sponsors adapt thoughtfully and prudently. We offer:
Detailed fiduciary risk assessments to evaluate whether alternative assets make sense for your plan.
Assistance updating Investment Policy Statements, governance policies, and vendor selection processes.
Participant education frameworks and communication materials that ensure transparency.
Ongoing monitoring and review to ensure that added investment options continue to meet performance, fee, liquidity and risk-management expectations.
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Keyword: private equity in 401(k) plans — used throughout this article to improve search visibility for plan sponsors researching this very topic.
Conclusion
The DOL’s decision to rescind the 2021 guidance cautioning fiduciaries against offering private equity in 401(k)s marks a meaningful regulatory pivot. For plan sponsors, it removes one barrier—but does not remove fiduciary obligations. Now is the time to assess your plan menu, strengthen governance, educate participants, and engage expertise.
With thoughtful preparation, plans can take advantage of this expanded flexibility to offer diversified investment options without falling prey to unnecessary risk. And with guidance and oversight from trusted advisors like Bernaducci & Kugelov, plan sponsors can make these transitions with confidence.