Seyfarth Synopsis: Under the current administration, the Department of Labor has once again changed course on its view of permissible investing strategies for retirement plans, warming to crypto and private equity, and confirming their distrust of ESG.
Over the last decade, there has been quite a bit of back and forth surrounding permissible investments in retirement plans, as well as the standard under which such investments should be scrutinized. Instead of issuing guidance that interprets and applies the requirements and standards of ERISA, at times Department of Labor ("DOL") guidance appears to be either belatedly responding to the explosion of litigation in this area or promoting partisan agendas depending on the administration in power at the time. See our prior discussion of the whipsawing on ESG and crypto investing here, here, here, here, here and here. With the latest change in administration, we are back at it again.
During the second quarter of 2025, the Trump administration has signaled that it is considering several significant changes to the available investment options for 401(k) and 403(b) plans. Here's a summary of the key developments:
401(k) Plans
- Cryptocurrency. On May 28, 2025, the Department of Labor ("DOL") issued Compliance Assistance Release ("CAR") No. 2025-01, which fully rescinded its 2022 guidance. The 2022 guidance had directed 401(k) plan fiduciaries to use "extreme care" before including cryptocurrencies as an investment option for plan participants. In CAR No. 2025-01, the DOL explained that it was rescinding the guidance to restore its "neutral approach" to plan investments and strategies, and clarified that when evaluating a particular investment, "a plan fiduciary's decision should consider all relevant facts and circumstances and will 'necessarily be context specific.'" Further, in a footnote to the CAR, the DOL explained that the guidance also applies to "digital assets," which includes tokens, coins, crypto assets and any derivatives.
- ESG-Related Investments. Also on May 28, 2025, the Trump administration informed the Fifth Circuit Court of Appeals that the DOL is planning to issue a new rule to replace the Biden-era rule on environmental, social, and governance ("ESG") investing strategies in ERISA retirement plans. This new rule is expected to rescind the Biden-era rule that permitted ERISA fiduciaries to analyze ESG-specific investment factors during their investment review process. We anticipate that the forthcoming DOL rule (which will likely be in the spring of 2026) will severely limit the permitted use of ESG factors during the ERISA fiduciary investment review process.
- Investing in Private Equity. A forthcoming executive order from the Trump administration is expected to instruct the DOL, the Treasury and the Securities and Exchange Commission (SEC) to assess the feasibility of permitting private equity investments within 401(k) plans. If permitted, this change could open the $9–$12.5 trillion 401(k) retirement market to private equity funds, offering access to potentially higher-return assets. Plan fiduciaries should remain cautious, as private equity investments may introduce higher fees, increased risks, and limited liquidity. This may add fuel to the existing fire of 401(k) fee class action litigation alleging that plan fiduciaries have breached their fiduciary duties under ERISA by allowing excessive fees to be charged to their plan.
403(b) Plans
On May 20, 2025, the House Financial Services Committee approved the Retirement Fairness for Charities and Educational Institutions Act of 2025 (the "Act") through a bipartisan vote of 43-8. While it is likely that the Act's passage may take some time and is subject to potential revisions, if enacted in its current form, the Act would amend existing securities law to permit most 403(b) plans (including qualified 403(b) plans and governmental 403(b) plans) to include collective investment trusts ("CITs") as part of the investment options offered to participants. This change would significantly increase the investment options available to participants in 403(b) plans, which are currently limited to annuity contracts and custodial accounts. Notably, existing law permits 401(k) plans to offer CITs as investment options. Numerous 401(k) plan sponsors have added CITs to their investment menus because CITs typically offer lower expense ratios as compared to their mutual fund counterparts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
