Alternative investments add unique risks to 401(k) plans

Alternative investments add unique risks to 401(k) plans

Published on Tuesday, December 30, 2025

Opinion Piece in Providence Journal: General Treasurer James Diossa
https://www.providencejournal.com/story/opinion/columns/2025/12/28/alternative-investments-add-risks-to-401k-plans-opinion/87689296007/

Recently, President Donald Trump signed an executive order that opens 401(k) retirement plans to alternative investments including private equity and cryptocurrency. Although the order was signed in August, federal agencies are only now beginning the process of interpreting and implementing its provisions, making this an important and timely moment to revisit its implications.

Though these asset classes can potentially increase an individual's long-term returns, they come with greater complexity, reduced liquidity, and higher fees than the typical selection of stocks and bonds within a retirement savings plan. As such, individuals looking to include these asset classes in their retirement portfolios should have a clear understanding of the risks involved.

We at the Employees' Retirement System of Rhode Island have a team of investment professionals who evaluate a broad array of alternative investment products. These are vetted by nationally recognized investment consulting firms and, ultimately, by the R.I. State Investment Commission, a 10-member public board of seasoned investment professionals. This process enables us to select opportunities that best align with our long-term objectives while minimizing risk within the state's $12 billion investment portfolio.

Individual investors, including many working Rhode Islanders who are primarily counting on a 401(k)-retirement income, may not always have the opportunity or resources to fully evaluate the risks associated with certain alternative investment products that could be offered as part of the president's executive order.

While expanding the menu of investment options can create new retirement savings opportunities for individuals, it places greater responsibility on them to understand the unique risks of alternative investments. A prudent approach to incorporating alternative investments into 401(k) plans would require clear disclosures, reasonable allocation limits, and ongoing education for plan participants to ensure they understand the characteristics and risks of these investments.

The president's executive order directs the Department of Labor and the Securities and Exchange Commission to issue update guidance within the next six months of signing, and stakeholders are now awaiting the release of this guidance, which is expected to shape how the order is applied in practice.

This development could improve investment results for individuals; however, it could also undermine the retirement security these plans were designed to provide. As we wait to hear from the federal government, perhaps the best advice to individual investors can be summarized in a quote by investor and author Peter Lynch: "Know what you own and know why you own it."