What Fees and Risks Should You Watch for With New 401(k) Options?
Written by
Jake Safane
Edited by
Rebekah Evans
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In 401(k) plans, employees usually only have access to a small menu of investment funds across a few categories like bonds, different types of equities and target-date funds that combine different asset classes into one vehicle and manage the allocations for you based on your approximate retirement age.
So, while historically 401(k) plans have erred more on the side of limiting investment options, that’s starting to change, especially due to new regulation that’s more specifically empowering plans to offer alternatives.
For example, in August 2025, President Donald Trump issued an executive order that essentially paves the way for the Department of Labor to adjust ERISA guidance in 2026 to more clearly allow plans to offer access to alternatives like private equity, real estate and funds that invest in digital assets.
Still, just because you can access something like private equity or crypto within your 401(k) doesn’t mean you always should. Here’s how you should assess these new options, including the fees and risks associated with them.
Assessing New Investment Options
While the rules are still in flux, you probably won’t see a total overhaul of fund menus anytime soon. Instead, you might see smaller changes, like adjustments within target-date funds.
“The more realistic development is ‘TDF 2.0’ — target-date funds that include a small allocation to alternatives like private credit, private equity and private real estate. Early versions of this are already being discussed and built,” said Justin deTray, certified financial planner (CFP), managing director and advisor at Wealthspire Advisors.
“[It] will be hard for most participants to judge on their own,” deTray said in regards to whether this “TDF 2.0” that has stocks, bonds, cash and alternatives exposure is worth choosing over a “TDF 1.0” that just holds stocks, bonds and cash.
“The easy part is identifying the fee gap [between the two],” he added. “The hard part is deciding whether that extra cost is justified.”
For one, alternatives don’t always outperform traditional assets. Much depends on the specific investments and there’s no guarantee what will happen in the future.
While some 401(k) plans have managed account offerings, where a professional can handle investment decisions for you, it’s still up to you to determine if the higher fees are worth it.
“Looking at the last decade, the range of outcomes in private markets has been very wide,” deTray explained. “The only thing guaranteed is the fee increase; the return ‘pickup’ is an educated guess.”
Additional Risks To Consider
Besides looking at fees versus potential return, consider the ways that new 401(k) options can also introduce new risks.
While much depends on how they’re implemented within retirement plans, at a basic level, alternative assets carry more liquidity risk than traditional assets.
“Public stocks and bonds provide daily liquidity and, in the case of high-quality bonds, a source of stability and dry powder in stress. Private funds often restrict redemptions or ‘gate’ during periods of market stress — precisely when investors most value flexibility,” deTray said.
Incorporating private assets into a larger vehicle that contains public assets could provide a liquidity workaround, but that still might not be worth it to some investors.
In many cases, you end up getting “a modest change in expected return for a guaranteed increase in complexity and fees,” deTray explained.
Another issue is that you might get confused about how much you’re actually diversifying your portfolio.
For example, if you have the option to allocate to both a private equity fund and a private credit fund, you might think you’re gaining two diversifiers.
“In a real credit event, it is entirely plausible that both private equity and private credit would come under pressure at the same time and both limit redemptions, reducing diversification and liquidity while still charging higher fees. That combination is hard to argue as appropriate for the median 401(k) saver,” deTray said.
That’s not to say that alternatives are always the wrong fit.
“Thoughtfully implemented, with meaningful size — 5% to 10% or more — and strong managers, private assets may improve long-term risk-adjusted returns for investors who can tolerate illiquidity and complexity. That is the institutional case being made today,” deTray said.
Still, you want to be mindful of what works for your specific situation. An investment fund manager might try to sell you on the potential benefits of including alternatives, but that doesn’t automatically mean it’s helpful to you, especially for an area as sensitive as retirement savings.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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