The U.S. Labor Department has loosened the rules about 401(k) retirement savings plans, allowing a private equity component, aka, alternative investments.
401(k) plans can now more safely offer certain funds with a private equity component to their employees. Before 2020, 401(k) plans generally used mutual funds, bank collective investment trusts, and insurance company pooled accounts with portfolios focused on publicly traded stocks and bonds.
Private equity investments have long been part of the investment portfolios used by defined benefit plans to fund retirement benefits. However, seldom have alternative investments been used by defined contribution plans, such as 401(k) plans.
Adding private equity investments increases the opportunities available to 401(k) plan participants. Private equity investments available as a direct investment for retirement purposes inside a 401(k) as the only option is still not allowable under ERISA.
So, how can RIA firms efficiently include alternative investments into 401(k) retirement savings plans? Here are some steps to offering alternative investments to your 401(k) clients:
1. Utilize a trading platform like AdvisorPeak that incorporates alternative investments into portfolios along with traditional 401(k) investments.
2. If working with a third-party retirement plan administrator, ensure adding alternative investments is an option. Since they must enforce ERISA regulations, are monitored, and have reporting requirements, they are your best source of information.
3. Reach out directly to the U.S. Department of Labor’s Employee Benefits Security Administration for guidance.
Cryptocurrencies are AdvisorPeak’s latest integration, enabling advisors to set intelligent alerts and manage alternative investments across portfolios and cryptocurrencies, which can include inside 401(k)s. But, consulting ERISA is strongly advised before adding cryptocurrencies to any employer retirement plan client.
According to a recent survey from Bitwise, more than 80% of financial advisors received questions related to crypto in 2020, a number that will rise. With many clients investing in digital currencies on their own, advisors can now bring digital assets into their purview as part of a balanced investment portfolio and engage with investors on strategies and how these investments fit into their broader investment goals and risk appetite. It also allows advisors to set parameters with traditional security, such as monitoring for drift.
AdvisorPeak customers can now leverage alternative investments and include the ability to trade fractional shares between USD and BTC, ETH, and USDT, as well as transfer assets between accounts or to any customer on the network in real-time. Contact us today to find out more!