- Key insight: The Department of Labor would set a prudence standard for alternative investments in retirement accounts, giving a bar that could prevent lawsuits in case of losses.
- What's at stake: The private credit market has seen bubbles of risk, and the rule could expose 401(k)s to it.
- Forward look: The Federal Reserve is watching the private credit market but doesn't currently see systemic risk.
WASHINGTON — The Department of Labor introduced a long-awaited rule on Monday that would allow alternative assets such as private-credit investments to be included in retirement accounts.
The proposal comes as worries grow about the safety of private-credit markets. Figures ranging from
Specifically, the rule would widen 401(k) retirement plans to include investments in real estate and cryptocurrency funds, as well as increasing the ability for other kinds of private investments by creating a criteria for plan sponsors to evaluate them, preventing the kind of lawsuits that have dissuaded firms from offering them in the past.
"The theory is that this will protect fiduciaries from legal challenge if they recommend alternatives that may be less liquid or suffer losses because they involve more risk," said TD Cowen analyst Jaret Seiberg in a note. "Our initial read is the Department of Labor appears to have gone as far as it could using its regulatory authority to protect fiduciaries."
Treasury Secretary Scott Bessent said in a statement that the rule would broaden "access to additional retirement plan options for millions of Americans while being mindful of the importance of protecting retirement assets."
The proposal immediately drew criticism from Warren. Progressive lawmakers have increasingly warned of bubbles of private-credit risk as the Trump administration pulls back financial oversight.
"As cracks emerge in the private credit market, private equity returns fall to 16-year lows, and crypto keeps tumbling, President Trump has decided now is the time to stick all of these risky assets into Americans' 401(k)s," Warren said in a statement. "Americans facing an uncertain future in Trump's economy will now have more reasons to question the security of their retirement savings – all so that Trump's Wall Street buddies have another pile of cash to play with. Anyone who cares about the financial security of working people should oppose this proposed rule."
It's unclear how much the trouble in the private-credit market could hurt the banking industry. Some
Earlier on Monday, Federal Reserve Chairman Jerome Powell said at an
"I'm reluctant to say anything that suggests that we're dismissive of the risk, but we're looking for connections to the banking system, and things that might result in contagion," he said. "We don't see those right now. What we see is a correction going on and certainly there'll be people losing money."
