On August 7th, President Trump signed an executive order aimed at expanding access to alternative investments—such as private equity, cryptocurrency, and other non-traditional assets within 401(k) retirement accounts. This move opens the door for alternative asset managers to tap into the trillions of dollars currently held in Americans’ employer-sponsored retirement savings plans. But this headline is only scratching the surface of a much larger trend that has been unfolding for decades. The retirement landscape is undergoing significant change, driven by a pronounced shift in employer-sponsored retirement plans and mounting concerns about the future of the Social Security Trust Fund. Which without funding reforms is projected to be depleted by 2033. As retirement savings strategies continue to evolve, whether through workplace plans, government programs, or personal investments, understanding these shifts has never been more important.
Over the past 30 years, employer-sponsored retirement plans have steadily shifted away from defined benefit plans, such as pensions. In their place, defined contribution plans—like 401(k)s and 403(b)s—have become the standard for most private employers. As you can see in the graph below from the U.S. Department of Labor less than 20% of private sector employees have a pension plan.
The key difference between a defined benefit and defined contribution retirement plan lies on who bears the investment risk. Defined benefit plans, commonly known as traditional pensions, provide employees with a guaranteed retirement benefit, regardless of investment performance. The employer is responsible for funding the plan and ensuring there is enough money to meet future obligations. In contrast, defined contribution plans—such as 401(k)s—do not guarantee a specific payout; instead, the final benefit depends on the employee’s contributions and the investment performance of those funds over time. This shift has transferred the responsibility and the risk of saving enough money for retirement onto the employee, rather than the employer. In fact, a recent survey found that nearly 2 in 3 Americans worry more about running out of money than they worry about death. As people live longer and enjoy better health than previous generations, it’s more important than ever to not only save consistently during your working years but also to invest those savings wisely.
Employer sponsored retirement plans, such as pensions, 401(k)s and 403(b)s, are governed by specific investment rules under law known as ERISA. Which stands for the Employee Retirement Income security Act. Passed in 1974, ERISA was designed to protect retirement assets by establishing uniform standards for how these plans are managed. In essence, it helps ensure employees can feel confident their employer retirement accounts are secure and subject to regulated oversight. With President Trump’s recent executive order, certain investments that were historically prohibited in employer-sponsored plans may now be offered as potential options.
These new investment options primarily include private equity and cryptocurrency. Back in April, I wrote a blog titled “The Allure of the Red velvet Rope”, which explored some of the underlying risks involved with being exposed to private equity and credit through exchange traded funds (ETFs) —which are public market vehicles, not originally designed for such investments. An analogy I find useful is comparing private markets to the popular online real estate marketplace Zillow. Zillow provides an estimate of your home’s value, but you don’t truly know what it’s worth until you list it and buyers start making offers. Private market investments work the same way—the valuations you see are just estimates. The actual value is only revealed when you begin to see what buyers are willing to pay for it. As you can already see, introducing private assets into a public investment vehicle—like a 401(k)—can bring inherent risks that aren’t typically associated with traditional investment options. One of the most significant concerns is transparency. Investors generally rely on clear, real-time valuations to make informed decisions. However, private assets are valued infrequently and often based on models or estimates rather than actual market transactions. This lack of timely pricing can be misleading, effectively “masking” market fluctuations and distorting performance when compared to more transparent assets like stocks and bonds. When saving for retirement, this can create a false sense of stability, making it harder to accurately assess risk and performance within your portfolio.
As individuals take on more responsibility for their retirement savings—and with the future of Social Security growing increasingly uncertain—it’s more important than ever to take a proactive approach to planning for retirement. Relying on Social Security as your main source of retirement income would not be advised by many retirement planners. In fact, your own Social Security statement clearly states: “Social Security benefits are not intended to be your only source of retirement income.” When saving for retirement, it’s important to have a strategy that aligns with your timeline. For many people, choosing a target-date retirement fund—commonly offered in employer-sponsored plans—is a straightforward and effective way to stay on track. The second key to successful retirement saving is consistency and discipline. Since most employers won’t save for retirement on your behalf, it’s up to you to take the initiative. One of the most effective strategies is to automatically withhold contributions from each paycheck—a simple habit that helps build long-term savings with minimal effort.
For better or worse, the responsibility for retirement in the United States is increasingly shifting to individuals. As a result, financial education has become more important than ever, especially since, in many cases, the burden of saving rests entirely on your own shoulders. Having a clear retirement strategy that fits your goals is essential when deciding how to allocate your employer retirement accounts. Consulting a qualified financial advisor can help ensure alignment with long-term goals in light of the changing retirement landscape.