tl;dr
The article discusses how lawsuits are hindering the inclusion of crypto and private equity in 401(k) plans due to vague fiduciary rules requiring employers to act in employees' "best interests." Employers face legal risks, leading many to avoid alternative investments. President Trump's executive o...
**The Fiduciary Fiasco: How Lawsuits Are Blocking Crypto and Private Equity in 401(k)s**
Imagine this: You’re an employer trying to give employees a shot at higher returns by adding crypto or private equity to their 401(k)s. But the moment you tweak the menu, you’re not just risking market volatility—you’re inviting a lawsuit. That’s the reality for companies navigating the tangled web of fiduciary rules in retirement plans, a crisis that’s now blocking President Trump’s push to expand 401(k) options.
The problem? A 401(k) rule that’s as vague as it is burdensome. The law requires employers to act in their employees’ “best interests”—a phrase so broad it’s sparked a decades-long litigation gold rush. Over the past 20 years, hundreds of companies have faced lawsuits, with giants like Boeing and Lockheed Martin shelling out millions to settle. The result? A culture of caution. Most employers stick to low-fee, low-risk investments, avoiding anything that might trigger a legal battle.
Enter Trump’s executive order last month, which tasked the Labor Department with slashing legal risks for employers offering alternative investments. The goal? A “safe harbor” rule that would shield companies from lawsuits if they follow specific guidelines. But legal experts say it’s not a magic bullet. “The administration can only do so much to curb litigation,” says Jennifer Doss, head of Captrust’s defined-contribution team. “The law’s too broad, and even new rules can’t promise immunity.”
The challenge? Courts aren’t bound by agency guidance. Take the case of Intel, which invested employee funds in private equity and hedge funds a decade ago. The company won its lawsuit, but the battle dragged on for years, draining resources. “Frustration over litigation has reached a boiling point,” says Michael Kreps of Groom Law Group. Even a win doesn’t guarantee peace.
The Labor Department is trying to pivot. It’s reversed Biden-era warnings against private equity in 401(k)s and downplayed crypto as a red flag. But these moves haven’t quelled the legal storm. Last July, the department backed tech giant HP in a case where employees sued over the use of forfeited contributions. While HP won, the Supreme Court’s 2024 decision to make it harder to dismiss 401(k) lawsuits ensures cases linger, inflating costs for employers.
Then there’s the collapse of the Chevron doctrine, which previously forced courts to defer to federal agencies. Now, agencies like the Labor Department face a tougher road in crafting rules that withstand legal scrutiny. “There’s no momentum for real legislative fixes,” says Douglas Tang of Patterson Belknap. Without congressional action to create clearer safe harbor provisions or limit lawsuits, the status quo persists.
For now, employers remain paralyzed. The promise of crypto and private equity in retirement plans sits on the back burner, stifled by the fear of becoming the next test case. As Trump’s appointee to the Employee Benefits Security Administration, Daniel Aronowitz, vows to “end the era of regulation by litigation,” the courts and Congress seem determined to keep the game in play.
The 401(k) system, once a symbol of financial freedom, now feels like a minefield. For employees, it means fewer choices. For employers, it’s a high-stakes game of risk management. And for policymakers, it’s a reminder that even the most well-intentioned reforms can’t outpace the legal machinery of the 21st century.
What’s the solution? No one knows. But as the lawsuits keep coming, one thing is clear: The path to a more flexible retirement system is paved with legal hurdles.