Most Americans don’t view their 401(k) plans as exciting or experimental, but instead rely on the promise that regular saving and sober planning will ensure security in their golden years. But the Trump administration wants to transform time-worn retirement investing habits.
To do this, he seeks to weaken the main protection workers have regarding their retirement money. The man in charge of the regulatory rollback is an industry insider whose former clients are among the big companies likely to benefit from his plan.
Since taking office last year, President Donald Trump has loudly called for plans to include less regulated — and often risky — investments like private equity and cryptocurrency. To achieve this goal, the administration is relaxing one of the strongest legal protections American workers have: the right to hold an employer accountable when retirement savings are mismanaged. The change is designed to give employers coverage if their workers’ 401(k)s are deflated by expensive, opaque or unproven investments.
“What they did was lower the standards across the board,” said Ali Khawar, a former senior Labor Department official responsible for enforcing the federal law that governs retirement savings.
Wall Street firms support this initiative because they want a bigger share of the market. 10 trillion dollars in American 401(k) plans and the largest American employers, who want to avoid class action lawsuits from their employees. They have a powerful ally in Trump’s pick to lead the effort at the Labor Department: Daniel Aronowitz, who previously ran a firm that helped big businesses protect themselves from lawsuits against workers. It is now Aronowitz who is behind the changes in the rules to which these same companies adhere.
When the 401(k) replaced pensions as the primary way Americans financed their retirement, investment risk shifted from employers to employees. Instead of the promise of a monthly check, the 401(k) participant gets a tax-sheltered account, usually with an employer matching his or her contributions, but without any guarantees about how that nest egg will grow. Traces of the old system remain, however. Employers are responsible for overseeing the business plan. They choose all financial service providers and have the final say on the investment options offered to employees. But it’s typically workers who pay for these services with their 401(k) savings. And it is the workers who suffer from a reduction in their savings if the plan has bad options.
There are many pitfalls for 401(k) savers. The “recordkeepers” who administer 401(k)s may attempt to steer workers toward their own internal funds, whether or not they are the best option. They may sell consulting services of dubious value. And then there are investment fees, which are the main cost for participants. These are charged as a percentage of each investment. Basically, a 1% fee on a $10,000 investment would result in an annual fee of $100. Records custodians – companies like Fidelity, Principal, Vanguard and Empower – and other service providers often receive a cut of these fees. This means they have an incentive to recommend more expensive options.
If employers are lax in their oversight, workers could find themselves paying too much to invest in underperforming funds. Even modest differences in fees or performance can, when compounded over time, make a huge difference in a person’s ability to save for retirement, potentially tens of thousands of dollars at the end of their career. By the Ministry of Labor’s own calculations1% additional fees can reduce a retired person’s nest egg by 28%.
When overseeing retirement accounts, employers have a fiduciary duty to make prudent decisions and put the interests of their workers first. If they allow financial companies to defraud plan participants, they can be held liable under the Employee Retirement Income Security Act of 1974, a retirement-era law that now governs 401(k)s.
Over the past 15 years, employees have increasingly sued large employers for unnecessarily high fees or inferior investment options. Companies like UnitedHealth, Boeing, Verizon, and General Electric, without admitting wrongdoing, have chosen to settle lawsuits for tens of millions of people. Aronowitz called the increase in litigation “ascam gamewho misleads judges, argued that such cases should be brought before a specialized court and called the entire enterprise “scam.”
More than 90 of them class actions against large employers were filed in 2025. For Aronowitz, that’s a big number — his former company tracked and publicized the increase in such lawsuits as part of its corporate liability coverage for employers — but it represents only a tiny fraction of the more than 700,000 401(k) plans nationwide.
ERISA says nothing about what types of investments are prudent; it establishes a standard of care, not a list of approved options. It’s up to employers to use their judgment, and they are generally hesitant to allow cryptocurrencies, private equity, or hedge funds into their plans because they are more complex than typical stocks and bonds, often untested, and much more expensive. Nonetheless, Trump issued a decree last year, attributing this limited adoption to “regulatory overreach” and “lawsuits brought by opportunistic litigators” and calling for new rules.
Aronowitz, as head of the Employee Benefits Security Administration, the Department of Labor office that enforces ERISA, is responsible for monitoring. Its most significant decision is a rule making it much harder for workers to sue. The proposal, which will likely be finalized later this year, outlines a set of factors that employers should consider before approving investments. Simply following this process would entitle employer decisions to “meaningful deference” from the courts – a “safe harbor” or legal shield intended to protect those decisions from challenge. A company could load a plan with a high-fee private equity fund and be protected from lawsuits as long as it demonstrates that it followed the rule and accounted for the fees.
For opponents of the change, like Khawar, who was second in command at EBSA under President Joe Biden, it’s a simple “check the box” approach, akin to a teacher giving a student an automatic A in math — even if the answer is wrong — because the student showed their work.
Aronowitz bristled at this kind of criticism. “Absolutely not,” he said. said in April at an industry event. “Read the proposed rule. We require a rigorous, objective, thorough and analytical fiduciary process that must be documented.”
At the same time, Aronowitz also returns to the investment choices of police plans. In April, the EBSA published a bulletin update its enforcement priorities. In addition to announcing that agency staff must now obtain Aronowitz’s approval before any major enforcement action, he established new guidelines for investigators. “The EBSA should avoid cases that unfairly call into question process-based fiduciary judgments,” the bulletin states, meaning that investigators should not challenge an employer’s investment choices if the employer can demonstrate that it followed appropriate steps, regardless of the outcome for workers.
Tim Hauser, a 34-year EBSA veteran who was the top career official there before retiring last year, said such ideas undermine the heart of ERISA. Under Republican and Democratic administrations, the EBSA was “dedicated to protecting plan participants,” he said, but that changed under Aronowitz. The ability of courts and regulators to hold employers accountable for poor judgment when choosing 401(k) investments is “fundamental to this entire system,” Hauser said. “They are proposing to reduce the priority while encouraging investment projects in more complex and more opaque investments. It’s infuriating.”
The change to the EBSA has also been evident in the courts. Over the last year, the Department of Labor has filed amicus briefs – documents filed by friends of the court that make legal arguments for judges – in several class action lawsuits alongside the corporate defendant. In the past, submissions from the Department of Labor were generally on the side of employees. These amicus briefs can be influential. Recently, the agency intervened on behalf of Home Depot in a case pending before the Supreme Court. The plaintiffs then abandoned it.
A Department of Labor spokesperson said in a statement to ProPublica that the EBSA would prioritize “issues with the highest risk” in order to protect participants.
By pushing for looser rules and less enforcement, the Trump administration and Wall Street are aiming for much more than giving workers the opportunity to invest in so-called alternative assets. They predict this will become common and part of a new normal.
In recent years, the typical 401(k) plan has emerged as a model that has proven popular with investors but less lucrative for the record keepers and asset managers who serve the plans. Decades ago, actively managed mutual funds, in which professionals chose and charged investments for them, dominated. They had higher fees, often more than 1% of the fund amount each year. But over time, passive funds, which often track a stock or bond index like the S&P 500, have attracted investors with their promise of delivering the same or better results for fees often less than 0.1%.
Investment and administration fees for 401(k) plans have, on average, steadily declined. One of the main reasons is the rise of passive funds, but another reason, experts sayit is the threat of litigation. With cheap options widely available, big companies might have a hard time explaining to a judge why they forced their employees to choose funds that cost 10 times as much.
This decline has reduced profit margins in the mo nde 401(k), said Kai Richter, an attorney at Cohen Milstein who has long specialized in ERISA class actions. “So the financial sector is looking for other ways to make money. »
Non-public investments like private equity are, as a rule, actively managed. This means higher fees. If 401(k) plans began to generally include these investments, the long-term trend of lower fees would stop and perhaps reverse.
Widespread adoption of alternative assets is indeed the administration’s goal. One of the most important elements of a 401(k) plan is the default option, since most workers simply leave their money there. Usually, the default is a target date fund that, based on the investor’s target retirement date, gradually changes its composition as that date approaches, moving from primarily publicly traded stocks to primarily bonds, becoming more conservative and less risky as the person gets closer to needing the money. Target date funds haven’t changed much over the past two decades as they have grown in popularity. They offer all-in-one simplicity and, because they are often passive, are inexpensive. Adding complex investments like private equity or hedge funds as a standard part of the mix would be a step change.
The proposed rule is intended to be “neutral” on the effect the new lax standard will have on investments, but it confidently predicts that companies will include more alternative assets over time in 401(k)s. After all, that’s the point of the rule: to expand access “to the potential growth and diversification opportunities associated with investments in alternative assets,” as Trump’s executive order puts it. Once the rule is finalized, plans covering about 5 million participants will add new or modified target date funds that include alternative investments, according to the proposal, and that number will continue to grow each year.
Over the past year, there has been a flurry of product announcements in the 401(k) industry, as financial companies, taking cues from the administration, have prepared to offer new options to plans. Large firms that manage private investments, such as BlackRock, Apollo and Goldman Sachs, have announced funds for 401(k)s that include private assets.
Before the proposed rule was adopted, Empower, the second-largest recordkeeper, expanded its alternative options through managed accounts where participants choose to let advisors shape their 401(k) portfolios. About 1,000 companies have agreed to offer these investments to their workers, Empower’s CEO said recently.
But the ultimate effects of the administration’s efforts will not be limited to alternative assets, and the outcome is far from certain. The proposed rule certainly appears to address the legal challenges, and employers, even with Aronowitz’s assurances, may remain reluctant to revisit their plans. In the absence of legal action, employers could fear reprisals from their workers, who surveys show are satisfied with traditional investment options.