Alternative Investments: Approach With Caution, For Now...

Broadcast Retirement Network's Jeffrey Snyder discusses what fiduciaries should consider when adding an alternative investment to their retirement plan with Kutak Rock's John Schembari.

Jeffrey Snyder, Broadcast Retirement Network

John, it is so great to see you. Thanks for joining us on the program this morning.

John Schembari, Kutak Rock, LLP

Great to be here, Jeff.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, and look, alternative investments, private markets like private equity, hedge funds, there has been a lot of talk about including them in defined contribution retirement plans like 401Ks. John, where do things stand as of January 2026 in terms of the inclusion of these investments?

John Schembari, Kutak Rock, LLP

Yeah, yeah, we are anxiously awaiting early February of 2026. That's when we're expected to get some guidance from the Department of Labor. In August of 2025, the Trump administration instructed the Department of Labor to issue guidance, and they gave them a six-month clock to issue that guidance.

I'm not expecting thousands of pages of regulations or anything, but we are expecting the Department of Labor to meet that deadline and issue some sort of guidance that will help retirement plan sponsors manage these issues around alternative investments.

Jeffrey Snyder, Broadcast Retirement Network

And from your conversations with your clients, because I would imagine, because you're in the employee benefits space, you have retirement clients. Do you sense that people are at least interested, maybe not initially including them, but at least considering including them in their plans?

John Schembari, Kutak Rock, LLP

Oh, yeah. The clients are very, very interested. Hopefully, the clients that I've worked with for a little while know to proceed with a little bit of caution.

This is not something where you necessarily want to be the leader of the pack in doing this. There are some cautionary tales you need to take, but people are very, very interested. I mean, you really can't pick up the Wall Street Journal or any other magazine any week and not see an article about alternative investments, be it cryptocurrency or private investments, direct investments in real estate.

So there's a lot of interest out there. And my clients are telling me that their employees are asking for it as well because they're seeing it in the press.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, they're seeing it. And look, I mean, these types of investments are in like pension plans. They're in foundation, you know, endowments and foundations.

So there is precedent that they would be in a retirement program as well. But as you said, as you noted, caution is important. How do you enhance your fiduciary process?

Let's just say that we get guidance. We don't know when the guidance is going to be effective, but a client says, John, I want to think about this. I would imagine you've got to go through a deep, you know, due diligence process to vet whether it makes sense.

John Schembari, Kutak Rock, LLP

Yeah, you're absolutely right. I mean, the fiduciary process and the fiduciary duties that people need to go through with alternative investments are really the same with any investment. You shouldn't be adding any investment to your 401k plan without going through a prudent process.

And that process includes, you know, evaluating the risk and the returns, fees, other restrictions that are unique to the particular investment, how it meshes with the other investments in your lineup. Those are all things that happen anytime a fiduciary is considering investment. But when you're looking at alternative investments, you probably have to go a layer or two deeper because alternative investments, that's a broad, broad term.

It encompasses lots of things, like I mentioned, private investments in debt or equity, cryptocurrency, real estate. And with those types of alternative investments, you have issues that are unique and different than your traditional mutual fund or collective investment, trust investment in a 401k plan. Things like transparency, fees are often more expensive to invest in alternative investments, valuation, liquidity.

There's a lot more that goes into an alternative investment.

Jeffrey Snyder, Broadcast Retirement Network

So it sounds like, John, you're going to be spending a lot of time and probably your partners around the fiduciary table are going to be spending a lot of time in 2026 doing a lot of education because, as you said, these are unique. And candidly, one hedge fund is so different from another hedge fund or one private market investment is so different. You really have to understand the nuances.

It's almost akin to like a retirement income product or a target date fund. They're just so unique and different, requiring a lot of undercover work.

John Schembari, Kutak Rock, LLP

Yeah, you're 100 percent correct. And they don't have the history in 401k style plans that other funds do. But Jeff, it's a great analogy.

Target date funds, when they first came out, that was a pretty risky investment. And there was a lot of unknown and they're all different. And 20 years has made us a lot more comfortable with that investment.

Think about that with alternative investments. I think in 20 years, we're going to be a lot more comfortable with alternative investments. But right now, there's a lot that fiduciaries need to learn and evaluate.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, I think the private market managers hope it's a lot sooner than 20 years. But yeah, I agree with you on that. And where do you see this?

Before we wrap up, where do you see this being placed? What is an alternative investment? Is it in a managed account?

Is it in a target date fund? Or does it sit separately like your typical large cap growth fund?

John Schembari, Kutak Rock, LLP

Yeah, great, great question. We expect to see the alternative investments go first is in a managed account managed by another professional fiduciary. So another layer of protection or a target date fund.

I do not expect in the next couple of years to see an asset class in your 401k plan that says Bitcoin or alternative investments. That may happen. Lots of managers would love for that to happen.

But that's going to be down the road. First, we're going to see it a little slice of a managed account, a little slice of a target date fund portfolio.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, that seems very prudent, at least from the non-lawyer in the discussion. All right, John, we've covered a lot this morning. We can only give seven minutes or so to these topics.

But what do you think are some of the key takeaways from our conversation?

John Schembari, Kutak Rock, LLP

Well, the key takeaways are clearly under ERISA. With any investment analysis, the fiduciaries have to go through a prudent process. So you need to ask a lot of questions to make sure that the fiduciaries have thought through all of the unique characteristics of an alternative investment before it is added to the lineup.

And then the fiduciaries need to document that process they went through. When these issues, if they get challenged three or four years from now, memories fade, you're going to want to have that record that shows that you thought about all of these issues and considerations before you made the decision to do that. So I would really focus on that process that fiduciaries need to go through and documenting that process in a prudent fashion.

That's going to be, I think, the best strategy going forward with these types of investments.

Jeffrey Snyder, Broadcast Retirement Network

Yeah, well, I know a lot of the investment advisors out there, the Q4 meetings are coming up. I imagine this is going to be a hot topic. John, great to see you.

Thanks for joining us. And we look forward to having you back again very soon, sir.

John Schembari, Kutak Rock, LLP

Sounds great, Jeff. Take care.