USA: Democratizing Access to Longevity Risk-Sharing Pools for 401(k) Investors

On August 7, 2025, the President of the United States issued an executive order titled Democratizing Access to Alternative Assets for 401(k) Investors that directed the Department of Labor (DOL) to reexamine the Employee Retirement Income Security Act of 1974, as amended (ERISA) with the expressed goal to “relieve the regulatory burdens and litigation risk that impede American workers’ retirement accounts from achieving the competitive returns and asset diversification necessary to secure a dignified, comfortable retirement.”

The bulk of this order has to do with opening the 401(k) market to private market assets (i.e., those not traded on a public exchange) and digital assets (e.g., cryptocurrencies).  However, it also expressly includes “lifetime income investment strategies including longevity risk-sharing pools” in the definition of alternative assets.  While it seems grammatically awkward to define risk-sharing pools as an asset, the meaning is clear – the administration is keen to examine the use of longevity risk-sharing pools within 401(k) plans.  Doing so places the United States in the same trajectory as other countries such as Australia, Canada, Sweden, Denmark, the Netherlands, the United Kingdom, and Colombia, all of which have either adopted longevity risk-sharing or are in the process of doing so.

It is important to note that longevity risk-sharing pools can be constructed either with or without “alternative assets.” So, to our mind, the executive order launches not one, but two separate directives:

1. an examination into the suitability of various types of alternative assets, and

2. an examination into the suitability of various forms of longevity risk-sharing.

   
   

Why longevity risk-sharing?

The importance of this directive cannot be overstated.  The ultimate objective is to encourage the adoption of lifetime income options into 401(k) plans in a way that is more attractive to both sponsors and participants than currently exists within the system.  Longevity risk-sharing pools offer the following benefits:

• Lifetime payouts – Risk pooling operates on the law of large numbers, which is the mechanism that brings about the ability of a plan to offer the assurance of lifetime income to participants.

• Higher payouts – Risk-sharing pools do not require insurance or any other type of guarantor and thus can offer materially higher payouts than life annuities.  By eliminating the high cost of guarantees and risk reserves, risk-sharing pools can operate at significantly reduced cost and pass the cost savings on to participants in the form of higher income.

• Fully-funded status – Defined contribution plans are fully funded by definition because at any moment in time, the only money available to pay out to each participant is the money that exists in his/her account.  Risk-sharing pools similarly operate on a fully-funded status, automatically adjusting payouts to ensure that the value of the present value of the pool’s payouts is always equal to the present value of its assets.

• Reduced exposure to fiduciary liability – Because no third-party insurance/guarantor is needed, risk-sharing pools involve no counterparty risk.  Thus, plan sponsors are likely to view risk-sharing arrangements more positively than insured solutions (or any other solution that subjects them to counterparty risk).

• Transparency – Risk-sharing can be both operated and priced very transparently.  This transparency is important to gaining the public’s trust and thus may hold the key to overcoming the so-called “annuity puzzle,” the term economists use to question why so few people buy annuities when it would seem to be in their best interest.

• Ultra low-cost – By using Nuovalo’s design expertise and technology, longevity risk-sharing pools can operate both transparently and algorithmically.  To put this in perspective, consider that Nuovalo’s fair longevity risk-sharing pools is analogous to passive investing – highly automated, highly efficient, very low cost.

  
  

Proceeding with precision and confidence

Regulators will want to ensure that risk-sharing pools are fair to all participants at all times, transparently operated, transparently priced, and readily auditable.  Additionally, any new regulations must be closely-aligned with income tax regulations and IRS guidance, meaning that the Treasury Department will play an important role – anyone familiar with the rollout of the SECURE Act will recall that it initially left unaddressed several issues that served to slow the adoption of in-plan lifetime income solutions.  The establishment of a safe harbor would be helpful to adoption, but, in any case, clear regulatory guidance will be vital.  The regulatory reform process must be thoughtful and careful, but we believe that that US regulators can be successful in promoting lifetime income security through longevity risk-sharing pools.  Indeed, longevity risk-sharing holds promise as a key element that finally brings about widespread adoption of lifetime income solutions within the defined contribution market.

Your source of expertise and risk-pooling technology

Nuovalo is proud to be the first (and still only!) company in the world solely dedicated to the science and practical implementation of actuarially fair longevity risk-sharing pools.  We studied the merits of various designs and openly published our research in peer-reviewed journals.  Having gained foresight into the powerfully beneficial economics behind risk-sharing, we then built a flexible technology platform to help governments, retirement plans, and financial services companies design, implement, and administer highly efficient lifetime income solutions of their own, without the need for third party insurance.

Our experience is that few people genuinely understand just how broad the possibilities are here.  Risk pooling and risk sharing are not nouns – they are verbs! – and thus not a product, per se.  Sure, risk pools can be productized through an investment strategy or fund, but they can also be delivered as an overlay service.  This means, for example, that even individually managed accounts can deliver the assurance of lifetime income through longevity risk-sharing.  Longevity risk-sharing can also span multiple plan sponsors – indeed, this makes a lot of sense since larger pools offer better risk diversification.

The possibilities are vast and Nuovalo is here for you all the way.