Washington, D.C. – The Trump administration is reportedly poised to issue an executive order aimed at expanding access for private equity investments within 401(k) retirement plans, a move that could significantly impact the nation's $12 trillion defined contribution market. The impending directive, expected this week, would instruct the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to develop new guidance for employers and plan administrators regarding the inclusion of private assets in retirement savings. Veteran journalist Dan Primack, in a recent tweet, noted the development, stating, > "Will be dark this week — yes, the one where Trump likely approves private equity for 401(k)’s 🤦🏻— and then back Monday, July 28."
This initiative follows a complex regulatory history regarding private investments in 401(k)s. During President Trump's first term, the DOL issued a June 2020 Information Letter suggesting that private equity could be included as a component of professionally managed asset allocation funds in 401(k)s. However, the Biden administration's DOL issued a Supplemental Statement in December 2021, cautioning fiduciaries against misrepresenting the 2020 letter as an endorsement and emphasizing the significant expertise required to evaluate such complex investments.
Proponents argue that incorporating private equity could offer 401(k) participants enhanced diversification and the potential for higher returns, historically seen in institutional portfolios. They suggest that limiting access to these assets might disadvantage retail investors by concentrating their holdings in public markets. Some industry figures contend that plan sponsors who do not include alternative investments might face future scrutiny for potentially limiting participant returns.
Conversely, critics raise significant concerns about the suitability of private equity for typical 401(k) investors. These investments are characterized by high fees, illiquidity—meaning money can be tied up for years—and a lack of transparency compared to publicly traded securities. Experts also point to increased risk, with private equity-owned companies showing higher bankruptcy rates, and the potential for plan fiduciaries to face litigation due to the complexity and speculative nature of these assets.
The expected executive order represents a renewed push to integrate private markets into mainstream retirement savings, despite ongoing debates about investor protection and fiduciary responsibility. While the order itself cannot mandate the inclusion of private equity, it is anticipated to encourage plan administrators to consider these options, potentially reshaping the landscape of retirement investing for millions of Americans.