Trump is reported to be preparing an Executive order on private equity in 401k
Having managed 401k plans for twenty years, let me say the great majority of workers have no idea what they are doing with 401k investments and this will make it worse and put more retirement savings at risk.
There is no reason for this. Another move not in the best interest of Americans-so why are they doing it?
Surely you jest🤑
Reports indicate that the Trump administration is finalizing an executive order that would expand access to private equity and other private market investments within 401(k) retirement plans.
This order is expected to be issued in the coming weeks of July 2025.
Key aspects and implications of this anticipated executive order:
- Guidance to Agencies: The order would reportedly instruct the U.S. Labor Department and the Securities and Exchange Commission (SEC) to provide guidance to employers and plan administrators on how to include private assets, such as private equity, venture capital, real estate, and hedge funds, in defined contribution plans.
- Encouraging, Not Mandating: While the president lacks the authority to mandate the inclusion of these investments, the directive is expected to encourage their adoption by assuaging legal concerns that have historically deterred plan sponsors.
- Previous Context: This move follows a 2020 Labor Department letter during the first Trump administration that allowed private equity allocations in target-date funds under specific conditions. The Biden administration later reversed this position, stating it did “not endorse or recommend such investments.”
- Potential Benefits (Proponents’ View):
- Higher Returns: Supporters argue that private equity can offer higher potential returns due to an “illiquidity premium.”
- Diversification: It could provide greater diversification beyond traditional stocks and bonds.
- Access for Ordinary Investors: It would allow individual investors to access asset classes traditionally reserved for institutional and accredited investors.
- Potential Risks and Concerns (Critics’ View):
- Illiquidity: Private assets are less liquid than publicly traded investments, making it potentially difficult for participants to access funds for hardship withdrawals or during retirement decumulation.
- Higher Fees: Private equity investments typically carry significantly higher fees compared to traditional mutual funds or index funds, which could erode returns.
- Valuation Complexity and Lack of Transparency: Valuations of private assets can be opaque and unpredictable, making it hard for everyday investors to assess their true worth.
- Increased Risk: Private equity often involves concentrated holdings in a limited number of companies, increasing the risk profile.
- Fiduciary Duty Concerns: Employers and plan sponsors could face increased Employee Retirement Income Security Act (ERISA) litigation risk due to the complexity, fees, and potential for conflicts of interest associated with private equity. They would need to ensure thorough due diligence and transparency to meet their fiduciary duties.
Overall Impact:
This executive order aims to open up a significant portion of the nearly $9 trillion in 401(k) assets to private markets. While it could offer new investment opportunities and potential for higher returns, it also introduces substantial risks related to liquidity, fees, and complexity that many critics argue are not suitable for the average 401(k) investor. The actual impact on retirement savings will depend on how plan sponsors choose to incorporate these investments and the specific guidance issued by the Labor Department and SEC.
QUINNSCOMMENTARY 
I agree with the previous two posts, just because it may be included in the offerings doesn’t mean anybody should grab for it. Higher fees, higher risk and a lack of knowledge about what the investment is will keep the participation rate pretty low for these alternative investments. Some simple index funds work fine.
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Coming up on fifty years in corporate benefits, and, for everyday workers, private equity has no place in their retirement savings plan.
I have no problem where the individual acts as their own fiduciary – such as in an IRA – and decides on private equity once meeting the qualified investor SEC rules.
Important to note that ERISA does NOT preempt other federal laws, so, an investor should have to meet the SEC rules before investing in private equity.
With respect to target date funds, where there has been some private equity exposure, consider the six year litigation of Intel … while Intel ultimately prevailed, anytime you are a plan sponsor and incur litigation over what is supposed to be a benefit, YOU LOSE.
Just as important, there are over ten trillion dollars in plans that do not have private equity today. So, this is likely to have an effect on the public securities market.
Expect class action litigation the first time someone loses money – with a claim that there was a dereliction in fiduciary duty AND a prohibited transaction by the target date fund manager.
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Risk should be a high priority when one is investing for retirement. A portfolio that keeps one in the market during the accumulation phase should be a strong driving force.
I have long maintained that a balanced fund like Wellington, Dodge & Cox Balanced, or Fidelity Puritan is all one needs. They have managed risk for decade after decade.
My retirement funds were accumulated and are being distributed with one fund. No green eye shades, no trying to find the “perfect portfolio “.
I would not touch private equity with a 10 foot pole for retirement accounts.
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