Trump executive order opens door for private equity and crypto in 401(k) plans
An executive order signed last week by President Donald Trump paves the way for alternative assets, including private equity, real estate and cryptocurrency, to be included in 401(k) retirement accounts. The action, which had been anticipated for weeks, has drawn encouragement from proponents who say it will allow retirees to benefit from potential higher returns, as well as consternation from critics who warn that such investments are riskier than traditional retirement investments.
The order directs the Labor Secretary and Securities and Exchange Commission to make it easier for investors to access alternative assets in defined contribution retirement plans as well as to clarify or revise rules that could help shield the industry from litigation risk. It says regulatory overreach and encouragement of lawsuits filed by opportunistic trial lawyers have stifled investment innovation and limited DC plan participants’ ability to invest in asset classes that public pension plans and institutional investors have access to.
“My administration will 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 order said.
“Expanding access to investments long out of reach will help ensure millions of Americans build stronger, more diversified portfolios designed to increase savings and address the practical considerations of DC plan fiduciaries,” Jaime Magyera, head of retirement for BlackRock, said in a statement.
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The firm said it will launch its own retirement plan that includes private equity and private credit assets next year.
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TIAA and Nuveen also applauded the order, specifically pointing to the benefit of lifetime income solutions.
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“We believe end investors can benefit from the advantages that private investments can offer when embedded within professionally managed vehicles like target date funds or through guaranteed annuity products, and we have long incorporated alternative investments in our guaranteed income products,” the companies said. “As policymakers continue exploring ways to improve retirement security, we strongly urge them to improve DC plans’ access to lifetime income solutions that offer a variety of liquidity features. A guaranteed lifetime income component can address longevity risk as workers live longer in retirement and can help ensure Americans don’t outlive their savings — a critical complement to any retirement investment strategy.”
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Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, was critical of the order.
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“President Trump just granted private equity billionaires their biggest wish: access to Americans’ retirement savings,” Warren said. “But it’s a rotten deal: the data shows private equity has failed to deliver the returns it has promised while saddling investors with exorbitant fees.”
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Warren said the order will expose Americans’ retirement savings to risky investments with little transparency and weak protections, as well as to highly volatile crypto assets.
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Edward Gottfried, VP of Product at Betterment at Work, noted 401(k) investment selection and management is governed by fiduciary rules, which require employers and advisors to review the investments to ensure they have fair fees and performance in line with general market returns.
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“It will be extremely challenging for private securities to meet those standards, and employers should be very cautious to rush to adopt them as new investment options for their employees,” said Gottfried.
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