401(k) Retirement Plans: Private equity investments could be allowed under Trump – this is what it means for you

The Trump administration is gearing up to make a big change that could reshape how Americans invest for retirement-and it’s causing plenty of buzz in both political and financial circles.

According to The Wall Street Journal, the former president is expected to sign an executive order that would open the door for 401(k) plans to invest in private equity. The move could redirect a portion of the $12.5 trillion currently held in these retirement accounts into riskier-but potentially higher-yield-investment vehicles.

Private equity firms have been eyeing this shift for years. Unlike traditional mutual funds or index-based portfolios, private equity tends to invest in non-public companies, often offering the chance for higher returns-but at the cost of higher fees, less transparency, and longer lock-up periods. That’s why most 401(k) plans have steered clear-until now.

A Bold Shift in Retirement Strategy

If this directive goes through, it would be the most aggressive push yet to bring alternative investments into mainstream retirement plans. It would build on guidance issued during Trump’s first term, which the Biden administration later dialed back.

Supporters of the change argue that it’s about time retirement savers had more options. With the number of publicly traded U.S. companies cut nearly in half since the 1990s, many investment opportunities now live in the private market. Advocates say it’s unfair to keep regular workers from accessing those opportunities when institutions like pension funds and university endowments already can.

Bryan Corbett, president of the Managed Funds Association, put it this way fo the NY Post: “Expanding access to alternative investments in 401(k)s will give more Americans the tools they need to build long-term wealth.”

Still, not everyone’s convinced. Consumer groups and financial watchdogs worry that private equity’s high fees and complexity could eat into workers’ savings. Morningstar data shows that management and performance fees in private equity can far exceed those of traditional funds, raising concerns about transparency and risk.

And for plan administrators, the legal stakes are real. If a private equity investment flops or fees prove excessive, lawsuits from disgruntled employees aren’t out of the question.

Whether this order goes through or not, one thing is clear: the fight over how Americans save-and who gets to profit from it-is just heating up.