Donald Trump's 401(k) Executive Order Brings Major Changes — and Potential Risks for Your Retirement

President Donald Trump‘s executive order could potentially expose 401(k) retirement plans to the risks of private equity investments.

What Happened: Trump’s executive order, signed last week, makes it easier for alternative investments, including private equity, to be added to 401(k) accounts. This move has alarmed some experts who believe 401(k) should remain a simple, low-risk investment vehicle.

Private equity investments, often concentrated in a few portfolio companies, are less liquid than stocks and bonds, and carry valuations that can be challenging to measure daily, reports the Insider.  

Jeffrey Hooke, professor at the Johns Hopkins Carey Business School, voiced his concerns, stating, “Private equity kind of always gets what it wants in Congress, but I think it’s a bad idea. It’s illiquid, the fees are very high.”

Private equity firms have been lobbying the Trump administration for access to retirement vehicles, eyeing the $12 trillion 401(k) market as a liquidity opportunity.

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This move is seen as an “exit ramp for the current situation going on for private equity,” according to Brian Payne, chief private markets and alternatives strategist at BCA Research.

Despite the potential for higher returns, private equity investments come with steep management fees and require more liquidity, which could decrease returns over the long term. “It’ll make the retirement plans suboptimal,” Hooke warned.

Why It Matters: The inclusion of private equity in 401(k) plans could potentially expose millions of Americans to high-risk investments.

The illiquidity and high fees associated with private equity could undermine the stability and predictability of retirement savings. This move could also provide private equity firms with a significant liquidity opportunity, potentially leading to an increase in high-risk investments.

The potential for decreased returns over the long term could have serious implications for the retirement plans of many Americans.

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