President Donald Trump is preparing to sign an executive order that will open up 401(k) retirement plans to alternative assets, the White House has confirmed to Newsweek.
Bloomberg and Reuters originally reported the move, citing anonymous sources familiar with the plan. The outlets said the order would revise existing regulations and guidance to allow assets such as real estate, cryptocurrency and private equity in the retirement savings accounts. Details of the plan first emerged in reports last month.
Why It Matters
Expanding access to the U.S. pension market—and the $9 trillion 401(k) market—signals a major shift in how Americans’ savings are managed. The executive order marks a victory for asset managers and the private equity industry, which have long sought access to this largely untapped pool of capital.
Advocates believe the move will yield higher returns than the currently conservatively managed retirement investments. However, critics warn that the increased complexity of alternative assets such as private equity may mean that these higher returns come with increased risk.
What To Know
According to Bloomberg’s report, the accuracy of which the White House has confirmed, Trump will direct the Labor Department to review the existing regulations on retirement plans.
The department will also be tasked with outlining the government’s position on the fiduciary duties of employers who provide access to alternative investments in their retirement accounts, the report said.
The department will also coordinate with other regulators, including the Securities and Exchange Commission, to establish whether any regulatory revisions must be made to assist in this effort, it continued.
Contributions to 401(k)s, the most common employer-sponsored personal pension accounts, could till now be invested in publicly traded securities, primarily going toward stocks, bonds and mutual funds.
However, assets such as private equity and real estate have been largely closed off to these, though the former is allowed within professionally managed target date funds. These are “already very widely used inside of retirement plans,” according to financial adviser Devin Carroll.
During his first term, Trump’s Labor Department issued guidance on this possibility, informing administrators that retirement plans could invest in private equity without violating regulations or their fiduciary responsibilities. This guidance was later rescinded during the Biden administration.
However, as Carroll, the owner and lead adviser at Carroll Advisory Group, told Newsweek, what stands out in the new plan are the possible allowances for investments in cryptocurrency and other “illiquid assets.”
Carroll said the plan “would open a massive market for private equity firms, with nearly $10 trillion sitting in 401(k)s. It’s no surprise that the PE industry sees this as a chance to tap into new capital inflows.”
However, regarding both private equity and crypto, he expressed concern that those involved may not have as much understanding of these more complex asset classes.
“Most 401(k) investors don’t have a strong understanding of the basics,” he said, noting that studies have shown significant financial illiteracy among 401k participants regarding things like compound interest, inflation and diversification.
“My thought is that if investors struggle with understanding their current investments, adding complex and opaque products could do more harm than good,” Carroll said.
In its 2020 guidance, the Trump administration acknowledged that private equity investments “tend to involve more complex organizational structures and investment strategies, longer time horizons, and more complex, and typically, higher fees.”
“Private equity investments are typically illiquid, complex, and expensive, with high fees and limited transparency,” the economist Gopi Shah Goda previously told Newsweek. “These characteristics may not align well with the needs of average 401(k) participants, particularly those nearing retirement.”
What People Are Saying
Devin Carroll, the owner and lead adviser Carroll Advisory Group, told Newsweek: “If this moves forward, plan administrators will need to be extremely cautious. These new options could increase exposure to lawsuits and compliance risks. The industry may cheer the move, especially private equity and crypto firms, but plan sponsors should ask themselves whether more complexity really serves the best interests of the average participant.”
Simon Tang, the U.S. head at investment software firm Accelex, said in a statement shared with Newsweek: “Trump’s move to allow private equity in 401(k)s is a positive step towards democratizing alternative assets. Private markets are no longer the obscure, high-risk investments they once were. They’ve matured into a strong-performing asset class delivering excellent long-term returns, so this is good news for Americans. It’s also good news for fund managers, opening up fresh capital flows at a time when the industry could use a boost.
“But there’s a catch: transparency. When it comes to investing in stocks, retail investors are used to instant pricing, clean data, and daily performance updates. Private markets are a different ballgame. There’s no real-time information, no ticker and no standardization, just fragmented documents and unstructured formats. Even some institutional investors rely on teams of people to piece together basic information on their investments. Retail investors could end up taking on risks without having a full picture of the investment.”
What Happens Next
According to the Bloomberg report confirmed by the White House, Trump will sign the executive order on Thursday.
The president is scheduled to sign executive orders in the Oval Office at noon, per his public schedule.
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