Trump's Executive Order Opens 401(k)s to Risky Private Equity Investments

Trump Administration's Executive Order Opens 401(k) Plans to Private Equity

Washington—The Trump administration has unveiled a new executive order allowing private equity firms to tap into the retirement savings of millions of Americans. This move raises concerns about the potential risks to small investors, as it marks a significant shift towards allowing high-risk, high-fee private equity investments into 401(k) retirement accounts.

Historically, regulations have shielded retail investors and retirement savers from such investments due to their expensive, illiquid nature and the lack of standard disclosures that are typical in public stock and bond markets. The executive order arrives at a critical time for private equity firms, which have been experiencing a downturn in performance and challenges in liquidating assets. This new policy provides a crucial opportunity for these firms to gain access to the substantial retirement savings held by small investors.

AFL-CIO President Liz Shuler expressed her disapproval, stating, “In 2008, Wall Street got a no-strings-attached taxpayer bailout for gambling with our economy by peddling toxic mortgages—but millions of hardworking families lost everything. Now Wall Street has set its sights on gambling with working families’ 401(k)s.” She added that the executive order serves private equity billionaires who are seeking to capitalize on the retirement savings of American workers.

Lisa Donner, co-executive director of Americans for Financial Reform, also voiced concerns: “With more institutional investors headed for the exit, private equity is looking for new sources of fee income and easier places to unload opaque high-fee, high-risk investments with less scrutiny. Exposure to these risky investments with little transparency and manipulated values will put trillions of dollars of retirement earnings at risk.” Donner emphasized the need for a regulatory framework that protects workers' retirement savings.

AFT President Randi Weingarten highlighted the potential repercussions for public pension participants and those in defined contribution plans: “Let’s be clear. This is the Trump administration bailing out private equity funds and the billionaires who run them at the expense of working Americans, who will be asked to bear all the risk of loss if private equity investments in their 401(k) plans tank.” She warned that plan sponsors allowing such investments are taking significant risks.

A joint report by the Americans for Financial Reform Education Fund and the AFT titled “From Public Pension to Private Fortunes: How Working People’s Retirements Line Billionaire Pockets,” sheds light on the industry's manipulated return reporting, lack of transparency, and high fees. It illustrates the difficulties even experienced institutional investors face, suggesting individual investors could be even more vulnerable.

The private equity sector has been eager to access the trillions in retail investors’ 401(k) accounts to bolster its financial standing amid struggles to raise funds, declining investor distributions, and challenges in offloading assets.