President Donald Trump is expected to sign an executive order on Thursday to facilitate the inclusion of alternative investments, such as private equity, in workplace retirement plans like 401(k)s. These investment classes have traditionally been accessible only to institutional and high-net-worth investors.
According to a senior White House official, the order will direct the Labor Department and the Securities and Exchange Commission to issue guidance for employers on providing these options in their retirement accounts. This move follows a sustained effort by the private equity and credit industries to tap into the more than $12 trillion defined-contribution retirement savings market.
Currently, no law prohibits plan sponsors from offering private market investments. However, they have largely avoided them due to their fiduciary duty to provide prudent and reasonably priced options. Compared to publicly traded stock and bond funds, private equity has historically been riskier, more expensive, less transparent, and less liquid.
The executive order signals the administration’s position but does not immediately alter policy. Jaret Seiberg, a financial services policy analyst at TD Cowen Washington Research Group, noted in a research brief that new rules from the agencies could take until 2026 to be crafted.
Even after new regulations are established, employers will face a significant due diligence burden. Lisa Gomez, who served as the assistant secretary of labor for employee benefits security until January, emphasized that plan sponsors must rigorously vet any new offerings to act in the best interest of their participants.
“It’s going to be more complicated,” said Gomez, who advised sponsors to engage legal and fiduciary experts experienced in private equity to evaluate fees, strategies, and performance. She cautioned sponsors to question how new products tailored for retail investors might differ in returns from their institutional counterparts. While advising against dismissing private equity outright, she stressed the importance of understanding potential downsides. “If anyone says there are none, I would question that,” Gomez added. “Be careful to not get caught in the hype. But we also shouldn’t be afraid. We should learn.”
Proponents argue that providing access to private markets offers greater diversification, especially as the private sector has grown substantially relative to public markets. Hal Ratner, head of research at Morningstar Investment Management, points out that the private equity market contains roughly 25 times more individual firms than the public one. “Firms are staying private for longer and coming to the IPO market larger and more mature,” Ratner wrote recently. “Therefore, the growth opportunities available to public market investors have become more limited.”
Despite the push, significant hurdles remain. Senator Elizabeth Warren, a top-ranking Democrat on the Senate Banking Committee, has voiced strong skepticism. She is seeking more information from Empower, a major 401(k) recordkeeper planning to offer a private equity option soon.
Warren has also raised broader concerns about the systemic risk the private credit market could pose to the financial system. In a mid-July letter to Treasury Secretary Scott Bessent, she highlighted a 145% increase in bank loans to private debt funds. She requested that the Financial Stability Oversight Council (FSOC) analyze the threats posed by nonbank financial firms in the private credit market and their growing entanglement with the banking system. Furthermore, she urged the FSOC to work with the Office of Financial Research to conduct a stress test on these institutions.
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