SEC Working with DOL to Develop ‘Guardrails’ for Private Equity in 401(k)s
The Securities and Exchange Commission (SEC) will work with the Department of Labor (DOL) to develop protections for workplace retirement plan participants interested in private market investments, SEC Chairman Paul Atkins told Fox Business in a live interview on Tuesday.
The Trump administration’s plan to open 401(k) retirement accounts to private market investments—as per his Aug. 7 executive order—seeks to open up far greater access to opportunities that have traditionally been restricted and available only to high net worth investors and pension funds.
The move is seen as being important in helping ordinary retirement savers diversify their portfolios as public markets become more concentrated and “top-heavy,” Atkins said.
“The key word here is diversification, and so we have to put in guardrails for retail investors to have exposure to these sorts of investments,” Atkins said, adding that they need to do so because these investments can be illiquid and accurate valuations are difficult.
“We’ll put the protections in to make sure that that we guard against bad outcomes to the extent that we can.”
Paul Atkins
“We’ll put the protections in to make sure that that we guard against bad outcomes to the extent that we can,” Atkins said. “We’ll be working with the Secretary of Labor and her colleagues over at the Department of Labor to address these issues.”
Investments in private companies have been limited to people who satisfy the “accredited investor” threshold. The rule aims to protect unsophisticated investors from financial risks associated with investments in private companies, which can be illiquid, charge higher fees and aren’t subject to public financial reporting requirements.
To qualify as accredited investors, the SEC currently requires individuals meet any of a range of wealth, income, or financial sophistication criteria. Among them? Net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, with reasonable expectations of the same for the current year. It also includes professional criteria to satisfy the rule, including investment professionals with Series 7, Series 65, or Series 82 licenses.
“Why should private investments in private firms be limited to only the wealthiest and to the big pension funds? Average people need to be diversified,” Atkins said.
The SEC Chair went on to note that there are only about half as many public companies today as there were 30 years ago, and lamented that today companies can (and want to) stay private longer because there are so many issues in the public markets between litigation, reporting and compliance, and the “weaponization” of corporate governance.
“So those issues have decreased the attractiveness of becoming a public company, so we aim to make that better again,” he said. “Individual investors need to be diversified, and the private markets have developed so much because there’s a lot of capital available in the private markets. Frankly it’s uncool to be a public company or has become so, and I want to make IPOs great again.”
Watch the Fox Business interview with SEC Chairman Atkins here.
Republicans urge quick action
In a Sept. 22 letter to SEC Chairman Atkins, nine Republican members of the House Financial Services Committee expressed support for Trump’s executive order and urged the SEC to quickly take action to implement it.
In their letter, the lawmakers praise the executive order for its potential to help Americans enhance their retirement savings and encourage the SEC to work with the DOL to revise its regulations and guidance, specifically noting that such facilitation may include consideration of accredited investor and qualified purchaser status.
Signing the letter were House Committee on Financial Services Chairman French Hill (R-AR), Chair of the Subcommittee on Capital Markets Ann Wagner (R-MO), Rep. Frank Lucas (R-OK), Rep. Warren Davidson (R-OH), Rep. Marlin Stutzman (R-IN), Rep. Andrew Garbarino (R-NY), Rep. Mike Lawler (R-NY), Rep. Troy Downing (R-MT), and Rep. Mike Haridopolos (R-FL).
SEE ALSO:
• Trump’s Private Equity 401(k) Push: 12 Legal Views
• Why Excluding 401(k) Assets From ‘Accredited Investor’ Rule Would Be Unjust
• DOL Rescinds Biden-Era Guidance Discouraging Use of Alts in 401(k)s
• Trump: Regulatory Overreach, Opportunistic Lawsuits Have Stifled Investment Innovation
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
