President Donald Trump is reportedly considering issuing an executive order that would direct federal agencies—including the Department of Labor, the Treasury Department, and the Securities and Exchange Commission—to explore allowing private equity and other private capital investments within 401(k) retirement plans.
The Financial Times, citing sources familiar with the matter, reported that the Trump administration is contemplating the executive order and that the administration appears committed to advancing this policy shift. An executive order has not yet been finalized, and discussions are ongoing, according to the report.
Recent developments are all pointing toward opening the $12 trillion US retirement market to private equity, with momentum quickly building.
Daniel Aronowitz, Trump’s Labor Department nominee to oversee the retirement and benefits accounts of more than 150 million Americans as EBSA secretary, is a known advocate to allow 401(k) plans to invest in private equity.
This week, Chairman of the Securities and Exchange Commission Paul S. Atkins said at a conference he will be directing staff to examine expanding private markets access for retail investors. He said the commission may revise the 15% cap on private assets in registered funds, aiming to balance investor protection with broader access to private capital strategies.
“Many retail investors have missed out on opportunities to invest in closed-end funds that invest in private investment funds, like hedge funds and private equity funds,” Atkins said during prepared remarks at the SEC Speaks conference Monday. “Allowing this option could increase investment opportunities for retail investors seeking to diversify their investment allocation in line with their investment time horizon and risk tolerance.”
Not everyone is waiting for the government to provide clearer regulatory guidance and protections for retirement plan sponsors concerned about legal liabilities and fiduciary responsibilities before jumping in. Last week, Denver-based recordkeeper Empower announced a major move to broaden the investing universe for retirement savers.
“In alignment with top investment managers, we are now offering private markets investments within defined contribution retirement plans,” Empower President and CEO Edmund F. Murphy III wrote on LinkedIn. “This landmark initiative gives investors the ability to invest in an asset class that has the potential to diversify portfolios and help grow retirement savings.”
Earlier in May, about a month after BlackRock CEO Larry Fink called for making alternative investments including private equity available to 401(k) plans in his annual letter to shareholders, T. Rowe Price Chair, CEO and President Rob Sharps said it’s only a matter of time until private market alternatives gain access to defined contribution plans—and if research indicates it would result in better outcomes for DC plan participants, the company will offer it.
Taken together, that’s a lot of momentum for PE in DC plans from a lot of major players.
Guidance could open doors
Private equity in 401(k)s began to take shape during Trump’s first administration, when in June 2020 the EBSA issued a letter explicitly giving permission to invest in “alternative” assets like private equity in some cases. Under the Biden administration, the DOL urged caution in its own guidance on private equity in retirement savings, but stopped short of reversing the Trump-era policy.
But, as Private Equity Insights notes, uptake has been slow due to legal liability fears among retirement plan managers. A Trump executive order could strengthen legal safeguards for retirement plan sponsors, removing barriers that have deterred adoption to date.
Advocates for allowing private equity investments in 401(k) plans argue that it would provide higher long-term returns and greater diversification, aligning well with the extended investment horizons of retirement savers. Critics, however, caution that private equity investments often come with higher fees, reduced liquidity, and less transparency, which could pose risks to everyday investors.
The threat of excessive fee lawsuits caused by the higher fees of private equity investments remains a significant barrier, but new guidance from regulators as a result of an executive order could stem that fear. EBSA, assuming Aronowitz is confirmed, could work to raise the bar for excessive fee lawsuits—something he has been outspoken about as head of Encore Fiduciary.
PE firms eager for 401(k) access
Cracking the 401(k) market has long been high on the wish list for private equity firms such as Blackstone, KKR, and Apollo, who estimate the development would lead to hundreds of billions in potential inflows. Those three have all established partnerships with major asset managers including Vanguard and State Street, while Empower’s new strategy includes access to funds managed by Apollo, Partners Group, Goldman Sachs, Franklin Templeton, Neuberger Berman, PIMCO, and Sagard.
Private investments offered through these firms may be implemented at Empower through collective investment trusts (CITs), providing limited exposure to diversified pools of private equity, private credit and private real estate, a structure designed to provide liquidity protection and reduced fee exposure.
While the amount of assets managed by the private markets has more than doubled from nearly $10 trillion in 2012 to over $24 trillion by the end of 2023, according to Ernst & Young, many feel the only way private market can continue to grow is by tapping a new channel—such as defined contribution plans.
SEE ALSO:
• SEC Embracing Wider Investor Access to Private Markets
• Empower Offering Private Investments in DC Plans
• Private Equity in 401(k)s ‘Will Happen’ says T. Rowe Price’s Rob Sharps
• Alternative Investments See $1.3T Growth Potential
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.