Trump’s Private Equity 401(k) Push: 12 Legal Views
A roundup of key insights from law firms in the wake of the Aug. 7 Executive Order
President Donald Trump’s Aug. 7 executive order to expand private equity and other alternative investments in 401(k) plans quickly unleashed a wave of commentary from ERISA and private markets law firms.
Attorneys are dissecting the move from every angle—highlighting opportunities for innovation in the $12 trillion DC market, warning of litigation and fiduciary risks, and predicting what regulatory agencies and Congress may do next. Combing through a wide variety of briefs, alerts, blog posts and updates released since the EO, 401(k) Specialist offers the following summary of their early takes (listed by most recent first), highlighting key compliance questions to keep in mind, expected regulatory clarifications, and what stakeholders should be watching for as the order takes shape. For those wanting to take a deeper dive, links to each full update are included.
Brownstein Hyatt Farber Schreck, LLP, Aug. 22: Trump Administration Begins Swift Implementation of 401(k) EO
Quotable: “The Trump administration is moving quickly to implement the president’s Aug. 7 executive order (EO) to expand retirement savers’ access to alternative investments in private markets through defined contribution (DC) plans, such as 401(k)s. This EO represents an historic policy shift that could fundamentally reshape how Americans save for retirement.”
Take Two: “The DOL, SEC and the Treasury Department will need to work through important issues as they develop new policies directed by the EO. In addition to the work being done by the agencies, there is momentum in Congress to pass legislation that is aligned with certain portions of the EO, including several bills that were recently advanced by the House Financial Services Committee.”
Take Three: “Despite the significant regulatory and litigation risk that this EO seeks to eliminate, there have been some efforts by the financial services industry to provide retirement savers in DC plans with access to alternative assets. For example, asset managers have begun offering limited exposure to private markets through pooled, professionally managed products such as target-date funds, collective investment trusts and exchange-traded funds. We expect market participants to continue innovating in this space, which provides an opportunity to engage with federal regulators as they seek to refine the policy initiatives contemplated by the president’s EO, following their swift initial steps last week.”
A&O Shearman, Aug. 20: Alts for all: Administration acts to open 401(k) plans to new asset classes
Quotable: “If fully implemented, the Order could fundamentally reshape the product ecosystem for DC plans, trigger new fiduciary best practices, and ultimately allow America’s 90-plus million 401(k) participants to obtain exposure—directly or indirectly—to asset classes long utilized by public pension funds, endowments, and other large institutional investors to enhance diversification and achieve potentially greater long-term investment returns.”
Take Two: “…the Order creates new opportunities for asset managers, private equity sponsors, real estate funds, infrastructure funds, and digital asset managers to develop and market products specifically tailored to the approximately USD12 trillion DC plan market. This could lead to the creation of new fund structures, such as collective investment trusts and hybrid vehicles, designed to accommodate the liquidity, transparency, and fee requirements of retirement plans.”
Take Three: “The plaintiffs’ bar has already expressed opposition to the Order and has indicated there will likely be court challenges to any rulemaking that seeks to limit participants’ and beneficiaries’ rights to pursue private actions under ERISA. Nonetheless, until the DOL issues final rules with concrete regulatory text and safe harbors, plan sponsors should expect plaintiffs’ counsel to continue scrutinizing alternative asset additions.”
McDermott Will & Schulte, Aug. 15: Trump EO Seeks to Expand Access to Alternative Investments in Retirement Plans
Quotable: “Regulatory guidance on how to address liquidity constraints common to alternative assets is needed because limiting access to retirement savings based on liquidity timing of alternative asset investment options may violate current law and plan terms. Liquidity constraints also prevent plan participants from changing investment elections and moving assets between a plan’s investment options on a daily basis, as is typical for defined contribution plans. Liquidity concerns may be one reason the order focuses on the use of alternative assets within asset allocation funds: Such funds may hold cash or other liquid investments that can be used for distributions to participants needing immediate access to their retirement savings while also holding alternative assets as long-term investments for participants who are many years away from retirement.”
Take Two: “Another challenge with utilizing alternative assets for defined contribution plans is valuation frequency. Investment in alternative assets can prevent plan participants from monitoring the growth of their retirement savings in real time, as most alternative assets are valued annually, unlike the stock and mutual fund investments typically offered in defined contribution plans, which are valued in real-time.”
Take Three: “…fees have become an increasingly critical focus for plan fiduciaries. Alternative assets typically require higher fees that must be benchmarked and balanced against the potential for greater long-term investment results.”
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