Trump May Sign Executive Order Allowing 401(k) Investments in Private Equity, Experts Warn of Added Risk.

President Trump may sign an executive order allowing 401(k) plans to invest in private equity, raising concerns among experts about the added risk this could introduce to retirement portfolios. Private equity firms have lobbied for access to the $12 trillion 401(k) market, but experts warn of the illiquidity and high fees associated with private equity investments, which often outperform the stock market.

President Donald Trump's proposed executive order, which aims to expand 401(k) access to private equity, has sparked a debate among financial experts about the risks and rewards this could introduce to retirement portfolios. The move, if finalized, would reshape the $12.5 trillion 401(k) market and reflect a broader ideological clash over the role of regulation.

Private equity firms have long lobbied for access to the 401(k) market, which currently stands at $12 trillion. The Trump administration's potential directive, which would direct the Labor Department and the Securities and Exchange Commission to issue guidance for employers and plan administrators, has been met with mixed reactions. While some industry executives believe it could open up new investment opportunities for retirement savers, others remain wary of the potential risks.

Private equity investments, which involve buying, managing, and selling companies for profit, often outperform the stock market but come with significant risks. According to Investopedia, private equity yielded average annual returns of 10.5% from 2000 through 2020. However, these investments are typically illiquid, with investors' money tied up for months or years. Additionally, private companies face fewer regulations and reporting requirements than public ones, making it harder to assess their financial health.

Critics, such as Sen. Elizabeth Warren (D-Massachusetts), have raised concerns about the lack of transparency and expensive management fees associated with private equity investments. Warren penned a letter to the CEO of Empower, a major retirement plan provider, expressing her concerns about the safety of retirement savings when private investments are included in 401(k) accounts.

Despite the criticism, Empower's CEO, Edmund F. Murphy III, has defended the move, likening it to the introduction of 401(k) plans decades ago. Murphy emphasizes the importance of making private markets more accessible to everyday investors.

The proposed executive order is still under review, and its details are not yet final. However, industry leaders predict that more 401(k) providers will offer private investments as an option in target-date funds, as BlackRock plans to do. Thomas Gahan, managing director of Procyon Partners, a financial advisory firm in Shelton, Connecticut, predicts that the 401(k) industry may eventually allow any retirement saver to invest in funds made up entirely of private investments, but probably not without legislation that explicitly permits the investments or an executive order from Trump.

In conclusion, while the proposed executive order has the potential to open up new investment opportunities for retirement savers, it also raises concerns about the added risk this could introduce to retirement portfolios. As the debate continues, it is crucial for investors and financial professionals to weigh the potential benefits and risks of private equity investments in 401(k) plans.

References:

[1] https://www.usatoday.com/story/money/2025/07/17/private-equity-401k-retirement-risk/85218872007/
[2] https://www.aol.com/trump-set-sign-executive-order-133030846.html
[3] https://www.ainvest.com/news/trump-401-expansion-private-markets-balancing-risk-reward-retirement-savers-2507/