Word on the street is that President Trump plans to issue an executive order promoting private equity and other private investments in 401(k) plans. While he can\u2019t mandate it, he can certainly nudge it, and that\u2019s exactly what\u2019s expected. The idea? Let everyday investors access the same high-return opportunities the big guys get.<\/p>\n
Sounds great\u2026 until you read the fine print.<\/p>\n
Private equity is already technically allowed in 401(k) plans, but only a small fraction of plan sponsors offer it, for good reason. These investments are expensive, illiquid, complex, and opaque. They\u2019re a square peg in a round ERISA hole.<\/p>\n
Supporters argue higher returns justify the risk. But when participants need hardship withdrawals or predictable income in retirement, illiquidity becomes a real problem. And let\u2019s not forget: high fees + opaque assets = litigation bait.<\/p>\n
The market has changed. Rising interest rates have crushed PE returns lately. From mid-2022 to mid-2024, private equity returned 6.8% annually, while the S&P 500 did 12%. So much for the \u201cilliquidity premium.\u201d<\/p>\n
Fiduciaries thinking about jumping into the PE pool need to know: the water\u2019s deep, murky, and full of lawyers. If you\u2019re not ready to do the due diligence dance with clear benchmarks, transparent fees, and airtight documentation, sit this one out.<\/p>\n
Adding alts isn\u2019t impossible, it\u2019s just risky. And as we all know in the 401(k) world, risk without process equals liability.<\/p>\n
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