A new executive order from President Donald Trump would open the door for 401(k) and other retirement plans to invest in private equity,which labor advocates warn could be a bad deal for millions of Americans, putting their retirement security at risk.
Under current regulations, most retirement accounts are kept in publicly traded investments like stocks and bonds. The order directs the Department of Labor to revisit rules that have largely kept high-fee, high-risk private equity funds out of 401(k)s. Wall Street firms are eager for the change, giving them access to roughly $12 trillion in retirement assets.
Or, as AFT puts it, the move would let “Wall Street line its pockets with workers’ retirement savings.” In a new report, Americans for Financial Reform Education Fund and AFT found that private equity often delivers lower returns than safer, more transparent public investments, all while charging hefty fees. Over decades, those fees can eat away at workers’ nest eggs.
The report also points to long-standing problems in the private equity industry, like hiding or inflating performance numbers and making risky bets that can backfire. One case study found that Florida’s pension system would have made about $1 billion more from 1988–2011 if it had stuck with public market investments instead of private equity.
Critics say the supposed “private equity premium” has largely disappeared in recent years, while the risks remain. As the Labor Department considers the change, unions and retirement security advocates are calling for strong safeguards to protect workers, and for retirement plans to put stability and transparency ahead of Wall Street’s profits.