Private equity's next step into 401(k)s
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Illustration: Lindsey Bailey/Axios
The Trump administration yesterday took a giant step toward allowing alternative assets in 401(k) plans, with the Department of Labor proposing rules that now will be open for two months of public comment.
The big picture: Pay more attention to the actual rule than to the press release.
- The former focuses primarily on process, including the use of benchmarks. The terms "prudent" or "prudently" are mentioned 105 times. It makes no claim that adding private equity or crypto to a 401(k) will improve performance.
- The latter does a lot more cheerleading for "President Trump's promise for a new golden age," although it does cite "prudent process" near the end.
What they're saying: "I'm surprised by how neutral the rule was, when you think about the massive amount of lobbying there's been around it," a senior 401(k) manager tells me. "It doesn't say certain assets are good or bad. Instead, it really focuses on making a rules-based framework instead of a litigation-based one."
Zoom in: Expect a lot of public comment, particularly from those who fear this expansion could expose retirement savings to higher risks.
- The final rule may look different, as DOL does seem to want advice in certain areas, but don't expect any wholesale change of direction.
- This effort springs not only from President Trump's executive order last summer, but also from his broader belief that Americans will benefit from expanded access to, and participation in, capital markets (e.g., Trump accounts).
Look ahead: Private equity's marketing machine is already ramping up, particularly as the DPI drought has caused some longtime institutional backers to cool on the asset class. It wants individuals to demand its product once DOL codifies the final rule.
- The key differentiator on "prudence" may be those 401(k) plan managers who tip-toe into privates, most likely via target-date funds, versus those who dive in headfirst.
