Private Equity in Focus: Retirement Plans Would Benefit From PE

SEC Chairman Clayton is an advocate. 

Private equity may soon become a part of retirement plans in America.  Several Trump administration officials are in favor of allowing individual investors to invest in private equity through their 401(k) plans.  SEC chairman Jay Clayton is one of these advocates.  Officials contend that this move can expedite American workers’ road to greater investment outcomes in retirement.  According to Deputy Secretary of the Department of Labor, Patrick Pizzella, “private equity has the potential to hasten the retirement day for American workers by fortifying retirement savings during both stable and unstable economic times and helping to diversify and build retirement income.”  Although Pizzella indicated that private equity investments would be an option through a 401(k), it very likely may become a requirement.  

A Closer Look

Currently, many companies already sponsor retirement plans such as 401(k)s.  As of now, the main difference is that these sponsorships are heavily regulated and maintain low costs through low risk index funds.  This new retirement amendment would  allow for greater diversification when investing in retirement plans.  Additionally, they say, the potential for greater returns will increase and the risk of a weak market’s impact on their portfolios will be minimized. 

Essentially, the average American worker will have the ability to invest like an institutional investor.  A main argument for this mandate is that corporate sponsors should allow as many investment options as possible for investors.  As long as it is regulated, they contend, it should be allowed.  In a recent letter by the Department of Labor, the Trump administration claims that it wants to democratize investing while maintaining fiduciary protections in retirement plans.  In reference to the letter, the president of the Committee on Capital Markets Regulation stated “it is a major step toward providing U.S. retirees that have over $6 trillion in 401(k) retirement savings with access to the high returns and diversification benefits of private equity.” 

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