Trump order criticized for opening 401(k)s to risky private equity investments

The Trump administration has issued an executive order that allows private equity firms to access the retirement savings of millions of Americans. The move removes restrictions that previously prevented these firms from offering their high-fee, high-risk investment products to small investors through retirement accounts such as 401(k)s.

According to critics, long-standing regulations had protected retail investors from investments lacking standard disclosures and transparency. These safeguards were in place because private equity products are considered expensive and illiquid compared to public stock and bond markets. The new executive order comes at a time when private equity funds are reportedly experiencing declining performance and challenges in selling assets.

AFL-CIO President Liz Shuler expressed concern over the potential impact on workers’ retirement security: “In 2008, Wall Street got a no-strings-attached taxpayer bailout for gambling with our economy by peddling toxic mortgages—but millions of hardworking families lost everything. Now Wall Street has set its sights on gambling with working families’ 401(k)s,” she said. “President Trump’s executive order offers the same private equity billionaires, who have spent years killing off regulations on their investments, our hard-earned retirement savings on a silver platter. The working people of this country deserve the right to retire with dignity, not to lose all they’ve worked for just so the rich can get richer.”

Lisa Donner, co-executive director of Americans for Financial Reform, added: “With more institutional investors headed for the exit, private equity is looking for new sources of fee income and easier places to unload opaque high-fee, high-risk investments with less scrutiny. Exposure to these risky investments with little transparency and manipulated values will put trillions of dollars of retirement earnings at risk,” she said. “Workers who spent their lives building a nest egg deserve a regulatory regime that will help them retire with dignity, not make Wall Street richer.”

AFT President Randi Weingarten commented on how this could affect her union’s members: “Let’s be clear. This is the Trump administration bailing out private equity funds and the billionaires who run them at the expense of working Americans, who will be asked to bear all the risk of loss if private equity investments in their 401(k) plans tank,” she stated. “When plan sponsors choose to allow these unregulated, pricey investments into 401(k) offerings, they too are taking big risks. They should know we will be watching, and we will continue to defend our members’ retirement security by any means necessary.”

Recent research by Americans for Financial Reform Education Fund and the American Federation of Teachers found that private equity returns often do not meet industry claims about performance. Their report highlighted issues such as manipulated reporting practices, lack of transparency, and high fees associated with these funds.

Private equity firms have been seeking access to individual investors' retirement accounts as traditional funding sources become harder to secure amid industry-wide fundraising difficulties.