A recent executive order has put a spotlight on potential changes to retirement plan rules, specifically the possibility of allowing private equity investments in 401(k) plans. While this may sound like an exciting opportunity for business owners and employees seeking greater returns, it also brings a host of new risks and complications that deserve careful consideration.
The Department of Labor and the Securities & Exchange Commission have been tasked with exploring how private market assets might be more broadly integrated into retirement plan offerings. The intent is to open up access to investment options once reserved for large institutions. But access doesn’t automatically equal advantage, especially when the stakes involve long-term retirement security.
Unlike mutual funds or ETFs, private equity investments often come with steep management fees, limited transparency, and long lock-up periods. It’s not uncommon for investors to commit capital for 10 years or more and pay high fees regardless of performance. This structure may work well for sophisticated investors with ample liquidity, but it’s a very different equation for the average 401(k) participant or small business owner trying to balance long-term planning with flexibility.
There’s also the issue of understanding what you’re actually investing in. Private equity funds aren’t held to the same reporting and disclosure standards as public market options. That can make it difficult to accurately assess performance, risk, or even fees. And for small business owners sponsoring retirement plans, adding private equity could increase fiduciary responsibilities and legal exposure under ERISA unless or until more clear guidance is issued.
We’re not saying this is all bad news. Greater investment choice is a good thing when paired with clear guidance and the right expertise. But navigating this space without experienced support could create more confusion than opportunity.
If you’re considering how these potential changes might affect your company’s retirement plan, or your own long-term strategy, we recommend starting with a conversation. Talk to your financial advisor about whether private equity belongs in your personal portfolio, and connect with us to understand the tax considerations, compliance concerns, and how to keep your business protected as rules evolve.