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 could put retirement funds 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 look at other options as equity funds – putting 12 trillion available for alternative investments.
In a current AFT 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.
Strong safeguards must always be required to protect workers retirement funds. Stability and transparency is needed ahead of Wall Street’s profits.
