Highlights
Background
In 2020, the Trump administration issued a pivotal information letter through the Department of Labor that opened the door for greater investment choices for future retirees. The guidance clarified that retirement plan sponsors could prudently include private equity investments within diversified options in defined contribution plans like 401(k)s — so long as they met core fiduciary obligations under the law. The move was an important first step toward modernizing retirement offerings and aligning them with investment tools long available to defined benefit plans and institutional investors.
But almost as soon as the door opened, the Biden administration began to close it. In December 2021, the Department of Labor issued a follow-up statement that discouraged plan fiduciaries from relying on the 2020 letter, citing concerns about complexity, valuation, and risk. The message was clear: proceed with caution, but really the administration was signaling plans not to proceed at all.
Market Performance and Evolution
Nevertheless, the marketplace has evolved. Asset managers like BlackRock and others have taken steps to offer private equity exposure in certain retirement products. The logic is straightforward: private equity, when part of a diversified portfolio and under professional management, can improve risk-adjusted returns. Investors with access to these vehicles have the chance to benefit from opportunities historically reserved for pensions and wealthy individuals.
The performance of this asset class speaks for itself. Private equity funds have outperformed the S&P 500 over the medium and long-term, and done so with diversification benefits that reduce reliance on publicly traded equities alone. Compared to other assets, private markets offer reduced volatility and greater returns. Compared to a more conventional portfolio of 60 percent equities and 40 percent bonds, a portfolio that also included investment in private markets would have returned over one percentage point more with less volatility over the last several years.
The Public Supports Expanding Investment Options
The case is not just technical; it is also popular. According to national surveys conducted in January and May by leading polling firm Fabrizio Ward, voter support for reforming 401(k) regulations to allow private equity access outstrips opposition by more than two to one. Among Trump voters, support reaches 68 percent, with just 7 percent opposed. And when respondents are told that President Trump issued guidance allowing access — and that President Biden reversed it — support increases further, especially among Trump voters, where it reaches 81 percent.
Voters also view the current system as unfair. Nearly two-thirds of all voters, and an even higher share of Trump voters, say it’s wrong that only wealthy individuals and large institutions can invest in private equity, while ordinary Americans with 401(k)s are shut out. And by a margin of more than two-to-one, voters say they want more investment options, not fewer, a number that jumps to 87 percent among Trump voters with retirement accounts.
The numbers tell the story: private equity has delivered strong results, the infrastructure for inclusion in 401(k)s is emerging, and public support is broad and durable. The Trump administration was right to initiate this reform. If it follows through with more robust executive action in a second term, it will find the policy, market, and political conditions better aligned than ever before.