Trump's retirement pension reform controversy: democratized investment or systemic risk?

Authors: Antoine Gara, Jamie John, Eric Platt

Recently, Donald Trump has opened the door to trillions of dollars in new investments from American retirement savers for the private equity and cryptocurrency industries, which could reshape the financial future of 90 million Americans and accelerate the growth of asset management firms and digital currency groups.

However, this order allowing 401k savings plans to invest in a range of alternative assets also exposes American retirees to new risks.

This measure was introduced after strong lobbying from private capital groups such as Apollo Global Management and BlackRock, which believe that joining these retirement plans is a way to attract hundreds of billions of dollars in lucrative assets.

The measure is expected to allow retirement funds to invest in a range of unlisted investments, from corporate acquisitions and private loans to infrastructure deals. This could expose them to higher fees and lower transparency. Of the $9 trillion in assets held in these 401k plans, some may be directed toward assets that are difficult to value and sell, which differ from the traditional stocks and bonds that currently make up the vast majority of retirement plans.

Sean Mackey, global head of asset management at KPMG's audit division, said: "The door to alternative investments is wider open than ever before." He added, "Many leaders will see this as an opportunity for a business model."

Benjamin Shafrin, the chief securities policy officer at Better Markets, warned that this move is a "bad thing" for 401k plan holders. He said, "Retail investors will face a completely different type of asset, and they may not be aware of it."

The acquisition group has been working hard to sell trillions of dollars in investments and bring returns to investors. This has prompted pension funds and foundations to withdraw from the industry, cutting off a crucial source of cash. Large private equity groups like BlackRock have turned to rely on managing the savings of retirees and wealthy individuals for their future growth.

Wall Street successfully persuaded Trump to sign this order, which will provide important political and legal protections for the industry as they seek to convince 401k plan managers to include their funds in investment plans. According to their financial disclosures, Apollo, Carlyle, and BlackRock conducted vigorous lobbying efforts.

Other groups, such as BlackRock, are working through industry associations.

Some of the most influential leaders in the industry, including Apollo head Mark Rowan, have openly supported this effort.

Luo Wen and his colleagues publicly stated that 401k savers who do not enter the private placement market will miss out on the potential for diversification and high returns.

Rowen stated in February: "We are essentially betting the country's retirement system on Nvidia," referring to the heavy concentration of 401k savings in a few tech stock-dominated index funds. This week, he reiterated his call to open the 401k market to private investments, describing it as "common sense."

According to insiders, the influential lobbying group, the Defined Contribution Alternatives Association (, which is favored by many large private equity groups, even claimed in Washington that 401k plans could be sued for not providing higher returns on trades.

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Carlyle CEO Harvey Schwartz stated that this order "should have been issued long ago" because "wealthy clients have already been able to enter this field."

BlackRock stated that adding private investments to retirement plans will "ensure that millions of Americans build stronger and more diversified portfolios."

According to an official, Trump's National Economic Council and Council of Economic Advisers served as intermediaries between the private capital industry and the President at the White House. The office of Deputy Chief of Staff Stephen Miller assisted in drafting the order.

A senior advisor stated that the government's interest in cryptocurrency played a role in bringing this order to the president's desk, noting its popularity in the White House.

Trump has made the deregulation of digital assets a central topic of his administration and believes that the industry helped him win the 2024 presidential election. Entities controlled by the Trump family have also recently invested billions of dollars in cryptocurrency.

Some people in the private equity industry are concerned that this order will associate their funds with newer, more speculative cryptocurrencies, especially in light of the painful losses suffered by 401k plans due to investments in digital assets. However, according to informed sources, they believe this is an acceptable trade-off.

Although there are no explicit regulations prohibiting investment in alternative assets, 401k plan managers have generally taken a cautious attitude towards investing in these assets. Most managers are concerned about facing lawsuits from employees due to investing in these funds, both because of the high fees associated with these funds and the higher leverage used in many strategies.

Rajib Chanda, a partner at Simpson Thacher & Bartlett, stated: "The costs of these lawsuits are very high, and there are many settlement cases, but the situation where plaintiffs win in court is very rare." He added that this concern "creates a significant chilling effect, regardless of the basis of the litigation."

Trump instructed government agencies to facilitate 401k plan administrators, making it easier for them to offer private investments, with some measures including provisions aimed at curbing lawsuits against private investment strategies.

White House Deputy Press Secretary Kush Dorsey stated: "The only special interest guiding President Trump's decisions is the greatest interest of the American people."

"The President's historic executive order fulfills his promise by democratizing, modernizing, and expanding retirement investment options for ordinary Americans, thereby making America prosperous once again."

The focus now shifts to the Department of Labor, which is responsible for overseeing and enforcing the 1974 law that set standards for companies providing 401k benefits.

Asset management companies are competing to prepare 401k products in anticipation of guidance from the Department of Labor expected to be released in the next six months. Many companies have announced partnerships to offer private investments in target date funds, where professionals select assets for decades-long retirement plans. These funds will mix investments in publicly traded stocks and bonds with more opaque private assets.

Other companies provide private investment channels more directly, but require companies to offer advisory services for 401k participants wishing to invest.

Empower, the second-largest retirement plan provider in the United States, stated in May that it will collaborate with Apollo, Goldman Sachs Asset Management, and Partners Group to offer private asset investment channels for retirement plans.

A month later, BlackRock announced that it would provide a target date fund with a mix of public and private investments for 401k provider Great Gray Trust. In addition, BlackRock is also developing its own target date fund that includes private assets.

Other partnerships have also emerged. BlackRock has established a "strategic alliance" with Vanguard and Wellington Management to create mixed public-private funds for retirees, while KKR and Capital Group are exploring the creation of model portfolios and target date funds that span both public and private sectors.

Michael Pedroni, a former Treasury official and now with the business policy consulting group Highland Global, stated that the "big question" about how much more American families are willing to pay to acquire private assets remains unresolved, as the identification and management costs of these assets are higher, leading to higher fees.

"Currently, Americans are accustomed to paying fees of 30 to 50 basis points for their 401k. If the fees rise to 80 basis points, would they be willing to pay?"