President Donald Trump has signed an executive order that could make private equity and cryptocurrency investments available as options for millions of Americans saving for retirement through 401(k) accounts. This move aims to give financial players access to a pool of funds worth trillions.
Under the new rules, federal agencies will need to rewrite regulations to allow expanded choices in mutual funds and investments. Employers could then offer alternative assets like private equity, cryptocurrencies, and real estate, potentially diversifying retirement plans for Americans.
The Republican president’s order revises ERISA (Employee Retirement Income Security Act of 1974), which governs retirement plans. This will enable the $5 trillion private equity industry to compete in retirement plans and reward the cryptocurrency industry’s push for mainstream acceptance among Americans.
However, experts warn that it may take months or years for major retirement plan companies to develop suitable funds for employers. Employers are unlikely to revise their options quickly, so crypto and private equity investments won’t become mainstream in an individual’s retirement plan anytime soon.
The Securities and Exchange Commission had previously dropped its lawsuit against Coinbase, a leading cryptocurrency company that donated millions to Trump’s campaign. Cryptocurrency companies see this move as a step towards getting their industry qualified under ERISA.
As cryptocurrency prices fluctuate, proponents argue that bitcoin has generally moved upward since its creation 20 years ago. They predict growing allocations from younger, tech-savvy workers seeking stable investments over volatile crypto assets.
Private equity firms have long advocated for access to Americans’ retirement assets. The average historic annual return on private equity assets is roughly 13%, compared to the S&P 500 index’s approximately 10.6%. However, private equity investments are riskier and less liquid than traditional stock and bond market mutual funds.
The Managed Funds Association welcomed Trump’s move, stating that they look forward to working with the administration on a thoughtful framework for expanding access to alternatives for retirement savers.
Source: https://apnews.com/article/trump-crypto-401k-private-equity-retirement-plans-d7fdae32d904c9454f4d4eb0b12b88ef