The proposed changes to 401(k) rules by the Trump administration and Wall Street are a cause for concern for many Americans. While the aim is to broaden access to alternative investments, the potential risks to retirement savings cannot be ignored. Personally, I think that the proposed changes could have a significant impact on the retirement plans of millions of Americans. What makes this particularly fascinating is the potential for increased fees and the risk of underperforming investments. In my opinion, the proposed changes could lead to a new normal where 401(k) plans are less lucrative for participants and more profitable for financial companies. From my perspective, the proposed changes could have a significant impact on the retirement plans of millions of Americans. One thing that immediately stands out is the potential for increased fees and the risk of underperforming investments. What many people don't realize is that the proposed changes could lead to a new normal where 401(k) plans are less lucrative for participants and more profitable for financial companies. If you take a step back and think about it, the proposed changes could have a significant impact on the retirement plans of millions of Americans. This raises a deeper question: how can we ensure that retirement savings are protected and that workers are not put at risk? A detail that I find especially interesting is the role of the Trump administration and Wall Street in pushing for looser rules and easing enforcement. What this really suggests is that the proposed changes are not just about broadening access to alternative investments, but also about protecting the interests of financial companies. The proposed changes could have a significant impact on the retirement plans of millions of Americans. The decline in investment and administrative fees in 401(k) plans has pinched profit margins in the 401(k) world, said Kai Richter, an attorney with Cohen Milstein who has long specialized in ERISA class-action cases. So the financial industry is looking for other ways to make money. Nonpublic investments like private equity are, as a rule, actively managed. That means higher fees. If 401(k) plans began to commonly include these investments, the long-term trend of lower fees would halt and perhaps reverse. Broad adoption of alternative assets is indeed the administration’s goal. One of the most consequential parts of a 401(k) plan is the default option, since most workers simply leave their money there. Usually, the default is a target date fund, which, based on the investor’s target date of retirement, gradually shifts its composition as that date approaches from mostly publicly traded stocks to mostly bonds, becoming more conservative and less risky as the person gets closer to needing the money. Target date funds haven’t changed much over the past two decades as they’ve soared in popularity. They offer all-in-one simplicity and, since they are often passive, low cost. Adding complex investments like private equity or hedge funds as a standard part of the mix would be a sea change. The proposed rule professes to be "neutral" as to what effect the new, lax standard will have on investments, but it confidently predicts that companies will include more alternative assets over time in 401(k)s. That, after all, is the point of the rule, to broaden access to "the potential growth and diversification opportunities associated with alternative asset investments," as Trump’s executive order put it. After the rule is finalized, plans covering about 5 million participants will add new or modified target date funds that include alternative investments, according to the proposal, and the number will continue to grow every year. Over the past year, there’s been a wave of product announcements in the 401(k) industry as financial companies, taking their cues from the administration, have prepared to offer new options to plans. Major firms that manage private investments, such as BlackRock, Apollo and Goldman Sachs, have announced funds for 401(k)s that include private assets. Ahead of the proposed rule’s adoption, Empower, the second-largest recordkeeper, has been expanding alternative options through managed accounts where participants opt to have advisers shape their 401(k) portfolios. About 1,000 companies have agreed to offer these investments to their workers, Empower’s CEO said recently. But the ultimate effects of the administration’s efforts won’t be limited to alternative assets, and the outcome is far from certain. The proposed rule seems sure to meet legal challenges, and employers, even with Aronowitz’s assurances, might remain reluctant to overhaul their plans. Short of lawsuits, employers may fear blowback from their workers, who surveys show are content with traditional investment options.
