Private Equity Investments in 401(k) Retirement Plans

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Private equity, once a staple in old-fashioned pension plans, is now attempting, with the assistance of lawmakers and regulators, to earn a place in pension plans’ successor: 401(k) plans.

After a 2019 law that encouraged 401(k) plans to offer the old-fashioned pension staple of annuities, the Labor Department issued another guidance in June confirming that 401(k) plans are also allowed to offer private equity in diversified funds, such as target-date funds, which frequently serve as the default in most plans. Critics cite potential issues that can arise, including a lack of transparency and high fees, which typically consist of a 2% management fee plus 20% of the profits. Meanwhile, proponents argue that the addition of shares in privately held companies may boost 401(k) investors’ returns and offer a way to participate in the section of the economy that they otherwise would not have access to.

Private-equity firms may not be the only illiquid investment to break into the $7.9 trillion workplace retirement plan market. Others, such as hedge funds, may also use the Labor Department’s guidance to market themselves as additions to 401(k) plans, according to a recent article in the Wall Street Journal.

If you have questions about investing in private equity, don’t hesitate to contact our experienced attorneys at Busch, Slipakoff, Mills and Slomka.