Senators warn over “risky” alternatives in 401(k)s
US senators have raised concerns over an executive order signed by US President Donald Trump permitting investment in alternative assets within 401(k) retirement accounts, labelling them “risky”.
Senators Elizabeth Warren and Bernie Sanders led five colleagues in sending a letter to labour secretary Lori Chavez-DeRemer and Securities and Exchange Commission chair Paul Atkins.
The senators’ main criticism of the order, signed in August, centres on the potential exposure of retirement plans to private markets that lack the investor protections found in public markets.
“The executive order exposes these hard-earned savings to volatile financial instruments, while attempting to rebrand them as ‘alternative assets’, although they lack transparency and have exaggerated claims of high returns,” the senators wrote.
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Alongside Warren and Sanders, senators Dick Durbin, Jeff Merkley, Chris Murphy, Tina Smith and Ron Wyden also signed the letter.
The group expressed concerns over compliance failures among private funds, particularly relating to conflicts of interest, fees and expenses, and policies governing material non-public information.
“Private investments, including private equity, rely on long-term capital and, as a result, usually stipulate lengthy lock-up periods for investors,” they continued. “This makes these investments illiquid, meaning they cannot easily be sold or converted into cash. This raises serious concerns during economic downturns, when retirement savers may need access to their funds.”
The order opens up the $12tn (£8.9tn) 401(k) market to alternative asset managers, with cryptocurrency among the assets now permitted.
Read more: Nearly half of US pension savers would invest in private assets
In their letter, the senators warned that the Department of Labor (DOL) had previously advised fiduciaries to exercise “extreme care” before adding cryptocurrency to 401(k) investment options. “Now, the DOL has pulled that safety net out from under workers, reversing course on crypto protections abruptly and without clear reasoning,” the senators added.
They also questioned whether the order could have financial benefits for the Trump family, noting reports that it has “notched as much as $5bn in paper wealth… after its flagship crypto venture opened trading of a new digital currency”.
