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President Trump on Thursday signed an executive order that could allow millions of Americans saving for retirement through 401(k) accounts to invest in higher-risk private equity and cryptocurrency assets.
The executive order doesn’t immediately change how people will invest for retirement through their employer-sponsored accounts, as federal agencies would need to rewrite regulations to allow expanded investment choices. That’s a process that experts say could take months, or longer, to complete.
But once done, employers could offer a broader array of mutual funds and investments to workers, according to the White House. New plans could invest in alternative assets, particularly private equity, cryptocurrencies and real estate.
The move comes as the 401(k) has become the primary vehicle for American workers to save for retirement, with most employers offering a menu of investment choices among major asset classes, such as stock-based mutual funds. The $5 trillion private equity industry, which makes investments into private businesses rather than publicly traded stocks, has for decades wanted to compete for a role in retirement plans.
At the same time, the cryptocurrency industry, whose executives strongly supported Trump’s 2024 campaign, has aimed for more mainstream acceptance among Americans.
“It was inevitable that bitcoin would make its way into American 401(k)’s,” said Cory Klippsten, the CEO of Swan Bitcoin. “As fiduciaries realize bitcoin’s risk-adjusted upside over the long term, we’ll see growing allocations, especially from younger, tech-savvy workers who want hard money, not melting ice cubes.”
The EO could give private equity and crypto firms long-sought access to a pool of funds worth trillions.
Investment companies applauded Mr. Trump’s executive order, with TIAA, which manages the retirement assets of teachers, professors and other academics, and investing giant BlackRock saying they support the measure for providing a broader number of investment strategies to workers.
“We believe end investors can benefit from the advantages that private investments can offer when embedded within professionally managed vehicles like target date funds or through guaranteed annuity products,” TIAA said in a statement emailed to CBS MoneyWatch.
Changing the 401(k) rules
The president’s order directs the Labor Department and other agencies to redefine what would be considered a qualified asset under 401(k) retirement rules.
Americans’ retirement plans are governed by a law known as the Employee Retirement Income Security Act of 1974, better known as ERISA. Employers are required by law to offer retirement options that are in the best interest of their employees, not Wall Street.
Most retirement plans for Americans are made up of stock and bond investments, and to a much lesser extent, cash and heavily traded commodities such as gold.
Even after the regulations are written, it will take time for the major retirement plan companies such as Fidelity, Vanguard, T. Rowe Price and others, to develop appropriate funds for employers to use. Employers are not likely to revise their retirement plan options quickly as well, so it may take several years before crypto and private equity investments are mainstream in an individual’s retirement plan.
The price of bitcoin was up 2% on Thursday to $116,542 and has nearly doubled since Trump was elected.
Under Democratic President Joe Biden, federal regulators were to treat cryptocurrency investments with “extreme care” because of the extreme volatility of crypto. It is not uncommon for bitcoin, ethereum and other big cryptocurrencies to move up or down 10% in a single day, whereas a 2% or 3% single-day move in the stock market would be considered historic.
For cryptocurrency companies, which donated millions to Trump’s campaign as well as his inauguration, one goal was to get their industry qualified under ERISA. Coinbase, one of the largest crypto companies in the United States, was also a major donor toward Trump’s military parade in Washington this summer. Under Trump, the Securities and Exchange Commission dropped its lawsuit against Coinbase, where the Biden administration said crypto should be treated as a security.
Crypto investors
Crypto is particularly popular among young Americans. While volatile, bitcoin has generally moved upward since it was created by an anonymous programmer nearly 20 years ago.
Private equity firms rely heavily on high-net-worth individuals and state and private pension plans, which have extremely long investment timelines. But having access to Americans’ retirement assets would open up a deep pool of cash.
Blackstone CEO Steve Schwarzman has told investors going back to at least 2017 that it was a “dream” of his and the industry to be able to draw upon these retirement assets.
Previous administrations, Republican and Democrat alike, had agreed that private equity investments, which can be riskier, more expensive and less liquid than traditional stock and bond market mutual funds, should not be included in 401(k) plans.
