401(k)s and Private Markets: What Investors Need to Know

Executive Order on Private Assets in 401(k)s

• 📜 An executive order is expected to be signed, signaling a move to encourage 401(k) plan sponsors to include private assets in their offerings.
• ⚖️ While an executive order doesn't have the force of law, it strongly suggests a direction for retirement plan investments.

Market Size and Investor Profile

• 📊 Defined contribution plans hold over $12 trillion in assets, with 401(k)s accounting for nearly $9 trillion and serving over 70 million participants.
• 📉 The average 401(k) balance is under $130,000, with significant differences across age groups (e.g., Baby Boomers averaging nearly $400k vs. Gen Z at $13k).

Challenges and Concerns with Private Assets

• ⚠️ Financial advisors suggest private assets may not be suitable for most 401(k) investors due to existing difficulties with basic investment principles and consistency.
• 🧐 Private market investments often come with high fees, lack of transparency, and liquidity issues.
• 🧑‍⚖️ Plan sponsors face concerns about fiduciary responsibility and potential litigation risk if they offer products that are not clearly understood or beneficial to participants.

Current Offerings and Participant Sentiment

• 🏦 Some 401(k) providers, like Empower, are already offering access to private assets through pooled vehicles or collective investment trusts.
• 🤔 While participants desire more diversification and higher returns, there is hesitancy and a lack of understanding regarding private assets and how they perform.

Potential for Future Access

• 📈 Despite current hesitations, 401(k) investors may see a wider availability of alternative investments in their plans over the next several years.
• 🌐 A significant majority of companies with over $100 million in revenue are private (87%), indicating a potential demand for access to these diversified assets.