CNBC's Sharon Epperson reports on an executive order that could help make private markets more accessible to retirement plans.

Washington

A forthcoming executive order is expected to make private market investments more accessible within US retirement plans such as 401(k)s. The initiative would provide guidance to the Department of Labor and the Securities and Exchange Commission on integrating private equity and similar assets into target date and balanced funds within these plans.

While the move could open up new investment opportunities for retirement savers, financial experts caution that private market assets are less liquid, less transparent, and often carry higher fees. There are concerns that many investors may not fully understand these complex investments, and that the primary beneficiaries could be large asset managers. Advisors stress the importance of independent financial guidance before including such alternatives in retirement portfolios.

Private equity in retirement plans: What 401(k) owners need to know

Welcome back to Power Lunch. President Trump is reportedly expected to sign an executive order in the coming days that would help make private market investments more available to U.S. retirement plans. Could pave the way for big managers of these private assets to access the vast sums of retirement savings held by workers who don't have a traditional pension. What it could mean for you and your money, let's ask no one better than CNBC senior personal finance correspondent Sharon Epperson. Sharon, we've talked about crypto and retirement plans and I guess there's there's you could do some of this now but a lot of people aren't doing it because they're concerned about the fiduciary spirit and all that. If this now becomes a bigger safer thing to do just walk us through how it might work what the options to people might look like. Well this what we're talking about is the president perhaps giving guidance to the Department of Labor and the Security Exchange Commission about how this could work by putting private market investments into target date funds into balance funds within a 401k plan and so this is something that Trump has been signaling he's very interested in since 2020. He sent an information letter out you know the Department of Labor under him saying that this could be an additive to 401k plans. The way that it would work is when you look at the amount of assets that are available in the 401k industry some 12 trillion dollars in assets there is a lot of potential for those who have private market investments to want to have them in 401k plans. The reality is the average account balance for a Fidelity 401k holder at the end of the first quarter was a hundred and twenty seven thousand dollars and we're talking about just over ten thousand for a Gen Zer if you look at different generations and two almost two hundred fifty thousand for a baby boomer. So the way that would work is for investors who have more sizable assets. That's what I was going to ask so not everybody can access it. Everyone will be able to access it. Not just accredited. But the people who are not just accredited investors but the people who it probably would be best for based on the financial advisors that I've spoken to and you have as well would probably those be those who have significant assets already. In our interview yesterday about energy and energy infrastructure Larry Fink of BlackRock kind of alluded to this he said well soon and I'm paraphrasing I should have the direct quote so I don't screw it up but it was something like well soon we're gonna have access to private capital in your 401k something like that. BlackRock and firms like that would benefit big time if this were to happen. They would benefit big time and so that's why firms like BlackRock Apollo is also very interested in this even there are some retirement plan providers who are saying yeah this makes sense to do like Empower. They want to make sure that that's available to their 401k holders to as they would say level the playing field but there's a lot of controversy over if people don't understand today how a target date fund works right as it stands now or maybe not even how an S&P 500 fund works they're just defaulting into whatever the default is for their plan adding something that is an alternative investment that is less liquid less transparent that has high fees not sure if this is something that is truly for everyone. I mean I worry a lot that it's basically great for the industry and this huge huge win for private equity private credit all the rest of it I'm not sure there's enough of a track record to say this needs to be part of anyone's retirement portfolio also because in a way this asset class is still so young it's like when we say the America is still young you know relative to the stock market this is still very young and it hasn't been tested through many many many decades of returns in order to know kind of what position exactly it should occupy and why. Well the concern that financial advisors I've spoken to say is that people are always looking for a quick fix and so I haven't saved enough maybe this will help me meet my retirement goals not understanding all the challenges. The other concern is are they getting independent financial advice not from a plan provider about how this fits into their whole financial life.

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