Photo of André François McKenzie in Unsplash
President Donald Trump signed an executive order Thursday opening the door to alternative investments like cryptocurrencies and private equity funds being included in 401(k) retirement plans, according to a report. the AP agency.
A gradual but significant reform
Although there will be no immediate changes, the directive directs the Department of Labor, along with other federal entities, to review and redefine the assets considered valid under ERISA, which regulates workers' pension options. This transformation will require months, or possibly years, due to the need to adapt regulations and design new funds suitable for employers and workers.
Advantages and risks under debate
Proponents of the change argue that allowing alternative assets in 401(k)s could diversify portfolios and generate higher returns, especially for younger and more risk-tolerant savers. On the other hand, critics warn about the high volatility of cryptocurrencies, the lack of liquidity in private equity funds, high costs, and potential fiduciary conflicts.
Access to a multi-million dollar market
The order opens the door for industries like the private equity sector—estimated to be valued at $5 trillion—and the crypto sector to access retirement funds, giving these fund managers unprecedented access to a multi-trillion dollar market.
With the order in place, experts point out that it will take time before it materializes into real options for 401(k) participants. Large fund managers like Fidelity and Vanguard will need to create appropriate products and educate both employers and employees on the risks and features of these new alternatives.
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