Displaying items by tag: 401k

The SEC’s Office of the Investor Advocate announced it will examine the increasing use of private equity and other alternatives in retirement accounts as part of its fiscal 2026 objectives. The office has warned that adding private market products to 401(k)s and 403(b)s can pose risks for retail savers, especially in target-date funds and managed accounts. 

Concerns include limited liquidity, incomplete disclosures, and a higher risk of fraud or losses, which the agency will evaluate in relation to fiduciary duties under ERISA. This move follows Senator Elizabeth Warren’s letter to Empower Retirement questioning its plans to offer private equity in its 401(k) products. 

Beyond private equity, the investor advocate’s 2026 agenda will also prioritize improving retail investor disclosures, analyzing China-based VIE structures, collaborating with the SEC’s crypto task force, and using investor research to support rulemaking. 

Finsum: Advisors should aim to ensure retirement plan participants understand the trade-offs of these complex and often opaque investments.

In today’s unpredictable economic landscape, retirees face mounting challenges in preserving their wealth as traditional strategies like the 60/40 portfolio falter under inflation and synchronized market downturns. The financial turmoil of recent years has exposed the shortcomings of conventional diversification, especially during crises like 2022 when both stocks and bonds fell sharply, undermining retirees’ income and security. 

As a result, many advisors now advocate incorporating alternative investments—such as private equity, real estate, and private credit—into retirement portfolios to broaden exposure and potentially enhance returns. Alternatives offer benefits like access to private markets, higher return potential through illiquidity premiums, and diversification through non-correlated strategies. 

Additionally, alternative strategies like managed futures and long/short funds can provide “crisis alpha,” cushioning portfolios during volatile markets. 

Finsum: While these vehicles carry higher fees, tax complexity, and liquidity constraints, their strategic use can help retirees mitigate risk, sustain income, and better navigate an uncertain financial future.

The US defined contribution (DC) retirement industry, once buoyed by steady asset growth and strong equity markets, now faces a profitability squeeze due to fee compression, demographic shifts, and intensifying competition. As baby boomers retire and withdrawals surpass new contributions, the system is experiencing net outflows, pushing providers to rethink their business models. 

Recordkeepers are seeing administrative fees decline significantly and are increasingly relying on ancillary revenue streams—like brokerage accounts and financial advice—to offset shrinking margins. 

While total DC system revenues rose modestly between 2013 and 2023, the real surge came from retail wealth management, which generated $45 billion in new revenues, reflecting a shift toward participant-centric strategies. Providers are also contending with rising technology and support costs, prompting restructuring, digitization, and outsourcing, even as consolidation gives larger firms scale advantages. 

Finsum: Retirement solutions providers are being forced to adapt quickly, with success increasingly tied to their ability to expand beyond recordkeeping.

Empower, the $1.8 trillion 401(k) plan provider, will begin offering private credit, equity, and real estate investments in some retirement accounts later this year through partnerships with firms like Apollo and Partners Group. 

This move marks the largest entry yet of private assets into 401(k)-type plans, a $12.4 trillion market that Wall Street firms have long sought access to. While proponents argue private assets can enhance returns and reduce volatility, challenges remain—such as illiquidity, valuation complexity, and higher fees, which range from 1% to 1.6% versus the 0.28% average for typical target-date funds. 

Only select managed account services will offer these investments, with five employers already signed up to participate in the initial rollout. Allocations could range from 5% to 20% of a portfolio, depending on factors like age and risk tolerance.

Finsum: Private markets have definitely gone wide in the last decade but this sort of expansion could really help retirees. 

Plan sponsors continue to grapple with low engagement and limited financial literacy when it comes to retirement income within defined contribution plans, according to a new DCIIA study. Many employers are hesitant to implement retirement income solutions due to competing priorities, legal risks, and a lack of internal resources or formal decumulation strategies. 

Complexity, lack of standardization, and concerns over liquidity and portability further complicate adoption. However, plan sponsors anticipate growing interest in lifetime income options through 2025 and 2026, especially as peer adoption increases. 

Safe harbor provisions from SECURE 2.0 are expected to encourage adoption by reducing perceived legal liability, and DCIIA will expand its research later this year to better understand these barriers and opportunities.

Finsum: Solutions that offer personalization, flexibility, and simplicity are most appealing, though widespread uptake may hinge on stronger education and clearer evaluation tools.