On August 7, President Donald Trump signed an executive order that could fundamentally reshape how retirement savings intersect with entrepreneurship and economic growth. The order aims to democratize access to alternative assets within 401(k) plans, opening the door for everyday Americans to invest retirement dollars not only in private equity and private credit, but also directly in small businesses.
Public reaction has largely focused on whether such investments are too risky for retirement savers. What has been overlooked is the opportunity this creates for America’s entrepreneurs. As Karen Kerrigan, President and CEO of the Small Business and Entrepreneurship Council (SBE Council), emphasized in a recent Capital Ideas podcast hosted by the Investor Choice Advocates Network (ICAN), the shift has the potential to unlock an unprecedented flow of capital into small businesses—the very lifeblood of the U.S. economy.
Unlocking Dormant Capital
U.S. 401(k) plans hold roughly $8.7 trillion in assets. For decades, these funds have been confined to publicly traded stocks, bonds, and mutual funds, leaving private markets largely off-limits. Even allocating a small portion of that money to alternative investments would represent a massive new pool of funding for startups and small firms.
Kerrigan notes that half of America’s small businesses still report access to capital as their greatest barrier to growth. This executive order could change that dynamic. As she put it, “We’re talking about the unleashing of a lot of capital for innovation, for entrepreneurs, for small business growth.”
The potential scale is staggering. With more than five million new business applications filed in each of the last four years, demand for capital is outpacing supply. The executive order could align untapped retirement savings with this entrepreneurial surge.
Fueling Job Creation on Main Street
Private equity is often associated with Silicon Valley unicorns. In reality, 85 percent of private equity investments already go to small and mid-sized businesses. The median PE-backed company employs just 72 workers—firms that look more like your neighborhood manufacturer, healthcare provider, or energy services shop than a global tech giant.
Today, private equity-backed businesses already support 3.7 million jobs and nearly $4 trillion in economic output. With access to retirement capital, those numbers could expand dramatically. As Kerrigan observed, “PE-backed companies are everywhere—they’re in every state, every congressional district. There is significant room for growth.”
Litigation Risk and the Safe Harbor Solution
If small businesses can already offer private-market options in 401(k) plans, why haven’t they? The short answer is litigation risk. U.S. tort costs total $347 billion annually, with small businesses paying about half. As Kerrigan explained, “Litigation exposure can put a small business out of business overnight.” For that reason, most employers have stuck with “vanilla” plans of stocks and bonds.
The executive order seeks to change that by directing the Department of Labor to evaluate safe harbor protections. Clear fiduciary guidelines would allow small businesses to offer alternative investment options with confidence, knowing they will not face crushing liability if they meet basic disclosure and education standards. This could level the benefits playing field, allowing small firms to attract and retain talent with retirement plans that rival those of large corporations.
Expanding the Accredited Investor Definition
The order also touches on a parallel issue: the SEC’s accredited investor definition. Under current rules, most retirement savers are excluded from private investments because they lack sufficient income or net worth. There is growing bipartisan support to expand eligibility to those with relevant professional experience, licenses, or education.
Kerrigan pointed out the importance of aligning the Department of Labor, SEC, and Treasury so that reforms do not conflict. The goal is certainty across the system—certainty that empowers both employers and employees to participate in private markets without unnecessary barriers.
Learning from Crowdfunding
This is not the first time policymakers have sought to broaden investment opportunities. The JOBS Act opened the door to Regulation Crowdfunding, which allowed ordinary investors to buy stakes in private companies. That reform came with simple but effective investor education: checkboxes reminding investors they could lose their money and that no returns were guaranteed.
The crowdfunding model suggests a path forward here. Retirement savers can be given access to private investments with disclosures and education tailored to their circumstances. As Kerrigan stressed, the key is safeguards that are strong but straightforward—not over regulation that chills participation.
A Direct Connection to Innovation
One of the most surprising elements of the executive order is that it allows retirement savers to invest directly in businesses, rather than only through funds. This could be transformative. A worker in Ohio might choose to direct part of her 401(k) savings into a growing local manufacturer. A nurse in Texas might support a new healthcare startup. Employees would not just save for retirement—they would become active participants in the innovation economy.
This direct link also strengthens small businesses in their competition for talent. Offering employees the ability to invest in the very firms they are helping to build is a powerful equalizer against large corporations with bigger benefit packages.
A Return to First Principles
The deeper significance of the executive order is philosophical. It revives a founding American principle: the freedom to invest in and profit from the innovation of fellow citizens. For too long, that opportunity has been reserved for accredited investors and institutions. Opening it to retirement savers democratizes capital formation in a way that aligns with the entrepreneurial spirit of the country.
If implemented with clear rules, practical disclosures, and timely action by regulators, this policy could be a watershed moment for U.S. small business. It represents not just a new asset class for retirement savers, but a new era of capital formation, job creation, and innovation. As Kerrigan put it, “We need these types of sources of capital to fund the engine of growth in the United States.”
The risks are real. Some retirement savers will make poor choices. But the potential rewards—in jobs, innovation, and economic dynamism—are enormous. For small businesses waiting on the sidelines of the capital markets, the executive order offers a long-awaited invitation to play.
Nick Morgan is President and Founder of ICAN, the Investor Choice Advocates Network, a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for everyday investors and entrepreneurs. He was previously a partner in the Investigations and White Collar Defense Group at Paul Hastings law firm. Morgan previously served as Senior Trial Counsel in the SEC’s Division of Enforcement. Capital Ideas is a series created by Morgan and Dara Albright.
