According to a report in WSJ.com, 401(k)s will soon be able to hold private securities.
As defined benefit plans have declined in the US, 401(k)s have emerged as the top retirement vehicle for workers. Investors are limited in how much they can dedicate to a 401(k) each year, but a firm will frequently match some or all of their contributions. The key aspect of these accounts is that they are pre-tax and then grow tax-free, with taxes only being paid when money is withdrawn.
As for private securities, the US market has boomed, while the number of public firms has declined due to over-regulation by policymakers who often lack a thorough understanding of markets.
As the largest sector of private securities, offerings under Reg D are primarily made available only to Accredited Investors, and thus available only to the affluent, many smaller investors have lost the ability to benefit from this market. New rules, which will update the definition of an Accredited Investor, may change this. At the same time, new technologies such as tokenization may make private securities available to a broader market.
The report states that President Donald Trump intends to sign an Executive Order that will make private securities eligible for retirement accounts. While the source of this information was not revealed, the report cited individuals familiar with the policy sharing the news, which likely means White House insiders.
Apparently, the Securities and Exchange Commission will collaborate with the U.S. Department of Labor to develop new rules.
The shift in policy contrasts with the prior administration, which sought to make it more difficult for smaller investors to participate in the private securities markets. While nonsensical, this policy was discriminatory and disenfranchised millions of investors. The Trump Administration has taken a more inclusive approach for smaller investors.
The final language incorporated in any Executive Order should clarify exactly how the change in retirement plans will role out and when.
