401k Changes

[cycloneG]

Now, thanks to a rule change from the Trump administration, those retirement vehicles could soon get a lot more complicated. It’s likely to lead to new risks (and perhaps new rewards) for savers.

Managers of 401(k) plans now have the ability invest in private equity. In other words, your 401(k) could soon take stakes in private companies.

https://finance.yahoo.com/news/trum...t-risks-to-retirement-accounts-115443201.html

 

[LindenCy]

Wow, this could get interesting.

 

[SCNCY]

I read about this story a day or two ago, and if I understand it correctly, private equity funds could be added to the list options you choose. But the you would still have control over the funds you want to invest in, just like know. Unless I'm wrong, it's not like a third party all if a sudden has control of your 401k.

I could be wrong and if someone else has insight to this, I'd like to learn more.

 

[cycloneG]

I read about this story a day or two ago, and if I understand it correctly, private equity funds could be added to the list options you choose. But the you would still have control over the funds you want to invest in, just like know. Unless I'm wrong, it's not like a third party all if a sudden has control of your 401k.

I could be wrong and if someone else has insight to this, I'd like to learn more.

Managers of funds would be able to invest in private equity. If you're in a fund, it could effect you.

 

[SCNCY]

Managers of funds would be able to invest in private equity. If you're in a fund, it could effect you.

Ok, I gotcha now. Mutual funds would be able to invest private equity that are also allowed to be an option for 401ks.

 

[Sigmapolis]

The private equity bros are going to love this.

Might be short-lived if it does not survive into a new administration, though.

 

[cycloneG]

Ok, I gotcha now. Mutual funds would be able to invest private equity that are also allowed to be an option for 401ks.

Correct. It could effect funds people are already in.

 

[CloneJD]

I don't see more investment options as having a large downside, assuming their is transparency by the fund managers regarding the portfolio holdings.

 

[cycloneG]

I don't see more investment options as having a large downside, assuming their is transparency by the fund managers regarding the portfolio holdings.

It's not just more options. It could effect funds people are already using. Private equity is typically more volatile. Just something to keep on eye on when reviewing your funds.

 

[RonBurgundy]

There is/was a huge controversy in CALPERS the last couple of years. CALPERS is the largest pension fund in the country and their board was considering a change in their charter to allow private equity investments. Scary since the pensioners have no control over investment decisions (which most 401k have). Not sure what the final decision was.

 

[SCNCY]

It's not just more options. It could effect funds people are already using. Private equity is typically more volatile. Just something to keep on eye on when reviewing your funds.

In one of the articles I read, they said that private equity funds are looking for "dumb money." Basically they can charge higher fees to fund managers and see less push back from them; unlike wealthy individuals who negotiate lower management fees.

 

[cycloneG]

In one of the articles I read, they said that private equity funds are looking for "dumb money." Basically they can charge higher fees to fund managers and see less push back from them; unlike wealthy individuals who negotiate lower management fees.

Correct. It would increase fees on funds most likely.

 

[Clonehomer]

I don't see more investment options as having a large downside, assuming their is transparency by the fund managers regarding the portfolio holdings.

But aren't there rules that publically traded companies must abide by for transparency reasons? I assume that won't be the case for private investments?

 

[AuH2O]

Serious question, has anyone ever had a 401k where you didn't choose funds, and where those funds' holdings were clear?

Between my wife and I we've had 7 different 401k plans and that's how they all worked. As has been the case with everybody I've ever talked to about this.

 

[bos]

I don't see more investment options as having a large downside, assuming their is transparency by the fund managers regarding the portfolio holdings.

That's where I'm at. Reminds a bit of an IRA. You can choose whatever you want to invest in. But they need to be transparent and provide choice, not do it themselves without your guidance.

 

[SCNCY]

But aren't there rules that publically traded companies must abide by for transparency reasons? I assume that won't be the case for private investments?

I don't know the rules exactly. But I think so long the mutual fund discloses the investments they have money in, that is ok. They wouldn't be responsible for getting a prospectus for every company/fund they invest in and provide that to you. So for example, so long the mutual fund says they invest in Scncy Money Laundering Private Equity Fund, and disclose the percent or money amount, they are fine. They wouldn't need to get the prospectus and send it to you for Scncy Money Laundering Private Equity Fund.

 

[Dopey]

It's not just more options. It could effect funds people are already using. Private equity is typically more volatile. Just something to keep on eye on when reviewing your funds.

So then you change to a fund that doesn’t invest in private equities.

Most companies do & will continue to offer a variety of risk profiles to their employees, with this option now included.

 

[dmclone]

I've never seen a 401k without a cheap s&p500 choice. I've never seen a 401k fund option beat the s&p 500 over a 20 year period. Don't get crafty, it doesn't pay.

 

[Sigmapolis]

There is/was a huge controversy in CALPERS the last couple of years. CALPERS is the largest pension fund in the country and their board was considering a change in their charter to allow private equity investments. Scary since the pensioners have no control over investment decisions (which most 401k have). Not sure what the final decision was.

As you probably know, CalPERS is in a bit of a shortfall financially.

They have decided to go to private equity to boost returns to save themselves --

https://www.ft.com/content/36277356-01a0-491a-a7be-6a5e742a4980

So yes, they have made the change. They are going for it.

It might save them. Or it might be opening up the seacock on an already sinking ship. Either way, the equity bros are going to be making a killing.

 

[brianhos]

Sounds like a bad idea. Raise the federal max for 401k and Roths instead.