Empower embraces private investments in 401(k) plans

In the United States, retirement savers will soon see new opportunities for investment in their 401(k) plans as Empower, a prominent 401(k) provider, announced plans to incorporate private market investments later this year. This decision follows a growing trend among Wall Street firms to provide individual investors with access to private equity, credit, and real estate in order to tap into the substantial $12.4 trillion market associated with 401(k) retirement plans. Empower's collaboration with seven firms, including Apollo Global Management and Partners Group, aims to broaden the investment options available for individual retirement accounts. The addition of private investments can offer significant advantages, such as potential income generation and inflation protection. For example, private real estate investments are being profiled as valuable options that may deliver stable returns in a fluctuating market. However, integrating such private investment offerings into 401(k) plans poses challenges, particularly concerning their liquidity and ease of valuation. Historically, most 401(k) plans primarily included public stocks and bonds, which are more straightforward to manage. One of the hurdles in making private investments available in 401(k) accounts is the concern over management fees. Many employers remain hesitant to offer high-fee investment options due to fears of legal repercussions, particularly regarding fiduciary responsibilities. Empower's partnership funds are anticipated to charge annual fees ranging from 1% to 1.6% of the portfolio balance, which could influence employer decisions when choosing whether to adopt these strategies for their employees. As of now, five employers have officially committed to introducing private investments for their employees' 401(k) plans once the offerings are available through Empower, though the specific companies remain undisclosed. Should an employer choose to incorporate private market investments into their plan, a managed-account adviser will determine how to allocate capital among these assets. As the landscape of retirement investing continues to shift, the ability to navigate and incorporate private market assets could unlock new growth potential for retirement savers, but it remains to be seen how widely these investment opportunities will be adopted across various employers.