New Labor Department Guidance Allows Risky Private Equity Investments in Workers' 401(k) Accounts

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    • #324599
      Cold Mountain Trail
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      • Total Posts: 8,812

      Private Equity (PE) firms have had their eye on workers’ retirement nest eggs ― 401(k) and IRA accounts ― since late 2013 when rules on advertising to individuals were relaxed. Obama’s labor department stymied private equity’s efforts to expose ordinary people to high levels of financial risk.

      Yesterday, under cover of pandemic and protests, Labor Secretary Scalia set those concerns aside and issued a letter to allow private equity investments to be included in workers’ retirement accounts. Scalia claims he was acting on President Trump’s instructions to “remove barriers … to economic prosperity.”

      But PE is certainly not constrained by a lack of dollars for acquiring Main Street companies. It is not held back by barriers. On the contrary, PE firms are sitting on well over a trillion dollars of dry powder waiting to be put to use buying up companies beaten down by the coronavirus. Whether it is wise to allow this is clearly debatable. Other countries are protecting their businesses from being acquired by private equity firms at fire-sale prices by halting mergers and acquisitions until the pandemic is past and companies have recovered from the economic shock of the lockdown.

      Investing retirement savings in private equity exposes ordinary retirees to high risk. In the letter, Scalia himself acknowledges the “potential cost, complexity, [lack of] disclosures, and liquidity issues” these investments pose…Scalia hedges on the payoff… from this higher risk, noting that investing in PE “often provide strong returns,” meaning workers can’t count on these returns…. In fact, returns for the typical PE fund launched since 2006… have tended to match the stock market’s returns with little to no added premium for the added risk. About half the funds launched in each year since then have underperformed the stock market. The high-performing funds of PE firms are oversubscribed ― ordinary individuals will likely have difficulty accessing them.   Scalia has rolled back rules that protected workers’ retirement security. This should be seen as a gift to private equity firms, not a favor to workers who are unlikely to cash in on mythical high PE returns.

      https://www.commondreams.org/views/2020/06/07/new-labor-department-guidance-allows-risky-private-equity-investments-workers-401k

    • #324619
      Punxsutawney
      Moderator
      • Total Posts: 1,697

      Demand to know what the costs you are paying are. And stick to low costs funds from well known providers.

      And I’m of the opinion at the moment, and looking forward that staying away from Wall Street would be a good idea beyond what you need to put aside to get a company match if you are lucky enough to get one.

      More here: https://www.nakedcapitalism.com/2020/06/private-equity-gets-new-pockets-to-pick-your-401k-in-funds-repeatedly-cited-by-the-sec-for-abuses.html

      Oh, and the last name of the POS that is authorizing this, is no co-incidence. He is the son of that SCALIA!

      In America, “Liberty” means “Free to Die in Service of Capital” - Amfortas the hippie

    • #324626
      djean111
      Participant
      • Total Posts: 4,091

      https://www.nakedcapitalism.com/2016/10/blackstones-tony-james-touting-what-looks-like-hillarys-scheme-to-gut-social-security.html

      Readers may recall that Bill Clinton planned to privatize Social Security in the second term of his Presidency. The Monica Lewinsky scandal derailed his plan.

      As the Clintons knew, only a Democrat can dismantle Social Security. Hillary looks to be picking up where Bill left off. As David Sirota describes in a must-read story, Hillary is planning to introduce mandatory retirement accounts, a scheme that Hillary has mentioned in high concept form earlier. As details emerge, this “enrich Wall Street at the expense of everyone else” program is even more attractive to pet Democratic party constituencies than the 1.0 version of going after Social Security directly. No one in the Clinton or George W. Bush administration was so audacious as to cut in private equity and hedge funds in the way this variant would.

      But Hillary, and her major advisor on the plan who is also on her short list of Treasury Secretary candidates, Blackstone CEO Tony James, are too adept to label these required savings accounts as a stealth replacement for Social Security.The plan, as described in Sirota’s article parallels the way the contributions are made now to Social Security, with both employers and employees required to put aside a percentage of payroll…but not in the form of Social Security taxes, but in individual retirement accounts that in turn are put in “pooled plans run by professional managers”.

      If you look at James’ speech, what he is proposing sounds innocuous, a supposed additional 3% of worker savings. But that is a nearly 25% increase over what workers are paying into Social Security now. Moreover, most experts agree that to the extent that Social Security needs fixing (30 forecasts are fraught), some not very onerous tweaks would do the trick. First and foremost would be to eliminate the payroll tax ceiling.

      …..more stuff….

      Biden will do whatever the bankers tell him to do, and Biden has advocated for slashing Social Security before.  Doubties that any of the other Vichys feel differently.

    • #324648
      Enthusiast
      Participant
      • Total Posts: 4,364

      Again, more evidence of a shithole country.

      I would like to remind you that U.S. health insurance companies do not contribute anything to health care. They are only a PARASITIC middle man receiving an undeserved cut of "FREE MONEY".

      Me

    • #324721
      a little weird
      Participant
      • Total Posts: 647

      When they started screwing over pension funds I knew it was just a matter of time before they did it to 401(k) as well.

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