There’s been a lot of buzz recently about a new executive order that could reshape how retirement plans operate. One of the most talked-about changes? Expanding 401(k) investment options to include private equity (PE). While this move might unlock new avenues for potential growth, it also introduces layers of complexity that many investors – and plan sponsors – may not be equipped to handle.

The proposal calls on the Department of Labor and the Securities and Exchange Commission to issue additional guidance around offering private assets in 401(k) plans. This could ease concerns around legal exposure under ERISA rules and potentially encourage more plan sponsors to offer private equity investments. The appeal is clear: higher potential returns, broader diversification, and access to deals traditionally reserved for institutional investors.

But private equity comes with trade-offs, and they’re not minor. For starters, PE funds often use fee structures that can significantly reduce your overall return. Many operate under a “2 and 20” model: 2% annual management fees plus 20% of any profits earned. On top of that, these investments are typically illiquid, with funds locked up for a decade or more. That’s a tough pill to swallow if you need access to your money unexpectedly.

Transparency is another issue. PE investments don’t follow the same reporting standards as publicly traded funds, making it harder to assess risk or track performance. And perhaps most importantly, understanding and evaluating these kinds of opportunities requires a deep level of financial expertise. This isn’t just about choosing between index funds; it’s about making decisions in a space filled with highly technical and often opaque information.

As Robert Edwards recently put it: “It’s encouraging to see more flexibility in retirement planning, but private equity isn’t something most people can, or should, navigate on their own. You need a high degree of sophistication to do it well, and without that, investors can easily find themselves in over their heads.”

At Edwards & Associates, we help dental practice owners and professionals plan for retirement with confidence. If you’re curious about how this rule change could affect your financial strategy, or your team’s 401(k) options, we’re here to provide clarity. Because when it comes to your future, making informed, smart choices is far more valuable than chasing the next big thing.