Inside: What Trump’s 401(k) Executive Order Could Mean for Investors

Understanding the Executive Order

In 2018, former President Donald Trump signed an executive order aimed at expanding access to retirement savings plans, particularly 401(k)s. The order sought to reduce regulatory burdens on small businesses and increase flexibility for employees managing retirement funds. While the order itself didn’t enact immediate changes, it directed federal agencies to review and potentially revise rules governing retirement plans.

Key Components of the Order

• Multiple Employer Plans (MEPs): The order encouraged the creation of MEPs, allowing small businesses to pool resources to offer 401(k) plans. This lowers administrative costs and makes retirement benefits more accessible to employees at smaller firms.
• Required Minimum Distributions (RMDs): The order called for a review of RMD rules, which force retirees to withdraw a portion of their 401(k) or IRA funds starting at age 72. Adjustments could let retirees keep funds invested longer, deferring taxes.

Implications for Investors

Expanded Access to Retirement Plans

If MEPs become widely adopted, employees at small businesses—who often lack retirement benefits—could gain access to 401(k) plans. This could increase overall retirement savings rates and drive more capital into investment markets, benefiting asset managers and financial institutions.

Longer Investment Horizons

Relaxing RMD rules might allow retirees to delay withdrawals, keeping more assets in tax-advantaged accounts. This could lead to longer investment horizons, favoring growth-oriented strategies and reducing forced selling of securities to meet distribution requirements.

Potential Market Impact

Increased participation in 401(k) plans could boost inflows into mutual funds, ETFs, and target-date funds. Additionally, delayed RMDs might reduce near-term liquidity demands, potentially stabilizing markets during economic downturns.

Considerations and Criticisms

Critics argue that MEPs could expose employees to lower-quality plans if oversight is lax. Others worry that easing RMD rules disproportionately benefits wealthier retirees, who are less reliant on withdrawals for daily expenses. Additionally, changes to retirement rules may face legal challenges or revisions under future administrations.

Looking Ahead

While the long-term impact of Trump’s executive order remains uncertain, its focus on flexibility and accessibility aligns with broader trends in retirement planning. Investors should monitor regulatory updates and consider consulting financial advisors to adapt their strategies to evolving rules.