President Trump has bolstered U.S. small business growth and competitiveness through key policy wins such as the “One Big Beautiful Bill” and regulatory initiatives that eliminate red tape and burdensome costs. His new Executive Order on 401(k)s will help to ensure that Americans who work for businesses of all sizes have access to a variety of investment options, and will also inject new capital into America’s economic backbone – our small business and entrepreneurial sector.
The executive order directs the Department of Labor (DOL) to consult with the Treasury Department and the Securities and Exchange Commission (SEC) as it reexamines prior guidance and determines a course of action for opening up defined contribution plans, such as 401(k)s, to private market investments, such as private equity and private credit. The goal is to provide over 90 million employees who rely on 401(k)s for retirement savings with new investment choices and opportunities.
Currently, small businesses are allowed to offer private market investments to their employees as a part of 401(k) plans, but the threat of lawsuit abuse has deterred employers from offering these investment options. According to the White House’s Council of Economic Advisers, “the absence of a safe harbor and litigation risk” under current law “has barred investors from the diversification and return potential of alternative investments” as a part of 401(k) plans.
Unlocking 401(k)s to investment in private markets will enable millions of private sector employees who previously did not have access to now use retirement savings to build wealth and help fund small businesses.
Small businesses rely on private market investments, such as private equity, to access capital for growth. Most small businesses are private, not publicly traded on a stock exchange, and employ 46.8% of private-sector employees. According to one article, “Over 99 percent of firms are privately held.” These businesses are not large enough to be publicly traded and benefit from access to capital via a public offering.
U.S. Rep. Beth Van Duyne (R-Texas) said it best when she stated during a committee hearing that “In 2024, 85 percent of all private equity investments went to supporting small businesses, and these investments are driving local job creation, strengthening operations, and fueling business growth to new levels.”
Litigation abuse, which is standing in the way of opening these investments to 401(k)s, is particularly burdensome for small businesses. According to the U.S. Chamber of Commerce’s Institute for Legal Reform, litigation costs in 2021, which include fiduciary liability, “totaled $347 billion,” with small businesses bearing about 50 percent of that cost, even though they only account for 20 percent of business revenue.
America’s small businesses are being undermined by opportunistic trial attorneys. This is exactly the kind of activity that President Trump is trying to combat. In his executive order, President Trump noted that trial attorneys have “stifled investment innovation” and put 401(k) participants in a worse position compared to pension funds, which are currently able to earn high returns from private markets.
Large corporations can handle costly litigation more easily than small businesses. Intel, for example, ultimately won a case after spending about six years in a legal battle over putting private market investments into their 401(k) offerings. Small business employers, however, “likely will not have the appetite or resources to withstand the expense and disruption of such a multiyear litigation.” President Trump’s plan will protect small businesses from these types of frivolous lawsuits instigated by opportunistic trial attorneys.
The impact of lawsuit abuse also has a tangible effect on private sector employees’ retirement savings. One academic paper found that employers with higher litigation risk offer fewer investment options, “which results, on average, in a 3% reduction in the account values of beneficiaries of that plan.” Frivolous lawsuits, which President Trump is trying to stop, are clearly reducing employees’ nest eggs.
To provide concrete protections for small businesses, the DOL should write a formal rulemaking that will undergo the notice and comment process pursuant to the Administrative Procedure Act. This would enable thousands of stakeholders to provide feedback on the proposed rule, “set[ting] forth a well-defined path to provide all interested parties an equal opportunity to present their views in a public forum.” A rulemaking also provides more certainty, as it would be harder to overturn than a guidance document should a new administration not agree with the policies developed by the current administration.
President Trump’s executive order is a sea change for retirement savers and small businesses is search of capital. DOL has an opportunity to take the bull by the horns and provide investment innovation and security for more working-class Americans and small businesses.
