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Why Private Equity Doesn't Belong in Defined-Contribution Plans

Contributor Scott Simon argues that private equity isn’t in any way a good thing for plan participants.

At the end of the 1942 film Casablanca, Humphrey Bogart’s character Rick Blaine smiles and says to Claude Rains’ Louis Renault: “Louie, I think this is the beginning of a beautiful friendship.” I thought of that line after reading the Information Letter released by the U.S. Department of Labor on June 3. It struck me that the letter represents the beginning of a beautiful friendship between the private-equities industry and participants in defined-contribution plans, such as 401(k) plans.

This friendship (at least from a private-equity standpoint) rests on the $8 trillion or so in assets held in 401(k), profit sharing, 403(b), and 457 plans as of the end of 2019 (according to the Investment Company Institute). Even if private equity were to capture only 5% of this market, that’s still $400 billion--and more, as the market for defined-contribution plans continues to grow.