Trump threatening retirement funds with 'consequential mistake': ex-Treasury chief

President Donald Trump claims to be offering a big win to people saving for retirement with his plan to expand investment options, but according to one former Treasury Secretary, no one should be fooled by this "consequential mistake" that could expose hard-earned money to dangerous risk.

Steve Rattner is a veteran investor and financial analyst for various new organizations, who also previously served as Secretary of the Treasury under former President Barack Obama. On Tuesday, he wrote for the New York Times an extensive breakdown of Trump's pitch for retirement accounts and explained why his plan to offer a wider variety of higher-yield accounts is exposing people to "complexity, risk and illiquidity."

"Pressed by his Wall Street supporters, President Trump is moving to liberalize the types of investments Americans can make with their individual retirement accounts. Instead of betting their retirement savings on plain vanilla stocks and bonds, account holders would be allowed to move their funds into sexy sectors like private equity, private credit and cryptocurrency — no matter their complexity, risk and illiquidity," Rattner explained.

He continued: "All in all, the proposal, put forth by the Labor Department to fulfill a recent Trump executive order, is a consequential mistake. It could well exacerbate the challenges already posed by individual retirement accounts, a flawed replacement for the traditional corporate pension plans that many Americans used to enjoy."

Rattner argued that retirement accounts, as they currently exist, inundate people with complicated choices, forcing them to sift through "a dizzying array of choices for how to invest their money" to ensure returns for their retirement. He claimed to still find the prospect "daunting" himself, despite decades of high-level investing experience.

Trump's plans would dramatically worsen this problem by exploding the number of investment options available, as well as by flooding that pool of options with risky bets requiring further complicated research.

These accounts also do little to correct another problem that pension plans used to have covered.

"The other significant problem with individual retirement accounts is that they eliminate the social insurance aspect of traditional pension plans. Under the old regime, retirees didn’t have to worry about how long they might live; their pension benefit would steadily arrive in their bank accounts month after month," Rattner wrote. "Now, the elderly must make tough decisions about how to parcel out their assets. Use the money too quickly, and they might become impoverished. Spending it too slowly could mean unnecessary reductions in their standard of living."

Trump's plan, he noted, could potentially improve the ability of the current system to provide higher returns for everyday people, not just the wealthy, but again, that would require them to sift through "the many offerings, which will come with exceptionally high fees."

"According to Federal Reserve data, the average retirement account balances of Americans in median households by income have barely budged (after adjusting for inflation) since the late 1980s, while Americans in the top 10 percent have seen their retirement account more than quintuple in value," Rattner continued. "But the answer isn’t to invite Americans to dabble in private equity, private credit and cryptocurrency. Other countries have done better at protecting their retirees without such risky schemes. Australia, for instance, requires participation in national retirement funds that are managed professionally on behalf of its account holders. (Australia has socked away $3 trillion in these funds, about $110,000 per citizen.)"