Private Assets in 401(k)s: A Long-Overdue Opportunity for Workers

The Department of Labor’s proposed rule to expand access to private market assets in 401(k) plans has been met with criticism, but beneath the surface lies a more nuanced reality. The rule is not about forcing plan sponsors to invest in private equity or real estate; it’s about giving them flexibility to make informed decisions that benefit their participants.

The Employee Retirement Income Security Act (ERISA), enacted in 1974, was designed to empower plan sponsors with the freedom to innovate and better serve workers. However, over the past 50 years, uncertainty, litigation risk, and regulatory second-guessing have eroded this principle. As a result, many retirement plan sponsors have become reluctant to use tools that can improve plan design and outcomes, including private market assets.

The proposed rule is not a radical departure from ERISA’s original intent; rather, it seeks to restore the balance between fiduciary responsibility and regulatory overreach. By setting out clear factors for fiduciaries to consider when selecting investments – risk-adjusted performance, fees, liquidity, valuation, benchmarks, and complexity – the rule provides a framework for making informed decisions.

Critics argue that private market assets carry potential pitfalls, including underperforming boom-era investments in 2025. However, this criticism overlooks the fact that the proposed rule is not a blanket mandate; it’s a process requirement that demands fiduciaries apply rigorous standards to their investment choices.

ERISA’s trust in fiduciaries to exercise sound judgment within a disciplined process has been lost amidst a culture of litigation and regulatory intervention. The proposed rule aims to reestablish this principle by clarifying that fiduciaries, not trial lawyers or regulators, have the discretion to determine which investments best serve participants – including private market assets.

Research has consistently shown that even modest allocations to private market assets can boost retirement income by 6 to 8 percent, net of fees. A study examining five real-world worker profiles found a 7 to 8 percent improvement in retirement income when target-date funds included private assets. The lack of legal certainty and threat of legal penalties have prevented plan sponsors from delivering these benefits to workers.

The Department of Labor’s proposed rule aims to mitigate this risk, giving plan sponsors the clarity they need to make informed decisions that benefit their participants. This is not about forcing private assets into every retirement plan; it’s about providing plan sponsors with the flexibility to choose investments that align with their participants’ needs and goals.

As the retirement savings landscape continues to evolve, plan sponsors need clarity, not litigation, to best serve their plan participants. A timely final rule would give more American workers a better shot at creating the retirement security they have worked so hard to earn. The Department of Labor’s proposed investment rule is about giving plan sponsors the freedom to innovate and improve outcomes for their participants – as ERISA was always intended to allow.

In reality, this is about fairness for workers. Private markets have grown to over $15 trillion in total assets, yet workers saving in 401(k) plans are denied access to these tools. By restoring confidence in the ERISA legal framework and giving plan sponsors the flexibility to make informed decisions, the Department of Labor’s proposed rule can help level the playing field for American workers – and give them a better shot at securing their retirement futures.