Private Equity’s Fast Lane to 401(k)s
Drive to add alternative investments in workplace retirement plans has quickly accelerated in 2025 as regulatory roadblocks fade, but fiduciary concerns persist
It’s 2025 and the once vast distance between private markets investments and their most favored new destination—the $8.7 trillion U.S. 401(k) market—is shrinking fast.
Once Donald Trump won the presidential election last November, the stars quickly began aligning to light private equity’s road into 401(k)s—with some major roadblocks being cleared along with way. There’s almost no way to overstate how fast and furious the rush to make private equity in 401(k)s a reality has occurred, with several big announcements made in recent months.
(Editor’s Note: This is the cover story from Issue 2, 2025 of 401(k) Specialist Magazine. Click here to read the entire article as it appears in the magazine.)
Private equity—an investment class traditionally reserved only for high-net-worth individuals and institutional investors—offers the potential for higher returns but also comes with different types of risk that may not align with the financial security and predictability most 401(k) participants expect.
Cracking the 401(k) market has long been high on the wish list for private equity giants such as Blackstone, KKR, and Apollo, who estimate the development would lead to hundreds of billions in potential inflows. And at a time when traditional funding resources seem to be somewhat tapped out.
Institutional investors—pension funds, endowments, and sovereign wealth funds—have historically been the dominant backers of private equity. But allocations to private equity are already high for many of these institutions, limiting their capacity to increase exposure further. And higher interest rates have also made fixed-income investments more attractive again, diverting some capital away from alternatives like PE.
Wall Street firms have been pushing long and hard to get private investments into the hands of individual investors, and they see access to the $8.7 trillion held in 401(k)s by about 70 million active participants and millions of former employees and retirees as crucial to future growth.
While concerns around private equity—such as higher fees, limited liquidity, and potential ERISA liability—persist within the workplace retirement plan industry, a growing number of prominent industry leaders argue that now is the time to give 401(k) participants the opportunity to benefit from the kind of growth that has historically outpaced public markets.
Among them:
• In March, BlackRock CEO Laurence Fink used his annual letter to shareholders to emphasize the importance of expanding access to private markets—such as private equity, credit, and infrastructure—for everyday investors, including those saving in 401(k) plans.
• In April, State Street Global Advisors announced the launch of its State Street Target Retirement IndexPlus Strategy, providing access to private market exposures in a diversified strategy for DC plans and their participants.
• In May, T. Rowe Price Chair, CEO and President Rob Sharps said it’s only a matter of time until private market alternatives gain access to DC plans—and if research indicates it would result in better outcomes for 401(k) participants, he said T. Rowe Price will offer it.
• Also in May, recordkeeping giant Empower announced it will start allowing private credit, equity and real estate in some of the 19 million retirement accounts it administers in the third quarter of this year, partnering with seven firms to offer these investments.
• In late June, Great Gray Trust Company and BlackRock announced that Great Gray’s first target date retirement solution featuring private equity and private credit exposures will be powered by BlackRock’s proprietary glidepath that strategically allocates across public and private markets.
Throw in that the Trump administration is reportedly contemplating issuing an executive order that would direct federal agencies—including the Department of Labor, the Treasury Department, and the Securities and Exchange Commission—to explore allowing private equity and other private capital investments within 401(k) plans, and cumulatively you have a whole lot of movement in the span of four months.
Why Movement is Accelerating
The private equity-in-401(k)s movement began to take shape during President Trump’s first administration, when in June 2020 the EBSA issued an information letter explicitly saying private equity investments can be included in diversified investment options—like target date funds or balanced funds—offered through 401(k) plans, provided plan fiduciaries follow ERISA guidelines and prudently assess the risks.
This letter did not open the door to direct retail-style investments in PE, but it removed a major legal and regulatory obstacle by affirming that PE could be used as part of professionally managed asset allocation products in DC plans.
Under the Biden administration, the DOL urged caution in its own guidance on private equity in retirement savings, but stopped short of reversing the Trump-era policy.
Uptake prior to this year has been slow, primarily due to looming legal liability fears among retirement plan managers also worried the typical 401(k) investor has little understanding of private markets investing.
“BlackRock estimates that over 40 years, an extra 0.5% in annual returns results in 14.5% more money in your 401(k). It’s enough to fund nine more years of retirement.”
BlackRock CEO Larry Fink
A Trump executive order and new guidance from regulators could strengthen legal safeguards for retirement plan sponsors, removing barriers that have deterred adoption to date. EBSA, assuming Trump Nominee Daniel Aronowitz is confirmed, would likely work to raise the bar for excessive fee lawsuits, further easing concerns. And in June, the SEC’s Office of the Investor Advocate announced it would focus on evaluating the inclusion of private market investments in retirement plans as a priority in FY2026.
Interest—from PE firms and retirement firms alike—has spiked as liability concerns ease under the Trump administration and desire increases to provide retirement savers access to the once-forbidden fruit of historically higher-performing private market assets.
A 2023 report from Georgetown University’s Center for Retirement Initiatives claimed U.S. DC plans are missing out on potential returns of $35 billion a year by not incorporating private equity and real estate investments like defined benefit plans do. Studies (such as those by Cambridge Associates and PitchBook) often show private equity generating 3-5% higher annual returns than public stocks over rolling 10- and 20-year periods.
“Pension funds have invested in these assets for decades, but 401(k)s haven’t. It’s one reason why pensions typically outperform 401(k)s by about 0.5% each year,” Fink wrote in his 2025 letter to shareholders. “Half a percent doesn’t sound huge, but it adds up over time. BlackRock estimates that over 40 years, an extra 0.5% in annual returns results in 14.5% more money in your 401(k). It’s enough to fund nine more years of retirement.”
Meanwhile, the old public-company fishing hole for 401(k)s has dried up somewhat. There are far fewer public companies today than there were 30 years ago, as more companies prefer to remain private. BlackRock notes that 81% of U.S. companies with more than $100 million in revenue today are privately held. At their peak in 1996, there were 7,300 publicly traded companies in the U.S. while today there are about half as many. The consider that, according to JPMorgan data, the number of private companies in the U.S. backed by PE firms has grown from 1,900 to 11,200 over the last two decades.
Kind of reminds you of the old Willie Sutton quote about why he robbed banks. “Because that’s where the money is.”
If investors want to own the whole market and have a truly diversified portfolio, proponents of PE in 401(k)s argue they need access to both public and private companies.
NEXT PAGE: Leaving the Sidelines
Leaving the Sidelines
Empower’s May announcement that the industry’s second-largest recordkeeper will begin offering private markets investments to retirement plans during Q3 2025 turned plenty of heads—including that of Sen. Elizabeth Warren (D-MA).
Empower aligned with top-tier private investments fund managers and custodians—including Apollo, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group and Sagard—to provide private investments implemented through collective investment trusts (CITs). Doing so, the company said in announcing the program, provides limited exposure to diversified pools of private equity, private credit and private real estate, a structure that is designed to provide liquidity protection and reduced fee exposure.
“Empower is making a profound move on behalf of American retirement investors who should have the ability to invest in an asset class that has the potential to diversify their portfolios and offer opportunities for returns in new ways.”
Empower President and CEO Edmund F. Murphy III
“Empower is making a profound move on behalf of American retirement investors who should have the ability to invest in an asset class that has the potential to diversify their portfolios and offer opportunities for returns in new ways,” said Empower President and CEO Edmund F. Murphy III. “Like any investment, we believe in the importance of advice and risk mitigation for every investor. These new opportunities offered under an advice model deliver the guardrails necessary to help an entirely new investor class access private investing.”
Franklin Templeton CEO Jenny Johnson said that as a leader in private markets, democratizing alternative investing is one of the firm’s biggest priorities. “By offering private market assets through defined contribution plans, we’re providing Americans saving for retirement the opportunity to access to some of the most dynamic and growth-oriented investments available,” Johnson said of the Empower partnership. “We’re excited to be at the forefront of this transformative change in retirement planning.”
Warren Questions Empower Plan
On June 18, Sen. Warren, ranking member of Senate Banking Committee, sent a letter to Empower’s Murphy, seeking answers about the recordkeeper’s plans to allow retirement savers to invest in private equity and private credit, and the threats she sees that these types of investments pose to Americans’ retirement savings.
“Given the sector’s weak investor protections, its lack of transparency, expensive management fees, and unsubstantiated claims of high returns, we are seeking information on how your company will ensure the safety of the billions of dollars of retirement savings it safeguards as it implements this program,” Warren wrote in the letter.
“Pensions’ investments in private equity have been dubbed a ‘Wall Street time bomb.’ Even institutional investors admit their uncertainty as to whether private equity’s ‘very thin outperformance is worth the risk of opaque and illiquid investments whose actual value is often impossible to determine—investments that could crater when the money is most needed,’” the letter continued.
Empower told 401(k) Specialist it would respond to Warren’s six questions by her deadline of July 8, adding that investment decisions would be made by plan fiduciaries following a prudent process as outlined in the law (ERISA). “Empower believes in the importance of advice and risk mitigation for every investor,” the company said in a statement. “These new opportunities are offered under an advice model for plan participants and deliver the guardrails necessary to help an entirely new investor class access private investing.”
(Editor’s Note: Since publication, Empower did respond, and Warren subsequently requested further clarification. Coverage of both in links.)
NEXT PAGE: The Case Against PE in 401(k)s
The Case Against PE in 401(k)s
Obviously, not everyone is a fan of the PE in 401(k)s plan. Some investor advocates, including Benjamin Schiffrin, director of securities policy at Better Markets, a nonprofit seeking to promote the public interest in financial markets, say the potential for harm trumps potential benefits.
In early June, Schiffrin issued a fact sheet, titled, “Private Market Assets Do Not Belong in 401(k)s,” along with a statement voicing his concerns.
“There is no reason to endanger the retirement savings of millions of ordinary American investors by exposing their 401(k)s to expensive and risky private market assets,” Schiffrin wrote. Noting that private market firms say that they should be able to access 401(k)s so retail investors don’t miss out on their “supposedly high” returns, he said the fact sheet shows the benefits of the private markets are overblown. “Research increasingly shows that private market assets do no better than a portfolio comprised of public market stocks and bonds and in many cases do worse.”
“The question shouldn’t be what is good for the private funds industry. The question should be what is good for investors and their 401(k)s, and the answer is not private market assets.”
Benjamin Schiffrin, Better Markets
He says the push for PE in 401(k)s is not coming from participants or plan sponsors (who he says are fearful of violating their fiduciary duty to act in the best interest of participants), but from private market firms who are finding it harder now to raise money. “Their traditional sources of funding—institutional investors such as pensions and endowments—have evaporated,” Schiffrin wrote.
“It’s not surprising that the industry looks at retail investors and sees dollar signs, but the fact that the industry covets access to millions of Americans’ 401(k)s is no reason to expose the retirement savings of those Americans to the expense and risk of the private markets,” he added. “The question shouldn’t be what is good for the private funds industry. The question should be what is good for investors and their 401(k)s, and the answer is not private market assets.”
While private equity can offer high returns, a recent study from the Johns Hopkins Carey Business School suggests that these riskier investment vehicles may not align with the financial security and predictability that most 401(k) participants expect.
Among the reasons listed in the study:
• Private equity funds lack transparency. Unlike publicly traded companies, which must regularly report financial performance, PE-backed firms operate with less transparency. This makes it harder for investors and financial advisors to assess risk, making these funds less predictable compared to traditional stocks and bonds.
• Long investment timelines limit liquidity. Private equity investments typically take more than a decade to generate returns, which can be problematic for 401(k) participants who need access to their savings when they retire. Unlike stocks, which can be bought and sold easily, PE funds often require investors to wait years before they see meaningful returns—if any.
• Higher fees reduce net returns. Private equity funds charge higher management and performance fees than traditional public market funds. While some PE investments deliver strong returns, many studies suggest that once fees are accounted for, these investments may underperform compared to publicly traded companies.
High fees and underperforming funds attract the attention of ERISA attorneys. Under ERISA, employers have a fiduciary duty to ensure that investment options in their 401(k) are prudent and have reasonable fees.
“Adding alternative investments must be done in a way that fulfills ERISA fiduciary responsibilities and protects participants who may not understand how these complicated investments work from losses due to uninformed decisions,” wrote Cohen & Buckmann co-founder and partner Carol Buckmann in a recent blog post.
“ERISA imposes several restrictions on fiduciaries looking to add alternative investments to their plans. First, they must satisfy the fiduciary duties of prudence, loyalty and diversification when selecting alternative investments, including making sure that the fees are reasonable in relation to the services provided,” Buckmann continued. “Fiduciaries must also avoid non-exempt prohibited transactions, consider plan liquidity requirements, and deal with hard-to-value assets and custody issues.”
Ary Rosenbaum of The Rosenbaum Law Firm, P.C. addressed the Empower initiative in a June 16 post on JD Supra, offering words of caution.
“I’m not saying private investments should be off-limits forever. But throwing them into DC plans without a clear roadmap for transparency, education, and fiduciary oversight is reckless,” Rosenbaum said. “Empower is calling this a ‘landmark initiative.’ I call it a potential minefield.”
He closed by warning plan sponsors and advisors to proceed with extreme caution.
“Ask the hard questions. Demand clear answers. Don’t get swept up in the hype,” Rosenbaum said. “Because in the retirement plan world, there’s a fine line between opportunity and overreach—and crossing it could cost your participants dearly.”
Editor’s Note: Read the full cover story as it appears in the magazine (with additional sidebars) at this link.
SEE ALSO:
• Private Markets Gain Ground in DC Plans; But Education, Legal Clarity Remain Hurdles