The Quiet Push: How Private Equity is Creeping into Target Date Funds
Wall Street never sleeps—but it does shift its gaze.
On August 7, 2025, President Donald J. Trump directed the Department of Labor to revisit guidance allowing alternative investments—private equity, private credit, and real assets—inside participant-directed retirement plans through vehicles like Target Date Funds. The stated goal is to “democratize access.”
After 25 years as a fiduciary advisor, let me be clear: this quiet push isn’t democratization. It’s risk transfer.
Target Date Funds were built for simplicity. They exist because most 401(k) participants aren’t investment professionals, don’t read disclosures, and reasonably expect daily liquidity. Introducing illiquid, appraisal-based assets into the default option doesn’t empower participants—it exposes them.
And the timing is no coincidence.
In a Dec. 19, 2025 column in The Wall Street Journal, Jason Zweig showed what happens when private assets finally meet real markets. Formerly nontraded funds—long valued by models and appraisals—opened at 25% to nearly 40% discounts once trading began. The illusion of stability vanished the moment liquidity mattered.
You can have smooth pricing, or you can have liquidity—but not both.
Institutional investors already understand this tradeoff. Endowments like Harvard and Yale have reportedly trimmed private holdings, often at discounts, as liquidity pressures collided with valuation opacity. Public pensions are reassessing private programs under similar scrutiny.
So where does Wall Street look next?
Straight at 401(k)s.
By mid-2025, Target Date Funds held roughly $3.9 trillion in assets. Defaulted. Rarely traded. Sitting at the center of participant inertia—a chicken long fenced in, well-fed, and waiting to be plucked.
For asset managers facing redemptions and fee pressure, that isn’t a problem. It’s opportunity.
We’ve seen this playbook before.
A few years ago, ESG funds quietly found their way into 401(k) lineups without many employers fully understanding what they had approved. In some cases, oil and gas companies discovered their plans included funds explicitly investing against fossil fuels. State Attorneys General took notice. Lawsuits followed. What began as a “values” pitch ended as a fiduciary reckoning.
The lesson was simple: if fiduciaries don’t fully understand what’s being added to the plan, it will be added anyway.
Now the same pattern is repeating—only this time with illiquidity.
Target Date Funds were designed for daily pricing, daily liquidity, and transparent public markets. They were never meant to house private equity, gated real estate, or hedge-fund-like strategies. Wrapping illiquid assets inside a TDF doesn’t solve the problem. It delays it.
This is where the conversation gets uncomfortable.
Too often, 401(k) vendors and mutual fund companies try to turn a simple retirement savings vehicle into a Swiss Army knife—income sleeves, private equity allocations, proprietary strategies—trying to do too many things at once instead of focusing on the plan’s primary mission: helping workers accumulate retirement savings safely and transparently.
“If an investment can’t be exited daily at fair value, it doesn’t belong in the default option—no matter how sophisticated the pitch or how prestigious the sponsor.”
That mission drift becomes especially troubling when the recordkeeper or fund provider benefits financially from the added complexity. Proprietary income strategies. Private fund sleeves. Embedded alternatives. As simplicity disappears, conflicts of interest multiply.
ERISA hasn’t changed. Fiduciaries are still required to understand, explain, and monitor plan investments. And one principle remains fundamental: participant-directed plans depend on liquidity.
If an investment can’t be exited daily at fair value, it doesn’t belong in the default option—no matter how sophisticated the pitch or how prestigious the sponsor.
In The Lord of the Rings, the Ring corrupts not because its bearer is evil, but because its power is too great to wield responsibly. What begins as a promise of strength becomes a burden that consumes those least prepared to carry it.
Private assets inside Target Date Funds follow the same logic.
What’s sold as access becomes control. What’s framed as diversification becomes dependence.
401(k)s were never meant to be laboratories for Wall Street’s next revenue model. Boring, transparent, liquid investing isn’t a flaw—it’s the point.
And when Wall Street’s eye quietly turns toward the 401(k) default, fiduciaries would do well to remember:
The ring was never meant for the participants to carry.
SEE ALSO:
• Still Right After All These Years: Why True 401(k) Fiduciary Advice Can’t Be Mass-Produced
• Private Equity in 401(k) Plans: Policy Shift or Practical Reality?
Terrence Morgan, President and CEO of Ok401k, Inc., has been in the retirement plan business for over 23 years. Mr. Morgan is a securities and advisory licensed professional and holds an AIF and CPFA designation.
Terry’s experience began with the Principal in 1997, a leader in 401(k) plans in America. He strongly believes the market needs fiduciary advisors whose duty and loyalty is to the employer that sponsors the retirement plan, the employees and their beneficiaries. In 2018 Terry's company Ok401k became a Registered Investment Advisor (RIA). No commissions and no conflicts of interest.