Business 5 min read By Bethany Hadley
US retirement rule opens 401(k) plans to private market assets
A proposed US Department of Labor rule would give retirement plan fiduciaries a legal safe harbour for including private equity, private credit and private real assets in 401(k) and other defined contribution plans, drawing more than 46,000 comments and fresh scrutiny of private market risk.
A proposed US Department of Labor rule would give retirement plan fiduciaries a legal safe harbour for selecting private market assets in 401(k) and other defined contribution plans, a change supporters say would widen access to investments long used by institutional and wealthy investors.
The rule, first proposed in March, has drawn more than 46,000 comments. Many respondents argued that the step is too novel, while backers say it simply allows the Employee Retirement Income Security Act, the 1974 law governing private-sector retirement plans, to work as intended.
At the centre of the debate is whether ordinary workers should be able to hold private equity, private credit and private real assets inside target-date funds and similar default options. The Department of Labor has framed the proposal as principles-based and asset-neutral, setting out six factors for fiduciaries to weigh: risk-adjusted performance, fees, liquidity, valuation, benchmarks and complexity.
A fiduciary who follows that process and documents it would earn a legal presumption of prudence. The rule does not mandate private assets or bless them automatically. A fiduciary who added a risky, overleveraged private equity stake without documenting those factors would not receive the presumption and would remain exposed to liability.
Supporters argue that the structure answers critics who point to a difficult 2025 for private equity, with many boom-era investments expected to underperform. They say the rule forces the same rigour onto private assets that fiduciaries already apply to public equities and bonds, rather than treating them as a special case.
Research from the Georgetown University Center for Retirement Initiatives at the McCourt School of Public Policy has examined private market assets in defined contribution plans for several years. A 2022 study found that allocations of 15 to 20 per cent to alternative assets could lift retirement income by 6 to 8 per cent, net of fees. A 2025 report covering five worker profiles — average workers, family caregivers, lower-income workers, job hoppers and those facing early forced retirement — found a 7 to 8 per cent improvement in retirement income net of fees when a target-date fund included private assets.
The Department of Labor cited that research in its regulatory analysis. Backers say the lack of legal certainty and the threat of penalties have so far stopped plan sponsors from delivering those benefits to workers.
The case for wider access also rests on the shrinking public market. The number of publicly listed US companies has fallen from more than 8,000 in 1996 to just over 4,000 today, while indexed returns have become increasingly concentrated in a handful of companies. Private markets have grown to more than $15 trillion in total assets.
High net worth and institutional investors have long used private assets to diversify and improve returns. Supporters argue that workers saving in 401(k) plans deserve access to the same tools, and that the rule would restore confidence in the ERISA framework.
Not every plan would be expected to use private assets. Plan sponsors with small plans, high workforce turnover or limited in-house expertise may reasonably decide that added costs, complexity and fiduciary requirements outweigh the potential benefits. The proposal is intended to reinforce their ability to make that judgment rather than push them in one direction.
The rule would also aim to reduce litigation risk and give plan sponsors more flexibility and discretion over investment selections they believe are appropriate for participants. Supporters describe that as precisely what ERISA was intended to allow.
For workers, the practical effect depends on whether the Department of Labor finalises the rule and whether plan sponsors then act. A timely final rule would give sponsors the clarity they need to put these tools to use, according to backers, who argue that the retirement savings landscape is changing and that plan sponsors need clarity rather than litigation to serve participants well.
