How Private Equity Could Change 401(k) Investing

Private equity firms are poised to make a notable entrance into the 401(k) retirement plan market following a recent executive order designed to broaden investment options for American workers saving for retirement.

In early August 2025, President Trump signed an executive order that instructs federal agencies including the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to reconsider existing regulations and guidance. This move aims to facilitate the inclusion of alternative assets such as private equity, real estate, cryptocurrency, and other private market investments within defined-contribution retirement plans like 401(k)s. Traditionally, 401(k) plans have been limited to publicly traded stocks and bonds due to concerns about liquidity, transparency, and fiduciary responsibilities held by plan sponsors. 

While private equity has long been an asset class primarily accessible to ultra-wealthy individuals, institutional investors, and pension funds, this order signals a potential shift in how ordinary workers might invest their retirement savings. Private equity firms gather capital to acquire and manage private companies or other assets with the goal of generating returns often higher than those typically available in public markets. However, these investments tend to be less liquid and carry higher fees, making their introduction into retail retirement plans a significant change with both opportunity and risk. 

The 401(k) market itself is massive, with assets exceeding $12 trillion, presenting a substantial opportunity that private equity firms have long sought to tap into more broadly. However, the integration of these alternative investments requires careful consideration of regulatory adjustments and fiduciary duties of plan sponsors who must balance the potential for higher returns versus the added complexity and risk involved for participants. 

The executive order directs the DOL to reassess prior guidance on fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA), particularly regarding safe harbors and conditions under which fiduciaries can include private assets in plan offerings. Meanwhile, the SEC is tasked with revisiting investment rules designed to limit retail investors’ access to private market funds, including relaxed restrictions on private investment allocations within registered funds. 

Interest from both large asset managers and retirement savers is already evident. Firms like BlackRock and Empower have announced plans to incorporate private investments into 401(k) target date funds and workplace accounts within the next year. Meanwhile, surveys indicate a considerable portion of retirement plan participants would be interested in investing in private equity or private debt if given the option. For example, a recent Schroders study found that 45% of workplace retirement plan participants are willing to include private equity in their portfolios, with many indicating they would increase their contributions if those options were available. 

Despite the enthusiasm, critics caution about the potential downsides. Private equity investments are inherently less liquid, often requiring investors to commit funds for long durations without the ability to easily redeem holdings. Moreover, the complexity of private equity strategies and less transparency compared to public markets can make it difficult for average investors to fully understand the risks and performance drivers. Concerns have also been raised about the higher fees typically associated with private equity funds and whether these costs could erode net returns for retirement savers. 

Ultimately, the introduction of private equity into 401(k) plans represents a balancing act between expanding the available investment toolkit for workers and protecting their retirement savings from undue risk. Industry experts emphasize the importance of professional oversight and fiduciary diligence to ensure these alternative assets are integrated prudently. The regulatory agencies involved appear committed to providing clearer guidance that will allow plan sponsors to make informed decisions in offering these options while maintaining the fundamental protections for participants. 

This regulatory and market evolution will likely unfold over the coming years as adjustments to rules and fund offerings take shape. The broader retirement landscape may see more diverse asset mixes, potentially increasing returns and risk diversification for those willing to explore alternative investments within their retirement portfolios. However, participants should closely monitor these changes and consider the implications carefully, as private equity in a 401(k) represents a much different investment profile than what most workers have traditionally encountered. 

For now, the door to private equity investments is opening wider in the 401(k) market, promising new opportunities and challenges as this $12 trillion sector begins to embrace an asset class that has until now been mostly out of reach for everyday investors.