If you’ve glanced at your retirement plan’s investment menu, odds are you see funds that buy stocks and bonds in companies trading on public markets. This setup has underpinned the American retirement system for decades. But now, financial firms are lobbying to add something new to the mix: private companies, the kind most people never encounter outside the news of billion-dollar buyouts. Adding these to 401(k) plans could fundamentally alter how millions invest for their future.
This push is not just about giving more “choice.” It pits Wall Street ambitions against concerns of lawmakers such as Senator Elizabeth Warren, who has become the most vocal critic of this quiet revolution. The tug-of-war over private equity in retirement savings has ripple effects far beyond the boardroom. At its core, the debate is about who benefits, who bears risk, and whether access alone equals a better retirement outcome.
For much of modern investing history, only institutional investors like pension funds and the ultra-wealthy could buy stakes in private companies. Private equity, real estate, and private credit form a massive marketplace, now estimated at over $13 trillion globally, which has grown as companies stay private longer and public listings dwindle.
Supporters of letting 401(k) savers access private funds, including some large retirement plan providers like Empower Retirement (NYSE: VOYA), argue that the investing landscape has changed. They say public markets are no longer enough to capture all the value in today’s economy. The rules need to shift so regular people can tap into higher returns and fund types that have been off-limits in standard 401(k) menus. Empower, which manages retirement plans for about 19 million Americans, recently announced it would let employers offer private equity and other alternatives, aiming to “democratize” access to these investment styles.
Empower CEO Edmund Murphy compared this moment to when 401(k) plans first opened up public market investments to millions. He frames today’s move as simply making sure “greater access to opportunity” is available to all, regardless of net worth.
That vision for inclusion has run into a wall of skepticism from policymakers like Senator Warren, the top Democrat on the Senate Banking Committee. In June, Warren sent a detailed letter to Empower, questioning if private investments belong in retirement accounts that are built to be simple, low-cost, and transparent for regular workers.
Warren’s critique is blunt. Private companies come with higher fees, far less transparency, and much greater risk than public funds, she wrote. Legally, plan sponsors are required by federal law to protect workers by ensuring investment choices are prudent and reasonably priced. It is far from clear to Warren and like-minded critics that private equity fits that bill. She pressed for explanations of how the company weighed investor interests, managed the illiquid nature of these assets, and received legal clearance to proceed.
For Warren and consumer advocates, the shortcomings of private equity are not theoretical. These investments often lock up money for years, making it harder for savers to rebalance or access their nest egg in a pinch. The sector’s checkered history with opaque reporting, complex fee structures, and sometimes middling returns for mainstream investors has fueled high-profile concerns. They argue the quest to “open up” retirement accounts is as much about enriching fund managers as delivering better retirement outcomes.
Despite the private equity industry’s eagerness, most 401(k) plans have steered clear so far. Only a handful have added private options, with the majority of employers uneasy about the legal risks and the extra responsibility that comes with vetting these funds. Fiduciary rules under the Employee Retirement Income Security Act (ERISA) require that plan sponsors act in participants’ best interest, a tall order when dealing with complex and opaque private assets.
Federal regulators have sent mixed signals. Trump-era guidance hinted at openness to private equity within diversified investment options, but the details remain unclear and legal uncertainties persist. Even the firms hoping to offer access acknowledge the need for robust safeguards and clearer rules.
This debate isn’t going away. With workplace retirement plans holding over $12 trillion in assets, the stakes for both workers and the financial industry are enormous. Whether private equity belongs in your retirement account comes down to an unsparing look at who wins and who loses. There is no doubt the inclusion of private investments would reshape retirement planning and the flow of years of workers’ savings.
