Private Equity Firms Enter 401(k) Plans, Setting Stage for Lawsuits Over Excessive Fees

Private equity firms are expanding into the US 401(k) retirement plan market, which could trigger lawsuits from class-action attorneys specializing in excessive retirement-plan fees. The approximately $12.2 trillion defined-contribution retirement industry is expected to see large 401(k) managers and administrators like Vanguard, BlackRock, Voya Financial, and Empower introduce private assets into target-date retirement funds. Lawyers are prepared to file lawsuits if private equity pushes into 401(k) plans.

Private equity firms are increasingly pushing into the US 401(k) retirement plan market, a move that could spark lawsuits from class-action attorneys specializing in excessive retirement-plan fees. The approximately $12.2 trillion defined-contribution retirement industry is expected to see large 401(k) managers and administrators like Vanguard, BlackRock, Voya Financial, and Empower introduce private assets into target-date retirement funds [2].

In recent months, firms such as BlackRock and Empower have announced plans to offer private investments within their 401(k) target-date retirement funds. BlackRock, for instance, plans to allocate between 5% and 20% of its holdings to private investments, with the quotient dropping as investors age [3]. Empower has also indicated that it will offer private investments in some workplace accounts later this year [3].

However, this expansion is not without its challenges. Lawyers are prepared to file lawsuits if private equity firms push into 401(k) plans. The concern is that the opaque nature of private equity investments, coupled with high management fees, could lead to excessive charges for retirement savers. Sen. Elizabeth Warren (D-Massachusetts) has expressed her concerns, writing a letter to the CEO of Empower about its plan to offer private investments in 401(k) accounts [2].

Despite the potential legal challenges, proponents argue that retirement savers deserve a crack at the lucrative private investment market, which has historically been exclusive to wealthy investors and institutions. Private equity funds have yielded average annual returns of 10.5% from 2000 through 2020, outperforming the stock market by 1 to 2 percentage points [3].

However, the risk associated with private equity investments is significant. Private companies face fewer regulations and reporting requirements than public ones, making it difficult to assess their financial health. Moreover, the private equity market is more speculative in nature, with higher bankruptcy rates compared to public equity [3].

The Trump Administration's "Information Letter" in 2020 allowed 401(k)-type retirement plans to invest in private equity without violating federal regulations, provided that the managers act in the best interest of investors [3]. However, the legal landscape remains unsettled, with numerous motions to dismiss pending in various courts across the country [4].

As the 401(k) industry evolves, it is likely that more providers will offer private investments as an option in target-date funds. However, explicit legislation or executive orders may be required to facilitate this transition fully [3].

References:
[1] https://news.bloomberglaw.com/private-equity/singers-elliott-battling-texas-private-equity-firm-over-fees
[2] https://www.wsj.com/articles/plaintiffs-lawyers-are-ready-to-pounce-if-private-equity-pushes-into-401-k-plans-390a3972
[3] https://www.usatoday.com/story/money/2025/07/17/private-equity-401k-retirement-risk/85218872007/
[4] https://www.mayerbrown.com/en/insights/publications/2025/07/the-current-state-of-the-law-in-erisa-forfeitures-cases