The Quiet Revolution in Retirement Savings: Private Market Assets in 401(k) Plans

The retirement savings landscape is undergoing a subtle yet profound transformation. For decades, 401(k) plans have relied on public market exposure—stocks, bonds, and mutual funds—to fuel retirement growth. But today, structural shifts are enabling these plans to tap into private markets, offering participants access to assets like private equity, real estate, and credit. This shift raises critical questions: Are these investments suitable for retirement savers? What risks must be managed? And how can participants balance growth with liquidity and cost constraints?

Let's unpack the evolving dynamics.

Structural Changes: Democratizing Private Markets

The regulatory landscape is clearing hurdles for retail investors. In May 2025, the SEC eliminated a long-standing restriction that barred non-accredited investors from closed-end funds with over 15% private market exposure. This move, combined with the Department of Labor's (DOL) modernization efforts, paves the way for 401(k) plans to incorporate private assets.

Leading retirement providers like Empower are responding by partnering with firms such as Apollo and Goldman Sachs to offer private market exposure through collective investment trusts (CITs). These structures pool assets to reduce fees (capped at 1%–1.6%) and mitigate liquidity risks. For instance, State Street Global Advisors now offers target-date funds (TDFs) with 10% allocations to private assets, while Fidelity and Neuberger Berman have integrated private real estate and co-investment options.

Fiduciary Responsibilities: Navigating Complexity

Plan sponsors and fiduciaries face new challenges. Under ERISA, they must ensure investments meet prudence and diversification standards. Private assets, with their lack of daily liquidity and reliance on manager skill, demand rigorous due diligence.

Litigation risks loom large. Class-action lawsuits over underperformance or opaque pricing could rise if sponsors fail to document their decision-making processes. The DOL's “plan assets” rules further complicate matters, as fiduciaries must avoid unintended liabilities by structuring investments through registered vehicles like CITs.

Participant Demand: A Mixed Landscape

While the potential benefits—diversification, inflation hedging, and exposure to high-growth sectors—are clear, adoption remains uneven. Morningstar's Jason Kephart notes that plan sponsors are hesitant, citing complexity, fiduciary risks, and the slow process of switching TDF providers. Meanwhile, participants may lack the financial literacy to navigate illiquid assets.

Investor education is critical. Advisers must clarify that private market allocations (typically capped at 10% of a portfolio) are designed for long-term growth, not short-term gains. Franklin Templeton's emphasis on “managed solutions” underscores the need to simplify access for retail investors.

Cost and Liquidity: The Double-Edged Sword

Costs are manageable but not trivial. While CITs offer lower fees than traditional private equity funds, the 1%–1.6% expense ratios still eat into returns. Liquidity, too, is a balancing act. Daily valuations in CITs provide a veneer of liquidity, but private assets inherently lock up capital for years. Participants must align their time horizons with these constraints.

Actionable Insights for Investors

1. Diversify Thoughtfully: Use private allocations (5%–10%) to complement public market exposure, but avoid overconcentration.
2. Monitor Fees: Compare CIT expenses to traditional funds. Opt for plans with transparent fee structures.
3. Assess Liquidity Needs: Ensure your time horizon matches the lock-up periods of private assets.
4. Leverage Managed Solutions: Work with advisers to tailor allocations to your risk profile.
5. Stay Informed: Understand the trade-offs—private markets offer growth but demand patience and due diligence.

Conclusion: A New Era, But Caution Still Rules

The integration of private markets into 401(k) plans mirrors historical shifts like the mutual fund revolution of the mid-20th century, which democratized stock ownership. Yet, success hinges on overcoming barriers: regulatory clarity, sponsor adoption, and investor education.

For retirement savers, these changes are a double opportunity: to diversify beyond volatile public markets and participate in the growth of private companies. But they must proceed with eyes wide open—balancing the allure of returns with the realities of cost, liquidity, and risk. The future of retirement savings is private, but only for those who navigate it wisely.