Defined contribution (DC) plans have attracted growing interest and media coverage amid recent U.S. Department of Labor actions and a noticeable shift in tone from Washington, D.C., regarding the role of private markets. President Trump’s recent executive order directing the Department of Labor to explore ways to reduce “burdensome lawsuits” against 401(k) sponsors has further intensified attention. The order reflects a policy shift aimed at easing the legal concerns that have long discouraged employers from including alternative assets in retirement plans. Institutional investors such as defined benefit plans, endowments, and foundations—along with high-net-worth (HNW) individuals—have allocated to private markets for diversification and potential long-term benefits. Recent regulatory debate, product development, and increased public attention have further accelerated discussion of how—and under what circumstances—these investments might be extended to DC plans.

However, DC plans require a distinct evaluation framework. Unlike other institutional and HNW portfolios, they are governed by the Employee Retirement Income Security Act of 1974 (ERISA), participant-directed, and constrained by operational and communication needs. The central question is, Under what conditions may private markets be prudently included?

What are private markets?

Private markets refer to investment strategies outside the traditional, publicly traded equity and bond markets. They include private equity, private credit, real estate, infrastructure, and venture capital. These investments are typically characterized by distant time horizons, illiquidity, limited transparency, and higher fee structures compared to public markets. Historically, access has been limited to institutional investors and HNW individuals who can tolerate illiquidity and absorb higher risk in pursuit of potential diversification benefits and enhanced risk-adjusted returns. In the DC context, these characteristics create both opportunities for portfolio diversification and challenges related to valuation, liquidity, communication, and fiduciary oversight.

The ERISA fiduciary framework

ERISA fiduciary responsibilities impose duties of prudence, loyalty, and diversification. Applying these standards to private markets raises several considerations. The lack of long public track records, elevated fees, illiquidity, and the need for daily valuation make these investments difficult to manage in a DC framework. Performance benchmarking is challenging, often requiring custom or proxy measures, such as blended public-market indexes with lag adjustments. Best practices for this process are not yet well established. Diversification benefits may exist, but they are not guaranteed.

Additionally, regulatory guidance has been mixed, leaving sponsors with limited clarity. As of August 2025, the Department of Labor rescinded its 2021 supplemental cautionary statement on private equity in DC plans, although no prescriptive safe harbor exists. The move was generally seen as a step toward democratizing access to private market opportunities. Even so, the Department of Labor emphasized that fiduciaries must continue to apply the same rigorous standards of prudence, loyalty, and due diligence. Higher costs, limited transparency, and uncertain standards may also increase litigation risk, especially in a participant-directed environment where imprudent lawsuits are common. Most importantly, fiduciary prudence remains grounded in process, not expected returns alone.

Governance and operational considerations

Private markets demand a different governance framework than traditional DC investments. For mutual funds, committees typically rely on long public track records, clear peer group benchmarks, and transparent daily pricing. In contrast, private markets require plan sponsors to evaluate criteria that are less standardized and often more qualitative.

An effective investment policy statement should outline how private market options would be selected and monitored if used. These criteria may include evaluation of manager experience, alignment of interests, valuation practices, liquidity terms, and operational feasibility—factors that differ significantly from the expense ratio, performance ranking, and style consistency tests often applied to mutual funds.

Costs must still be assessed for reasonableness, but “reasonable” may mean something different in a private market context than in a public funds context, where low-cost index options set a clear baseline. Similarly, performance measurement is less about beating a benchmark in each period and more about whether the strategy delivers diversification and risk-adjusted returns consistent with its mandate over time.

Finally, operational realities matter: Not all DC recordkeepers are equipped to support private market vehicles at scale, and daily valuation requirements may limit availability. Portability, transparency, and participant-level recordkeeping all need to be part of the governance review.

Participant considerations

Private markets are not well understood by most retirement plan participants, particularly non–investment professionals and less-engaged savers. These strategies involve illiquid holdings, complex fee structures, and valuation methods that differ markedly from the mutual funds and index funds familiar to most participants. Traditional education efforts—whether brochures, online modules, or group meetings—are an imperfect remedy for financial literacy, and they are unlikely to prove more effective when applied to complex asset classes like private markets.

Participants also struggle to grasp the implications of illiquidity, long investment horizons, and the absence of transparent benchmarks, which can create unrealistic expectations. For the many individuals who default to target-date funds or remain disengaged from investment choices, direct education is unlikely to change behavior or lead to informed decision-making. Even robust disclosures tend to be written in technical language that does little to enhance comprehension.

Given these challenges, private markets—if included at all—may be better situated within professionally managed structures, such as target-date funds or managed accounts, where investment professionals act as fiduciaries and assume responsibility for allocation decisions. However, plan sponsors must also evaluate whether those managers are exercising unbiased fund selection and not engaging in self-dealing when including affiliated private-market strategies in their products.

Practical applications

In evaluating implementation approaches, committees should weigh which structures align most effectively with fiduciary responsibilities, participant protection, and operational feasibility.

  • Target-date funds: A potentially viable vehicle depending on plan size, liquidity needs, and recordkeeping capabilities. Target-date funds provide professional management, broad diversification, and long investment horizons that can better accommodate illiquid holdings. Because participants invest in the fund rather than selecting individual private market products, the asset manager handles the complexity. This structure aligns private market exposure with the life cycle investing approach already familiar to DC participants. That said, fiduciaries should evaluate liquidity management practices on an ongoing basis—assessing whether redemption policies, cash buffers, and valuation methodologies are sufficient to meet participant trading and rebalancing activity without disadvantaged investors remaining in the fund.
  • Standalone and custom collective investment trusts: A less common potential solution for DC plans with the scale and governance capacity to oversee bespoke structures. Custom collective investment trusts can pool assets to negotiate better terms, integrate private markets within diversified portfolios, and allow for a more flexible design than mutual funds. However, only the largest and most sophisticated plans typically have the requisite operational readiness and fiduciary resources to manage these vehicles prudently.
  • Managed accounts: Another potential path for incorporating private markets. Managed accounts offer individualized portfolios and are professionally managed, alleviating the need for participants to properly allocate to private investments. Additionally, these investment solutions tend to exhibit less flow activity and market timing, allowing for the full efficacy of private investments. The complexity and cost of ensuring suitability for each participant make this structure resource-intensive and subject to a heavy due-diligence burden.

Private markets may have a role in DC plans, but only under strict fiduciary, operational, and participant-centered criteria. The absence of a track record in this space, elevated fee structures, benchmarking challenges, and overall lack of transparency represent significant challenges. Their inclusion must be supported by a clear process, robust governance of the investment policy statement, and effective monitoring. Plan sponsors must also weigh litigation risk, the absence of a regulatory safe harbor, and the readiness of recordkeeping platforms.

In the absence of these conditions—and with regulatory uncertainty still present—it is generally prudent to allow these strategies to develop further before broad adoption. Political leadership may continue to influence how aggressively the Department of Labor interprets fiduciary duties in this area, but shifting policy signals do not change the underlying legal obligations under ERISA. Fiduciaries should therefore base decisions on process, governance, and participant outcomes rather than temporary regulatory tone.

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