DCALTA White Paper Makes Case for Private Credit in 401(k) Plans

As the private investments industry pushes for a greater stake in the $12.2 trillion defined contribution industry, the Defined Contribution Alternatives Association stated the asset class will have a significant impact on the retirement industry, according to a new white paper.

The report, “Private Credit in Defined Contribution Plans: Enhancing Retirement Outcomes Through Diversification and Yield,” argued that private credit could significantly improve participant investment outcomes by offering higher yields and stronger diversification relative to traditional fixed-income options.

As of the end of 2024, target-date funds held nearly $4 trillion in assets, dominating U.S. DC plan allocations. While these funds have traditionally favored liquid, daily priced assets, DCALTA sees growing potential in private credit—a $3 trillion global asset class fueled by direct lending, real asset credit and specialty finance. Institutional interest is already high, with approximately 87% of private credit investments coming from these investors, according to the white paper.

“Defined Contribution plans, particularly [in] multi-asset structures like Target Date Funds, are long-term focused,” the paper stated. “They have the liquidity profile to benefit from allocating to private credit relative to the sizing of the position within the entire portfolio of the [participant investment options] and/or across a grouping of TDF vintages.”

The paper identified key barriers to adoption—illiquidity, quarterly valuation and regulatory complexity—but outlined multiple implementation paths. These include using professionally managed multi-asset strategies, such as CITs and interval funds, which could effectively blend private and public assets while maintaining liquidity and compliance.

Most recently released retirement products that include private investments have targeted about 10% to 20% exposure to private markets, often offered in TDFs or managed accounts.

Industry insiders have repeatedly told PLANSPONSOR that the assets will predominantly be incorporated into retirement plan accounts through TDFs and managed accounts, regardless of how much adoption grows.

Thus far, the retirement industry is split on whether the investments will benefit participants. Adoption remains low: 3.9% of plan sponsors offered alternative investments in their retirement plan in 2024, according to the 2025 PLANSPONSOR Recordkeeping Survey.

In the white paper, DCALTA presented case studies showing that even modest allocations to private credit could deliver tangible results. For example, a 20% allocation to private credit within a core bond fund could raise the fund’s yield to 5.15% from 4.45%, while a 12% allocation to the asset class made in a stable value fund could boost crediting rates within the fund’s existing liquidity parameters.

The report also emphasized the importance of benchmarking and performance monitoring. It recommended measuring against a mix of traditional indexes (like the Morningstar LSTA Leveraged Loan Index) and private market-specific benchmarks (such as the Cliffwater Direct Lending Index) to effectively track outcomes.

DCALTA urged plan sponsors, consultants and investment managers to take a closer look at private credit. With appropriate governance, it could become a cornerstone of long-term portfolio design, according to the group.

“We recommend further exploration of resources, including regulatory guidelines, performance benchmarks, and additional case studies, to support informed decision-making and optimize participant outcomes,” the paper stated.