In Race to Bring Private Assets to 401(k)s, Industry Sees Promise, Peril

The push to bring private-market investments into U.S. 401(k) plans is no longer a theoretical debate. It is becoming a design problem.

At an EBRI-Milken Institute Retirement Symposium on Thursday on the subject, executives from Nasdaq, iCapital and Goldman Sachs described an industry moving from policy talk to implementation. The question panelists were answering addressed not simply whether private equity, private credit, real estate or infrastructure belong in defined-contribution retirement plans; but how they could be introduced without colliding with the features that have long defined the 401(k)—daily liquidity, simple disclosures, low fees and limited menus.

“On some level, private markets have been in DC plans for actually quite some time,” said Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, during the session, pointing to private real estate in target-date funds and other limited exposures already embedded in some retirement products.

But broader adoption, he suggested, will be slow. “This is the retirement industry,” he said. “We measure things in years versus quarters.”

That deliberate pace reflects a deeper tension. Private markets are built around long holding periods, specialized underwriting and limited liquidity. The 401(k), by contrast, has been engineered for portability, transparency and scale. In a separate interview, Joel Shapiro, head of Wealthspire Retirement Advisory, described that mismatch bluntly.

“The defined contribution market was originally designed around things like liquidity, transparency, and I think we’ve spent the last 20 years trying to move more towards simplicity in the defined contribution market,” Shapiro says. “But the private markets aren’t designed in that same way. They’re designed more about things like patience and opacity and complexity.”

Searching for Structure

Drew Carrington, managing director of alternatives in retirement portfolios at iCapital, said the groundwork is being laid behind the scenes. The democratization of private markets outside retirement plans, he said, has forced firms to build new structures and platforms that may now prove useful inside 401(k)s.

“A number of changes that have happened over the last several years in the private markets more generally are making private-market assets available to individual investors,” Carrington said during the roundtable. “Those structures are part of what are going to sit inside vehicles, DC-friendly vehicles.”

Oliver Albers, executive vice president and chief product officer for Nasdaq’s Capital Access Platforms, argued that the push also could accelerate long-delayed modernization in private markets themselves. “There’s a huge opportunity and need for the private markets to get more efficient, just in terms of valuation and how they communicate with investors,” he said during the roundtable. “Technology is going to be a big driver of that.”

Still, the executives were careful to argue less for stand-alone private-market allocations and more for modest allocations inside professionally managed products. Ceder said the most likely route was through diversified vehicles like target-date funds, managed accounts or white-labeled core options instead of by putting a private-equity fund directly on a plan menu.

“The right answer here is going to be diversified portfolios, modest allocations, to diversified portfolios of private-market asset classes, and professionally managed solutions,” he said. “That is how we’re going to deliver better outcomes for participants.”

The Liquidity Problem

The modern 401(k) runs on the expectation that participants can move money daily, even if most do not. Critics of private assets say illiquid holdings sit uneasily in a system where workers frequently change jobs and move savings among funds or out of plans altogether.

Carrington challenged the premise that daily liquidity should be treated as sacrosanct.

“We’ve set aside, whether you’re just talking about 401(k)s, or you’re talking about the whole DC system, somewhere between $10 and $13 trillion of assets for multi-decade horizons,” he said. “But we run the entire system on the unspoken premise that we have to be able to liquidate all of it, for cash tomorrow. Is that a reasonable way to think about the world?”

Ceder responded with a more mechanical argument: at the plan level, recordkeepers net participant activity before trades ever hit the trust, which means plan assets are not typically turning over in the way critics sometimes assume. “The whole point is that the 401(k) is not trading that money very often,” he said.

Shapiro, though, pointed to recent strains in private credit, where retail investors have increasingly sought to withdraw their money, prompting some funds to cap redemptions, as a reminder that liquidity cannot be treated as an abstraction. He pointed to current market stress as a real-time test for how private vehicles handle outflows.

“I think the private credit funds right now, they’re facing kind of the first true test of outflows,” he said, adding that liquidity management will be “crucial.”

He warned that restrictions on withdrawals or redemptions, even if limited, can have outsized significance in retirement plans, especially for older participants who may need access to money or flexibility to reallocate. That said, most proponents for alternatives in DC plans would argue that older participants should carry smaller private asset allocations than younger participants.

Fees, Litigation and Fear

Even if the product design questions can be addressed, qualms over litigation may be lingering.

At the roundtable, attendees repeatedly returned to the topic of litigation risk—or, more precisely, the fear of it. The DC plan system has spent years under intense pressure to cut costs and simplify menus—partly driven by the threat of litigation—and private-market products often come with layered or variable fees, less frequent or standardized reporting and more difficult benchmarking.

Shapiro says that reality is shaping plan fiduciaries’ response. “DC has been very keyed, particularly with all the litigation, on compression of fees,” he says. “That is a huge target for plaintiff’s attorneys.”

Carrington was even more pointed about the mood in the market. “The elephant in the room that we haven’t talked about on this panel yet is litigation,” he said. “I think the biggest implementation hurdle is fear of litigation risk. I don’t actually think it’s litigation risk. I think it’s fear of litigation risk.”

That fear is reinforced by the fact that many retirement plan advisers and plan committees still lack familiarity with private assets in a retirement-plan context. Shapiro says that although top advisory firms generally understand private markets, “they haven’t necessarily thought of it in the context of how it translates to DC.”

For now, demand remains muted. Citing a recent Retirement Advisor Council survey, Shapiro said that among about 70 large firms surveyed, “70% were reporting that less than 10% of their clients were inquiring about this.” Curiosity, he says, is rising, but “it hasn’t opened up the floodgates to it yet.”

Education or Disclosure?

Industry executives also distinguished between educating participants and disclosing what participants own.

Carrington argued that few workers need a seminar in private-equity subcategories. “No one is suggesting that we need to make individual participants sophisticated, institutional, chief investment officers,” he said.

The task, he argued, is more modest: explain that professionally managed retirement funds may now include tools “that are available to you in the wealth market” and already used in many pension plans.

Ceder made a similar point. “I don’t think that you’re necessarily trying to educate people on what private markets are,” he said. “I think that you’re trying to educate them on how the plan works.”

Albers, however, pointed to the desire for transparency. Participants, he said, increasingly expect to know “what’s in their fund and what’s driving performance.”

Curiosity With Caution

Regardless of their support of private assets, panelists stressed the need to show restraint. None of the speakers suggested that every plan should add private markets, or that plan investment menus should be filled with direct private-equity options. And nobody denied that private asset classes introduce complexity.

As Shapiro put it, fiduciaries must make sure that what looks sophisticated does not become “liability dressed in innovation’s sheep clothing.”