PLANSPONSOR Roadmap: Private Markets in DC Plans

The defined contribution industry has largely shifted from discussing whether to include private assets in DC plans to which asset classes are best suited to being incorporated within professionally managed solutions, according to panelists on the 2026 PLANSPONSOR Roadmap session “Private Markets in DC Plans.”

Speakers discussed which private assets industry stakeholders prefer, as well as through which vehicles the investments should be implemented, during the September 16 session. They also discussed what kinds of protections and challenges the Department of Labor’s proposed rule on investment selection creates for plan sponsors as they meet their fiduciary duties under the Employee Retirement Income Security Act.

While private market assets are not prohibited by ERISA, take-up was minimal until the proposed rule. This is seen as offering plan sponsors guidance and a regulatory safe harbor, making it less likely sponsors will be sued for their investment selections.

Stakeholder Preferences

Marianne Sullivan, senior adviser of research at the Defined Contribution Institutional Investment Association, revealed preliminary results of 13 in-depth industry interviews the association conducted with stakeholders about their views on private assets in DC plans. All surveyed providers, asset managers, recordkeepers and trustees said target-date funds would be a “good” type of private asset for DC plan investment, Sullivan said.

Other private assets the respondents endorsed, Sullivan said, were private equity, real estate, infrastructure and private credit. She added that while there has been “bad press coverage” recently of private credit, it is mostly of those managers “aggressively expanding into retail and syndicated markets” and would “probably not be the same managers used for DC plans.”

Blue Owl Capital and several other fund managers capped redemptions on their retail private credit funds in the first half of the year after a wave of investors sought to pull money out of so-called semi-liquid funds they feared lacked the levels of cash necessary for immediate redemption, as investors expect in most public market funds.

According to Sullivan, stakeholders said they wanted private equity as a long-term investment—given it is a “riskier asset with improved return over time”—while stakeholders sought private credit combined with more traditional fixed income as a less risky investment for near-term target-date-fund investors.

No one interviewed by DCIIA reported believing that private market investment strategies should be offered as stand-alone products in DC lineups, Sullivan said, but many respondents favored including them as part of an allocation within a fund, such as a collective investment trust. Some respondents also said managed accounts would be good delivery mechanisms.

CITs have become increasingly popular vehicles through which sponsors have offered private assets. Over the past several months, financial firms such as Constitution Capital Partners, Great Gray Group LLC, iCapital, Principal Financial Group, SEI Investments Co. and WTW Investments have invested in creating CITs that hold private assets as investment products for DC plans.

As of March, CITs held $8.3 trillion in assets in the DC market, up from $6.1 trillion in September 2024, according to data from ISS Market Intelligence, which, like PLANSPONSOR, is owned by ISS STOXX.

Translating Interest to Action

DCIIA’s survey showed that the industry appetite for private market assets has not yet necessarily translated into action, Sullivan said.

“Not a lot of people are pulling the trigger,” she said. One consultant DCIIA surveyed called it a “race to second” to put private market investments into plans.

But surveyed participants still understood the benefits of private market assets, which can yield higher investment returns than their public counterparts can. Among surveyed participants, investment “diversification” was the most-cited benefit of private assets.

“When there’s a downturn in public markets, private markets will [make up for] it,” Sullivan said. The investments “also give broader access to companies representing our economy.” She cited data originally published in 2024 by S&P Capital IQ that found 13% of U.S. companies with over $100 million in revenue are public, while the other 87% are private.

She said another benefit to investing in private assets, per one adviser respondent, could be that it increases participant interest in the plan, by making it “more innovative and competitive.”

Gearing Up for DOL’s Final Rule

Plan sponsors are gearing up for publication of the DOL’s final prudent investment rule, speakers noted during the session. The 60-day comment period for the rule ended June 1, and sources have told PLANSPONSOR that the DOL will publish the final rule by the close of this year or early next.

Holly Verdeyen, U.S. defined contribution leader at Marsh, said between 60% and 70% of her firm’s DC client base has committed staff to private markets in preparation for the issuance of the rule.

Publication of the rule will give those staff members a clear idea of how to move forward, observed Lisa Gomez, a former assistant secretary of labor and former head of the Employee Benefits Security Administration, who now runs LMG Collaborative Consulting Solutions.

“We definitely got more than expected [from the proposed rule], but that’s a good thing,” Gomez said. “Plan sponsors should look at [the rule] in a good way—[they] have more guidance as to what is being expected [of them]” as fiduciaries.

Verdeyen said she has been working with plan sponsors to document each plan’s beliefs about the benefits of it adding private assets, as well as about what roles the assets could play, based both on those beliefs and participant needs. Any alterations to a sponsor’s views on private assets should be documented in the plan’s investment policy statement, she noted.

When considering participant needs, Verdeyen said, sponsors would do well to ask whether their participants are willing and able to pay the higher fees that could potentially come with private market investments, as well as whether participants understand why private assets might cost more.

Sponsors, meanwhile, should evaluate how an allocation might fit into their current glide path; how illiquidity of the assets would be managed in the portfolio; the target allocation to illiquid assets; the valuation method used for those assets; and whether their recordkeeper would be able to offer them, Verdeyen said.

A TDF that includes private market assets typically has liquidity at the manager level, the private market fund level and the target-date level, Verdeyen said. She called TDFs the “most viable” vehicles through which sponsors can incorporate private assets into a DC plan. While certain private market investments may be illiquid, all other assets in the TDF should be the opposite—and most DC plans will have daily cash flows available from contributions and inflows.

“Full daily participant liquidity in a target-date fund with private assets is very achievable, but it could be compromised in extreme market or cash-flow situations,” Verdeyen warned. But the potential for illiquidity “comes with benefits” such as the potential for increased returns.

Gomez agreed that aspect of private assets could seem a “per-se dealbreaker” for potential inclusion in a professionally managed solution. She said sponsors will have to consider each of the six factors outlined in the DOL proposal—performance, fees, liquidity, valuation, benchmarking and complexity—to ensure the asset qualifies for the proposed safe harbor.

“In the same way that having a high-fee investment is not a bar and having a low-fee investment is not a green light, [the industry] has to be open to … getting past some of the thoughts in [their] heads that these [investments] are inherently illiquid,” Gomez said.