Fitting Private Markets Into 401(k) Plans

Transcript

The following transcript of this discussion was edited for clarity.

Private markets have long been reserved for pensions, endowments, and the wealthy. Now policymakers in the US, UK, and EU are opening these markets to ordinary retirement savers.

In the US, the biggest test is the 401(k) system, home to more than $9 trillion and the world’s tightest fiduciary constraints. A recent White House directive opened the door for retirement plans to add private credit, private equity, real estate, and even cryptocurrency.

For private markets, the challenge is reconciling long-term illiquid investments with accounts built for daily pricing and trading.

I’m Bob Mertz, and I’m joined by Goodwin partner Jeremy Senderowicz, one of the authors of a recent article on this topic in our Forces of Law series.

Bob Mertz: Jeremy, welcome.

Jeremy Senderowicz: Thank you, Bob. It’s a pleasure to be here.

Let’s start with the basics. What actually changed to make this possible?

In August of 2025, the Trump administration issued an executive order (EO) directing the SEC (U.S. Securities and Exchange Commission) and the Department of Labor (DOL) to take certain actions aimed at facilitating access to alternative assets in retirement plans. The administration also withdrew prior guidance issued by the Biden administration that strongly discouraged the inclusion of alternative assets within retirement plans.

ERISA (the Employee Retirement Income Security Act of 1974) has pretty strict fiduciary requirements — prudence, loyalty, documentation. How do private assets fit within that framework?

That’s a good question. The short answer is the requirements are the same regardless of asset class. As it happens, there are no legal prohibitions right now. That’s what the EO and presumably the upcoming rules that are going to be proposed by the DOL and SEC are meant to do — to provide ERISA fiduciaries with guidelines and standards for carrying out and executing their duties of prudence, loyalty, and ensuring proper documentation.

Your article talks about a “sleeve inside a wrapper” approach. Can you translate that for someone managing a 401(k) plan?

In this case, a “wrapper” is a fund, and a “sleeve” refers to a portion of it. Private assets may be made available within retirement plans as a portion of a larger fund or account that offers a wide variety of investment exposures. This can take one of two forms.

One is a multi-asset fund that offers investment allocation to different asset classes within a predetermined range of percentages. The private assets could be a specified portion or range of a fund that provides a wide variety of investment exposures.

The second, which is probably more familiar to retirement plan participants and providers, is a target-date fund. These are funds that provide a wide variety of investment exposures specifically for people with a specified retirement year target. There may be predetermined investment exposure allocated to private assets, which could change depending on how close the retirement target year is.

Some big partnerships have already formed — Blackstone with Vanguard, Goldman Sachs with T. Rowe Price. What does that tell us about where this might be heading?

It’s clear from these type of partnerships that institutions see the opportunity, and they don’t want to get left behind. I think they want to make sure they’ve got both the distribution and contacts within the retirement plan channel, particularly on the 401(k) side, and that they have both expertise and access within various segments of the private markets to provide appropriate products for those channels. To the extent managers need reinforcements in one or the other, they’re partnering up.

And if you’re a plan sponsor considering private market exposure, what are the risks?

The big headline risk is litigation, and that’s nothing to sneeze at. Plaintiffs’ lawyers will be creative in finding grounds for litigating. But even beyond the headline litigation risk, plan sponsors are extremely sensitive to potential dissatisfaction among employers and participants. That can happen in any number of ways.

Private market solutions, almost by definition, cannot offer the same type of daily liquidity and daily pricing transparency that investors are used to from public market vehicles. Investors and plan sponsors need to be educated on the type of private market exposure that might be offered in a retirement plan and what that exposure means in practice. To the extent there are mismatches between investor expectations and what the investment option can provide, that could lead to real dissatisfaction among employers and participants. No 401(k) plan provider wants to deal with that, even if it never leads to litigation that makes headlines.

In your article, you say that policy is moving faster than the legal framework. What should we be looking for next as we move into this new world?

There are two things we should be looking for. The first is on the regulatory side. As of the time of this recording, no rules have been formally proposed by the DOL or SEC. The DOL has submitted a proposed rule to the Office of Management and Budget for necessary legal review, so we expect to see some proposed rules soon.

Second, and more important, is the logistical build-out by plan and service providers. Many of these investment vehicles, including those currently offered to a relatively small number of retail investors, may not be set up to accommodate the many thousands of retail investors that could come into a 401(k) plan in one shot. And these investors may expect to make regular contributions or more frequent withdrawals than these funds are used to handling.

A careful logistical infrastructure should be set up to accommodate a potential mass of retirement plan investors into various vehicles. Even if all the rules were finalized tomorrow, which they won’t be, it would still take a while to build the necessary infrastructure to accommodate a large universe of retail investors on retirement plan platforms.

So it’s a pretty dynamic space.

Exactly.

Thank you so much, Jeremy.

Thanks, Bob.