Introduction
The retirement savings system is about to get a lot more complicated. Two problems are occurring simultaneously: the infrastructure that 401(k) participants would rely on for private-market investing is not ready for them, and the courts are actively relitigating what fiduciaries can legally be held responsible for.
Last August, President Trump signed an executive order directing the Department of Labor to clear the path for 401(k) plans to invest in alternative assets, including private equity, private credit, real assets, venture capital, and crypto. On March 31, 2026, the DOL followed through with a proposed rule establishing a six-factor checklist covering performance, fees, liquidity, valuation, benchmarks, and complexity. Fiduciaries who document their process with respect to those factors will receive a presumption of prudence under ERISA, the federal law governing retirement plans. The intent is to reduce the litigation risk that has historically kept plan sponsors from touching alternatives at all.
The logic sounds reasonable. Private markets have grown from roughly $2 trillion in AUM in 2008 to approximately $15 trillion today, and they are expected to reach $18 trillion or more by 2027. A growing share of economic value creation is occurring in private companies that never intend to go public or that remain private far longer than they once did.
Retail investors have largely been locked out of this. 401(k) accounts, which are the primary retirement savings vehicle for most working Americans, are invested almost entirely in public market instruments. The intention behind this policy is in the right direction, but it lacks a nuanced understanding of the current state of private markets.
Private Markets Were Not Built for This
Decades of regulatory development have shaped guardrails that make public market investing feasible at scale for retail investors. Public market investments come with standardized disclosures, audited financials, daily pricing, and basically instant liquidity. Those features are why a 62-year-old schoolteacher in Illinois can invest in an S&P 500 index fund and know she can access her money when she needs it. In a private market fund, she may not be able to, not if the fund's lock-up period is still in effect. If her target-date fund is holding an illiquid private equity position and she needs to retire or rebalance, there may be no clean exit available.
Private markets work differently. Valuations are updated infrequently and rely on appraisal methodologies that vary by manager. Liquidity is structurally constrained; typical fund structures lock capital up for seven to ten years, with limited or no secondary market access for investors who need to exit early. Fee structures are complex, often combining management fees and carried interest in ways that are difficult to evaluate without industry experience. Performance benchmarking is inconsistent because private market returns are reported on different bases using different conventions, making comparisons genuinely hard even for sophisticated investors.
None of this means private markets are bad, or even that retail investors should continue to be locked out. It is projected that private market AUM will grow at roughly twice the rate of public assets, reaching $65 trillion by 2032. Institutional investors, endowments, and pension funds allocate to these assets precisely because the risk-return profile can be attractive over long time horizons. But those investors have the infrastructure, the expertise, and the liquidity buffers to absorb the complexity. The 62-year-old schoolteacher with a 401(k) as her primary or sole investment account does not.
The vehicles that will introduce alternatives into retirement plans (primarily target-date funds and other multi-asset structures) were not designed with private market complexity in mind. Retrofitting illiquid, opaquely valued assets into structures built for daily liquidity and transparent pricing is harder than it sounds.
The Legal Ground Is Shifting Under the Rule
The DOL's proposed checklist protects fiduciaries in theory, but in actuality, that protection is only as good as the courts' interpretation, which is currently unsettled.
The Supreme Court has taken up Anderson v. Intel, a case in which Intel employees challenged the management of their 401(k) plan, alleging that allocations to hedge funds and private equity resulted in underperformance and excessive fees. The Ninth Circuit dismissed the claims, arguing that plaintiffs must identify a meaningful benchmark, not just allege that returns were low or costs were high. The Supreme Court's decision to take the case means the justices see something worth reviewing. The main question under consideration is whether ERISA imposes a "meaningful benchmark" requirement at the pleading stage for claims predicated on fund underperformance.
Depending on how the Court rules, the pleading standard for ERISA claims could shift significantly. If the Court makes it easier to bring claims past the initial stage, the DOL's process-based safe harbor may offer less protection than plan sponsors expect. A fiduciary who followed the six-factor checklist could still face discovery, depositions, and years of expensive litigation before the merits are ever reached.
The executive order pushing alternatives into 401(k)s, and the Supreme Court case determining how easy it is to sue over those alternatives, are moving forward simultaneously. That is not a stable foundation for a major structural change to the retirement system.
What Would Actually Help
As more and more value accrues to private markets, working Americans deserve access to those types of returns. But the 2025 executive order is premature. Before they are ready for broad participation in retirement plans, private markets need the same kind of institutional development that made public markets accessible: standardized disclosure requirements, transparent valuation frameworks, liquidity paths, and a larger body of legal precedent.
Secondary markets for private fund interests have grown, and regulators are pushing for more consistent reporting standards. But neither development is mature enough yet to support broad 401(k) participation: the secondary market remains illiquid relative to public markets, and reporting standards are still inconsistent across managers
Expanding participant access before the infrastructure exists to support it means retirement savers absorb risks that the system isn't yet equipped to manage on their behalf. That's the wrong sequencing, and it's the one we're currently on track for.
Sources:
