American retirement savers face a structural disadvantage: while public pension funds and wealthy investors benefit from the higher returns and diversification of private markets, over 90 million workers who rely on 401(k) plans are effectively locked out. Employers technically may offer private assets in defined contribution plans, but the risk of costly litigation has created a chilling effect.
President Trump’s August 7, 2025 executive order, supported by reports from the Council of Economic Advisers and the Committee on Capital Markets Regulation, seeks to close this gap. The evidence shows that expanding access to private assets in 401(k)s would improve risk-adjusted returns, raise household retirement income, and deliver measurable gains for the U.S. economy.
The policy solution is clear: the Department of Labor should rescind its restrictive 2021 guidance and establish a formal safe harbor that shields fiduciaries who prudently include private equity, private credit, and other alternative assets in retirement plans. Such reform would democratize investment opportunities, strengthen retirement security for millions of Americans, and align capital flows with the realities of modern markets.
Introduction
On August 7, 2025, President Trump issued an executive order titled Democratizing Access to Alternative Assets for 401(k) Investors. The order directs the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to broaden retirement savers’ access to private market investments. This marks a pivotal moment for retirement security, aligning public policy with the reality that private assets have become the engine of capital formation in the United States.
Two companion analyses released alongside the order — one by the Council of Economic Advisers (CEA) and another by the Committee on Capital Markets Regulation (CCMR) — reinforce the case for expanding retail access. Together, these reports argue that allowing private market exposure in defined contribution (DC) retirement plans such as 401(k)s will improve household retirement outcomes, stabilize capital markets, and boost the broader economy.
- Council of Economic Advisers: Retail Access to Alternative Investments Via Defined Contribution Plans
- Committee on Capital Markets Regulation: Expanding Opportunities for U.S. Investors and Retirees, Private Markets
The Problem
American workers who depend on 401(k) plans for retirement are systematically excluded from the most dynamic segments of today’s capital markets. While public pension funds and wealthy investors routinely benefit from allocations to private equity, venture capital, private credit, real estate, and infrastructure, the vast majority of 401(k) participants are confined to a narrow menu of public equities and fixed income. This structural imbalance undermines retirement security and widens the investment gap between ordinary workers and institutional investors.
Three interrelated barriers explain the exclusion of everyday savers from private markets:
- Regulatory Restrictions
- Under current SEC rules, only “accredited investors” and “qualified purchasers” can directly invest in private equity funds. This excludes more than 98 percent of U.S. households.
- Public closed-end funds, which are available to retail investors, face strict limits on private equity allocations (capped at 15 percent of assets), preventing them from serving as meaningful vehicles for retail access.
- Litigation Risk Under ERISA
- Although employers are legally permitted to include private assets in 401(k) plans, they face extraordinary liability exposure.
- Trial attorneys have aggressively targeted plan sponsors with lawsuits alleging breaches of fiduciary duty, creating a chilling effect. Even when employers follow prudent processes, the threat of costly litigation deters innovation in retirement plan design.
- Shifting Retirement Landscape
- Defined benefit pensions, which allocate heavily to private equity, have steadily declined. At the same time, defined contribution plans like 401(k)s have grown into the dominant retirement savings vehicle for more than 90 million Americans.
- This shift means the majority of working Americans are left with retirement accounts that underperform relative to public pensions, simply because their plans lack access to higher-return, diversifying private assets.
The combined result is that trillions of dollars in retirement savings are concentrated in traditional public markets, even as private markets account for the majority of new capital formation. Ordinary Americans bear the cost of this exclusion through reduced lifetime income, less diversified portfolios, and diminished retirement security. Without reform, the gap between what public pensions can offer their beneficiaries and what private sector workers can achieve through their 401(k)s will continue to grow.
Evidence From the Reports
Council of Economic Advisers (CEA)
Household outcomes
- Allowing a measured sleeve of private assets inside professionally managed 401(k) options improves risk-adjusted returns for typical savers.
- Modeled gains are largest for younger cohorts with long horizons, with lifetime income rising by up to 2.5 percent, and still positive for near-retirees at 0.5–1 percent.
- On average, households see about a 1.3 percent boost in retirement income when private assets are included prudently.
Why the gains occur
- Diversification: Private equity, private credit, real estate, and infrastructure have return drivers that are only partially correlated with public stocks and core bonds, which raises portfolio Sharpe ratios.
- Illiquidity premium: Long-horizon savers can harvest compensation for locking up a small portion of capital, which most 401(k) participants are structurally positioned to do.
- Professional implementation: Benefits are realized when exposure is delivered through asset-allocation vehicles such as target-date or balanced funds that control fees, manager selection, valuation methods, and liquidity.
Plan design guidance
- Exposure should sit inside diversified asset-allocation funds, not as stand-alone private funds on a 401(k) menu.
- Fiduciaries should document manager experience, valuation policies, liquidity management, and fee reasonableness, and position private assets at prudent allocation levels that fit participant needs and timelines.
Macroeconomic effects
- Reallocating a modest share of DC savings toward more productive private firms can lift output by roughly $35 billion per year, through improved capital allocation, better price discovery in private markets, and deeper secondary-market activity.
Equity and access
- More than 90 million Americans save through DC plans that currently capture little of the private-market opportunity that public pensions and high-net-worth investors already enjoy. CEA frames expanded access as both an efficiency and a fairness gain.
Committee on Capital Markets Regulation (CCMR)
Market context
- For each of the last 15 years, U.S. companies raised more equity privately than via IPOs, and in the most recent three years raised roughly 10 times as much in private offerings as in IPOs.
- The number of listed U.S. companies has fallen relative to prior decades, while private “unicorns” have surged from 64 (2014) to 700+ (2025) valued over $3 trillion.
- U.S. private equity assets under management grew from $1.4 trillion (2013) to $6.7 trillion (2024); buyout funds are the largest sleeve of AUM.
Performance and risk
- The academic literature shows persistent outperformance of buyout funds versus public equity, typically 3–4 percent annual net excess returns over long horizons, with results robust across vintages and datasets.
- Studies also find lower volatility of private equity cash-flow-based returns and meaningful diversification when added to stock-bond portfolios.
- A compounding illustration in the report shows that a 35-year saver capturing buyout-like returns can finish with nearly three times the wealth of a public-equity-only path, even using conservative assumptions.
- Evidence for private credit points to similar diversification and risk-adjusted-return benefits, reflecting nonbank lending premia and different economic sensitivities than public credit.
The DC disadvantage
- Defined benefit plans, which allocate materially to private markets, have outperformed DC plans. The gap is attributable in part to DC participants’ near-absence of private exposure due to fiduciary litigation fears and regulatory ambiguity.
- More than 98 percent of households are barred from direct private-fund investing by qualified purchaser rules, which magnifies the access gap for workers without a DB plan.
Policy mechanics and safeguards
- Access should be provided indirectly, not through direct retail purchase of private funds. CCMR emphasizes delivery via:
- Public closed-end funds registered with the SEC and advised by fiduciaries, and
- 401(k) asset-allocation funds overseen by ERISA fiduciaries with documented manager due diligence, valuation standards, liquidity management, and suitability for participants.
Regulatory recommendations
- SEC: Permit public closed-end funds available to retail investors and IRAs to invest above the current 15 percent threshold in private funds, subject to disclosure and oversight.
- DOL: Rescind the 2021 Supplemental Letter and issue a formal ERISA safe harbor that deems fiduciaries prudent and loyal when they include a measured allocation to private equity and private credit inside diversified 401(k) options that meet experience, valuation, liquidity, and fee reasonableness standards.
- Related DOL relief: Modernize prohibited-transaction exemptions so plans can use affiliated closed-end vehicles on parity with existing mutual fund and ETF exemptions when fiduciary safeguards are met.
Expected outcomes
- A clear safe harbor reduces litigation overhang, enabling prudent adoption by plan sponsors.
- Retail investors gain professional, diversified, and controlled access to private markets.
- Capital markets benefit from stickier, long-term funding, improved price discovery, and more efficient capital formation in the private economy.
Bottom Line
The CEA quantifies household and macro gains from carefully implemented private-asset access in DC plans. CCMR supplies the market evidence, the legal architecture, and the operational blueprint to deliver those gains safely through SEC and DOL action, centered on closed-end fund reform and an ERISA safe harbor.
The End Game
The executive order and accompanying reports create momentum, but the decisive step lies with the DOL. A formal rulemaking establishing a safe harbor for 401(k) fiduciaries is essential. Such a safeguard would:
- Protect employers from opportunistic litigation.
- Give plan sponsors confidence to offer diversified funds that include private equity, private credit, real estate, and infrastructure.
- Deliver to ordinary savers the same opportunities enjoyed by public pension beneficiaries and institutional investors.
Conclusion
Expanding access to private assets through 401(k) plans will democratize investment opportunities, enhance retirement security, and strengthen the U.S. economy. The Department of Labor, under Deputy Secretary Keith Sonderling’s leadership, has the chance to deliver a generational reform that aligns retirement savings policy with the realities of modern capital markets.
The task now is clear: the DOL must move swiftly to issue a safe harbor rule that levels the playing field for America’s 401(k) participants.