What Private Assets in 401(k) Plans Mean for Investors

A recent executive order from former President Donald Trump has sparked new debate over whether private assets—investments not publicly traded—should become more widely available in 401(k) retirement plans. Advocates see a chance for diversification and higher returns, but many financial advisors warn that the risks may outweigh the benefits for average investors.

What Are Private Assets?

Private assets include investments in areas like:

• Private equity and private credit (ownership or lending to private companies)

• Private real estate

• Cryptocurrencies and other alternative assets

Traditionally, these investments have been the domain of pension funds, insurance companies, sovereign wealth funds, and high-net-worth individuals.

Why This Matters Now

Trump’s executive order instructs the Department of Labor (DOL) to reexamine guidance for employers and plan administrators, potentially paving the way for alternative investments to appear in workplace retirement plans.

While an executive order does not itself change policy, it signals support for expanding access to private assets in retirement accounts. This builds on prior DOL guidance that private equity could, under certain conditions, be part of a “prudent investment mix” within a 401(k).

The Case For Private Assets

Supporters argue that incorporating private assets into 401(k)s could:

• Provide diversification away from public stock and bond markets.

• Offer the potential for higher returns over the long term.

• Align with long-term retirement goals, since savers typically invest over decades.

“Retirement savers are the ultimate long-term investors and would benefit from the diversification offered by the inclusion of private assets,” said Melissa Barosy of the Investment Company Institute.

The Risks and Concerns

Many advisors, however, remain skeptical.

• Complexity: Private assets are harder to understand, and basic information on performance can be limited.

• Illiquidity: Investors may be locked in for years, unable to cash out easily.

• High Fees: While ETFs average a 0.51% fee and mutual funds 1.01%, private equity firms often charge 2% management plus 20% of profits.

• Quality of offerings: Advisors worry everyday investors may only get access to less attractive deals.

“When you have an unsophisticated investor that doesn’t even understand the difference between a stock and a bond, and now all of a sudden you introduce the allure of getting rich in the private equity markets. You’re only asking for trouble,” said advisor Charles Massimo of Wealth Enhancement.

Industry Response

Several major firms—including Apollo, BlackRock, Blackstone, and KKR—are already developing products aimed at defined-contribution retirement plans. Providers like Empower, which serves 19 million participants, have announced intentions to introduce private assets into 401(k) offerings.

Empower CEO Edmund F. Murphy III called this shift a “pivotal moment in the evolution of retirement planning,” highlighting opportunities in private equity, private credit, real estate, and even digital assets like cryptocurrency.

The Road Ahead

Experts caution that adoption will be gradual:

• Fiduciary responsibility: Plan sponsors must act in participants’ best interests, making them cautious.

• Timeline: Widespread adoption may take 3 to 5 years.

• Likely first step: Early private investment options may appear within target-date funds, which adjust allocations as retirement dates approach.

“It will take 36 to 60 months to really gain traction,” said Russ Ivinjack, global CIO at Aon.

Bottom Line

Allowing private assets in 401(k)s could reshape retirement planning by offering broader diversification and access to higher-growth opportunities. Yet, for everyday investors, the complexity, fees, and risks may limit the upside. Advisors stress that education for both plan sponsors and participants will be critical if these changes move forward.