Could Private Markets Revitalize Your 401 k?: A New Era of Retirement Choice?

More than 19 million Americans saving for retirement may soon find their 401 k plans transformed. Empower, the nation’s second largest defined contribution plan provider overseeing $1.8 trillion for 19 million participants, will begin offering private equity, private credit and private real estate within its managed account services in the third quarter of 2025. If employers agree to include these options, everyday investors will gain access to asset classes that were once reserved for endowments, pensions and the ultra wealthy.

How Can Private Strategies Elevate Your 401 k?

For decades defined contribution plans have offered only public stocks and bonds. Private markets have remained elusive due to the lack of daily liquidity, complex valuations and the higher fees associated with specialist managers. Empower believes that bringing private strategies into 401 k portfolios can improve diversification and help participants weather market volatility. Edmund F. Murphy III, Empower’s president and chief executive, points out that private real estate can provide both income and a cushion against inflation while private credit offers returns uncorrelated with traditional bond markets. He argues that giving plan participants the opportunity to access those benefits is the next logical step in retirement plan evolution.

Who Are the Power Players Behind the Funds?

Empower has teamed up with seven established managers to design collective investment trusts: Apollo Global Management, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group and Sagard. These trusts pool private equity, credit and real estate investments into diversified portfolios that combine less liquid holdings with publicly traded securities. This design enables daily liquidity so participants who decide to withdraw can trade at market prices without waiting months for private fund locks to expire. Fees for these private market CITs range from 1 percent to 1.6 percent of assets per year, compared with the roughly 0.28 percent average fee for standard target date mutual funds.

How Does the Managed Account Model Work?

Enrollment in these private options is not automatic. Employers must elect to make private strategies available within their plans, and so far five unnamed companies have signed on. Once a sponsor opts in, participants who use Empower’s managed account service will receive professional advice that tailors portfolio allocations to individual age, risk tolerance and financial objectives. Although the precise mix will vary, most advisers anticipate allocating between 5 percent and 20 percent of a participant’s portfolio to private market vehicles.

Balancing Promise with Risk

Introducing private markets into defined contribution plans brings both opportunity and challenges. Valuing assets that do not trade publicly requires periodic appraisals and stress testing to ensure participant statements remain accurate. Employers and advisers must conduct thorough due diligence to avoid potential fiduciary lawsuits over high fee or illiquid options. Empower emphasizes its advice model as a guardrail that guides suitability assessments and ongoing monitoring of private allocations.

Regulatory Crossroads Ahead

Regulatory clarity remains a critical factor in adoption. Under the prior administration the Labor Department issued guidance affirming that private equity can be part of a diversified 401 k portfolio. However, the current Labor Department has stated that it does not endorse private strategies, leaving sponsors eager for more definitive rules. Empower hopes that updated guidance will clarify responsibilities around valuations, fee disclosures and participant communications.

Industry Momentum and What’s Next

Empower’s move is already nudging other providers into action. State Street launched a target date fund with a 10 percent private asset allocation in April, and BlackRock’s CEO Larry Fink has publicly urged defined contribution plans to embrace more private market exposure. As major asset managers roll out products tailored for retirement plans, sponsors will face an expanding menu of private market vehicles.

What Should Retirement Savers Watch?

Participants could benefit from enhanced diversification, potentially higher long term returns and a smoother ride through public market swings. Private credit might offer stable income when bond yields are low, while private real estate could serve as an inflation hedge. Yet the promise of private markets will only materialize if advisers provide clear guidance, participants understand liquidity trade offs and sponsors maintain competitive fee levels.

As the third quarter rollout approaches, key questions remain: Will regulators deliver the clarity that sponsors need? How will participants respond to the choice of private markets? And will other plan providers accelerate their own offerings? For now Empower’s announcement signals that 401 k plans are entering a new frontier—one that could reshape the way millions save for retirement.

This content is provided for informational or educational purposes only and does not constitute investment advice.