The DOL wants to open the gates to private equity in 401(k)s. Good idea?

The Department of Labor proposed a rule on Monday that could broaden the types of investments available in workplace retirement plans, potentially opening the door for private-market assets in 401(k)s.

The proposal would allow plan fiduciaries to include investments such as private equity, private credit and other alternative assets, provided they follow strict evaluation and oversight requirements. The move is aimed at expanding diversification options for retirement savers while clarifying the legal responsibilities of those who manage plan offerings.

Under the draft rule, fiduciaries would be required to assess factors including fees, liquidity, risk and overall suitability before adding alternative investments to plan lineups. The department also outlined a “safe harbor” framework designed to protect fiduciaries from liability if they follow the prescribed process.

Supporters say the change could give workers access to investment opportunities traditionally reserved for institutional investors and high-net-worth individuals, potentially improving long-term returns. The U.S. 401(k) market holds more than $14 trillion in assets.

The Investment Company Institute vowed to work with the DOL to ensure that key guidelines remain a part of the final rule. They include permitting 401(k) plan investment diversification among a broad range of asset classes while reinforcing the core principles that apply to plan fiduciaries when making any plan investment decisions.

In addition, the asset-neutral nature of the proposal "is central to ensuring broader incorporation of a wide range of assets" by plan fiduciaries as it confirms consistent standards for plan investments, the ICI said in a statement.

“More than 155 million Americans are covered by ERISA plans, and they will benefit from expanded access, such as by allowing target-date funds to add private market assets as a component of their investment portfolios. We look forward to continuing to work with the DOL on a final rule that supports innovation and maintains the robust investor protections Americans currently benefit from.”

'Ticking time bombs'

Critics, however, warn that alternative investments often come with higher fees, limited transparency and reduced liquidity, which could pose challenges for everyday savers.

Benjamin Schiffrin is director of securities policy for Better Markets. He called the proposed rule a costly gamble that is likely to cost retirement savers the most.

“DOL’s proposal puts the interests of alternative asset managers and the crypto industry first and the interests of investors and retirement savers last," Schiffrin said in a statement. "The rule would facilitate the inclusion of risky assets like private credit, private equity and cryptocurrencies in the 401(k) accounts on which Americans depend for their retirement savings. Yet recent events have shown that these assets have no place in the retirement accounts of ordinary Americans.

"The legal immunity created by this safe harbor will incentivize financial advisors to pitch these toxic products, which will become ticking time bombs in tens of millions of retirement accounts, which will no doubt result in significant losses."

The proposal reflects a broader shift by regulators toward providing clearer guidance to plan sponsors while allowing greater flexibility in investment selection. It follows recent policy efforts focused on expanding access to private-market investments within retirement accounts.

The rule is subject to a public comment period before it can be finalized.

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