President Donald Trump is looking to unleash the $12T held in 401(k) accounts into the private sector, including real estate. The industry is chomping at the bit.
But accessing that capital is more complicated than collecting a check. Elaborate reporting standards could hold some retirement plan administrators back or create a close-knit clique between them and the largest private equity players.
“The 401(k) market is about as large of a relatively untapped source that there could be,” Geoffrey White, who heads law firm Frost Brown Todd’s finance industry team, said. “The private equity industry is expecting individual investors to ultimately be pushing their employers, their fund managers to be able to open up these types of investments. And the private equity shops are ready.”
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Trump issued an executive order this month directing the Department of Labor, alongside other government agencies, to reexamine and update federal guidance on fiduciary responsibilities when it comes to including alternative assets in 401(k) plans within 180 days.
Nearly immediately, Secretary of Labor Lori Chavez-DeRemer rescinded a Biden-era statement that discouraged fiduciaries from considering alternative assets, such as real estate, cryptocurrency and private equity, in their plans, with more changes expected in the coming months.
In the past, fiduciaries have approached private assets with caution due to the Employee Retirement Income Security Act of 1974, which covers employer-sponsored retirement accounts. The law created certain disclosure requirements and gives participants the right to sue for breaches of fiduciary duty.
Notably, while the law does not stop 401(k)s from being invested in private assets, it has dissuaded the practice. Under current industry standards, plans opt to provide daily valuations for participants, which can be tricky for alternative assets.
“A lot of people with their 401(k) like to see what it’s worth today or tomorrow,” said Holland & Knight partner Lindsey Camp, an expert in retirement income law. “With real estate, while people can put an estimate on it, you only find out the true value of it when you sell it.”
Other retirement accounts, like IRAs, can be invested more freely. Dedicated, defined contribution real estate vehicles hold $36.4B in real estate and 23% of target-date funds — retirement plans that adjust allocations over time based on the participant’s age — include private real estate, according to a 2024 report by the Defined Contribution Real Estate Council.
A July survey by Empower found 68% of advisers already use private market investments, mainly in their wealth-advised or high net worth accounts. Earlier in the year, Empower created a program to expand investment options in defined contribution retirement plans through partnerships with seven of the top financial managers, including Apollo, Franklin Templeton and Pimco.
Empower isn’t alone in that move. In June, Great Gray Trust tapped BlackRock for its first target-date fund featuring private equity and private credit exposures. Voya Financial and Blue Owl Capital partnered in July to add alternative investments to their offerings.
Though rumors previously circulated about the Trump administration easing guidance for 401(k) investments, those partnerships had little to do with the executive order, said Tripp Braillard, the senior vice president and head of defined contribution distribution for Clarion Partners, the real estate asset management platform of Franklin Templeton.
“It’s due to demand,” Braillard said. “Consultants, advisers and plan sponsors are asking their managers to include alternatives in these target-day funds. Most of these big firms are going about it pretty deliberately. They’re not rushing to market.”
U.S. Secretary of Labor Lori Chavez-DeRemer, whose department has 180 days to reexamine guidelines for 401(k)s.
While retirement plan providers are unlikely to create options that are fully invested in private assets, experts expect those investments to supplement plans that today hold only mutual funds.
During second-quarter earnings calls, executives at private equity firms were enthusiastic about the executive order, claiming it would diversify retirement savings and create stronger returns for the average American.
“It’s going to be about large-scale perpetuals,” Blackstone President Jonathan Gray told analysts. “It’s going to be about firms with brand names and the right legal approaches and track records that capital can get allocated to.”
Experts agree that private equity behemoths, which have been in a race to grow their assets under management, will likely be the most eager and could be tapped first, depending on what changes government officials make.
The industry is “waiting with bated breath,” said Tanuja Adiani, a managing director at IQ-EQ, a global investor services group with over $850B in assets under administration.
“It’s going to be the big volume players that are going to get involved, those who already have the political clout, those who already have the ins with the regulator,” Adiani said. “I don’t see them sitting back and following or being told what to do. I do see them stepping into that capital stack.”
While Trump’s order signals a policy shift, it is not law, meaning that guidance can change from administration to administration and the rules could be made and rescinded in a matter of days. Plus, the need to deliver returns to the average American planning for retirement means that plan providers may continue to be sensitive.
Still, the Empower survey found that 66% of advisers say ERISA and other regulatory clarity would increase their likelihood of recommending private market investments in retirement plans.
“They’re going to be working with the people who already have familiarity in this area, at least initially,” Camp said. “At the end of the day, when a plan fiduciary is considering whether to allow an investment in a plan’s lineup, they’ve got to be prudent in the selection. It’s going to be easier to get comfortable with a major player as opposed to someone new to the market.”
Larger private equity firms are already equipped to provide timely financial updates and may be better capable of shifting with any changes to federal regulations. But greater participation could also change operations and, potentially, public reporting, according to Adiani.
“If private equity does get involved, it’s going to change the nature of private equity in a big way,” Adiani said. “They’re using data, they’re using artificial intelligence to provide that level of access to their investors currently. This just puts it into overdrive, because now it’s not a nice-to-have, it becomes a must-have.”
Even so, transparency requirements remain a question, and so does the general public’s understanding of how their plan is invested. How private companies value their portfolio and navigate risk can result in plans with vastly different rates of return, Hanover Advisors Chief Investment Officer Stephen Molyneaux said.
That could harm future retirees, who may expect greater consistency in the long run.
“You end up with two very different products. The investors don’t know that, they’re laymen. It’s not their job to know this. They depend on their employer and the provider of the 401(k) to tell them,” Molyneaux said. “99% of people aren’t going to have a clue what that private equity company does.”