Private equity office building, Sherman Oaks, California. Photo: Jeffrey St. Clair.
For more than a decade, private equity has been on a quest to gain access to the nearly $14 trillion of hard-earned money in workers’ defined contribution retirement accounts, two-thirds in 401(k) plans. On March 30, the Trump administration handed private equity, private credit, crypto, and the full array of alternative investments the keys to this golden kingdom.
Their timing could hardly be worse.
Employers have long been reluctant to include such assets in workers’ defined contribution retirement accounts —– mainly 401(k)plans. In 2024, only 4 percent of defined contribution plans offered alternative investments. The reason why was always simple: Employers are fiduciaries, which means they must make decisions about retirement investments that are in their employees’ best interest. They must be prudent in curating a menu of retirement plan options for their workers. And they have been successfully sued for lack of prudence by workers whose retirement accounts held high fee, illiquid, risky investments that failed to perform.
The private equity industry, meanwhile, attributed the low take up to employers’ fear of costly litigation, and has lobbied hard for the Department of Labor and Securities and Exchange Commission to come up with regulations that would provide ‘safe harbors’ to protect employers from being sued for undermining the income workers count on for a secure retirement.
Acting on President Trump’s August 2025 Executive Order, the Labor Department has now proposed regulations intended to do just that. A week ago, it published its proposed regulations establishing safe harbors for employers. A headline in Tuesday’s Wall Street Journal tells readers that the proposal for alternative assets in 401(k) plans checks all the boxes on private equity’s wish list.
The regulations identify six factors employers must consider in deciding whether to include an investment in retirement accounts: performance, fees, liquidity, valuation, benchmarking, and the complexity of the investment. It provides instructions on what employers must do in each case to be considered prudent. Following these steps, the DOL asserts, is “presumed to be reasonable and is entitled to significant deference” by the courts and should “be able to confidently rely on that determination without undue fear of litigation.”
Will the New Regulations Change Anything?
Having a roadmap for putting private equity and other alternative investments into workers’ 401(k)s may satisfy Wall Street, but what about employers? The president had tasked the federal agencies with getting the proposal out in February. The White House had the proposal January 13 but delayed announcing it for more than two months, apparently concerned that turmoil in private credit markets might throw shade on the proposal.
That concern and more may be on employers’ minds as well. Private equity is sitting on many thousands of companies acquired at high prices in the zero-interest environment that ended in 2022. It’s unable to unload these overvalued assets, unable to return expected liquidity to pension funds and other institutional investors, and suffering a fundraising drought now in its fourth year. Fundraising in the first quarter of 2026 put the industry on pace for its worst year since 2016.
Meanwhile, individual investors in private credit funds have run into trouble taking their money out. Concerns about the riskiness of the loans the funds have made and AI’s threat to many software firms to which loans have been made have sparked a demand for redemptions that many funds have been unwilling to meet. Blue Owl, whose private credit funds are advertised as semi-liquid, has been popular with rich individuals. It was hit with record numbers of requests for redemptions in the first quarter of 2026. Redemptions at its Technology Income fund rose to nearly 41 percent of the fund’s $3 billion value, while requests at its direct lending fund reached 22 percent of the fund’s $20 billion value. Blue Owl limited redemptions to 5 percent of each fund’s assets, as it is legally allowed to do. KKR, Ares Management, Apollo Global and BlackRock’s HPS investments have all done the same.
The safe harbor provisions in the Department of Labor’s proposed rule on alternative investments notwithstanding, employers may fear litigation if they allow private equity and private credit in 401(k)s. The new regulations do not ban employee lawsuits; only Congress can do that. And given widespread publicity about private equity’s travails and the illiquidity of semi-liquid private credit funds, an employer might have a difficult time persuading a court that it was prudent and acting in the best interest of employees when it put their retirement savings into private market investments. Some may even see the proposed new regs as a Trojan Horse, enticing employers to offer private equity and private credit funds but failing to stanch the rising tide of lawsuits facing employers.
This first appeared on CEPR.
