Private Equity Options in 401(k) Plans: A Controversial Topic
A standard 401(k) typically includes only stocks and bond funds that deal with publicly traded companies. Nevertheless, private companies, which have largely been accessible only to institutional and affluent investors, are increasingly seen as significant players in the investment landscape. This leads to an important question: should they be available to workers in retirement plans?
This question has garnered considerable attention lately, particularly as the private investment sector is pushing to widen access to these types of investments. However, this initiative is facing some resistance from lawmakers and consumer advocates, including Sen. Elizabeth Warren, who serves as a prominent member of the Senate Banking Committee.
Recently, Warren sent letters and queries to one of the largest record managers for workplace retirement plans, in response to their recent announcement about allowing plan sponsors the chance to include private equity as an investment option for employees.
Empower, the company in question, which supports around 90,000 businesses and non-profits, has likened this move to the groundbreaking democratization of public market access that the 401(k) created decades ago. CEO Ed Murphy noted that without the 401(k), many individuals would have struggled to invest. He suggests we find ourselves at a similar crossroads today.
Murphy mentioned the growth in capital directed toward private companies, highlighting that the global private equity market is estimated at about $13 trillion. He pointed out that there are far fewer public companies available now than there were 30 years ago, which creates limited options for regular investors to benefit from defined contribution plans aimed at innovative or swiftly growing firms.
He stressed that the new investment options come with safeguards. “Private market investments aren’t suitable for everyone, and we understand that,” said Murphy. He emphasized that Empower does not encourage access to complex, unregulated asset classes—rather, it’s a carefully monitored entry point.
More specifically, Empower clarified to CNN that these investment options are only available to participants who have managed accounts, which are overseen by investment professionals. These accounts are tailored according to individual goals, risk tolerance, and timelines.
The company further described private investments as just one element of a larger collective mutual fund from which participants can choose. The remaining part will consist of public securities.
“We think that professionally managed solutions offer the best way to provide access to private assets while ensuring a layer of analysis and oversight,” they stated.
In her recent reply, Warren expressed agreement with the overarching goal of creating secure financial opportunities for all, regardless of wealth. However, she pointed out that Empower’s response didn’t adequately address the structural risks involved with private market investments. She questioned the rationale behind offering these options over more traditional funds, particularly given the risks associated with the private market for retirees.
Warren also noted a lack of details concerning Empower’s partnerships with private firms, associated fees, and the incentive structures in place.
Concluding her letter, Warren requested that Empower respond to her specific inquiries by July 25, 2025.
Meanwhile, the Securities and Exchange Commission’s Investor Advocacy Office has indicated it will investigate the matter in 2026, specifically regarding the inclusion of alternative investments like private equity and their potential effects on retirement savings plans and individual investors.
