For millions of Americans, affordability isn’t just about gas or groceries. It’s also about whether they will be able to retire comfortably and with dignity. The Department of Labor (DOL) may imminently propose a rulemaking that could set the stage for a modernized retirement system for working Americans with 401(k) plans.
President Trump has made lowering costs and expanding financial opportunity central to his economic agenda. At his recent State of the Union address, he highlighted efforts to expand access to retirement savings for workers without employer-sponsored plans. That’s an important goal. But access is only part of the equation. For the 70 million Americans already saving for retirement through 401(k)s, the question is whether those savers have the choice to invest in more options that could deliver strong, long-term growth.
That’s why last August, President Trump signed an executive order aimed at democratizing access to private market investments in 401(k)s. The order directs the DOL to develop a rule establishing a process for plan sponsors to offer private market investments such as private equity and real estate, while maintaining the strict fiduciary protections required under the Employee Retirement Income Security Act (ERISA).
Investing in private assets would give individuals access to investments that have been largely reserved for the wealthy and public pensions. Historically, these private investments have typically outperformed public stocks. In fact, from 2003 to 2023, private equity investors earned a 15.2% return, while S&P 500 investors earned only 9.7%. This difference in returns could help private sector employees substantially grow their retirement portfolios.
Private markets can also improve diversification. This is especially important given that there are approximately 50% fewer publicly traded companies today than in the 1990s. This limits the options available to those who only invest in publicly traded companies. For example, the magnificent seven tech stocks account for one-third of the S&P’s value and more than 50% of their returns. Given the key role these companies play in the American economy, this may not seem unreasonable. However, if the concerns about an AI bubble are correct, then many investors will wish they had the opportunity to broaden their investment choices to private market assets.
The inclusion of these assets in retirement plans is not a foreign concept. Public pensions have been benefiting from them for decades. According to a Georgetown University study, adding assets such as private equity and real estate to a pension fund could increase annual returns enough to give retirees an additional $2,400 a year. Extending similar opportunities – with appropriate guardrails – to 401(k) participants simply levels the playing field.
However, due to greedy trial lawyers and unclear government regulations, most 401(k) retirement plans have avoided private investments despite their clear benefits. That’s why it’s so important for the DOL to draft a rule including a safe harbor, so that plan sponsors gain the clarity and confidence to offer private market options to their employees.
According to a study by the Council of Economic Advisors, providing the regulatory certainty for 401(k)s to offer private assets could increase America’s GDP by as much as $35 billion a year. Allowing retirement funds to invest in private companies without fear of being dragged into court will increase investments in America’s small private businesses.
By responsibly expanding access to private market investments, the Trump Administration is advancing a policy that supports American workers in achieving more secure retirements.
