I remember the first time I logged into my retirement account as a young professional. It felt like a milestone: proof that I had entered the world of adulthood, of long-term thinking, of ownership. I work in the nonprofit sector, so technically it’s a 403(b), not a 401(k). The distinction is academic; the promise is the same: contribute consistently, invest wisely, and over time, build financial independence.
The longer I’ve contributed, the more I’ve realized something uncomfortable: my retirement plan isn’t built for the world I actually live in.
Like many in my generation, I came of age during a period of profound economic change. Companies stay private longer. Technology, infrastructure, and energy companies increasingly raise capital outside public markets. The most dynamic growth in the economy often happens before a company ever reaches a stock exchange. When I look at my retirement options, I’m locked out of that world.
Instead, we see a familiar menu consisting of a handful of mutual funds and some index options that quietly steer me toward a standardized allocation. These are not bad investments, but they represent only a fraction of real economic growth.
For my younger peers just entering the workforce, this gap is even more consequential. The directions are thus: start early, take advantage of compounding, and think long term. If we each had a dollar for every time we got the lecture about the “time value of money,” we’d all retire tomorrow. But we are also being funneled into portfolios that exclude entire categories of assets like private equity, private credit, real estate, and infrastructure that have historically delivered higher long-term returns and meaningful diversification.
Brett Arends at Market Watch incorrectly asserts that opening retirement plans to these assets would expose workers to high fees, illiquidity, and complexity. He misses a more important question: compared to what?
There’s real asymmetry. Institutional investors regularly allocate 20 to 30 percent of their portfolios to private markets. They do so because these assets offer diversification, illiquidity premiums, and exposure to parts of the economy unavailable in public markets. Ordinary workers are confined to a narrower universe because litigious zealots neutered the system, compelling fiduciaries to avoid risk at all costs.
This narrowing of investment options originates in the legal environment surrounding employer-sponsored retirement plans. Under the Employee Retirement Income Security Act of 1974 (ERISA), plan sponsors face an onslaught of litigation. The risk of lawsuits compels employers to increasingly default to the safest legal options rather than to the best outcomes for participants, thereby directly limiting potential returns.
Even if you set aside litigation, the deeper issue is structural. The retirement system hasn’t kept pace with the evolution of capital markets.
The proposed rule from the Department of Labor deserves serious attention. At its core, the rule introduces a safe-harbor framework for evaluating “designated investment alternatives” in defined-contribution plans. The definition encompasses everything from traditional mutual funds to more complex vehicles, including those that can incorporate private assets.
The framework is asset-neutral. It outlines how fiduciaries should choose. Plan sponsors are obligated to evaluate investments using a set of common-sense factors: fees, performance, liquidity, valuation, benchmarks, and complexity. If they do so objectively and analytically, they are presumed to meet their fiduciary obligations.
The White House’s Council of Economic Advisers suggests that younger participants could benefit from allocating up to 30 percent of their portfolios to private markets. Institutional investors have approached portfolio construction using private markets for decades.
Yet parts of the proposed rule undermine that very goal. A 15 percent cap on private assets—derived from SEC Rule 22e-4—would limit exposure, a particular problem for collective investment trusts, which are regulated differently and historically operated without such constraints.
Angela Antonelli offers helpful insights. Georgetown Univerisity’s research from the Center for Retirement Initiatives and other CRI analysis, even relatively modest exposure to private real assets, private credit, and private equity has the potential to boost outcomes by 7% to 8%, not just for the “average” DC participant but also across a range of more real financial savings patterns that DC participants too often find themselves in over the course of their working years.
Large institutions, from university endowments to public pension funds, routinely invest in private markets and reap the benefits of diversification and higher returns. We’ve created two classes of retirement savers: those with access to the full spectrum of capital markets, and those without.
That divide is the difference between participating in today's economy and being stuck in a version of it that no longer exists. Retirement policy should be about equipping workers to build wealth in the modern world.
Right now, my 403(b) originated on a promise that has become so antiquated it might be unattainable. Instead of “taxing the rich”, can’t we just be allowed to invest like them?
