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Private equity, private credit, real estate and other alternative investments have traditionally been associated with institutional investors, defined benefit pension plans and wealthy individuals—not the typical 401(k) participant. That could be changing.
In March 2026, the Department of Labor (DOL) proposed new regulations designed to provide plan fiduciaries with a clearer framework for evaluating investment options that include alternative assets (as of August 2026, the proposal remains under DOL review following the close of the public-comment period; its provisions could change before a final rule is issued).
The proposed rule does not require 401(k) plans to offer private investments, nor does it suggest they are appropriate for every plan. Instead, it seeks to clarify how fiduciaries can evaluate a broader range of investments while continuing to satisfy their responsibilities under ERISA.
For plan sponsors, the message is less about rushing to add private investments and more about understanding an evolving investment landscape.
What Would the DOL Proposal Change?
The DOL's proposed rule, Fiduciary Duties in Selecting Designated Investment Alternatives, establishes what the agency describes as an asset-neutral approach to investment selection.
Rather than treating certain asset classes differently, fiduciaries would evaluate investment options using a prudent process focused on factors relevant to the particular investment and plan. The proposal also establishes process-based safe harbors that fiduciaries could use when selecting and monitoring investment alternatives.
Among the factors identified by the DOL are investment performance, fees and expenses, liquidity, valuation, appropriate benchmarks and investment complexity.
Importantly, the proposal does not mean participants would suddenly be selecting individual private equity or private credit investments alongside their stock and bond funds. The DOL anticipates that one of the primary ways private-market exposure could enter 401(k) plans is through professionally managed investments such as target date funds.
Why Private Markets Are Getting Attention
One argument for expanding access is that public markets represent only part of today's investment universe. Many companies remain privately held longer than they once did, potentially leaving individual investors with fewer opportunities to participate in their earlier stages of growth.
Proponents also argue that adding carefully managed exposure to private equity, private credit, infrastructure or real estate could provide additional diversification and potentially improve long-term risk-adjusted returns.
Recent Investment Company Institute (ICI) research illustrates the potential. In simulations covering a 40-year working career, a target date fund with a 20% private-market allocation produced a median ending account balance 12% higher than a comparable public-market-only portfolio. The analysis also found potential diversification benefits and lower estimated volatility from portfolios incorporating private assets.
Those findings shouldn't be interpreted as a guarantee. Private investments can underperform, and historical or modeled results cannot predict future returns. But they help explain why the retirement industry is increasingly examining whether private markets could play a role in defined contribution plans.
The Potential Benefits Come With Trade-Offs
Private investments introduce characteristics that differ considerably from the publicly traded investments familiar to most 401(k) plans.
Liquidity is one concern. Public stocks and bonds generally can be bought and sold readily. Private investments may require investors to commit capital for much longer periods, creating additional considerations for plans that must accommodate participant distributions, transfers and other transactions.
Valuation can also be more complicated. Public securities have readily observable market prices. Determining the value of a privately held company or other private asset may require estimates and independent valuation procedures.
Fees and expenses may be higher. Private-market strategies often involve more complex management structures and costs. Plan fiduciaries must evaluate whether expected benefits justify those additional expenses.
Finally, complexity itself matters. Understanding the structure, risks, valuation methodology and liquidity provisions of a private-market investment may require expertise beyond what a typical plan committee possesses internally.
Fiduciary Responsibility Isn't Going Away
Perhaps the most important takeaway for plan sponsors is what the proposal does not change: ERISA's fundamental duties of prudence and loyalty.
A regulatory safe harbor isn't a free pass for an investment decision. Fiduciaries would still need to follow a prudent process when selecting and monitoring investments and determine whether an option is appropriate for their particular plan and participants.
That could require evaluating the demographics and characteristics of the participant population, investment objectives, expected risk and return, fees, liquidity, valuation practices and the qualifications of the investment manager.
Documentation will remain important as well. Committees should be able to demonstrate not simply what they decided, but the process and information they used to reach the decision.
Don't Expect an Overnight Transformation
Despite the attention surrounding private markets, plan sponsors shouldn't expect 401(k) menus to look dramatically different tomorrow.
As of August 2026, the regulation remains a proposal, and the DOL received thousands of comments representing differing views. Supporters argue that clearer rules could expand diversification opportunities and reduce litigation concerns that have discouraged sponsors from considering alternative investments. Critics have raised questions about fees, valuation, liquidity, complexity and whether the investments are appropriate for participants who may not fully understand them.
Even after a final rule, adoption is likely to be gradual. Recordkeepers, asset managers, consultants and plan fiduciaries will need to address operational issues as products designed specifically for the defined contribution marketplace continue to develop.
For many sponsors, the most likely first encounter with private investments may therefore be within a professionally managed option—particularly a target date fund—rather than as a stand-alone choice on the plan menu.
How a Plan Advisor Can Help
For plan sponsors, this evolving environment underscores the value of having a disciplined investment review process. A knowledgeable retirement plan advisor can help a plan committee understand the DOL's evolving guidance and evaluate whether private-market exposure deserves consideration in the first place. If it does, the advisor can help compare available options, analyze fees and performance expectations, assess liquidity and valuation practices, evaluate investment managers and determine how an option fits within the plan's overall investment lineup.
An advisor can also help sponsors conduct appropriate due diligence, benchmark alternatives and document the committee's evaluation and decision-making process. And importantly, the conclusion may be that no change is warranted.
Informational Resources: PLANSPONSOR: “DOL Proposal on Alternative Investments in DC Plans Includes Safe Harbor” (March 30, 2026); U.S. Department of Labor: “U.S. Department of Labor Proposes Landmark Rule to Expand Investment Opportunities for 401(k) Savers” (March 30, 2026); Investment Company Institute: “Bringing Economic Analysis to the Debate Over Private Markets in Defined Contribution Plans” (July 9, 2026); 401kSpecialist: “Industry Leaders React to DOL Proposal Expanding Alternatives to 401(k)s” (March 30, 2026).
Kmotion, Inc., 12336 SE Scherrer Street, Happy Valley, OR 97086; 877-306-5055; www.kmotion.com
©2026 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.
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