These regulatory changes could open the door to more private equity in 401(k)s

HR leaders can expect new guidance from federal agencies in 2026 aimed at making it easier for employers to offer non-traditional investment options, like private equity, in their 401(k) plans. This expected shift in the regulatory landscape follows President Donald Trump’s endorsement of investments, which have historically been considered too risky for 401(k)s, in an Aug. 7 executive order.

Just 11% of 401(k) plans included an alternative asset class in their investment menu as of 2024, according to the Plan Sponsor Council of America, HR Brew previously reported. But which policy changes could get more plan sponsors on board? We spoke to retirement industry leaders and legal experts to find out.

A safe harbor. One of the main concerns that’s kept employers from adding alternative assets to their 401(k) plans is fear of litigation, sources told HR Brew. Intel is one high-profile example of the legal risks that these investments carry, as 401(k) participants sued the company in 2015 for investing some of its retirement plan assets in hedge funds and private equity. In doing so, the plaintiffs alleged, the plan fiduciaries breached their duties under the Employee Retirement Income Security Act (ERISA).

While Intel ultimately won, cases like this one nevertheless seem to have spooked total rewards leaders from considering such options for their workforces. Class action lawsuits targeting defined-contribution plans such as 401(k)s are on the rise this year, further adding to the uncertain legal environment.

“Unfortunately, by design, we have a system that makes employers, as plan sponsors, very risk averse, because they are easily sued for being innovative,” said Angela Antonelli, executive director and founder of the Center for Retirement Initiatives at Georgetown’s McCourt School of Public Policy. “Plan sponsors today are in a tough spot because of how litigious our system is.”

Antonelli and other retirement industry leaders hope policymakers will address this issue in the near future.

Protecting plan fiduciaries from litigation risk “would be necessary in order to move the needle” on private equity in the defined-contribution space, said David O’Meara, head of defined-contribution investment strategy with consulting firm WTW. If that doesn’t change, “we won’t have significant adoption of private markets and defined-contribution plans anytime soon.”

Legal experts said employers could gain some degree of protection if the Department of Labor issued a safe harbor regulation regarding alternative assets. Such regulations shield plan sponsors from litigation if they follow specific guidance set forth by the federal government.

A roadmap. Any safe harbor would likely be accompanied by DOL guidance that lays out how employers can incorporate alternatives into 401(k) plans in a legally compliant way, retirement industry experts said.

ERISA requires plan fiduciaries to act prudently and solely in the interest of their plan participants. Those standards aren’t likely to change unless Congress decides to act, said Thomas Hogan, a counsel in the employee benefits and executive compensation practice group with law firm Haynes Boone. The DOL could put out a “road map” detailing how plan fiduciaries could offer alternative assets in their defined-contribution plans while still meeting their obligations under ERISA, he suggested. They could lay out this road map through opinion letters or regulations, for example.

Holly Verdeyen, defined-contribution business leader with the consulting firm Mercer, said she anticipates the DOL may issue some “subregulatory guidance in the short-term,” such as an opinion letter or tip sheet, explaining how plan fiduciaries “might think about evaluating these types of solutions.”

In the longer-term the DOL could consider a rulemaking change to ERISA, but that process could take at least 18 months, Verdeyen said.

A group of professional associations including the American Retirement Association and the HR Policy Association asked the DOL to “swiftly provide subregulatory guidance,” and commit to “promptly follow up with notice-and-comment rulemaking” in a Sept. 4 letter to Labor Secretary Lori Chavez-DeRemer.

The DOL has already taken some actions to this end, rescinding 2021 guidance that cautioned fiduciaries against adding private equity to 401(k) plans, for example. The agency has also said it intends “to issue a notice of proposed rulemaking that clarifies the duties that a fiduciary owes to plan participants under ERISA when deciding whether to make available to plan participants an asset allocation fund that includes investments in alternative assets, including potential safe harbors.”

Risks remain. Employers seeking to add alternative assets to their 401(k) investment menus will still have to tread carefully, even if the DOL provides a road map for doing so.

While a safe harbor could limit enforcement actions against employers, it wouldn’t prevent them entirely from getting sued, sources told us. Regulatory guidance won’t give employers “a license to go out and and select alternative investments for a 401(k) plan overnight, just because the Department of Labor said so,” said Ian Levin, a partner with the employment and employee benefits group at law firm McDermott Will & Schulte.

Levin observed that ERISA lawsuits are much more common today than they were 25 years ago, and said he wasn’t sure how the DOL could “lessen that risk.”

HR teams will also have to consider the possibility that guidance favoring alternatives in 401(k)s will be rescinded by a future administration. While federal agencies can rescind guidance in a day, it’s much more complicated for employers to withdraw from retirement products if they’re no longer considered favorable under the law, Verdeyen noted.

“As quickly as this administration giveth this supportive guidance, the next one could taketh away,” she said.