If CITs represent a quiet shift in structure, private markets represent a much louder test of the system. Over the past several years, regulatory guidance has opened the door—carefully, then more explicitly—to private equity and private credit inside defined contribution plans.
Following our look at vehicle migration, this post traces the policy arc that made private markets in DC plans possible, examines the new Investment Selection Rule, and explores why fiduciaries now face higher stakes even as regulatory processes appear clearer.
Chapter 5:
Private Equity and Private Credit in DC Plans: The Next Phase of the Perimeter Shift
Private Equity and Private Credit Inside DC Plans
The Policy Opening: A Regulatory Arc in Four Acts
For most of ERISA’s history, private equity and similar private-market strategies were effectively confined to defined benefit plans and large institutional investors. That began to change with the DOL’s June 3, 2020, information letter, and what followed is a regulatory arc now entering its fourth, and most consequential, phase.
Act One: The 2020 Information Letter. On June 3, 2020, the DOL issued an Information Letter in response to a request from Pantheon and Partners Group, addressing whether a fiduciary of a participant-directed individual account plan (such as a 401(k)) could offer professionally managed asset allocation funds that include a private equity component (such as a custom target-date, target-risk, or balanced fund) using a sleeve of private equity accessed through a collective trust or similar vehicle.
In their 2020 Information Letter, the DOL made the following points:
- A plan fiduciary may offer an asset allocation fund with a private equity component without automatically violating ERISA, provided the decision is prudent and in participants’ best interests.
- The analysis was limited to private equity exposure embedded in a diversified multi-asset fund, not offered as a standalone option on the core menu. Direct participant investment into private equity funds presents distinct legal and operational issues for fiduciaries of ERISA-covered individual account plans.
- Fiduciaries are expected to undertake an “objective, thorough, and analytical process” to evaluate diversification, expected risk/return net of all fees and carried interest, liquidity, valuation, and the capabilities of the manager before adding such a fund.
In effect, the DOL “opened the window slightly” for private equity in DC plans, under tightly framed conditions and with a strong emphasis on fiduciary process. Notably, the letter provided permission and process language, but no structured framework for how that analysis should be conducted or documented.
Act Two: The 2021 Supplemental Statement. In Dec. 2021, the DOL walked back some of the industry's more enthusiastic interpretations of the 2020 letter. In the supplemental statement, the DOL:
- Reiterated that the Information Letter did not endorse or recommend private equity in 401(k) plans; it merely described circumstances under which it might be prudent.
- Expressed concern that the original letter had presented private equity’s potential benefits largely from the industry’s perspective, without balancing them against independent research or counterarguments.
- Emphasized that direct application to typical small DC plans was not presumed appropriate, stating that for “the majority of cases,” fiduciaries of smaller individual account plans were unlikely to have the expertise to evaluate these investments as designated alternatives.
The tone was unmistakably cautionary: proceed only in limited circumstances, and only with substantial expertise and advisor support.
Act Three: The 2025 Executive Order and Rescission. In August 2025, a new Executive Order directed the DOL to facilitate broader access to alternative investments (private equity, private credit, real estate, and other private assets) in 401(k) plans. Within days of the Executive Order, the DOL rescinded the 2021 Supplemental Statement, explicitly noting that it had a “chilling effect” and was inconsistent with a neutral, principles-based approach to fiduciary investment decisions.
Act Four: The 2026 Investment Selection Rule. On March 30, 2026, the DOL released its long-anticipated proposed rule: Fiduciary Duties in Selecting Designated Investment Alternatives (the "Investment Selection Rule"). This is the formal rulemaking deliverable from the August 2025 Executive Order, and it closes the regulatory arc that began with the 2020 Information Letter.
The rule is notable for what it is and for what it is not.
What it is: an asset-neutral, process-focused codification of the fiduciary standard for selecting designated investment alternatives of any kind. The rule identifies six factors that fiduciaries must "objectively, thoroughly, and analytically consider" when selecting investments:
- Performance
- Fees
- Liquidity
- Valuation
- Performance benchmarks
- Complexity
This six-factor framework effectively operationalizes the analytical process that the 2020 Information Letter described but never structured. Committees evaluating private-market options now have DOL-endorsed analytical architecture to point to, a meaningful procedural advance over the prior "objective, thorough, and analytical process" standard, which left the specific dimensions of that process largely undefined.
What it is not: a judicially validated litigation safe harbor. The rule does not guarantee that a fiduciary who follows the six-factor framework will be protected from an ERISA breach-of-prudence claim. The DOL expressly lacks authority to immunize fiduciaries from private litigation, and the rule's comment period leaves its final form uncertain. Analysts at TD Cowen captured the critical limitation plainly: the rule appears to represent what the DOL can do within its regulatory authority, but sponsors and their counsel should not expect it to meaningfully insulate them from litigation until courts have concurred that compliance with this framework constitutes a successful prudence defense. That judicial validation could take years.
As of this writing, the Investment Selection Rule is proposed, not final. It may be modified in response to comments before finalization, and it carries the same administration-change vulnerability as the guidance it replaced.
The Litigation Cloud: Anderson v. Intel
Layered over the Investment Selection Rule is a more immediate uncertainty: the Supreme Court's pending decision in Anderson v. Intel Corp. The Ninth Circuit allowed ERISA fiduciary-breach claims challenging private equity allocations within a target date structure to survive the pleading stage. This is a meaningful development, since prior case law had made it difficult to bring such claims at all. The Supreme Court granted certiorari on Jan. 26, 2026.
The implications are significant. Anderson will likely clarify whether ERISA plaintiffs can challenge private-market allocations embedded in diversified defaults as imprudent per se, or whether fiduciaries can defend such allocations on process grounds. The Investment Selection Rule's six-factor framework is essentially a process defense, and its utility as legal protection depends entirely on whether courts accept process compliance as a sufficient response to outcome-based challenges.
Until Anderson is decided, the litigation ceiling has not moved. The Investment Selection Rule lowers the regulatory ambiguity floor; it does not change the exposure a plan sponsor faces if a private-markets sleeve in their QDIA underperforms, gates, or results in adverse participant outcomes. Sponsors and their outside counsel who are waiting for judicial clarity before proceeding are making a rational choice that no regulatory guidance can currently displace.
Industry Response: Private Markets as the “Next Frontier” for DC
Asset managers and recordkeepers have read the regulatory signals as an invitation to build new DC products that incorporate private markets into TDFs and multi-asset defaults, which dominate asset collection in defined contribution plans.
A few examples and data points:
- BlackRock has publicly laid out its vision for integrating private equity, private credit, infrastructure, and real estate into TDFs, positioning “private markets in target date funds” as a way to enhance retirement outcomes. Its materials describe a purpose-built TDF design with calibrated private-asset sleeves and an explicit focus on liquidity, fees, and transparency.
- In mid-2025, BlackRock announced a new TDF series, built with Great Gray Trust, that will allocate roughly 5–20% of assets to private markets over the glidepath, with launch targeted for the first half of 2026.
- Other large firms—Apollo, Franklin Templeton, Goldman Sachs, among others—have announced or are developing DC solutions with private equity or private credit exposures, typically accessed through CITs or fund-of-funds structures embedded in TDFs or managed accounts.
The adoption curve is still early but steepening. A 2025 BlackRock/industry survey cited in trade coverage found that roughly 21% of DC plan advisors expected to add private market investments to plans they manage, with target-date strategies as the preferred delivery mechanism. A late-2025/early-2026 adviser survey reported that about one-quarter of plan advisers already recommend, or expect to recommend, alternative investments in DC menus following the 2025 policy shift. Among those, 43% mentioned private equity and 42% private credit as categories they recommend or expect to recommend.
The marketing proposition is straightforward:
- Return enhancement and diversification. Firms such as BlackRock estimate that adding private assets could improve TDF returns by on the order of 50 basis points per year, which compounded over a 40-year horizon could raise participant balances by around 15%.
- “Institutionalization” of DC portfolios. By incorporating private equity and private credit—assets long used by DB plans and endowments—TDFs are pitched as giving DC participants access to the same opportunity set as large institutions.
In short, private equity and private credit are being framed as the “next frontier” for DC plan innovation, but one that comes with nontrivial complexity and cost.
How Private Equity and Private Credit Regimes Differ from Public Equity
From a participant’s statement, a TDF with a private markets sleeve looks like any other diversified fund. Under the hood, however, private equity and private credit operate under regimes very different from those that govern public equity and traditional mutual funds.
Key differences include:
Structure and time horizon
- Private equity and private credit funds are typically closed-end, limited-partnership vehicles with multi-year investment and harvest periods, often 8–12 years or longer. Investors commit capital upfront, which is drawn down over time through capital calls and repaid as investments are exited.
- There is generally no daily liquidity at the underlying fund level; transfers are restricted, and secondary sales, if available, are negotiated, not exchange-traded.
By contrast, public-equity mutual funds and ETFs offer daily dealing at NAV, with underlying securities traded on public markets and subject to exchange and reporting rules.
Disclosure and transparency
- Private funds typically rely on exemptions from Securities Act registration (e.g., Regulation D) and from 1940 Act registration. They provide offering memoranda and periodic investor reports, but there is no standardized, public filing regime comparable to mutual fund prospectuses and shareholder reports.
- Information on holdings, portfolio companies, and performance methodologies is often limited and available only under confidentiality restrictions, making independent third-party analysis harder.
Public-equity funds, by contrast, must comply with SEC-specified disclosure formats, publish holdings with some regularity, and file reports that are publicly accessible and subject to enforcement.
Valuation and pricing
- Private equity and private credit positions are typically valued quarterly (or less frequently) using appraisal-based methodologies, discounted cash flows, or comparable multiples rather than exchange prices. Valuations involve significant judgment by the manager and its valuation committees.
- DOL’s 2020 letter acknowledges this, emphasizing that fiduciaries must consider the valuation approach and whether the asset-allocation fund has features to handle capital calls and participant liquidity needs.
Public-equity portfolios, while not free from valuation questions, benefit from observable market prices and daily pricing of the fund itself.
Fees and costs
- Private equity and private credit funds generally charge management fees plus performance allocations (carried interest), and may layer on transaction, monitoring, and other portfolio-company-level fees. A DC participant’s exposure is often further layered through a fund-of-funds or CIT structure.
- Industry analyses highlight that, even after some institutional fee breaks, private strategies tend to increase the total expense ratio of TDFs that include them, relative to all-public-market counterparts.
Mutual funds and ETFs, by contrast, face intense fee competition and a mature disclosure regime for expense ratios and trading costs.
Governance and oversight
- Investors in private funds typically have limited governance rights. They may serve on limited partner advisory committees, but operational decisions remain with the general partner, subject to the partnership agreement.
- There is no independent board governed by the 1940 Act, nor the same style of SEC oversight; instead, protections rely on contract, general anti-fraud rules, and, for retirement assets, ERISA fiduciary duties at the plan and product-design level.
For DC participants, the practical implication is that when private equity or private credit is embedded in a TDF or other default, they are indirectly exposed to an asset class whose legal and operational norms are materially different from the public-equity world they’re used to.
Participant-Facing Implications
From the participant’s vantage point, private equity and private credit typically show up as invisible components of a familiar-looking option: “2045 Retirement Fund,” “2050 Target Retirement,” or a “Balanced Growth Fund.” The private sleeve is not a menu choice; it is an ingredient.
That has several implications:
- Limited ability to assess or act on the exposure. Participants do not select “private equity” or “private credit” directly; they select a TDF or balanced fund that happens to include these assets at the design level. As a result, participants cannot adjust, increase, or decrease the private-markets sleeve specifically; their only lever is to move out of the entire default or TDF, requiring them to make more ongoing and affirmative elections about the investments in their account. Yet, the characteristics of that embedded sleeve (higher fees, illiquidity, valuation practices) can materially influence long-term outcomes.
- Communication and comprehension challenges. The DOL’s 2020 letter assumes that fiduciaries and managers will design products that maintain sufficient liquidity to handle participant contributions, exchanges, and withdrawals. The letter expects that the private-equity allocation is limited and calibrated to participants’ horizons and plan demographics and that disclosures appropriately describe the strategy, including its risks and fees. Turning that into clear participant communications, however, is nontrivial. Plain-language explanations of what it means to own illiquid assets through a daily-priced fund, how valuations are determined, and why fees are higher but allegedly justified, are difficult to deliver in a two-page fact sheet or a short web module, particularly for participants with low financial literacy. Additionally, ERISA’s focus on additional disclosures has done little more than prove that most disclosures are not read by participants and, as a result, don’t impact behavior.
- Expectation and trust risk. Because the product label and participant experience (daily balance updates, familiar risk descriptors) look similar to traditional TDFs, there is a risk of expectation mismatch. Participants may assume “this is just like any other mutual fund” when, in reality, a portion of the portfolio behaves very differently in stress scenarios. If private exposures underperform, are gated, or exhibit valuation surprises, participants may feel blindsided, eroding trust not just in the specific product but in the plan as a whole.
Fiduciary Burden and Litigation Risk
For plan sponsors and investment committees, the decision to embed private equity or private credit in DC options is not a simple product selection; it is a governance and risk decision with long-tail implications.
The Investment Selection Rule's six-factor framework establishes a cleaner process architecture than fiduciaries previously had, and that is a genuine improvement. Committees can now structure their due diligence explicitly around the DOL's own framework, document against each factor, and point to the regulatory authority for the process they followed. That is worth something, particularly in establishing that the committee approached the decision seriously and consistently.
What the rule does not provide is outcome protection. As noted above, judicial validation of the six-factor framework as a sufficient prudence defense does not yet exist, and Anderson v. Intel may define that boundary before the rule is even finalized. The ERISA standard has not changed; what has changed is the procedural clarity around how to meet it. Any fiduciary who reads the Investment Selection Rule as a green light rather than as a minimum threshold is misreading both the rule and the litigation environment.
The 2025 rescission of the 2021 supplemental statement removed a chilling signal, and the Investment Selection Rule adds a process framework, but neither development altered the underlying ERISA standard or the willingness of plaintiffs' firms to challenge private-market allocations. The recent wave of DC fee and investment-option litigation has already shown that plaintiff firms are willing to challenge choices that deviate from simple, low-cost public-market solutions. In the event of litigation, courts examine the process: what committees knew, what they considered, and how they documented their decisions.
If a plan adopts a TDF with a private-markets sleeve, and that sleeve significantly underperforms or creates liquidity or valuation stress, plaintiffs can be expected to argue that the added complexity and cost were imprudent, especially if simpler alternatives were available.
Even if litigation risk does not materialize, adverse headlines around “401(k) private equity blow-ups” or “locked-up retirement assets” would carry material reputational costs for sponsors.
Private equity and private credit can be integrated into DC defaults, but doing so moves fiduciaries into a higher-stakes prudence regime. The legal standard has not changed; what changes is the level of expertise, documentation, and governance required to credibly defend the decision when, not if, it is tested.
In the next section of the paper, we will step back from private markets specifically and look at the broader economic and structural forces that are pushing DC assets toward the edges of the traditional investor-protection perimeter.
Private markets aren’t the only edge‑of‑perimeter exposure reshaping DC menus. Insurance‑based products and emerging asset classes raise similar questions about participant understanding and protection. In the next post, we’ll turn to stable value funds, annuities, and crypto to see where the system is being pushed—and stress‑tested.
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