Private Equity is Coming for Your 401(K): How To Protect Yourself

Private equity firms are aggressively pushing to access Americans tax-deferred defined contribution plans like 401(k)s. As industry executives and lobbyists told the Financial Times earlier this month, the industry is preparing to lobby the incoming Trump administration to let retirement savers invest in private equity funds through their tax-deferred contribution plans.

Any such change could fundamentally shift how many Americans invest for retirement—creating significant dangers for mainstream investors who might not understand these opaque, high-risk, and expensive investments. Below, we take you through what you need to know.

Key Takeaways

• Private equity (PE) firms are seeking access to the 401(k) market, building on regulatory changes from Trump’s first term.
• Critics warn that private equity investments typically carry higher fees, less transparency, and less liquidity than traditional 401(k) and individual retirement account (IRA) investment options.
• Even if regulations change, plan administrators may be hesitant to offer private equity investments because of fiduciary concerns and potential legal liability.

What Is Private Equity?

PE is an alternative investment class centered around providing finance in exchange for an equity stake in companies not listed on stock exchanges. PE funds pool together money from investors and use that capital to make investments, often by buying a controlling interest in a company perceived as undervalued, finding ways to boost its value out of the public eye, and then selling it for a major profit.

Private equity is often the target of public controversy. For example, a bipartisan January 2025 U.S. Senate Budget Committee staff report revealed how private equity firms’ prioritization of profits over care led to “negative consequences for patients and providers” in vulnerable communities across the U.S.

Why 401(K) Providers Have Historically Been Prevented From Including Private Equity Investments

The Employee Retirement Income Security Act blocks private equity from gaining access to 401(k)s because these investments often use leverage, are far less liquid than public funds, have higher fees, disclose less information than traditional funds, and tend to be harder to value from the outside.

How the Trump Administration Could Change This

Private equity executives view Donald Trump as their best chance of getting their investment offerings into American retirement plans. In June 2020, under Trump’s first administration, the Department of Labor issued guidance permitting the inclusion of certain private equity investments in professionally managed funds like target-date funds.

The subsequent Biden administration, while leery, didn’t intervene, and now Trump, whose campaign was backed by private equity executives, could lead an administration that further loosens these rules.

If successful, this push would dramatically expand private equity’s reach. American direct contribution and individual retirement accounts hold about $37.8 trillion—and the private equity industry is eager to get their hands on some of these funds.

What It Would Mean for Investors

While private equity investments would offer more choices and potentially higher returns, they have significant drawbacks. These investments typically carry higher risks, charge steeper fees, and offer limited liquidity—the ability to get out of the investment should you need to. They are also less transparent, making them more difficult to assess than traditional retirement investments.

How Investors Could Protect Themselves

Even if regulations change, investing in private equity through your 401(k) would remain optional. Many plan administrators would avoid offering these funds because of liability concerns, and employees would still need to choose funds with private equity in their menu of options.

The best protection is staying informed: monitor your retirement investments, ensure they match your risk tolerance, consider the fees involved, and consult a neutral professional with any questions.

The Bottom Line

As private equity seeks entry into 401(k) plans, investors should proceed with caution. While these investments might offer new opportunities, they typically carry more risk than traditional mutual funds and exchange-traded funds. Before considering any private equity investment, carefully evaluate its strategy, costs, and alignment with your retirement goals.