SEC prioritizes private market investments in 401(k)s in new report

In recent discussions within the financial industry, the topic of private market investments in retirement plans has garnered significant attention. Larry Fink, the CEO of BlackRock, a leading asset management firm, advocated for the incorporation of private assets into 401(k) plans in his recent investor letter. This call for increased private market investments in retirement accounts has prompted Empower, a major 401(k) plan provider, to introduce a new program facilitating the inclusion of private markets investments in defined contribution plans.

As the SEC’s Office of the Investor Advocate outlined in its Report to Congress, the agency has prioritized the assessment of risks and benefits associated with private market investments in retirement accounts as a key objective for the year 2026. This strategic move comes in response to the growing interest in alternative investments like private equity and private credit within retirement savings plans. The report underscores the need to explore the implications of including these alternative investments in retirement accounts and the potential risks and rewards they present to retail investors.

Jeremy Stempien, a Portfolio Manager and Strategist for PGIM DC Solutions, highlighted the significance of private market investments, emphasizing their relevance in the evolving landscape of retirement savings. Stempien pointed out that alternative investments such as private equity and private credit have been underutilized in defined contribution plans but hold substantial potential, particularly in the context of shifting economic conditions and retirement planning dynamics.

Empower has collaborated with established private markets managers and custodians, such as Apollo, Franklin Templeton, and Goldman Sachs, to offer private investment opportunities through collective investment trusts (CITs) starting later this year. While private markets have historically demonstrated strong performance, they have been predominantly inaccessible to most retirement plan participants. This move by Empower to provide access to private market investments seeks to address this gap and offer participants a broader range of investment options for portfolio diversification.

The SEC’s Investor Advocate, Cristina Martin Firvida, emphasized the importance of addressing investors’ concerns and serving as an intermediary between investors and the Commission. The report acknowledged the rising popularity of private markets as a means to expand investment opportunities and diversify portfolios but also cautioned about the associated risks, such as limited liquidity and potential investment loss.

Looking ahead, the SEC’s Investor Advocate plans to examine the complex issues surrounding fiduciary duties under the Employee Retirement Income Security Act of 1974 when defined contribution plans offer private investment products. This comprehensive approach aims to ensure that plan sponsors navigate the regulatory landscape effectively and make informed decisions when incorporating private market investments into retirement savings plans.