Labor Department proposes private equity safe harbor for 401(k) plans

The Department of Labor has proposed a safe harbor that would give plan fiduciaries legal protection when they add private equity to 401(k) menus, according to the Miami Herald, as reported by Quartz. The proposal was issued on March 30 and follows an August 2025 executive order directing the agency to lower barriers to alternative assets in retirement plans. Under the proposed framework, employers that complete the specified evaluation steps would keep their protection even if the selected products cost materially more than current menu options.

Cost is the central point of contention. A 2026 white paper from the Americans for Financial Reform Education Fund put the average expense ratio of a private equity evergreen fund at 3.9%, plus potential sales charges of 3% to 5%. By comparison, equity mutual funds averaged 0.40% in 2025, and an S&P 500 index fund can charge as little as 0.03%, roughly 130 times less than the private equity fund.

Morningstar simulated private equity exposure inside 401(k) accounts using participant data on ages, salaries, and contributions, according to the Miami Herald. Under conditions modeled on the 2022 downturn, assets in a private equity collective investment trust fell nearly 40%. The analysis concluded that semi-liquid private equity vehicles may require liquidity sleeves of up to 40% of total assets to withstand clustered withdrawals.

Hal Ratner, Global Head of Research at Morningstar Investment Management, said the main benefit of adding private markets to a retirement plan "may likely be a diversification benefit, as opposed to astronomical returns." Jim Baker, Executive Director of the Private Equity Stakeholder Project, said the proposed rule weakens protections for retirement savers.