Lessons From Australia: How to Make Alternatives Work for US Defined Contribution Plans  

Alternatives are coming to US defined contribution portfolios, and plan sponsors need to be prepared.

The President’s signing of the “Democratizing Access to Alternative Assets for 401(k) Investors” Executive Order in August of last year fired the starting gun on bringing alternative investments such as private debt, private equity, infrastructure and more to DC plan participants across the US, and with the Department of Labor expected to release guidance in the near future, plan sponsors should examine the role alts can play in their portfolios.

The timing is opportune, coming after a period of sustained growth for private markets, which have seen huge inflows from wealth investors from around the globe. The shift from institutional towards a more individual investor base (such as those in participant-directed account plans) is spurring the creation of new products such as evergreen funds that may be better suited to those who have different liquidity needs.

However, the change brings its own challenges, namely around liquidity, asset valuations and access to the best managers. So how can US plan sponsors get ready?

Australia may provide a valuable example: Australian Superannuation Funds began including private assets in DC portfolios around 30 years ago. So, we spoke to colleagues at Mercer Australia to better understand the opportunities and challenges facing DC plan sponsors in the US.

While the US and Australian retirement systems differ in important ways, Australia’s experience offers practical lessons for US plan sponsors considering how these investments can play a role in improving retirement outcomes.

Australia’s superannuation system combines mandatory contributions, near-universal coverage and large, consolidated funds (commonly known as ‘supers’). Over time, this has produced significant scale, with some super funds managing hundreds of billions of dollars in assets.

That scale, however, quickly led Australia’s supers to find their opportunity set for investment domestically was dwindling. In response, Australian super funds began to invest beyond traditional public markets, incorporating private equity, private credit, infrastructure and real assets as core components of diversified portfolios.

In many cases, alternatives now represent up to 30% of growth-oriented default options¹, often overseen by private markets teams working within the supers themselves.

Liquidity is often cited as the primary barrier to including alternatives in DC plans. Public assets such as equities offer daily liquidity and transparent pricing, making it easier to calculate the value of a total pot and derisk as retirement approaches. Things are not always so simple for private market assets.

Australian super funds address this challenge not by forcing daily liquidity or daily valuation at the asset level, but by managing it across the entire fund, a practice we also see in the US.

Large and relatively stable contribution inflows help offset outflows, while liquidity stress testing is used to assess how portfolios would behave under severe market and withdrawal scenarios. Conservative assumptions are applied, often assuming no liquidity from private assets during periods of stress.

Australia’s experience, however, also illustrates that valuation risk does not disappear simply because private assets are widely used. Increased regulatory scrutiny and high-profile valuation failures have sharpened the focus on more frequent valuations, the need for independent valuation processes, trigger for valuation reviews, and trustee oversight — issues that the US market is seeking to address through daily valuations for DC private vehicles.

Most Australian super funds value private assets quarterly rather than attempting monthly or even daily proxy pricing. While this can create short-term smoothing effects, it reflects an acceptance that precision must sometimes give way to practicality in long-term portfolios.

Of course, the Supers have the advantage of scale in helping to manage risk — an advantage not always applicable to US plans. Managing liquidity risk may also require positive cash inflow, stability of assets and allocation flexibility, along with robust monitoring and a willingness to think beyond individual plan silos.

Consolidation has enabled super funds to build internal expertise, negotiate fees and manage liquidity more efficiently — all key to driving better outcomes through private markets.

The US DC system remains highly fragmented by comparison, relying on a higher number of individual, employer-provided retirement plans, which may make implementation more challenging for standalone plans.

However, there are ways to access the benefits private investments can offer, whether through outsourced chief investment officer (OCIO) solutions or structures such as pooled employer plans (PEPs) and bundled target-date funds.

One important caveat is that Australia operates in a very different fiduciary litigation environment. US plan sponsors face heightened fiduciary and legal scrutiny.

This reality makes delegation to professional fiduciaries, pooled structures or outsourced solutions especially important in the US context. Adoption of privates in the US is likely to be more incremental and cautious, and take-up of outsourced solutions such as PEPs may be higher as a result.

The US is unlikely to replicate Australia’s superannuation system wholesale in the near to medium term. However, it is already moving incrementally in that direction through expanded auto-enrollment, higher default contributions and greater use of pooled structures.

Australia’s experience suggests that alternatives can play a constructive role in DC plans, but only when supported by strong governance, liquidity management and clear accountability to solve for liquidity, valuations, fees and performance measurement.

Introduced thoughtfully, we believe alternatives have the potential to offer significant benefit to DC plan participants.

In our next edition, we’ll look at how DC plans here in the US are implementing alternatives already, and share our thinking on the best way to implement them in a US DC context.

Important notices

References to Mercer shall be construed to include Mercer (US) LLC and/or its associated companies.
© 2026 Marsh. All rights reserved. Please read here: Important notices