Beyond a new asset class: Private markets in DC plans 

For decades, defined contribution (DC) plans have helped millions of hardworking US workers build retirement savings through investments in public markets. At the same time, many of these individuals have missed out on a significant shift that has been taking place in the broader investment landscape.

Private companies are growing larger and staying private for longer, and much of that growth is currently only accessible to institutional investors and high-net-worth individuals. As of December 2024, there were nearly 12,000 private companies in the US compared to approximately 4,500 public companies.¹ As a result, much of today’s value creation occurs before companies enter the public markets, with many of the largest initial public offerings (IPOs) taking place after a significant portion of their growth has already been realized.

This shift has prompted a new conversation for plan sponsors: whether thoughtfully designed access to private market investments could provide participants with exposure to a broader set of privately held companies and investment opportunities that have historically been less accessible within DC plans.

Private equity, private credit and private infrastructure each offer characteristics that may complement traditional public market investments when incorporated within a diversified DC investment strategy. For younger participants with longer investment horizons and greater risk tolerance, private equity may offer the potential for enhanced long-term returns. For participants approaching retirement, private credit may offer higher yields and stronger cash flows relative to some public fixed income investments, while private infrastructure has the potential to provide long-term inflation protection.

Understanding the potential role of private markets is only the beginning. The challenge is determining how to incorporate these investments responsibly within a DC framework.

As interest in private market investments continues to grow, so does the importance of careful evaluation. Incorporating these investments into a DC plan isn’t simply about adding a new asset class to the lineup. While private markets may offer potential benefits, they also bring added complexity, including the need for substantial pools of capital and sophisticated management.

For plan sponsors, that means considering the full range of operational requirements of DC plans, including liquidity and valuation, disciplined benchmarking, clear participant communication, and robust oversight.

A core challenge sponsors can face is managing daily liquidity expectations. Many DC participants expect daily access to their account balances and the ability to make transactions, while many private assets are typically designed for longer holding periods and are not valued on a daily basis in the same way as publicly traded investments. To address this challenge, the industry has increasingly focused on incorporating private market exposure through professionally managed vehicles, such as target date funds or managed accounts, helping enable providers to smooth cash flows and manage liquidity centrally.

Even with these structures in place, providing daily account values is only part of the equation. Because daily values for private assets are based on estimates rather than “true” market prices, those estimates can be challenged, especially if they diverge from realized asset sales.

As plan sponsors continue to evaluate private market investments, governance remains at the center of the discussion, particularly in light of recent proposed guidance from the US Department of Labor.

Benchmarking private market investments presents another challenge. Unlike traditional public market investments, there is no universally accepted public index for many private asset strategies, and performance differences between managers can be significant.

As a result, plan sponsors should establish a clear rationale for performance evaluation, including benchmarks, long-term expectations, and monitoring processes. Documenting these decisions is an important component of a sound fiduciary framework.

Implementation choices also matter. Some plan sponsors may prefer packaged, off-the-shelf solutions developed through public-private partnerships. These packaged solutions may significantly reduce the administrative burden, but they do not eliminate fiduciary responsibility. Other plan sponsors may choose a more customized approach tailored to their participants. This path demands more resources, but it can potentially be a better match for plan demographics and objectives.

Regardless of the approach, effective implementation requires the same backbone of a strong governance framework, clear documentation of decisions, and ongoing evaluation.

The opportunity to include private assets in DC plans could narrow retirement gaps and give everyday workers access to growth that’s otherwise locked behind high minimums. But if plan sponsors fail to couple access to these investments with proper governance and fiduciary oversight, there is a potential risk in doing more harm than good.

This is about more than portfolio construction; it’s about honoring the trust participants place in their savings plans.