Private markets in US DC plans: Moving to implementation 

For decades, private markets have played a role in defined benefit (DB) portfolios, with US DB plans allocating roughly a quarter of assets to private investments such as private equity, private credit, and real assets.¹ By contrast, US DC plans have typically maintained tiny allocations, if any at all.

However, this looks to be changing. The Department of Labor (DOL) has recently released proposed guidance on the inclusion of alternative investments within ERISA-covered DC plans, stemming from the August 7, 2025, Executive Order encouraging the DOL to do so. As the industry reviews and responds to the proposed guidance, plan sponsors and fiduciaries should consider the role private assets could play in their DC portfolios, and how they might implement them.

In fact, it may be some time before we see alternatives reaching DC portfolios en masse. We polled our LinkedIn audience on when they think alternative investments will become a widely available option in 401(k)s and other US DC retirement plans.² Just 21% said they would be adopted widely in 1 year, with more than a third (37%) predicting it would take 3 years. More than a quarter (26%) said it would take 5 years and 16% said it would never happen.

In our last article on the topic, we looked at lessons to be learned from Australia’s superannuation funds, which have maintained significant private market exposure for the last few decades. This time, we’ll zoom back in on the US to understand the questions that domestic DC plans are considering.

At the core of the discussion is fiduciary responsibility. ERISA requires plan fiduciaries to act prudently and solely in the interest of participants. The law as it stands does not prohibit private market investments in DC plans. Rather, it requires that any investment option be selected and monitored through a prudent process.

DOL’s recent proposal underlines ERISA fiduciary duties as process-based rather than outcome-based, introducing a principles-based framework that would enable fiduciaries to demonstrate prudence through the lens of six “safe harbor” factors – performance, fees, liquidity, valuation, benchmarks and complexity.

The proposal states that fiduciaries may select a fund with higher fees if they determine the cost is justified by the value proposition, but we must reiterate that the proposal is just the first step towards a final regulation that DC plan fiduciaries could definitively rely on.

However, it is important to emphasize that new regulatory guidance is unlikely to eliminate litigation risk. ERISA explicitly permits participant lawsuits alleging fiduciary breaches. Even with regulatory safe harbors, sponsors and fiduciaries may still face legal challenges.

In this context, thoughtful governance, documentation, and disciplined evaluation remain paramount. The regulatory environment may become more supportive, but fiduciary diligence will continue to be essential.

The limited adoption of private markets in US DC plans until now has been less about philosophy and more about structure.

Traditional private market funds were built for institutional investors operating in closed-end, drawdown vehicles with long lockups, irregular cash flows, and delayed deployment of capital. These structures typically experience “J-curve” effects in their valuations and require significant governance oversight.

DC plans, by contrast, operate in a daily valued, daily liquid environment. Participants expect transparent pricing, ease of contribution, and flexibility in reallocating balances.

Incorporating highly illiquid assets into that framework presents operational and administrative complexity. Fee transparency, valuation frequency, and participant communication also require careful consideration.

In addition, plan-level liquidity considerations — such as mergers, divestitures, or plan restructurings — can complicate implementation. For many sponsors, these structural mismatches have outweighed the potential diversification and return benefits.

As the DC landscape moves to be more open to private markets, the product landscape is adapting to meet it. Over the past decade, asset managers have introduced new structures designed to bridge the divide between traditional private market vehicles and DC operational requirements.

Evergreen and semi-liquid funds, for example, offer continuous investment structures, shorter or more flexible lockups, and periodic redemption features. While these vehicles may include gates or other liquidity controls, they represent a meaningful evolution from traditional drawdown funds.

In parallel, collective investment trusts (CITs) and public-private partnerships have emerged to wrap private exposures within DC-friendly structures. Some managers are offering bundled solutions, such as target date funds that integrate private equity, private credit, or infrastructure alongside public market exposures. Others are developing standalone private market allocations intended for use within custom target date frameworks or managed accounts.

Despite growing accessibility, private markets are not a universal solution. Allocating to alternatives does not automatically enhance outcomes. Manager selection, vehicle structure, fee design, and integration within the overall portfolio all matter.

Sponsors must begin by defining their objective. Is the allocation intended to enhance long-term growth? Provide income through private credit? Improve diversification and potentially smooth returns? The answer will influence both asset class selection and glide path design.

Plan size and governance capacity also play a role. Larger sponsors with custom target date funds and prior experience in private markets may be better positioned to evaluate and implement solutions. Smaller plans may prefer off-the-shelf products where asset allocation and liquidity management are embedded within the structure — such as target date or target risk funds.

Importantly, fiduciary committees must ensure their governance framework — including education, monitoring processes, and operational readiness — is robust enough to oversee more complex investments.

Modeling often suggests that incorporating private markets into DC portfolios may enhance long-term return potential and broaden diversification.³ As more operating companies remain private for longer, investing in privately held portfolio companies can expand a plan’s investable universe. Private credit and infrastructure may offer differentiated income streams and risk exposures.

Yet these potential benefits come with trade-offs.

Fees may be higher. Liquidity may be constrained at certain levels. Valuations may rely on appraisal-based methodologies rather than daily market pricing. These characteristics require careful consideration by plan fiduciaries as well as participant communication and education.

Committees can use the time between the proposed and final regulation to deepen their understanding of private markets, review governance frameworks, assess operational capabilities, and monitor regulatory developments. They can evaluate how evolving product structures align with their plan demographics and long-term objectives.

The conversation around private investments in US DC plans is no longer theoretical. The question for sponsors is less about whether private markets belong in DC plans in principle, and more about how they can be incorporated responsibly, in alignment with participant interests and fiduciary duty.

If you’d like to discuss this article or whether alternative investments may be a good fit for your DC plan, please contact us.

Register now for our Q2 DC Quarterly Update on May 6th where we'll discuss the DOL’s approach to fiduciary duties and alternative investments in DC plans, and how the comment period may shape what’s next.

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

_{¹ Bloomberg, Huw Van Steenis on the Next Big Thing in Private Credit, https://www.bloomberg.com/news/newsletters/2025-08-07/huw-van-steenis-on-the-next-big-thing-in-private-credit. Aug. 7, 2025.}

_{² n=124. All responses are sourced from Mercer Investment’s LinkedIn poll obtained March 31-April 2, 2026. It is important to note respondents of the poll did not receive a form of compensation for participation. It is important to recognize that poll results are subject to inherit limitations and uncertainties. The poll results may not capture all relevant factors or market conditions. These results should not be constructed as personalized investment advice. If you have any further inquiries or require additional information, please do not hesitate to contact us.} 

_{³ Source: Mercer research. “Looking to the future: The evolution of private investments in U.S. defined contribution plans”}