How alternative investments are innovating DC retirement plans

How alternative investments differ from traditional stocks and bonds

Private asset alternatives are a subcategory of alternative investments, which are assets that fall outside the traditional categories of publicly traded stocks, bonds, and cash. Since these assets are bought and sold in private markets, their securities aren’t subject to the daily market swings that affect publicly traded stocks and bonds. So, when they’re added to a traditional, diversified portfolio, private asset alternatives can help smooth out volatility over time.

Another key distinction is liquidity. While traditional assets are highly liquid, private asset alternatives are subject to deposit and redemption restrictions that limit how quickly investors can sell them. In exchange for committing capital for longer periods, private asset alternative investors can earn an additional return, known as an illiquidity premium. 

Common types of private assets

Factors driving the growth of alternatives in retirement plans

An asset category once limited to qualified investors and institutions, including defined benefit plans, is now opening to DC plans. Several factors are driving this trend.

• Market potential—A modest 5% allocation to alternatives in 401(k)s could unlock over $1 trillion in new assets under management by 2030.
• Proven track record—U.S. private equity generated the highest returns of any asset class over 5-, 10-, 15-, and 20-year investment horizons.¹ 
• A favorable regulatory environment—Following a mid-2025 executive order to democratize access to alternative assets, the U.S. Department of Labor (DOL) began easing regulatory barriers that have largely kept DC plan fiduciaries from offering alternative investments. 
• While ERISA has always allowed alternative investments in DC plans, earlier this year, the DOL issued proposed regulations to provide a clearer framework for plan fiduciaries. Key points include:
  • A process-based safe harbor that outlines how to prudently evaluate and select alternative investments, offering fiduciaries protection from litigation risks. 
  • Generally, alternative investments should be offered in professionally managed, diversified vehicles such as target-date funds (TDFs) rather than as standalone options.
  • Fiduciaries are responsible for managing participant redemption needs, even when offering alternative investments with lower liquidity, such as private equity or real estate.
• Interest from financial professionals—More than 40% of advisers already recommend or are likely to recommend private equity and private credit for DC plans.²
• Participant awareness—In 2025, 45% of participants said they’d invest in private debt or private equity if their workplace plan offered them, up from 36% in 2024.³
• Longevity—The number of people living to 100+ is expected to quadruple over the next 30 years.⁴ As lifespans rise, DC sponsors, financial professionals, and participants are seeking more resilient, long-term investment strategies that can help fund retirements that could last 30 to 40 years.

How plan sponsors can access alternative investments in 401(k) plans

Typically, private asset alternatives are integrated into a TDF's glide path and structured in a professionally managed vehicle, usually in a collective investment trust (CIT), managed account, or advisor managed account. Participants get indirect exposure to alternatives in a familiar target-date series, without the complexity of selecting individual investments. Some recordkeepers may offer fee credits or pricing advantages for CITs, and those savings can be passed on to plan sponsors and their participants. 

How private asset alternatives can improve retirement portfolio performance 

Private asset alternatives bring several benefits to traditionally diversified retirement portfolios. 

• May improve participant outcomes—When a 10% public equity sleeve was replaced with private equity in a DC TDF, annual returns increased by approximately 22 basis points (0.22%) and improved outcomes for nearly 80% of participants over a 10-year period.⁵
• Enhances diversification—Private asset alternatives don’t move in the same direction as public markets, helping balance portfolio losses from public-market downturns.
• Access to new growth opportunities—The number of U.S. public companies has declined by nearly 50% since the 1990s.⁶ More early-stage and innovative companies are staying private, creating new growth opportunities for private asset investors.
• Long-term return potential—Private asset alternatives have long-term investment horizons tied to illiquidity premiums, which can provide additional return over time.

The next innovation in retirement planning

Private asset alternatives are innovating DC plans by boosting diversification, reducing volatility, and potentially enhancing long-term participant returns. New regulations, including safe harbor provisions, along with DC-compliant options such as target-date CITs, are helping democratize access to alternative investments. Plan sponsors and financial professionals can work together to determine how to integrate alternative investments into their plans to help improve participant outcomes.

1 “Private equity delivers stronger long-term returns than any other asset class,” American Investment Council, 12/8/25. 2 “Outlook: Alts in DC plans move from ‘Can we?’ to ‘How do we do it safely?,’ PLANSPONSOR, 12/19/25. 3 “Private markets in workplace retirement savings plans,” Schroders U.S. Retirement Survey, 2025. 4 “U.S. centenarian population is projected to quadruple over the next 30 years,” Pew Research, 1/9/24. 5 “Has the lack of asset diversification in DC retirement plans been a costly missed opportunity?,” Georgetown University, 6/23. 6 “The decline in U.S. stocks to choose from: what it means for investors,” Forbes, 2/3/25. 

You should carefully consider the objectives, risks, charges and expenses before investing. The prospectus contains this and other important information about the investment option and investment company.  Please read the prospectus carefully before you invest or send money. Prospectus may only be available in English.

There is no guarantee that any investment strategy will achieve its objectives.

Liquid alternatives: Alternative investing involves substantial risk and there is an opportunity for significant losses. The products may not be suitable for all investors. Compared with a traditional mutual fund, an alternative fund typically holds more nontraditional investments and employs more complex trading strategies. Investors considering alternative mutual funds should be aware of their unique characteristics and risks. Alternative investments may have limited performance information, low liquidity, and unproven strategies with unknown risks.

Illiquid alternatives: Alternative investments by their nature involve a substantial degree of risk, including the risk of total loss of an investor's capital. Further, alternative investments are subject to less regulation than other types of pooled investment vehicles, may be illiquid, and cannot assume that investments in the asset classes identified will be profitable or that decisions we make in the future will be profitable. Alternative investments may also involve significant use of leverage, making them substantially riskier than other investments.

FAQs

What are private asset alternative investments? 

Non publicly traded assets—such as private equity, private credit, real estate, and infrastructure—are accessed through private funds or institutional vehicles rather than public exchanges.

Why consider private asset alternatives in DC plans? 

They can help enhance diversification, reduce overall volatility, and potentially improve long-term outcomes for participants.

How can sponsors add alternatives to 401(k)s? 

Consider DC-friendly structures—typically target-date funds structured as collective investment trusts, managed accounts, and advisor managed accounts—and follow a prudent fiduciary process aligned with ERISA guidelines.

What’s driving the momentum now?

Favorable regulatory news, growing advisor and participant interest, and the need for more resilient savings as life expectancies increase have been supportive of adding alternative assets to DC plans.