Borrowed Liquidity: How Private Markets Are Reaching the American 401(k)—and What Plan Fiduciaries Must Demand Before They Sign the Next Investment Policy Statement

More than ninety million Americans participate in employer-sponsored defined contribution retirement plans, in which transactions are processed each business day at a single end-of-day net asset value. The asset classes now arriving in those accounts operate on no such schedule.

Following Executive Order 14330, the rescission of Biden-era guidance discouraging private equity in participant-directed plans, and a proposed Department of Labor safe harbor issued in March 2026, private equity, private credit, real estate, infrastructure, commodities, and digital asset funds are migrating into 401(k) plan menus, target-date funds, and managed account sleeves at an accelerating pace.¹ The Department of Labor projects that, once the proposed regulation is in effect, approximately $178 billion will flow annually into target-date funds containing alternative assets, affecting roughly 4.5 million participants.² That figure is the floor, not the ceiling.

The shift is regulatory, but the consequences are mechanical. Private market funds do not operate on a daily liquidity cycle. They strike net asset values quarterly or semiannually. They negotiate redemption gates, lockups, and side letters. They mark holdings to estimated fair value rather than to a price observable on a public tape. When such an asset is placed inside a vehicle that promises daily liquidity at a daily strike price to more than ninety million Americans across $14.2 trillion in employer-based defined contribution plans, including $10.1 trillion held specifically in 401(k) plans,³ the gap between what the underlying fund can deliver and what the holding vehicle must deliver does not disappear. It is borrowed.

Buxton Helmsley refers to the practice as borrowed liquidity. The borrowed liquidity comes from somewhere. It is sourced from cash sleeves held within the asset allocation fund, from net subscriptions among other participants who did not redeem that day, from secondary market sales of underlying interests at unobservable discounts, or from sponsor balance sheets that may or may not absorb the cost. Each source is, in its own way, a transfer. The participant who redeems on a falling day collects an estimated mark; the participant who does not redeem absorbs the residual.

The asymmetry is sharper still by reference. Mutual funds registered under the Investment Company Act of 1940 are subject to liquidity risk management requirements that effectively cap illiquid holdings at fifteen percent of net assets.⁴ Collective investment trusts and asset allocation vehicles delivered through participant-directed defined contribution plans are not registered investment companies and are not subject to the same explicit cap. The proposed Department of Labor safe harbor permits a fiduciary to accept a written representation that the underlying fund maintains a liquidity program "substantially similar" to one that would satisfy the 1940 Act framework, provided the fiduciary has read and understood the representation. The fiduciary's protection is bounded by what the representation says it is.

This is not a theoretical concern. It is the architecture of the products already being delivered to plans.

On May 14, 2025, Empower, the nation's second-largest recordkeeper, announced that it would offer private market investments to its nineteen million plan participants through collective investment trusts in partnership with Apollo, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group, and Sagard, with the program initially implemented inside managed account services rather than directly on plan menus.⁵ In April 2025, State Street Global Advisors launched the State Street Target Retirement IndexPlus Strategy, a target-date series structured as a collective investment trust with a ten percent allocation to a pooled investment vehicle of private market assets managed by Apollo.⁶ Fidelity began offering a collective investment trust target-date series with a five percent allocation to direct real estate in late 2023, and in July 2024, Lockheed Martin Investment Management Company added a private equity co-investment sleeve to the target-date funds in Lockheed Martin's defined contribution plans, with Neuberger Berman as its selected co-investment partner.⁷ By the time the executive order was signed in August 2025, the products were already in the field.

The political and judicial currents reinforced one another. On August 7, 2025, President Trump signed Executive Order 14330, titled "Democratizing Access to Alternative Assets for 401(k) Investors," directing the Department of Labor to reexamine ERISA guidance, clarify fiduciary criteria for asset allocation funds including alternative assets, and prioritize approaches that curb the litigation risk historically associated with these products.⁸ Five days later, on August 12, 2025, the Department rescinded its December 2021 Supplemental Private Equity Statement, which had effectively limited the 2020 Information Letter framework to fiduciaries with defined benefit plan experience in alternatives.⁹ On March 30, 2026, the Department issued its proposed regulation, "Fiduciary Duties in Selecting Designated Investment Alternatives," establishing a process-based safe harbor built around six factors for fiduciaries selecting investment options under participant-directed defined contribution plans.¹⁰ In parallel, the Ninth Circuit affirmed dismissal of the long-running challenge to Intel's inclusion of hedge fund and private equity exposure in its custom target-date funds, and the Supreme Court granted certiorari in January 2026 to resolve whether ERISA plaintiffs alleging fiduciary imprudence based on fund underperformance must plead a "meaningful benchmark" to survive a motion to dismiss.¹¹

The combined effect is a system that has been deregulated by executive order, defended by rescission, reinforced by proposed safe harbor, and substantially insulated by emerging case law, all within roughly twelve months. The institutional plumbing, by contrast, has not been redesigned to absorb the assets it is now expected to carry.

Buxton Helmsley believes any plan fiduciary considering, approving, or monitoring such an allocation should require concrete answers to five questions before signing an investment policy statement.

First, where does the daily liquidity come from? A target-date fund holding ten percent in a private credit collective investment trust may strike a daily net asset value, but the underlying loans do not. A fiduciary should require, in writing, the specific mechanics by which the asset allocation fund will satisfy participant redemptions on a day when subscriptions are insufficient to fund them. If the answer is "cash sleeve," the fiduciary should ascertain the size of the sleeve, the cost of holding it, the documented procedure for replenishment, and the consequences if the sleeve is drawn down faster than expected. If the answer involves drawing on a sponsor balance sheet or a contractual liquidity facility, the fiduciary should obtain the document and read it in full.

Second, what is the valuation methodology, and who audits it? The proposed Department of Labor safe harbor expressly permits a fiduciary to rely on a written representation from the underlying fund manager that non-public securities are valued no less frequently than quarterly through a conflict-free, independent process consistent with ASC 820 fair value measurement, provided the fiduciary has read and understood the representation and does not know information to the contrary.¹² A written representation is not an audit. A fiduciary should obtain, at a minimum, the underlying fund's valuation policy, the identity and independence of any third-party valuation provider, the frequency of independent review, the historical magnitude of valuation adjustments between marks, and the procedure followed when participant redemptions are processed at a mark that is later restated.

Third, what is the total cost the participant will bear? Empower's program is expected to charge fees ranging from approximately 1.0 percent to 1.6 percent of the portfolio balance annually, compared with an average target-date mutual fund fee of approximately 0.28 percent reported by Morningstar Direct.¹³ A differential of approximately seventy to one hundred thirty basis points compounded across a forty-year retirement horizon is not a marginal frictional cost. It is, in present-value terms, a material reduction in the participant's expected terminal balance, and a fiduciary should require an internal expected-return analysis that explicitly nets the fee differential against the risk-adjusted return premium claimed by the product sponsor.

Fourth, what conflicts of interest exist among the parties to the allocation? Recordkeepers, target-date fund sponsors, private asset managers, and sub-advisers frequently sit at multiple points along the value chain. Revenue-sharing arrangements, platform fees, and affiliated fund relationships are common. A fiduciary should obtain a written conflict-of-interest disclosure naming every party that will receive compensation from the participant's allocation, the form and basis of that compensation, and the procedure by which conflicts will be monitored and addressed across the holding period.

Fifth, what is the exit? Public market vehicles can be liquidated through an orderly market sale. Private market vehicles cannot. A fiduciary should require, in writing, the specific procedure the asset allocation fund will follow if the fiduciary determines, at some future date, that the allocation should be terminated. Will the position be sold in the secondaries market, and at what anticipated discount? Will it be liquidated in kind to a successor vehicle? Will the participant be informed, and on what timeline?

None of these questions are unanswerable. None are unreasonable. None require expertise beyond what a prudent institutional fiduciary already brings to other categories of investment decision. But they do require that the question be asked, in writing, and that the answer be obtained, in writing, before the allocation is approved. The proposed Department of Labor safe harbor does not displace the duty of prudence. It memorializes the process by which the duty is discharged. Without the process, the safe harbor does not apply, and the participant, the plan, and the fiduciary are all left holding what the documentation will not support.

The American defined contribution system contains the retirement security of more than ninety million workers. Its scale is now sufficient to absorb very large allocations to asset classes that, until recently, were institutional only. That absorption is occurring quickly, and the regulatory and judicial currents around it are arriving at roughly the same time. The question is not whether private markets will enter the 401(k). They are entering. The question is whether the fiduciary processes that govern that entry will be designed before the first material loss event, or after.

Buxton Helmsley believes the answer to that question is a matter not of preference but of duty.

Referenced Sources:

¹ Executive Order 14330, "Democratizing Access to Alternative Assets for 401(k) Investors" (Aug. 7, 2025); U.S. Department of Labor, Employee Benefits Security Administration, rescission of December 21, 2021 Supplemental Private Equity Statement (Aug. 12, 2025); "Fiduciary Duties in Selecting Designated Investment Alternatives," Notice of Proposed Rulemaking, U.S. Department of Labor, FR Doc. 2026-06178 (Mar. 30, 2026).

² "Fiduciary Duties in Selecting Designated Investment Alternatives," Notice of Proposed Rulemaking, FR Doc. 2026-06178 (Mar. 30, 2026), Regulatory Impact Analysis (Department of Labor projection of approximately $178 billion in annual flows into target-date funds containing alternative assets, affecting approximately 4.5 million participants).

³ Investment Company Institute, The U.S. Retirement Market, Fourth Quarter 2025 (Jan. 2026) (reporting $14.2 trillion in employer-sponsored defined contribution plan assets, including $10.1 trillion in 401(k) plans, as of December 31, 2025).

⁴ SEC Rule 22e-4 under the Investment Company Act of 1940, 17 C.F.R. § 270.22e-4, requiring registered open-end management investment companies (other than money market funds) to maintain a written liquidity risk management program and limiting illiquid investments to no more than fifteen percent of net assets.

⁵ Empower, "Empower to Offer Private Markets Investments to Retirement Plans," Press Release (May 14, 2025).

⁶ State Street Global Advisors, "State Street Global Advisors Announces State Street Target Retirement IndexPlus, Providing Defined Contribution Investors Access to Both Public and Private Markets Exposures," Press Release (Apr. 10, 2025). The strategy is structured as a bank-maintained collective investment trust, with the private allocation managed by Apollo Global Management.

⁷ Fidelity Investments, Freedom Plus collective investment trust target-date series with five percent direct real estate allocation (broadly launched to institutional market in late 2023); see Pensions & Investments, "Fidelity includes alternatives in target-date series for first time" (Nov. 2, 2023). Lockheed Martin Investment Management Company added a private equity co-investment sleeve, with Neuberger Berman as the selected co-investment partner, to the target-date funds in Lockheed Martin's defined contribution plans in July 2024; see PLANSPONSOR, "Fiduciary Risk Continues to Pose Barrier to Mass Adoption of Alts in DC Plans" (Mar. 2025).

⁸ Executive Order 14330, "Democratizing Access to Alternative Assets for 401(k) Investors," The White House (Aug. 7, 2025).

⁹ U.S. Department of Labor, Employee Benefits Security Administration, rescission of December 21, 2021 Supplemental Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives (Aug. 12, 2025).

¹⁰ "Fiduciary Duties in Selecting Designated Investment Alternatives," Notice of Proposed Rulemaking, U.S. Department of Labor, FR Doc. 2026-06178 (issued Mar. 30, 2026; published Mar. 31, 2026); comment period closed June 1, 2026.

¹¹ Anderson v. Intel Corp. Investment Policy Committee, 137 F.4th 1015 (9th Cir. 2025), cert. granted, No. 25-498 (Jan. 16, 2026).

¹² "Fiduciary Duties in Selecting Designated Investment Alternatives," Notice of Proposed Rulemaking, FR Doc. 2026-06178 (Mar. 30, 2026), proposed safe harbor at paragraph (j)(2) (valuation), permitting fiduciary reliance on a written representation that non-public securities are valued no less frequently than quarterly through a conflict-free, independent process satisfying FASB Accounting Standards Codification 820 on Fair Value Measurement.

¹³ Anne Tergesen, The Wall Street Journal (May 14, 2025) (reporting Empower partnership fund fee range of approximately 1.0 percent to 1.6 percent annually, compared with average target-date mutual fund fee of approximately 0.28 percent per Morningstar Direct).

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