The SEC and DOL Push for Private Market Access in 401(k) Plans
In a significant push to expand investment opportunities for American workers, U.S. Securities and Exchange Commission (SEC) Commissioner Mark T. Uyeda and the Department of Labor (DOL) are advocating for greater access to private markets within 401(k) and other defined contribution plans. The move aims to enhance diversification and potentially improve long-term retirement outcomes, departing from traditional public-only investment models.
Commissioner Uyeda, in remarks delivered on November 21, 2025, underscored the “diversification deficit” in many retirement portfolios, arguing that an exclusive focus on public securities limits growth and risk management for individual investors. Historically, 401(k) plans have predominantly invested in liquid assets like stocks, bonds, and money market instruments, often through target-date funds with fund-of-funds structures. While offering convenience, this approach often excludes allocations to private equity, venture capital, infrastructure, and real estate, assets long utilized by large institutional investors like pension funds and university endowments. Uyeda highlighted the contrasting success of these institutional investors, citing CalPERS’ preliminary 11.6% return for fiscal year 2024–25, largely driven by its private equity portfolio, which delivered a 14.3% return and added $12.1 billion to the fund, net of fees. Similarly, the Vermont Pension Investment Commission reported a 10-year private equity return of 20.48% in its January 15, 2025, annual report, while the Massachusetts Pension Reserves Investment Trust saw annualized returns of 18.5% from private equity over the past decade.
Challenging the “Fallacy of Zero Exposure”
Uyeda challenged the prevailing notion that a zero-percent allocation to private investments is inherently safer or more prudent for retail investors. He referred to this as a “fallacy of zero exposure,” contending that such an exclusion limits diversification and restricts access to assets that can enhance overall performance and reduce volatility, especially in an environment where public market concentration has grown. According to a Seeking Alpha report from April 3, 2024, the top 10 companies in the S&P 500 account for nearly 40% of the index’s total market capitalization, making broad market exposure potentially more susceptible to sector-specific risks. Private investments, often less correlated with public markets, can offer a premium for their illiquidity, a trade-off that long-term retirement savers may find desirable.
The Commissioner also referenced a June 3, 2020, information letter from the DOL under the previous administration, which clarified that ERISA permits private investments in 401(k)s, provided fiduciaries adhere to prudence standards. This stance was briefly challenged by supplemental guidance in December 2021 from the current administration, which discouraged private equity in 401(k) plans, but that guidance was rescinded in August 2025. This regulatory history underscores the ongoing debate but also indicates a growing resolve to integrate these assets responsibly.
Regulatory Alignment and Litigation Reform
A key component of this initiative involves closer regulatory alignment between the SEC and the DOL. Uyeda emphasized the need for a unified framework that balances investor protection with market access under both ERISA and federal securities laws. Addressing concerns related to disclosure standards, fee transparency, conflicts of interest, valuation practices, and custody safeguards is critical to facilitating this integration. Regulatory collaboration aims to provide fiduciaries with the necessary tools and clarity to evaluate private investments responsibly, mitigating regulatory fragmentation and compliance uncertainty.
Furthermore, Uyeda called for litigation reform akin to the Private Securities Litigation Reform Act (PSLRA) to reduce the “chilling effect” of lawsuits on fiduciary decision-making. He argued that the current litigious environment discourages plan sponsors from offering innovative or diversified investment options, even when such options serve participants’ best interests. Requiring clear, particularized allegations of fiduciary breach, rather than allowing cases based on hindsight bias, would protect fiduciaries acting prudently. This reform, he stated, is essential to foster innovation and diversification in retirement plans.
Impact on Shareholder Proposals and Corporate Governance
While the focus is on expanding investment access, the broader regulatory discourse also touches on shareholder rights. SEC Commissioner Hester M. Peirce, in her June 6, 2025, remarks at an Investor Advisory Committee meeting, discussed pass-through voting and the role of non-GAAP financial disclosures, noting the complex interplay between fund advisers’ fiduciary duties to funds versus individual investors. These corporate governance themes intersect with the evolving landscape of shareholder proposals.
A significant development in corporate governance was highlighted by SEC Chairman Paul Atkins on October 9, 2025. Atkins endorsed a legal theory suggesting that advisory (non-binding) shareholder proposals might not constitute “proper business” under Delaware law, potentially eliminating 98% of such proposals. The SEC’s Division of Corporation Finance subsequently announced it would not issue “no action” decisions on the merits for the 2026 proxy season, except for those advancing a “proper business” theory for exclusion. This move, discussed by Sanford Lewis and Khadija Foda of the Shareholder Rights Group, could dramatically shift the balance of power between investors and boards of directors, forcing shareholders to pursue more confrontational approaches like director elections or binding bylaw amendments if advisory proposals are restricted.
Despite this potential shift in shareholder proposals, the overall regulatory direction, particularly concerning private market access, aims to equip American workers with more robust tools for long-term wealth accumulation. The ultimate goal is to ensure that the benefits of innovation, capital formation, and broad diversification are more widely available to individual retirement savers. For more insights into market trends and policy shifts, please read more on Globally Pulse Business.
