Washington wants to make it easier for workplace retirement plans to buy private equity, private credit and property funds. Here is what that means for your savings, your fees and your tax.

The quick version. Most Americans save for retirement through a 401(k), a workplace savings plan that lets you invest part of your pay before tax. Today almost all of that money sits in public stocks and bonds. The Labor Department has proposed a rule that would make employers feel safer offering private equity, private credit and real estate funds in those plans. Supporters say ordinary workers deserve the same investments big pension funds and the wealthy already use. Critics say these funds cost more, are hard to value and are hard to sell. The Supreme Court is also deciding a case about Intel's 401(k), which held private equity and hedge funds. And there is a tax catch few people mention. Your 401(k) pays no tax, but some private fund income can still be taxed inside it.

What a 401(k) is, and why this matters

A 401(k) is a retirement account your employer sets up. You put in part of your salary, often with a top up from your employer, and you pick from a short menu of funds. You don't pay income tax on the money or its growth until you take it out in retirement.

The amounts are huge. Americans held about $10.8 trillion in 401(k) plans at the end of June 2026, according to the Investment Company Institute, the trade group for fund companies.

Your employer, or a committee it appoints, chooses what goes on the menu. The law calls these people fiduciaries. ERISA, the federal law that governs workplace retirement plans, says they have to act carefully and only in your interest. If they choose badly, you can sue them. That risk of being sued is the main reason most employers have kept to plain, cheap stock and bond funds.

Money held in US 401(k) plans

Total assets, in trillions of US dollars. Hover or tap a column.

Date401(k) assets
End of 2025$10.1tn
March 2026$9.9tn
June 2026$10.8tn
Source: Investment Company Institute, via 401k Specialist

What private markets are

Private markets are investments that don't trade on a stock exchange.

  • Private equity funds buy whole companies, try to improve them over several years and sell them for a profit.
  • Private credit funds lend money straight to companies, instead of a bank doing it.
  • Private real estate funds own buildings such as offices, flats, warehouses and data centres.

These funds have done well for big investors like state pension funds and university endowments. But they work differently from the funds in your 401(k) today. You can sell a stock fund any working day at a price everyone can see. A private fund often locks up money for years, values its holdings only every few months, and charges more. Many have traditionally charged a yearly fee of about 2% of the money invested plus 20% of the profit, a model known as "2 and 20". A typical stock index fund charges a small fraction of 1%.

What Washington has proposed

In August 2025 President Trump signed an executive order called "Democratizing Access to Alternative Assets for 401(k) Investors". It told the Labor Department to make it easier for plans to offer these investments.

The department published its proposed rule on 31 March 2026. It doesn't name any type of investment. Instead it gives employers a checklist of six things to weigh when they pick any fund for the menu. Those six are performance, fees, liquidity (how easily you can get your money out), valuation (how the fund prices what it owns), benchmarks (what you compare the fund against) and complexity.

If an employer works through those six factors carefully and writes down its reasoning, the rule presumes it acted prudently. That presumption is the point. It makes it much harder for workers to win a lawsuit just by showing a fund cost more or did worse than a cheap index fund.

The comment period closed on 1 June 2026 with more than 37,000 comments, according to WealthManagement.com. The department hopes to finish the rule around the end of this year. The rule doesn't change any tax law. It only changes how safe employers feel offering these funds.

How private equity would reach your account

You almost certainly won't see a fund called "Private Equity" on your menu. The likelier route is a target date fund. That's a single fund that holds a mix of stocks and bonds and gets safer as you near the year you plan to retire. It's the default choice for millions of workers.

Fund firms have started building target date funds with a slice of private assets. In 2025 BlackRock announced one with 5% to 20% in private equity and private credit, depending on the investor's age. State Street has launched a series with about 10% in private assets managed by Apollo. Empower, one of the biggest plan administrators, has signed up firms including Apollo, Goldman Sachs and PIMCO to offer private investments in workplace plans.

So for most people, private markets would arrive as a minority share inside a fund they already hold.

The tax catch inside a tax free account

Here's the part most coverage skips.

Your 401(k) is held in a trust, and that trust pays no income tax on normal investment income. Dividends, interest and gains on stocks and bonds all grow untaxed until you withdraw them.

But the tax code has an exception for tax exempt investors called UBTI, short for unrelated business taxable income. A tax exempt investor that earns certain kinds of business income still owes tax on it. Two kinds matter for private funds.

  • Income from running a business. Many private funds are partnerships. When a partnership runs an operating business, its partners share that business income, and for a tax exempt partner that is UBTI.
  • Income from investments bought with borrowed money. Private equity and real estate deals often use debt. The share of the income tied to that debt is called debt financed income, and it counts as UBTI.

Here's a simple example. Say a 401(k) trust puts $10 million into a private fund that owns part of a trading business set up as a partnership. If the trust's share of that business's profit for the year is $500,000, all $500,000 is UBTI. The plan would have to file a Form 990-T tax return once its gross UBTI reaches $1,000 in a year and pay tax at the rates that apply to trusts, which reach the top rate of 37% quickly. Property is treated more kindly. Pension plans get a special exception for borrowing on real estate, but only if the deal meets strict conditions.

That tax comes out of the plan's assets, so every worker in the fund shares the cost. Fund firms know this, and they usually build retirement products to keep UBTI away from the plan. A common tool is a blocker, a company that sits between the plan and the fund, pays corporate tax itself and passes on only dividends, which are not UBTI. That works, but the corporate tax becomes a quiet cost inside your return.

For you as a worker, the takeaway is simple. A private fund inside your 401(k) can carry tax costs that a stock index fund doesn't, and you never see a tax bill for them.

The Intel case

The legal question is already in front of the Supreme Court.

A former Intel employee sued in 2019. Intel's own target date and diversified funds put far more money into hedge funds and private equity than similar retirement funds did. The worker argued that this meant higher fees and lower returns. Two lower courts threw the case out. The Ninth Circuit Court of Appeals said that showing higher costs or worse returns alone isn't enough. A worker also has to compare the fund with a sound benchmark.

The Supreme Court heard the case, Anderson v. Intel, on 6 October 2026. The US government argued on Intel's side, alongside the Investment Company Institute. AARP Foundation and other groups backed the worker. A decision is expected by the end of June 2027.

If Intel wins, workers will find it harder to sue over private market investments in their plans. If the worker wins, employers face more legal risk, whatever the Labor Department rule says.

The case for

Supporters make four main points.

  • Fairness. Pension funds, endowments and wealthy families have invested in private markets for decades. The proposal's backers say ordinary workers shouldn't be shut out.
  • Diversification. Many companies now grow large while still private, out of reach of a stock fund. The Investment Company Institute cited its research that "modest private market allocations" can improve risk adjusted returns.
  • Long time horizons. A 30 year old won't touch their 401(k) for decades, so locking money up for a few years matters less than it does for a fund you trade.
  • Process over outcomes. The American Securities Association says employers should be judged on how carefully they chose, not on whether one fund later lagged.

The case against

Critics make four of their own.

  • Fees. Private funds charge more, and fees compound over a working life. The Private Equity Stakeholder Project, a watchdog group, says some of these funds underperform while charging higher fees.
  • Getting your money out. A 401(k) normally lets you move money daily. Private funds don't. If many savers want out at once, the fund may cap withdrawals.
  • Valuation. Private assets are priced by estimates, not market trades, and those estimates can lag reality.
  • Who carries the risk. A coalition of 24 states, led by Illinois, California, New York and Oregon, opposed the rule in May. They cited the department's own estimate that about 4.5 million workers and $178 billion a year would move into funds with riskier investments. They argue the rule shifts risk from employers onto workers and limits the courts' role in checking employers' choices.

Reasons to stay calm, and reasons to pay attention

Reasons to stay calm. Nothing changes in your account unless your employer decides to add these funds. Most private exposure would come as a small slice of a target date fund, not your whole balance. And fund firms are building products with UBTI and liquidity in mind.

Reasons to pay attention. If your plan adds them, the fees, lockups and valuation methods are harder to see than with a stock index fund. The tax costs sit inside the fund's returns, out of view. And the Supreme Court ruling and the final Labor Department rule will decide how easily you can challenge a bad choice.

What to watch

  • The final rule. The Labor Department wants to finish it around the end of 2026. Expect legal challenges if it does.
  • Anderson v. Intel. The Supreme Court decision, due by mid 2027, sets how hard it is to sue over these funds.
  • Your plan's menu. Look for target date funds that mention private equity, private credit or private real estate, and check the fees.
  • New products. Watch how the big fund firms build their retirement products, including how they handle UBTI and withdrawals.

This is analysis, not tax, legal or investment advice.

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