How to Give Financial Security to All Retirees

The Issue: Retirement Security Is a Defining Challenge of Our Time

Millions of Americans work for decades, faithfully saving from every paycheck into 401(k)s. Unfortunately, the system includes gaps in investment access, costing workers tens of thousands of dollars — if not more — in lost retirement income.

Private equity outperforms the average 401(k) by almost 90%. Private equity is an asset class that public pension funds and wealthy investors use to beat returns available to everyday Americans.

President Donald Trump wants to change this by expanding 401(k) investment options to include private markets. It’s an overdue reform.

How We Got Here

Over the past 30 years, the number of publicly traded companies decreased nearly by half.

That means the universe of investments available inside a traditional 401(k) — largely limited to stocks listed on public exchanges — is shrinking, just as the demand for retirement savings grows.

Meanwhile, more than 80% of companies with more than $100 million are not publicly listed.

They operate entirely outside the reach of a 401(k).

The growth happening in those businesses — the innovation, the job creation, the wealth creation — flows not to American workers saving for retirement, but to institutional investors and the few, wealthy accredited investors.

This is the fundamental inequality at the heart of retirement policy.

Public pension funds — the retirement vehicles for government employees — have long invested in private markets.

Today, 89% of public pension funds hold private equity, with roughly 14% of their total assets allocated to private equity, according to the American Investment Council pension survey.

Private sector workers saving through 401(k)s are largely locked out, restricted by regulations written for a different era and a different market.

The Solution: Broaden the Rules Governing 401(k) Plans

Trump issued an executive order for the Department of Labor to review these regulations, opening the door for private equity, private credit, real estate, and infrastructure within ordinary workers’ 401(k) accounts — standard practice for large, institutional public pension investors for decades.

The question is not whether these assets belong in retirement portfolios. The evidence is overwhelming that they do.

The question is why working Americans were excluded for so long.

The financial case for reform is compelling. Data from the American Investment Council covering 2013 to 2023 show private equity delivered an average annual return of 15%, compared to 10% for public equities and just 8% for the average 401(k).

Private real estate also returned 10%, while bonds lagged at just 2%.

That gap in returns, compounded over a 30- or 40-year career, is not a rounding error — it could be the difference between financial security and financial anxiety in retirement.

Long-term data reinforce the case. Private equity has outperformed public markets across 5-, 10-, 15-, and 20-year time horizons.

This reflects the structural advantages of patient, active ownership: private equity managers make operational improvements and long-term investments that quarterly earnings pressure makes difficult for public companies.

The result is stronger returns for investors willing to commit capital over time — precisely the profile of a retirement saver.

Private credit adds another layer of value. Unlike stocks, it generates returns through lending — providing capital to businesses in exchange for regular interest payments.

The International Monetary Fund’s 2024 Global Financial Stability Report found companies backed by private investment experienced lower default rates, even during periods of economic stress, underscoring the resilience these assets bring to a retirement portfolio.

Georgetown’s Center for Retirement Initiatives found that adding just a 10% private market allocation across all defined contribution assets would generate $5 billion in additional retirement savings annually.

For individual workers, that means meaningfully higher account balances and a stronger financial cushion as Social Security’s long-term solvency remains uncertain.

As public markets grow more concentrated — dominated by a handful of mega-cap technology companies — the diversification case grows stronger.

A 401(k) heavy in index funds is, in practice, a large bet on a small number of stocks. Private market exposure spreads risk across a broader range of companies, industries, and economic structures.

Critics raise three main objections.

First, that private investments underperform stocks and hurt retirees. The data say otherwise.

Private investments outperformed the S&P 500 stock market across every major long-term time horizon, and because private returns are not correlated with public markets, they can hold value when stocks fall — reducing overall portfolio risk rather than adding to it.

Second, skeptics worry public pensions invested in private equity have suffered for it. The National Association of State Retirement Administrators reports the opposite: higher rates of return for public pensions driven by increased allocations to private investments. Their experience is the strongest argument for expanding access, not restricting it.

Third, some worry private investments lack transparency and investor protections.

In reality, they operate under a regulatory framework requiring quarterly performance reporting, mandatory annual audits, and rigorous scrutiny of adviser conflicts of interest.

There are also questions of fiduciary liability. Trump’s executive order addresses these directly, noting regulatory overreach and litigation threats have “stifled investment innovation” and prevented plan sponsors from offering employees access to superior investment options.

Clarifying that legal landscape is the essential predicate for making this reform real.

Polling shows strong public support for expanding access, with majorities saying private investments can help workers build wealth.

More than 90 million Americans participate in employer-sponsored defined contribution plans.

They should not be consigned to a narrowing pool of public market investments while wealthier investors and government workers access the full opportunity set of modern financial markets.

There is a certain irony to the fact that the workers who build the companies driving private market returns have been among the last to share in those gains.

A factory worker whose company is acquired by a private equity firm might see his employer become more productive and more profitable — while his 401(k) sits in index funds with no exposure to the growth he helped generate.

Expanding 401(k) access to private markets will not solve every retirement challenge Americans face. But it is a concrete, well-supported, data-backed step toward a more secure retirement future for millions of families.

All workers deserve the freedom to make the same investment choices that serve public pension beneficiaries and wealthy investors so well.