backIn his recent speech, “The Diversification Deficit: Opening 401(k)s to Private Markets,” Securities and Exchange Commission (“SEC”) Commissioner Mark T. Uyeda called for an increase in access to private investments within 401(k) plans and other defined contribution plans and urged regulatory modifications and litigation reform to make that possible. 1 Diversification Deficit: Opening 401(k)s to Private Markets Commissioner Mark T. Uyeda (https://www.sec.gov/about/sec-commissioners/mark-t-uyeda) Remarks at the ICI Retail Alternatives and Closed- End Funds Conference New York, NY Nov. 20, 2025 Addressing the ICI Retail Alternatives and Closed-End Funds Conference, Commissioner Uyeda explained that a blanket exclusion of private assets from 401(k) plans is a policy choice, and a poor one. He noted that this choice reduces the risk-adjusted returns, diversification, and long-term retirement outcomes available in the most popular retirement planning vehicles.
Explaining that defined benefit plans, historically have invested in private assets while subject to. , the fiduciary framework of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), he notes that ERISA already permits prudent allocations to private assets. The ERISA fiduciary framework requires appropriate oversight, process, and transparency, but has no prohibition on any asset class.
This client alert summarizes Commissioner Uyeda’s remarks and highlights practical implications for plan sponsors, fiduciaries and asset managers as they evaluate whether and how to incorporate private market investing with 401(k) plans and other defined contribution plans. This alert supplements our other recent alerts on this topic. 2https://www.kslaw.com/news-and-insights/dan-daneshrad-discusses-the-next-frontier-for-the-private-equity-industry-after-president-elect-donald-trumps-election-victory and https://www.kslaw.com/news-and-insights/evergreen-cits-a-scalable-solution-for-alternative-assets-in-401k-plans and https://www.kslaw.com/attachments/000/009/409/original/2-4-22_Law360_%282%29.pdf?1644341015
Context and Rationale: Diversification Limits in Public-Only Lineups
Commissioner Uyeda contextualized his remarks with a brief overview of the evolution of the U.S. private retirement system, noting the shift from defined benefit plans to participant-directed defined contribution plans. When target date funds were determined to be an appropriate “qualified default investment alternative”, their popularity as an investment option dramatically increased.3 In absence of an investment election, a participant’s defined contribution account is invested in the default investment option. If a plan complies with a Department of Labor regulation regarding default investment options, the plan fiduciary remains responsible for the prudent selection and monitoring of this investment option, but is not liable for any loss. However, such target date funds, notwithstanding their long investment horizons, have almost exclusively invested in liquid securities. Commissioner Uyeda explained that a 0% allocation to private investments is not optimal and artificially constrains diversification. Given the long investment horizons of target date funds, Commissioner Uyeda argued such funds can and should invest in some amount of private assets, such as private credit, infrastructure, real estate and other real assets, for diversification benefits as well as higher returns due to the illiquidity premium on illiquid assets. 4 In our experience, large 401(k) plans sometimes have diversified investment options (such as target date funds) with allocations to private credit and real estate, but that is the exception and not the rule.Commissioner Uyeda underscored that sophisticated institutions, including public pension plans and endowments, have long used private markets as a core allocation and points to reported results in recent periods as evidence of the contribution private investments can make to long-term performance.
The Policy Position: “Zero” Is Not a Neutral Default
A central theme of the speech is that a “zero percent” allocation to private investments in 401(k) plans is not a neutral safeguard; rather it is a policy choice with meaningful consequences. Commissioner Uyeda stressed that ERISA does not prohibit private investments; rather, it imposes a duty of prudence, requiring fiduciaries to evaluate whether, how, and to what extent such exposure is appropriate in light of participants’ needs, risks, and time horizons. He cautioned against paternalistic approaches that categorically discourage fiduciaries from considering private assets, and instead advocated for guardrails that enable responsible exposure under a robust fiduciary process.
Regulatory Landscape: DOL Guidance, Executive Action, and SEC-DOL Coordination
Commissioner Uyeda reviewed recent agency actions and the evolution of the Department of Labor’s (“DOL”) approach to private assets in 401(k) plans.
Against that backdrop, he publicly called for coordination between the SEC and DOL to harmonize investor-protection objectives while promoting access and innovation to private assets. He described the need for clarity with respect to disclosures, fee transparency, valuation practices, conflicts management, and custody safeguards. He framed these issues as solvable challenges rather than barriers, and encourages a unified framework that gives fiduciaries confidence to evaluate and incorporate private market exposures where appropriate.
Litigation Environment: Chilling Effect and the Case for Reform
Commissioner Uyeda described the key hurdle- ERISA litigation. He argued that permissive pleading standards and hindsight-driven claims often dissuade fiduciaries from offering diversified options that include private assets, even if such fiduciaries were capable of including private assets in in connection with a prudent process compliant with ERISA. With the knowledge that private investments will require higher fees, and the ease with which plaintiffs may bring suit alleging breaches of fiduciary duties due to higher fees, many plan fiduciaries have been hesitant to allow private investments. Commissioner Uyeda suggested reforms modeled on the Private Securities Litigation Reform Act to require more particularized allegations of fiduciary breach, aligning litigation standards with ERISA’s explicit focus on process and prudence at the time of decision-making rather than outcome-based critiques.
Practical Considerations for Plan Lineups and Product Design
Although not prescribing a fixed model, Commissioner Uyeda’s remarks implicitly supported architectures that can responsibly integrate private market exposure in defined contribution plans. He noted the longer investment horizon of target-date strategies and the potential fit between limited-liquidity private assets and long-dated retirement objectives. He also pointed to the evolution of retail alternatives and closed-end fund structures, reflecting broader regulatory openness to innovation while maintaining investor protections.
Key Takeaways for Plan Sponsors, Fiduciaries, and Managers
It is clear that the SEC and DOL are coordinating to provide harmonized guidance that we should expect will be forthcoming with respect to disclosure, fees, valuations, conflicts and custody, among other issues. Commissioner Uyeda also understands that importance of litigation reform, which could change pleading standards.
More importantly, Commissioner Uyeda made the case that after guidance is issued, fiduciaries will need to prudently consider an appropriate allocation of private assets to target date funds or other diversified investment strategies in order to provide defined contribution plan participants diversified investment choices that will help to prepare such participants for retirement.