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The Trump Administration issued an executive order on August 7, 2025 to expand available 401(k) investment options to include alternative assets. Following the executive order there is enhanced plan sponsor interest in how investments such as private equity, private credit, real estate, and infrastructure can strengthen retirement outcomes and help Americans build greater wealth.
Despite growing regulatory support and improved fund structures, private markets still present unique fiduciary considerations under ERISA. Among other considerations, fiduciary liability insurance ramifications should be weighed when deciding whether to offer private equity investments within a DC plan.
Fiduciary liability insurance is primarily designed to protect employee benefit plan sponsors and their internal plan fiduciaries from claims brought under ERISA. Many fiduciary liability insurers are wary of private equity or other forms of alternative investments (collectively, “PE investments”) in DC plans because they often display the same characteristics that previously have led to costly ERISA litigation involving more traditional investments.
For example, PE investments frequently charge higher fees with less transparent fee structures than other investment options, and these characteristics have been a contributing factor in the continuing high frequency and severity of excessive fee litigation. PE investments also tend to be less liquid than publicly traded stocks and bonds, which makes it more challenging for plan participants to divest from such investments should they drop in value. This lack of liquidity is reminiscent of the employer stock drop ERISA litigation when many plan sponsors imposed mandatory holding periods on investments in their own securities, preventing plan participants from selling those investments when their company’s stock value fell.
As a result, plan sponsors which permit PE investments within their DC plan investment lineups (or self-directed brokerage windows) should expect additional underwriting scrutiny from fiduciary liability insurers. To mitigate against potentially adverse pricing and higher retentions, such insurers will likely expect plan sponsors to adequately explain how the fees associated with PE investments are benchmarked and calculated, the method and frequency with which valuations of such investments are conducted, and the ease with which plan participants can divest from these investments.
If you have any questions about your coverage or are interested in coverage, please contact your Aon broker.
Read More in Aon Investments’ "Private Markets in Defined Contribution Plans"
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