You probably saw a headline recently about private equity coming to your 401(k). What you probably didn’t see was the part where investors tried to get their money back from one of these funds and were handed 14 cents on the dollar. That happened this past quarter — not in a hypothetical, not in a think piece — at Blue Owl’s OTIC fund in Q1 2026.

That’s the story most financial explainers skip. This one won’t.

The DOL’s Proposed 401(k) Rule — What It Would Actually Change

On March 30, 2026, the Department of Labor issued a Notice of Proposed Rulemaking (NPRM) — a proposed rule, not a final law — that would make it significantly easier for employers to add private equity, private credit, real estate, digital assets, and infrastructure to their 401(k) fund lineups. The public comment period closes June 1, 2026. Nothing is final yet.

What the rule would actually do: it creates a safe harbor — think of that as a legal liability shield — for employers who follow a six-factor checklist before adding these alternative investments to their plan. It also rescinds the Biden administration’s 2021 guidance that had cautioned against private equity in 401(k)s.

Two things the headlines keep getting wrong. First, this rule is employer-optional. Your employer isn’t required to offer private equity. Second, even if they do, it’s participant-optional. Nobody’s moving your savings anywhere without your choice. The approximately 90 million Americans currently in defined contribution plans with roughly $14 trillion in assets aren’t automatically affected.

But if your employer does offer private equity in your 401(k) and you’re tempted to opt in? Read the next three sections before you do anything.

Private Equity 401(k) Fees: The Math Nobody Showed You

A comparison you won’t find on your plan’s fund-selection page.

PE evergreen funds — the kind that would come to 401(k)s — carry a median expense ratio of 3.76%. Some go as high as 5.2%. The Vanguard S&P 500 ETF charges 0.03%.

That’s not a typo. Private equity funds cost approximately 125 times more per year than a basic index fund.

Over time, that fee gap is brutal for compounding. If two investments both return 10% before fees, the one charging 3.76% and the one charging 0.03% will look very different after 20 years. The 0.03% fund keeps nearly all of that return. The 3.76% fund hands a huge chunk of it to the fund manager — every single year — before you see a dime.

Some PE funds add a sales charge on top of the expense ratio. The Private Equity Stakeholder Project found that some funds allow broker commissions as high as an additional 5%. So the first dollar you put in could already be worth 95 cents. That’s before a single investment decision gets made.

If you’re weighing how private equity compares to where your existing retirement savings should sit, our breakdown of which IRA account to fund before the April deadline covers the core tradeoffs in plain terms.

What Private Equity Returns Actually Show for 2025

Proponents of PE in retirement accounts often point to long-run returns at large institutional pension funds. Fair enough — in theory. In practice, the 2025 data for the specific fund vehicles that would actually appear in your 401(k) tells a different story.

The fifteen largest private equity-focused evergreen funds — the type designed for retail access — returned a median of 11.97% in 2025. The S&P 500 returned 17.43% over the same period.

Over three years, PE evergreen funds returned a median of 11.31% annually versus 22.48% for the S&P 500. A massive gap — and those PE numbers are after paying those 3.76% fees. The gross return before fees would be even further behind.

Now, there’s an honest counterpoint here. Vanguard’s research suggests that a 10–20% PE allocation within a target-date fund, with top-tier managers, could theoretically improve retirement wealth by 7–22% over a 40-year horizon. Real number, credible source.

But Fiona Greig, Vanguard’s Global Head of Investor Research and Policy, flags the key caveat: “Private assets require access to top managers, an appetite for risk, and a long investment horizon.” And here’s the problem: there’s a 26-percentage-point spread between top and bottom PE managers — versus only 7 points for active public equity. Picking a mediocre PE manager doesn’t just cost you a little. It costs you a lot.

The detail that really undercuts the optimistic scenario: the median 401(k) participant holds their target-date fund for only 4 years before switching or withdrawing. Not a 40-year horizon. A job change, or a hardship withdrawal.

The Liquidity Risk Is Not Hypothetical — It Happened in Q1 2026

“Liquidity risk” is financial jargon for: what happens when you need your money back and the fund says no.

This happened in real time, to real investors, in the first quarter of 2026.

Across the NAV BDC (Business Development Company) landscape — the fund structure closest to what would enter 401(k) plans — investors requested $13.9 billion in redemptions in Q1 2026. Fund sponsors honored $7.4 billion. More than $4.6 billion was trapped behind redemption gates.

Blue Owl’s OTIC fund had the most dramatic outcome. Investors requested to pull 40.7% of the fund’s assets. Of roughly $2.5 billion requested, only about $179 million was honored — approximately 14 cents on every dollar. By April 2, Blue Owl formally capped both of its non-traded funds at the standard 5% quarterly redemption limit.

These gates aren’t fraud. They’re standard contract terms most retail investors never read. When the fund hits stress, they activate — and you wait.

This matters for 401(k) participants specifically because the record 6% hardship withdrawal rate in 2025 shows that many Americans are already reaching into their retirement accounts under financial pressure. If your 401(k) includes a PE or private credit fund and you need to take a hardship withdrawal, you may find that portion of your account is gated. That’s not a worst-case scenario anymore. It’s a documented pattern.

Financial stress that forces hardship withdrawals rarely arrives alone — it arrives in clusters. If you don’t have a liquid emergency buffer outside your retirement accounts, our 2026 guide to how much emergency fund you actually need is the right place to start before making any retirement account changes.

The DOL Safe Harbor for 401(k) Plans, Translated Into Plain English

The proposed rule requires employers to clear six hurdles before adding an alternative investment to their plan. These same six factors are the six questions you should ask HR — or demand in writing — before opting into any such fund yourself.

Question 1: What are the net-of-fee returns, and what are they benchmarked against? The rule requires plan fiduciaries to evaluate performance after fees, not before. Ask your plan administrator: what’s this fund’s 1-year and 3-year return, net of all fees and expenses? What index or comparable fund is it measured against? If the benchmark is vague or the numbers are gross of fees, that’s a red flag.

Question 2: Are the fees appropriate for the value delivered? The DOL framework doesn’t require the lowest-cost option — it requires fees to be “appropriate to the risk-adjusted return and value.” Plain English: the employer must be able to justify why a 3.76% expense ratio is worth paying versus a 0.03% index fund. Ask for that justification in writing.

Question 3: Is there enough liquidity to cover withdrawals, loans, and hardship distributions? This is the Blue Owl question. The rule requires that the plan have “sufficient liquidity to meet anticipated needs at both the plan and participant levels.” Ask specifically: what’s the redemption gate on this fund? What’s the maximum quarterly redemption limit? Has this fund ever gated in the past three years?

Question 4: How is the fund valued, and how often? Unlike publicly traded stocks, PE and private credit funds don’t update their prices daily. Ask: how frequently is this fund valued, and by whom? Is the valuer independent of the fund manager? Stale or manager-provided valuations can mask losses until the withdrawal pressure hits — and by then it’s too late to reposition.

Question 5: Is there a meaningful benchmark for this investment? The DOL’s NPRM requires a “meaningful benchmark” defined as a comparator with similar mandates, strategies, objectives, and risks. Ask: what’s the benchmark for this fund? Is it the S&P 500, a PE-specific index, or something the fund manager defined itself? A benchmark designed to make the fund look good isn’t a meaningful one.

Question 6: Does the plan’s fiduciary actually understand this investment — or are they relying on outside advice? The rule allows fiduciaries to lean on outside experts. Fine — but you should know who those experts are and whether they have conflicts of interest (do they earn fees from the PE firm?). Ask: has the plan engaged an independent investment adviser to evaluate this option? If the only party recommending the fund is someone who profits from selling it, that’s a conflict worth naming.

One more thing: the Anderson v. Intel case — currently before the Supreme Court after cert was granted January 16, 2026 — may determine how much legal weight the “meaningful benchmark” standard actually carries. The outcome could either strengthen or limit the safe harbor’s protections for participants. Keep an eye on it.

Who Should Consider Private Equity in Their 401(k) — And Who Should Skip It

The honest answer here differs from the industry pitch.

The theoretical candidate for private equity in their 401(k): Someone in their late 20s or early 30s with a stable employer, a job they expect to keep for a decade or more, a diversified 401(k) that already has solid core holdings, and the ability to leave this portion completely untouched for many years. Even then, only through a plan that has passed all six questions above and selected top-tier managers. That’s a long list of conditions. Most people don’t check all of them.

Who should skip it:

  • Anyone within 10 years of retirement. Liquidity risk isn’t theoretical when you’re 58 and the market turns. The redemption gate stories above involve real people who couldn’t get their money out.
  • Anyone with a balance under $50,000. The median 401(k) balance is $38,176. Locking up any meaningful portion of a small account in an illiquid, high-fee fund is high-stakes gambling with your future self. A bad outcome is very hard to recover from at that balance.
  • Anyone who has taken a hardship withdrawal in the last two years. Financial stress is real, it repeats, and it won’t politely wait for your redemption gate to open.
  • Anyone in a high-turnover industry. If job changes are likely — and for many people they are — a 4-year average holding period isn’t long enough to justify PE’s illiquidity and fee drag.

Fiona Greig at Vanguard says directly that “not all plan populations are a good fit for private asset integration, particularly those with shorter holding periods, lower incomes, or high turnover participants.” That’s Vanguard — a company that could potentially benefit from selling PE products — urging caution. Worth sitting with that for a second.

The rule is proposed. The comment period is open through June 1, 2026. If you have thoughts about whether this change is right for workers like you, you can submit a comment to the DOL’s Employee Benefits Security Administration. That’s your actual legal right as a 401(k) participant — and right now, it matters more than any investment decision.

If broader economic anxiety is shaping how you’re thinking about your finances right now, our recession money playbook covers what actually moves the needle when uncertainty is high.

This article is for informational purposes only and does not constitute financial or investment advice. Consult a fee-only fiduciary financial adviser before making changes to your retirement account.

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