Retirement accounts could soon include illiquid assets like private equity and real estate, raising liquidity and fee concerns for participants.
U.S. 401(k) plans may soon permit holdings in private equity, real estate, and infrastructure funds, marking a shift from traditional liquid assets. This change comes as personal savings rates fall to 4% and 10-year Treasury yields sit at 4.46%, leaving households with thinner financial cushions.
Traditional 401(k) accounts offer daily liquidity, allowing rebalancing or rollovers at closing prices. Private equity and real estate funds, however, lock capital for years, rely on quarterly valuations, and may suspend withdrawals during stress. Fees for these assets are also higher, including management fees and performance carry.
The mismatch between daily-priced retirement accounts and illiquid assets could pose risks for participants, particularly those with limited savings outside their 401(k)s.