Workers face a 2-3% annual fee drag in private equity 401(k) options, requiring 200 basis points of outperformance to match low-cost index funds.
Private equity investments in 401(k) plans impose annual fees of 2-3%, creating a 2-percentage-point gap versus 0.03% index fund expenses. This fee structure demands consistent outperformance of 200 basis points just to break even, a challenge amid rising Treasury yields near 4.5%.
Retail-access private equity products historically underperform institutional versions, eroding potential illiquidity premiums. A $500,000 balance over 20 years would see significantly higher costs under the higher fee structure, compounding the drag on long-term returns.
The disparity highlights the need for fee transparency in 401(k) menus, as administrative and recordkeeping costs further inflate expenses for participants.