Explore how private market investment options might be implemented in defined contribution plans, focusing on investment operational design, governance, and participant experience. The article outlines key considerations to help fiduciaries evaluate fit within a prudent, process-driven framework.
Private market investments are a growing part of the defined contribution (DC) discussion as fiduciaries look for ways to support participant outcomes. As this interest expands, the focus is shifting from whether these investments belong in DC plans to how they can be implemented responsibly within a participant-directed structure.
Defined benefit (DB) plans and other institutional investors have relied on private-market strategies for decades to help improve returns and broaden diversification beyond public markets. With more than 30 years of experience supporting private market assets across DB and DC plans, Principal® brings established expertise to this evolving area. In a DC context, those same characteristics may align with some participants’ needs and long- term investment horizons.
Recent Department of Labor (DOL) proposed guidance reaffirms that a fiduciary investment selection can be asset-neutral and must instead focus on a fiduciary’s duty to be prudent. Rather than focusing on any single asset class, this proposed safe harbor guidance emphasizes thorough, prudent analysis, documentation, and ongoing oversight that includes reviewing these factors, among others: performance, fees, liquidity, valuation, benchmarking, and complexity.
This shifts the conversation beyond asset-class eligibility to how private market investments can be implemented in ways that support participant outcomes while maintaining fiduciary discipline and aligning with the realities of retirement plan administration.
37% of DC plan sponsors say they’re interested in learning more about private- market allocations.
This helps illustrate that interest has continued to build, with industry estimates suggesting that private market allocations in DC plans could exceed $1 trillion by 2030 as adoption evolves.
Introducing private market investments into DC plans is less about which assets to include and more about whether those investments can function reliably amid the daily demands of plan operations.
DC plans are designed to support continuous participant activity and daily valuation, and those expectations don’t change when private market investments are added, even though the underlying assets have different liquidity and valuation cycles.
As a result, designing private market investments to function effectively in a DC plan depends on sound operational design choices. Decisions about structures, vehicles, liquidity mechanisms, and valuation workflows help determine whether participant transactions remain seamless within a daily-valued, participant-directed environment. The focus is not on eliminating the inherent complexities of private investments, but on structuring them in a way that allows them to perform as expected within routine plan activity.
The vehicle used to access private-market investments within DC plans plays a central role in how those investments operate in practice. It shapes not only how participants interact with the investment, but also how key considerations such as liquidity, valuation, and execution are managed within the plan’s day-to-day activity.
By 2035, it’s estimated that up to 20% of DC plans will offer access to private markets—primarily through target-date funds or managed account service.
This helps illustrate that adoption is expected to occur through existing plan structures, underscoring the implementation approach’s critical role.
While structure determines how private market investments are incorporated into a DC plan’s investment offerings, certain capabilities help ensure those designs function consistently within a participant-directed environment.
Two areas are particularly important: how investments are valued and how they are supported by recordkeeping systems.
Private market investments are typically valued differently from public securities. They generally rely on appraisals and model-based estimates that are updated less frequently, creating timing differences that must be translated into the daily reporting environment of a DC plan.
Participants generally want their account balances to reflect reasonable values each day. To support this experience, fiduciaries will likely want clarity on how values are determined, how often they’re updated, and how they feed into daily net asset values.
The recordkeeping system determines whether private market investment design choices can be accounted for consistently within daily plan operations. The recordkeeper translates investment structure into efficient repeatable mechanics, including:
- Unitized pricing
- Transaction processing
- Valuation feeds
- Reporting
For fiduciaries, the focus is on whether service providers are aligned on valuation timing, transaction windows, settlement processes, and exception handling early on to help reduce operational risk and support dependable execution during both routine activity and periods of market stress.
Participant communication remains an open question
How much information participants should receive about private market investments continues to be an evolving discussion. While some approaches emphasize detailed disclosures, others recognize that most participants access these investments indirectly through professionally managed alternatives and prefer simplicity over complexity.
In practice, many plans focus on clear, plain-language explanations that emphasize long-term objectives, liquidity characteristics at the portfolio level, and fiduciary oversight—supported by call centers, and educational resources. Accordingly, the focus may be less on detailed education about private market investments and more on providing clear context for their role, along with any associated liquidity considerations, within a diversified retirement strategy.
It’s important to note that based on the DOL proposal, private market investment exposure is subject to the same ERISA fiduciary standards as other DC plan investment options. The fiduciary role is not to engineer investment structures but to evaluate whether the appropriate parties have made prudent decisions and established documentable processes that can be monitored over time.
The recent DOL regulatory proposal reinforces that innovation remains compatible with fiduciary responsibility when supported by disciplined oversight and documentation. When private market investments are evaluated within that framework, fiduciaries can focus on governance, operational reliability, and participant experience rather than on innovation.
As part of that evaluation, fiduciaries also consider whether:
- The performance has risk-adjusted expected returns in the appropriate time horizon.
- The fees are reasonable relative to the value
- The role of private assets within the portfolio is clearly defined
- Liquidity, valuation, and risk management practices are governed and monitored
- Benchmarks and oversight frameworks are appropriate
- They understand the product, or obtain expertise in understanding the product
- Operational responsibilities across providers are clearly assigned
Implementing private market investments requires coordination among asset managers, trustees, and recordkeepers. Clear role definitions, shared data workflows, and consistent communication help ensure dependable implementation across providers.
Key execution questions for fiduciaries and providers may include the following:
- Are governance processes in place for reviewing liquidity, valuation, and operational risks?
- Can the recordkeeper support the intended vehicle structure?
- How are valuation data and corrections handled?
- How has liquidity been modeled under stressed conditions?
For fiduciaries, the opportunity in private market investments within DC plans lies in understanding how operational design, governance, and participant experience intersect in a participant-directed environment.
Private market exposure doesn’t introduce a new fiduciary standard, but it does place greater emphasis on prudent selection, implementation discipline, provider coordination, and documentation. When those elements are well understood, fiduciaries can more confidently assess whether and how these investments fit within their plans.
Principal continues to help translate complex private market investment alternatives into sound plan execution. Today, that experience is reflected in recordkeeping for approximately 3,000 retirement plans with access to private market investments, representing roughly $2 billion in private market assets.
For fiduciaries evaluating whether private market investments can operate reliably within their plan design, implementation considerations are as important as investment intent. To discuss how these implementation considerations may apply to your plan, connect with your Principal representative.
