Empower opens door to private markets in retirement plans

Empower is opening the door for retirement plan participants to invest in private markets, becoming the largest retirement plan provider to take this step in a move that could expand access to asset classes traditionally reserved for institutional and high-net-worth investors.

The retirement plan behemoth has announced a new program that will offer access to private equity, private credit and private real estate through collective investment trusts.

The investments will be available to defined contribution retirement plans such as 401(k)s, provided that employers choose to make the option available to their workers, according to a release Empower issued Wednesday.

To implement the program, Empower has partnered with a slate of established private markets managers and custodians including Apollo, Franklin Templeton, Goldman Sachs, Neuberger Berman, PIMCO, Partners Group and Sagard. The selected funds will be offered within CIT structures, which are designed to offer more flexible liquidity and potentially lower fees compared to traditional fund formats.

Participants can only access these private investments through managed account services on Empower’s platform. The managed account model is intended to ensure that allocations are aligned with an individual’s risk tolerance, time horizon and financial objectives.

“Like any investment, we believe in the importance of advice and risk mitigation for every investor,” Edmund Murphy III, president and chief executive at Empower, said in the statement. “These new opportunities offered under an advice model deliver the guardrails necessary to help an entirely new investor class access private investing.”

Private markets have become a growing area of focus for asset managers looking to reach retail retirement savers. State Street, for instance, last month launched a target-date fund with a 10 percent allocation to private assets managed by Apollo. Target-date funds remain a default investment option in many employer-sponsored plans and are seen as a vehicle for broader adoption of private strategies.

Managing $1.8 trillion across 401(k) and other retirement accounts for 19 million Americans, Empower’s approach differs in structure but reflects the same trend of expanding asset access. In a Wednesday interview with the Wall Street Journal, Murphy said that five employers have already signed on to offer the private market option when it becomes available later this year.

The Department of Labor has provided limited guidance on the inclusion of private assets in defined contribution plans over the years. In 2020, during the first Trump administration, the department issued a letter stating that private equity could be offered within diversified investment options such as target-date funds, provided fiduciary requirements were met. However, that guidance stopped short of a formal endorsement.

Under the Biden administration, the department clarified that it did not recommend private equity for retirement plans but did not withdraw the earlier position, leaving room for providers like Empower to interpret the pathway forward. Like other proponents, Murphy said he is hopeful that new guidance could come from the current Trump administration, offering greater clarity and reducing legal uncertainty for employers.

Fees remain a concern in bringing private strategies to mass-market retirement accounts. Empower’s private funds are expected to charge between 1 percent and 1.6 percent annually, significantly higher than the average target-date mutual fund fee of 0.28 percent, according to Morningstar Direct.

“We're excited to democratize these investment strategies by making them available to a wider population saving for retirement,” said Paul Desmarais III, chairman and chief executive at Sagard.

Empower said the new offering will supplement existing investment options on plan menus and aims to improve long-term outcomes through diversification beyond public stocks and bonds.