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By Joe Donnelly
Former Democratic U.S. Senator from Indiana (2013-2019)
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Economic uncertainty in the United States is weighing heavily on private sector workers, leaving many concerned about their retirement security. While policymakers cannot eliminate market cycles, they can take steps to help Americans maximize their retirement nest eggs. One way to do this is by expanding investment opportunities within retirement accounts to include additional businesses—particularly America’s small and mid-sized enterprises. The Department of Labor now has the chance to update outdated rules and guidance, providing private sector workers with stronger retirement options while maintaining rigorous investor protections.
Small and mid-sized businesses are the backbone of the American economy. Roughly 99 percent of U.S. firms have fewer than 500 employees, and many are too small or early-stage to be publicly traded. Instead, they rely on private capital to sustain operations and fuel growth. These firms are often where innovation happens, and they have historically matured into the world-leading companies that define America’s economic strength. Today, 87 percent of U.S. businesses generating more than $100 million in revenue are private. Without access to private markets, retirement savers are shut out of this important growth engine, and companies are cut off from this important source of capital.
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Private equity and private credit funds allow investors to participate in these companies, diversifying their portfolios and accessing stronger long-term returns. Yet under current rules, most employees’ 401(k) plans aren’t offered these investment opportunities. As a result, over 18,000 private businesses are effectively off-limits to these workers. At the same time, the number of publicly traded companies has declined significantly—from about 7,400 in 1997 to fewer than 4,000 today. This shrinking pool of public companies forces retirement savings into a narrower set of investments. Incorporating private investments can improve retirement savers’ diversification and ability to spread risk.
Meanwhile, wealthier Americans, public pension funds and some of the largest union pension funds have long enjoyed access to private markets. The Indiana Public Retirement System (INPRS), for instance, has allocated more than 10 percent of its $43.9 billion portfolio to private equity, real estate and private credit, allowing INPRS pensioners to benefit from the diversification and returns associated with these investments. Private sector workers—who save just as diligently as high-net-worth individuals and public employees—deserve the same opportunities.
More than 90 million Americans rely on 401(k) plans for retirement savings, including many agricultural households. Many plans include target-date funds that adjust exposure to stocks and bonds as retirement approaches, but few offer access to private assets. Working families could gain access to private assets within the same regulated and professionally managed funds they already use and trust. Importantly, existing laws that require fund managers to act as fiduciaries and make decisions solely in the best interest of investors would still apply and be central to every investment.
Critics argue that opening access to private markets could expose workers to more risk with little benefit. The reality is that these investments can be offered through well-regulated vehicles with the same transparency and oversight applied to existing retirement funds. The work of Congress and our regulators to help set applicable investment safety guidelines can help create an additional stable and secure investment opportunity for our retirees. Moreover, private markets have historically outperformed public stocks. Over a 20-year period, private equity generated average returns of 15.2 percent, compared with 9.7 percent for the S&P 500. Even after fees, private equity outperformed public markets by more than 4 percent annually over 24 years. For workers, this difference could mean tens or even hundreds of thousands of dollars more at retirement.
Workers across many industries—whether in retail, food service, hospitality, or agriculture—work hard and save to invest for their retirement and their family’s financial security. Allowing them to invest in America’s dynamic private companies would strengthen individual retirement outcomes and channel more capital into the small and mid-sized businesses that power U.S. economic growth.
Democratizing access to private market investments will help modernize and strengthen America’s retirement system. By updating regulations to allow 401(k) investors to diversify into private assets featuring regulatory oversight, policymakers can help secure better retirements for millions of hardworking Americans while ensuring the continued vitality of the nation’s economy.
Joe Donnelly is a former Democratic U.S. Senator from Indiana (2013-2019) and U.S. ambassador to the Holy See (2022-2024).
The views expressed in this article are the writer's own.
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