Why this retirement company's CEO is a huge supporter of private equity in your 401(k)

By Beth Pinsker

The train has already left the station, says Empower's Ed Murphy

As chief executive of Empower, Ed Murphy is responsible for the retirement savings of nearly 20 million American workers - second only to Fidelity in the sheer number of employees represented.

That's a big platform to drive change, and Murphy is currently using his amplified voice to advocate for bringing private-equity investments to 401(k) plans.

"We always want to be a thought leader and the first mover in things that we're passionate about," Murphy said in an interview with MarketWatch. Where many have urged caution because private-equity opportunities lack transparency about how the investments are valued, and lock up funds for longer period of time than the one-day period of a mutual fund, he sees the problem as 120 million American retirement savers not having access to what he considers one of the best-performing asset classes over the last 30 years.

"I will say I have a personal passion around it. I think it fits in concert with our mission, which is financial freedom for all," Murphy said.

The reason Murphy is pressing this topic now is that earlier this year, the Trump administration changed guidance that basically blocked various alternative investments - such as cryptocurrency, annuities and private equity - from 401(k) plans, citing high risks with those investments.

Next, it's up to the financial-services industry to design mutual funds or other investment vehicles that incorporate private-equity investments, and then get them implemented into retirement-plan platforms like the ones that Empower (CA:GWO) offers.

But the hardest steps come after that. Each company's retirement plan has their own board of fiduciary overseers to decide what investment options are available to participants and what to charge for them - and private-equity investments often have high fees. Then participants have to choose their investments, and can avoid anything they consider risky.

The technical work is already in progress, but getting the rest of the pieces together will require a lot of persuasion - which is where Murphy comes in. He's vocal about making a case for private-equity investing. These are his arguments:

Everyone else is doing it, so we're missing out

"Private assets are prevalent all over the world," Murphy said - from pension funds and family foundations in the U.S., to sovereign wealth funds overseas. "This term gets overused, but I think it's sort of a democratization play," he said. "This is a chance to bring it to the masses, so to speak."

There's great potential in target-date funds

Private-equity investing fits in neatly with investor behavior that tilts heavily toward target-date funds, Murphy noted. He pointed to the fact that about 70% of the assets in defined-contribution plans like 401(k)s are in these multiasset general funds - and private equity could fit in there as a portion of the portfolio, with the guidance of a professional asset manager. Murphy sees a potential ratio of 25% in private equity, 35% is passive fixed income and 50% in public equities, while some funds could even be 50% invested in private equity.

To combat the argument that private equity is illiquid and retirement investors need assured access to their money, Murphy said that investor inertia could actually work in favor of private equity. Since most 401(k) investors are set-it-and-forget-it types, and their contributions are often increased automatically each year, there's a constant influx of cash into these funds that would cover for the inherent illiquidity of private equity. "This is a new era," he said. "I actually think it could fit in quite nicely into the defined-contribution system."

The financial-services industry is clamoring for it

Empower recently released a survey of plan sponsors where 54% said their participants would be enthusiastic about having access to private equity, and 43% said they have been asked about it. Some 96% said their company clients would like to add it if the fiduciary and regulatory guidance gets cleared up.

It's too late to stop now

What would happen if another administration changes the rules again in three years, or in a year or so after congressional midterms? "I think the train has already sort of left the station, candidly," Murphy said. "I think it'd be hard to reverse it."

But what if guidance is slow to emerge and the rules remain murky? "We have a couple hundred clients that are already in some form of implementation, so they're moving forward absent any clear directives," Murphy said. "But I don't think you're going to get a broad-based auction until you get regulatory clarity."

That might come as soon as February, when Murphy expects the government will announce further guidance - especially on legal protections for companies that implement private-equity investing, so that they can't be sued by plan participants over losses or fees.

The decisions can be defensible

When it comes to workers suing their employers over their 401(k) investments, the cases hinge on whether the company acted in the best interest of plan participants. This has been a powerful deterrent to risky investing in recent years, but Murphy thinks that the financial-services industry and the government can come up with a process that would shield them from legal settlements if risky investments don't pan out or the fees end up so high that they impact returns - two general concerns of previous government guidance against these investments being in 401(k) plans.

At Empower, which has a lot of customers who are public workers that also have pensions, there may be more familiarity with private equity than at private companies, because their pensions have been investing in it all along. "They'd have a process and, seemingly, they'd be more comfortable," Murphy said.

For now, Murphy is not looking to bring private-equity investing directly to plan participants. "We're not advocating for that," he said. He sees it as staying in the hands of professional fund managers for now, though nothing is off the table long term.

"If I look out over 10 years, I would not be surprised if we saw a 15% or 20% allocation to private assets. That's a market that's going from zero to $4 trillion," Murphy said. "I think that's very realistic, and I think it will take on different dimensions in terms of the products that will be offered. I think we'll see a lot of innovation there."

Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at beth.pinsker@marketwatch.com. Please put "Fix My Portfolio" in the subject line.

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-Beth Pinsker

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10-02-25 1213ET

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