Warren Buffett flags a costly trap closing on 401(k)s

07 Nov 2026, 14:47 · The Fresno Bee

A proposed federal regulation could open the door for private equity firms to reach millions of American retirement savers through their 401(k) plans.

The move comes as the industry seeks access to more than $14 trillion held in 401(k) and other defined contribution plans, even as institutional investors pull back, according to a 2026 Americans for Financial Reform Education Fund (AFREF) white paper.

Also Read: Private equity in your 401(k) raises red flags

Billionaire investor Warren Buffett has long criticized private equity firms for overstating returns and charging fees that eat into investor gains, Bloomberg reported.

His concerns could take on new significance as these investments move closer to workers who may lack the resources or expertise to evaluate them.

Retail private equity funds charge roughly 130 times what an index fund costs

The fee difference between private equity and the low-cost index funds found in most 401(k) plans can significantly affect how much money workers save for retirement over time.

The AFREF white paper examined these higher costs and how they reduce retirement savings over the years.

How private equity fees compare to standard 401(k) options

Private equity evergreen fund: 3.9% average expense ratio, plus 3% to 5% in potential sales charges, the AFREF report found.
Equity mutual fund: 0.40% average expense ratio in 2025, the Investment Company Institute reported.
S&P 500 index fund: as low as 0.03% expense ratio, meaning the private equity fund is roughly 130 times more expensive, the white paper showed.

Costs can rise further when private equity funds invest in other private funds, adding multiple layers of fees. These extra charges may not appear in the expense ratio shown to savers on their 401(k) plan menus, the white paper noted.

Oscar Valdés Viera, Senior Policy Analyst for Private Equity and Capital Markets at the Americans for Financial Reform Education Fund, offered an even sharper assessment of the industry’s push toward retirement accounts.

The private equity industry wants to dump its underperforming assets onto unsuspecting workers saving for retirement, but the Wall Street emperor has no clothes,

Morningstar research found that private equity returns have slowed over time, raising questions about whether these investments still outperform after fees.

How the DOL safe harbor clears a path for private equity into retirement plans

An August 2025 executive order directed the Department of Labor (DOL) to reduce barriers to the use of alternative assets in retirement plans.

The DOL responded on March 30, 2026, with a proposed safe harbor that would give plan fiduciaries a legal shield for adding private equity to 401(k) menus.

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Employers who follow the safe harbor’s prescribed evaluation steps gain legal protection when adding these products to plan lineups, the reform group warned. That protection holds even when the selected options charge fees far higher than existing choices on the plan menu.

The AFREF white paper described the move as an effort to use workers’ retirement savings to make up for the money private equity firms are losing as pension funds and endowments reduce their investments.

Just over half of American families held retirement accounts in 2025, with a median balance of $106,000 among those who did, the Federal Reserve’s Survey of Consumer Finances showed, leaving roughly 45% of families with no dedicated retirement savings.

The reform group argued that these workers are less able to handle the higher fees and difficulty accessing their money that come with private equity products.

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Morningstar’s stress test reveals how fast liquidity can drain from a 401(k)

Morningstar simulated how private equity would perform inside 401(k) accounts using real participant data on ages, salaries and contributions. During simulated conditions modeled on the 2022 downturn, assets in the private equity collective investment trust (CIT) declined by nearly 40%.

Outflows tended to cluster during these periods, meaning consecutive withdrawals rapidly drained the liquidity buffers these products need to meet redemptions. The Morningstar analysis concluded that semi-liquid private equity vehicles may need liquidity sleeves of up to 40% of total assets to withstand these conditions.

Morningstar’s analysis suggested that keeping so much money readily available in a private equity fund reduces the extra returns that make these investments worth including in the first place.

Hal Ratner, Global Head of Research at Morningstar Investment Management, told Financial Planning that any return advantage may be smaller than expected.

The primary benefit of adding private markets to a retirement plan “may likely be a diversification benefit, as opposed to astronomical returns,” Ratner said.

What the 401(k) private equity push means for your retirement savings

Jim Baker, Executive Director of the Private Equity Stakeholder Project, warned that the proposed rule weakens the protections designed to shield retirement savers. Private equity has trailed public market benchmarks even before fees, Baker noted, and major pension funds are already scaling back exposure in response.

At Berkshire Hathaway’s 2019 annual meeting, Buffett called private equity returns “not calculated in a manner that I would regard as honest,” a critique that gains fresh relevance as the DOL moves to open 401(k) plans to the asset class.

Anyone running a pension fund should be “very careful about what was being offered,” Buffett added.

Baker argued that after-fee returns against a public benchmark and withdrawal terms that fit the saver’s retirement timeline are the conditions any allocation must meet.

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This story was originally published November 7, 2026 at 6:47 AM.