Over the past week, we’ve highlighted data from President Trump’s Council of Economic Advisers (CEA) on the significant benefits for retirement savers from opening 401(k) plans to private market investments. First, we showed how regulatory barriers have locked 90 million Americans out of private markets that the wealthy and well-connected have accessed for decades, and what that has cost savers in lifetime retirement income. Second, we spotlighted CEA’s data on private equity outperforming public equity investments, and the diversification benefits for savers’ portfolios.
Today we zoom out and highlight the CEA’s finding that opening 401(k)s to private markets isn’t just about strengthening retirements, it’s a pro-growth economic policy that could add $35 billion to the U.S. economy.
The Mechanism: Capital Following Productivity
Today, 401(k) plans hold $30 trillion in assets and allocate just 0.1 percent to private markets. Pension funds, managing money for teachers, firefighters, and government workers, allocate roughly 20 percent. That gap exists not because private markets are too risky for 401(k) savers, but because of regulatory barriers and litigation fears.
The CEA’s modeling asks a simple question: what happens when those barriers come down and capital flows freely? The answer is that money moves toward where it is most productive. When 401(k) capital is freed to follow that productivity, it shifts from lower-productivity public markets into higher-productivity private companies, and the broader economy grows as a result.
A $35 Billion Boost to the U.S. Economy
The CEA estimates that fully opening 401(k) plans to private equity would generate an additional $35 billion in aggregate GDP output, or approximately 0.12 percent of GDP:
That gain flows from two sources. First, capital reallocates from lower-productivity public firms to higher-productivity private companies, which pulls labor along with it and increases total output. Second, because higher portfolio returns mean households save slightly more, there is a modest additional capital deepening effect on top of the reallocation gain.
This Number Is Likely an Underestimate
The CEA is explicit that $35 billion is a conservative estimate. The model focuses only on private equity and does not account for potential gains from other alternative assets like venture capital or hedge funds. It also uses a static framework that does not capture the compounding output gains that would build over time as capital shifts toward more productive private companies.
$35 billion is the floor, not the ceiling.
Pro-Growth Reform
The case for the Department of Labor’s proposed rule is often framed as a retirement security argument, and it is. But the CEA’s analysis makes clear it’ll also grow the American economy. Unlocking $30 trillion in 401(k) assets to flow toward the most productive companies in the economy is not a marginal policy tweak. It’s meaningful pro-growth reform.
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