Buffett warns 401(k) savers could be pulled into an expensive private equity risk

A proposed federal rule could give private equity firms access to millions of American retirement savers through their 401(k) plans.

The industry is seeking a share of more than $14 trillion sitting in 401(k) and other defined contribution plans, even as institutional investors scale back, according to a white paper from the Americans for Financial Reform Education Fund (AFREF).

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

That warning may matter even more as these products move closer to workers who may not have the resources or expertise to judge them.

Private equity fund fees are far above typical 401(k) costs

The gap between private equity fees and the low-cost index funds common in most 401(k) plans can have a major effect on retirement savings over time.

The AFREF white paper reviewed those higher expenses and how they can reduce nest eggs over the years.

How private equity costs stack up against standard 401(k) choices

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

Costs can climb even higher when private equity funds buy into other private funds, layering on additional fees. The white paper said those extra charges may not show up in the expense ratio that savers see in their 401(k) plan menus.

Oscar Valdés Viera, senior policy analyst for private equity and capital markets at AFREF, gave an even more pointed assessment of the industry’s push into 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 weakened over time, raising questions about whether the asset class still beats other options after fees.

How the Labor Department safe harbor could open retirement plans to private equity

An executive order issued in August 2025 directed the Department of Labor to remove barriers to alternative assets in retirement plans.

The department answered on March 30, 2026, with a proposed safe harbor that would give plan fiduciaries legal cover to add private equity to 401(k) menus.

AFREF warned that employers following the safe harbor’s required evaluation steps would receive legal protection even if the chosen products charge much more than the plans’ existing options.

The group said the proposal is part of an effort to use workers’ retirement savings to replace 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, and the median balance among those households was $106,000, according to the Federal Reserve’s Survey of Consumer Finances, leaving about 45% of families with no dedicated retirement savings.

AFREF argued that these workers are less prepared to handle the higher fees and limited access to money that come with private equity products.

Morningstar’s stress test shows how quickly liquidity could drain

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

Withdrawals tended to come in clusters during those periods, meaning repeated outflows could quickly drain the liquidity reserves these products need to meet redemptions. Morningstar concluded that semi-liquid private equity vehicles may need liquidity sleeves equal to as much as 40% of total assets to endure those conditions.

That much money kept readily available inside the fund could reduce the extra return that makes private equity attractive in the first place, Morningstar suggested.

Hal Ratner, global head of research at Morningstar Investment Management, told Financial Planning that any return advantage may be smaller than expected.

The main 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 could mean for retirement savings

Jim Baker, executive director of the Private Equity Stakeholder Project, said the proposed rule weakens the protections meant to shield retirement savers. He noted that private equity has lagged public market benchmarks even before fees, and that major pension funds are already reducing exposure.

At Berkshire Hathaway’s 2019 annual meeting, Buffett said private equity returns were “not calculated in a manner that I would regard as honest,” a criticism that has renewed relevance as the Labor Department moves to open 401(k) plans to the asset class.

Buffett added that anyone managing a pension fund should be “very careful about what was being offered.”

Baker said any allocation must produce after-fee returns that compare well with public benchmarks and offer withdrawal terms that match a saver’s retirement timeline.