How Business Models, Not Market Share, Explain Fees, Conflicts, and ERISA Litigation

Most analyses of the 401(k) industry rank providers according to assets under management, number of plans, or participants.

While useful, these rankings fail to explain why some providers consistently appear in ERISA excessive-fee litigation while others rarely do.

This paper proposes a different framework.

Rather than organizing providers by size, the industry is better understood by business model—specifically, how providers acquire business and how they are compensated.

Viewed through this lens, approximately 99 percent of the non-mega-plan marketplace falls into four distinct competitive tiers.

Those tiers explain much of the variation in fees, fiduciary conflicts, prohibited transaction risk, and ultimately ERISA litigation.

---

The Evolution of Competition

The retirement industry has experienced three major competitive eras.

1980-1995

Competition centered on insurance products.

Guaranteed Investment Contracts.

Fixed annuities.

Traditional separate accounts.

Insurance companies dominated.

---

1995-2010

Competition shifted toward mutual funds.

Index funds by Vanguard.

Stable Value in the larger plans migrates from fixed annuities to synthetic by 2000

Target-date funds led by Fidelity around 2005.

Open architecture.

Vanguard and Fidelity dramatically increased market share.

---

2010-Present

Vanguard and Fidelity Mutual Funds are up to over half the assets.  But the other half scrambles for profits :

• Mutual Funds continue to be important   Huge growth of Target Date Mutual Funds
• Collective Investment Trusts (CIT)  used by players like Vanguard, and Fidelity to lower fees especially in larger plans, but used by the others to hide fees.
• Lot of noise but not much adoption of Managed accounts, Guaranteed income, Private equity, Private credit
• Synthetic Stable value separately managed dominated mega plans, while synthetic based CIT products namely Vanguard RST and Fidelity MIPS dominate in larger plans. Smaller plans still have lots of high risk high fee fixed annuities

The common characteristic is lower fees from Vanguard and Fidelity but  reduced transparency and increased opportunities for additional compensation from the rest.

---

Four Competitive Tiers

Tier 1

Vanguard

Business strategy:

Lowest possible participant cost.

Primary competitive weapon:

Low expenses.

Very limited conflicts.

Little reliance on revenue sharing.

Minimal insurance products.

No commissioned sales force.

Benchmark for fiduciary pricing.

ERISA litigation:

Relatively uncommon.

Both Mutual funds and Collective Investment Trusts are transparent and low cost

---

Tier 2

Fidelity

Business strategy:

Institutional full-service provider.

Primary competitive weapon:

Technology.

Administration.

Investment platform.

Scale.

Generally below-average costs.

Both Mutual funds and Collective Investment Trusts are transparent and low cost

Unlike much of the industry, Fidelity generally wins business through direct institutional relationships rather than commissioned insurance distribution.

---

Tier 3

TIAA

Business strategy: Higher education. Hospitals. Non-profits.

403(b) specialization.  Insurance companies have interpreted that synthetic stable value is not allowed in 403b.  TIAA is by far the largest provider of General Account Fixed Annuities over $300 billion, which contain secret spread fees of around 150 basis points.   The 403bs the control typically have 30% to 40% of assets in fixed annuity product.   The second largest product is an annuity holding real estate which is controversial.   Mutual funds make up most of the other assets.

Historically a unique organization with extensive insurance expertise but a mission-driven client base.   But seems to be straying more into Tier 4 (as documented in NBC pieces by Gretchen Morgenson).

Fee levels generally fall between Fidelity and the traditional insurance marketplace. Most fees are hidden buried in Insurance products Strong relationships lots of sponsorships to universities especially

---

Tier 4

Insurance Distribution Model

Examples include:

• Principal
• Lincoln
• John Hancock
• MassMutual
• Prudential
• New York Life
• Nationwide
• Transamerica
• Voya
• AIG Valic
• MetLife
• American United Life
• Corebridge
• Equitable
• Ameritas
• Security Benefit

Many legacy recordkeeping systems have now been consolidated under Empower.

The provider names have changed.

The compensation model largely has not.

---

How Tier Four Wins Business

Unlike Vanguard and Fidelity, many Tier Four providers rarely compete solely on participant fees.

Instead, they compete through weakly disclosed commissions. .

Typical distribution partners include

• Insurance agents
• Financial advisors
• Broker-dealers
• Registered investment advisors
• Retirement consultants
• Third-party administrators

Those intermediaries frequently receive compensation through one or more of:

• Revenue sharing
• Insurance commissions
• Asset-based advisory fees
• Sub-transfer agency payments
• Proprietary investment management fees
• Marketing allowances
• Recordkeeping credits

The participant rarely sees most of these payments.

---

Why This Matters

Every business model creates incentives.

Tier One incentives:

Lower fees.

Larger scale.

Operational efficiency.

Tier Four incentives:

Increase gross revenue per participant.

Increase proprietary product usage.

Increase insurance assets.

Increase advisory relationships.

Increase revenue sharing.

These incentives are entirely rational from a business perspective.

They also create significantly greater fiduciary risk.

---

The Litigation Universe

One surprising conclusion from my ERISA database is that litigation is highly concentrated.

Approximately

• 693,000 Micro plans
• 48,000 Small plans
• 6,800 Mid-Major plans
• 2,200 Large plans
• only 442 Mega plans

Most excessive-fee litigation occurs in only a few thousand plans.  Only 9500 are over $100 million in assets, about a third are not in Vanguard or Fidelity,  so 3500 or 4.6% of plans.  So the other 95% are dependent on a weak EBSA division of the Department of Labor. 

Even more interesting, the overwhelming majority involve Tier Four business models.

That observation is not accidental.

Higher compensation systems naturally produce more opportunities for:

• prohibited transactions,
• revenue-sharing disputes,
• proprietary fund claims,
• insurance commission issues,
• excessive recordkeeping fees,
• conflicts of interest.

---

A Different Way to Measure Market Share

Traditional industry reports measure

Assets.

Participants.

Plans.

Revenue.

I believe a more meaningful measurement is:

How much of the market is sold rather than bought?

That single question largely determines

• fee levels,
• transparency,
• conflicts,
• litigation,
• and ultimately participant outcomes.

---

Conclusion

The American 401(k) marketplace is often described as highly competitive.

It is.

But providers are not competing on the same terms.

Vanguard competes by lowering costs.

Fidelity competes through scale and technology.

TIAA competes through specialization.

Much of the remaining industry competes through distribution networks that compensate intermediaries for selling retirement products.

Those four business models explain far more about fees, fiduciary conflicts, and ERISA litigation than conventional market-share statistics ever will.

The biggest issue missing from the Kentucky pension litigation isn’t standing. It’s transparency.

“From 2008 to 2012, while serving as a Kentucky Retirement Systems trustee, I was not allowed to know the names of the underlying hedge funds inside three hedge fund-of-funds managers. If I could not know what the pension owned, neither could taxpayers, beneficiaries, or outside experts. Fifteen years later, remarkably little has changed.”

I asked then and was denied and voted against Blackstone they are still keeping this secret.

After reading the transcript of the July 1, 2026 hearing before Franklin Circuit Judge Phillip Wingate, I was struck less by what was said than by what was never discussed.

For nearly 70 pages, attorneys debate standing, settlements, declaratory judgments, releases, and procedural authority.

Yet almost no one discusses the investments themselves.

That is remarkable considering the litigation ultimately concerns billions of dollars of pension assets entrusted to alternative investment managers.

As someone who served as a Kentucky Retirement Systems trustee from 2008 through 2012, I found the omission painfully familiar.

The Transcript Is About Procedure, Not Investments

Judge Wingate repeatedly tries to understand the procedural maze being placed before him.

At several points he questions why the parties appear to be attempting, through different legal vehicles, to accomplish essentially the same objective. He even comments that it sounds like “the same stuff” argued previously.

The discussion revolves around:

• standing
• settlement authority
• declaratory judgment
• releases
• jurisdiction

Those are important legal issues.

But there is a much larger issue sitting silently in the courtroom.

What exactly did Kentucky Retirement Systems own?

No one asks.

No one answers.

---

The Missing Layer

Most public discussion has centered on Blackstone.

But Blackstone was only one part of a much larger structure.

The pension system invested through three hedge fund-of-funds, which in turn invested in approximately thirty underlying hedge funds.

That second layer remains almost completely invisible.

Ironically, it was largely invisible even to trustees.

During my four years on the Board, I was never allowed to know the identities of the underlying hedge funds held inside these fund-of-funds structures.

Not only were the names withheld.

So were:

• underlying management fees
• incentive fees
• side letters
• liquidity restrictions
• partnership agreements
• operational due diligence reports

Even today, beneficiaries still cannot readily determine exactly what those fund-of-funds owned.

That should concern every taxpayer.

---

The Question Nobody Asked

Reading the transcript, one question kept coming to mind.

Who actually knew?

If trustees did not know the identities of the underlying hedge funds, then someone certainly did.

Was it:

• investment staff?
• outside consultants?
• fund-of-funds managers?
• outside counsel?

Discovery should answer that question.

Because governance depends upon information.

A fiduciary cannot supervise investments whose identity remains hidden.

---

Judge Wingate’s Questions Point Toward a Larger Problem

One of the more interesting moments occurs when Judge Wingate essentially says he does not understand how one person’s settlement can dispose of broader claims. Later he reminds counsel that “you can’t settle tier three because of you all.”

Although the judge is addressing procedural issues, his comments reflect a broader concern.

Who owns these claims?

Who has authority over them?

And perhaps most importantly:

Who gets to know the facts before they disappear inside a settlement?

Those observations become especially important if discovery has not yet reached the underlying investments.

---

Discovery Is Key

The transcript reveals an enormous amount of legal energy devoted to procedural questions.

But discovery should continue well beyond those issues.

If this case proceeds, discovery should include:

• every underlying hedge fund held through each fund-of-funds
• all subscription agreements
• partnership agreements
• side letters
• quarterly reports
• redemption notices
• valuation reports
• consultant due diligence files
• fee schedules
• communications discussing confidentiality

Without those documents, no one can fully evaluate whether fiduciary duties were satisfied.

---

Who selected each underlying hedge fund?

Who removed managers?

Who negotiated fees?

Who approved side letters?

Who monitored liquidity?

Who received valuation reports?

Which trustees, if any, were allowed to review those materials?

Those answers would tell us far more about Kentucky’s hedge fund governance than another procedural hearing ever could.

---

Transparency Is the Missing Remedy

Judge Wingate spends much of the hearing trying to determine who has authority to settle claims and what legal vehicle should govern those settlements.

Those questions matter.

But there is another remedy the court should not overlook.

Transparency.

Discovery is not merely a litigation tool.

It is one of the few mechanisms capable of opening a black box that has remained closed for nearly two decades.

---

Fifteen Years Later, We Still Don’t Know

As a former trustee, I find it astonishing that fifteen years after I left the Board, the central transparency problem appears largely unchanged.

Back then, trustees were expected to oversee billions of dollars invested through hedge fund-of-funds without being permitted to identify all of the underlying managers.

Today, the litigation risks ending with another procedural ruling before those underlying investments ever become public.

That would be a missed opportunity.

The real value of this litigation is not simply deciding who has standing.

It is finally allowing beneficiaries, taxpayers, and fiduciaries to see what they have been paying for all along.

The Kentucky pension litigation should not end with another debate over procedure.

It should end with discovery that opens the hedge fund black box.

Congress is once again considering legislation that would allow 403(b) retirement plans to invest in Collective Investment Trusts (CITs). More than 30 financial industry organizations are urging the Senate to act, arguing that teachers, nonprofit employees and clergy deserve access to the same institutional investment vehicles already available in many 401(k) plans.

There is merit to that argument.

Many Collective Investment Trusts are excellent investment vehicles.

Vanguard’s Retirement Savings Trust (RST) funds are an excellent example. Low-cost institutional index strategies offered through CITs can reduce expenses for participants.

But Congress should recognize one important fact:

The CIT market of 2026 is not the CIT market of twenty years ago.

Today, the same legal structure that can deliver a low-cost Vanguard index fund can also deliver private equity, private credit, insurance-company separate accounts, lifetime-income products, and multiple layers of affiliated financial products.

Those are entirely different worlds.

Congress Is Looking at the Wrong Problem

Supporters frame the legislation as a simple fairness issue.

Why should 401(k) participants have access to institutional CITs while many 403(b) participants do not?

That is a reasonable question.

A better question is this:

If Congress expands access to CITs, what protections should participants receive in return?

Unfortunately, almost all of the lobbying has focused on expanding access.

Very little has focused on expanding fiduciary protections.

The Fee Story

The retirement business has changed dramatically.

Large defined contribution plans increasingly use index funds costing roughly 10 to 30 basis points.

Competition from Vanguard, Fidelity, BlackRock and others has pushed investment costs steadily lower.

Meanwhile, many alternative products remain dramatically more expensive.

Traditional insurance products often contain spreads and embedded compensation measured in hundreds of basis points.

Academic studies of traditional private-equity funds, including work by Oxford professor Ludovic Phalippou, have estimated total costs that can approach several hundred basis points once management fees, carried interest and other expenses are considered.

That economic reality matters.

As traditional investment management became less profitable, the industry’s fastest-growing products increasingly became those where fees are harder to observe and harder to compare.

The New Reality of Collective Investment Trusts

Many of today’s newest retirement products no longer consist simply of diversified portfolios of publicly traded stocks and bonds.

Instead, a participant’s money may move through several legal structures before reaching the underlying investments.

A target-date CIT may invest in another CIT.

That CIT may invest in an insurance-company separate account.

The separate account may invest in private-equity or private-credit partnerships.

Each legal structure has different disclosure rules.

Different accounting standards.

Different regulators.

Different fiduciaries.

Participants, however, usually receive one unit value.

The complexity is increasing.

Congress should recognize that reality before expanding these products to millions of additional retirement savers.

If Congress Passes the Bill, It Needs Guardrails

Congress should not simply expand access.

It should modernize investor protections.

At a minimum:

1. Require federally supervised trustees for ERISA CITs.

If a CIT is offered to ERISA retirement plans, it should be administered by an OCC-supervised national bank or federal savings association—not through regulatory shopping among state-chartered trust companies.

The legal structure should not depend upon selecting the least demanding supervisory regime.

2. Apply one fiduciary standard to all 403(b) participants.

One of the greatest weaknesses in today’s retirement system is that roughly half of 403(b) participants receive ERISA protections while many public-school teachers, public universities and governmental employers do not.

Congress should not expand investment complexity while leaving millions of educators outside ERISA’s fiduciary framework.

If anything, Congress should use this legislation to move toward one national fiduciary standard for all employer-sponsored defined contribution plans.

3. Full look-through fee disclosure.

Participants should see every layer of compensation.

Investment-management fees.

Insurance spreads.

Private-equity management fees.

Carried interest.

Performance allocations.

Consulting compensation.

Revenue sharing.

Affiliated compensation.

If participants ultimately bear the cost, they should see it.

4. Full look-through investment disclosure.

Participants should know when their target-date fund ultimately owns:

• private equity;
• private credit;
• insurance-company separate accounts;
• real estate partnerships;
• infrastructure funds; or
• other illiquid investments.

The legal structure should not obscure the economic investment.

5. Independent valuation standards.

Where illiquid assets are used, fiduciaries should understand who values those assets, how often they are valued, and whether any independent verification occurs.

Don’t Repeat the Mistakes of the Past

Supporters correctly point out that many CITs are less expensive than comparable mutual funds.

That is true.

But not every CIT looks like Vanguard.

Some are simple institutional index funds.

Others are becoming delivery systems for increasingly complex, higher-fee products.

Congress should not assume they are all the same.

The Bottom Line

This legislation should not be a choice between “allow CITs” and “ban CITs.”

The better approach is straightforward.

Allow low-cost institutional investment vehicles.

But require modern safeguards that reflect today’s retirement marketplace—not the marketplace that existed twenty years ago.

If Wall Street wants access to millions of additional teachers, professors and nonprofit employees, it should welcome stronger fiduciary protections, stronger fee disclosure and stronger federal oversight.

The best CITs have nothing to fear from transparency.

The worst ones do.

The Great Fee Recapture: Why Wall Street Is Leaving SEC Mutual Funds for State-Regulated Collective Trusts

For three decades, the retirement industry has fought a losing battle.

Not against regulators.

Not against Congress.

Against competition.

Competition drove investment management fees relentlessly downward.

Vanguard built an empire on low-cost indexing.

Fidelity now indexes roughly one-third of the assets it manages.

BlackRock became the world’s largest asset manager largely through index investing.

Large institutional 401(k) plans increasingly pay between 10 and 30 basis points for broadly diversified index portfolios.

For Wall Street, that is a crisis.

The traditional mutual fund business has become extraordinarily efficient—and extraordinarily unprofitable compared to what came before.

So the industry needed a new business model.

That model is built around products that are difficult to compare, difficult to value, and difficult to benchmark.

The Economics Tell the Story

Consider the economics.

Large index mutual funds:

• 10–30 basis points.

Traditional fixed annuities:

• approximately 200–400 basis points once spreads and embedded compensation are considered.

Traditional private-equity funds:

• approximately 300–600 basis points after management fees, carried interest and other costs, consistent with numerous academic studies, including work by Ludovic Phalippou.

This is not a small pricing difference.

It is an entirely different business.

Every trillion dollars that moves from a 20-basis-point product to a 300-basis-point product represents tens of billions of dollars of additional annual revenue.

That is the economic incentive driving today’s retirement-product innovation.

Mutual Funds Became Too Competitive

SEC-registered mutual funds are remarkably transparent.

Daily pricing.

Portfolio disclosure.

Comparable expense ratios.

Morningstar comparisons.

Independent boards.

Public filings.

Competition works.

When every investment manager owns essentially the same publicly traded securities, fees inevitably fall.

The index revolution proved that.

Wall Street’s answer was not to compete harder.

It was to move into investments that cannot easily be compared.

The New Business Model

The industry’s growth areas now have remarkably similar characteristics.

Private equity.

Private credit.

Insurance products.

Lifetime-income products.

Collective investment trusts.

Insurance separate accounts.

These products often involve multiple legal structures before participants reach the underlying investments.

A target-date collective investment trust may invest in another collective investment trust.

That trust may invest in an insurance-company separate account.

The separate account may invest in private-equity or private-credit funds.

Every additional legal structure creates another layer of administration.

Another layer of valuation.

Another layer of contracts.

Another layer of compensation.

Most importantly, another layer that makes straightforward fee comparisons increasingly difficult.

Why State-Regulated Collective Trusts?

This is where an interesting pattern emerges.

I have yet to identify a current SEC-registered open-end mutual fund that owns traditional annuity contracts.

Likewise, I have not identified a current OCC-supervised ERISA collective investment trust holding the kinds of private-equity partnerships now being promoted for participant-directed target-date funds.

Instead, many of the industry’s newest products appear to be organized through state-chartered trust companies.

Nevada.

Oregon.

Maine.

It raises an obvious question.

If these investments are as straightforward as their sponsors claim, why are they increasingly being introduced through legal structures outside SEC mutual funds and, increasingly, outside direct OCC-supervised collective investment trusts?

Complexity Protects High Fees

High fees are easiest to sustain when comparisons become difficult.

Participants know how to compare an S&P 500 index fund charging 0.03%.

They have a much harder time comparing:

• a target-date collective investment trust;
• investing in another collective investment trust;
• investing in an insurance separate account;
• investing in a portfolio of private-equity partnerships.

At that point, what exactly is the participant comparing?

The benchmark?

The valuation methodology?

The insurance spread?

The carried interest?

The management fee?

The consulting fee?

The recordkeeping fee?

The answer is often: all of them.

Or none of them.

The New Toll Road

Think of the modern retirement system as a highway.

Traditional index investing is a public interstate.

Efficient.

Transparent.

Low cost.

Private markets increasingly resemble a series of toll booths.

Every legal structure can collect a fee.

Every intermediary can justify another charge.

Every additional layer makes it more difficult for participants—and sometimes even fiduciaries—to determine the total cost of reaching the underlying investments.

The investment itself may not have changed very much.

The economics certainly have.

Fiduciaries Should Follow the Money

Investment committees are often told these products are about diversification.

Or access.

Or innovation.

Those claims deserve careful evaluation.

But fiduciaries should begin with a simpler question.

Who benefits economically from moving retirement assets out of 20-basis-point index funds and into products costing several hundred basis points?

Until that question is answered clearly, every additional legal structure should be viewed not simply as an investment vehicle, but as part of the product’s overall economic design.

The retirement industry did not abandon low-cost mutual funds because they stopped working.

It abandoned them because they became too inexpensive.

That is the story behind private equity, private credit and modern annuity products.

It is, above all, a story about fee recapture.

Annuities Break ERISA’s Disclosure Rules

Lifetime Income: The Gateway Drug for Insurance Products in 401(k) Plans

The CIT Black Box: Bloomberg Gets It Right — But the Real Risk Is Even Bigger

The SEC Quietly Killed Stable Value Mutual Funds in 2004 — And That Tells You Everything About Private Equity, Fixed Annuities, and Prohibited Transactions in 401(k)s

A new academic report provides unusually strong evidence for a central argument made in both the our investigation of Ohio STRS and our broader CalPERS report: public-pension compensation systems can reward staff for an internally manufactured version of performance that is materially better than the pension’s underlying financial record.

In Retirement at Risk: The Political Economy of Public Pension Governance, Allen Mendenhall and Dan Sutter examine two decades of Ohio State Teachers Retirement System performance reporting. https://allenmendenhall.com/wp-content/uploads/Retirement-at-Risk.pdf   https://jnf.ufm.edu/journal/vol4/iss1/2/

  Their central finding is remarkable:

STRS’s publicly reported investment return exceeded the authors’ independently calculated return derived from audited financial information in 19 of the 20 fiscal years from 2003 through 2022.

The average difference was approximately 0.33 percentage points annually. The authors estimate that the annual differences represented about $4.8 billion when added together and approximately $9.3 billion when compounded over the full period. They emphasize that the $9.3 billion is not the amount of bonuses improperly paid; it is their estimate of the cumulative difference between the performance story presented to stakeholders and the growth indicated by their audited-data calculation.

The Critical Compensation Connection

The report does not merely identify two different performance figures. It connects the difference directly to incentives:

• STRS reportedly based investment-staff bonuses on the higher, internally reported return.
• Those reported returns were not themselves the subject of the CPA opinion covering the financial statements.
• Ohio OPERS, used as a comparison, based bonuses on audited results.
• OPERS showed a much smaller, bidirectional discrepancy: its reported return was higher in some years and lower in others.

That comparison is important. OPERS operated in the same state, under similar economic conditions, yet its differences looked more like ordinary measurement variation. At STRS, the difference overwhelmingly went in one direction—the direction that favored staff compensation.

The authors calculate that obtaining 19 favorable differences in 20 years would have a probability of less than 0.01 percent if overstatement and understatement were equally likely. Their conclusion is appropriately qualified: methodological differences may explain part of the gap, but the pattern is most consistent with an incentive problem.

This is about as close as an academic paper is likely to come to saying:

STRS maintained one performance number grounded in audited financial information and another, more favorable number used to justify bonuses.

It Reinforces the CommonSense “Everyone Gets Paid to Pretend” Thesis

In May, the CommonSense 401k Project described the private-market valuation system as a “perfectly aligned incentive system”:

• private-equity managers benefit from high reported net asset values;
• private-credit managers benefit from delaying defaults and write-downs;
• consultants benefit from preserving complex, high-fee programs;
• pension staff benefit from reported outperformance and bonuses.

The process was summarized in five steps:

1. Private assets are not marked to an observable market.
2. Benchmarks are lagged or custom-built.
3. Reported returns appear unusually stable.
4. Fees and bonuses are paid.
5. Losses are deferred.

Private Assets make up their own valuations and hide excessive fees.  This is why no Private Equity fund can comply with CFA-GIPS performance guidelines. https://commonsense401kproject.com/2025/08/25/misleading-claims-of-gips-compliance-at-ohio-strs/

 This is why Private Equity is not allowed in SEC registered Mutual Funds.

The new STRS study supplies direct empirical support for the pension-staff portion of that thesis. We previously argued that pension employees’ bonuses depend on reported returns and non-investable benchmarks, creating a powerful reason not to recognize losses promptly.

The academic study now finds precisely the pattern that theory predicts: the number associated with compensation was almost always higher than the number the authors derived from audited financial data.

This moves the issue beyond a generalized concern about opaque private assets. It identifies a measurable institutional mechanism through which optimistic reporting can enrich the people responsible for producing and defending it.

From our 2024 numbers it has gotten worse with higher excessive salaries many who now work from home

• 4 employees earned over $600,000.
• 20 employees earned over $400,000.
• 49 employees earned over $300,000.
• 85 employees earned over $200,000
• That’s a 90% increase in six-figure employees in just five years — during a period when teachers’ COLAs were frozen.   https://commonsense401kproject.com/2025/10/31/columbus-the-highest-public-salaries-in-america-and-ohio-teachers-are-paying-for-it/
•  

It Also Reinforces the CFA-versus-CPA Power Imbalance

The earlier CommonSense Ohio report described a structural imbalance inside public pensions: https://commonsense401kproject.com/2026/05/02/ohio-strs-investment-staff-paid-excessively-to-look-the-other-way/

• highly compensated investment personnel control private-market allocations, valuation inputs, benchmarks and performance narratives;
• lower-paid accounting and financial-control personnel are expected to verify the resulting numbers;
• boards generally rely more heavily on the investment staff than on the accountants.

That report argued that Ohio had created a system in which “the dealmakers are rewarded for growth and complexity” while “the watchdogs are underpaid and outgunned.”

Mendenhall and Sutter provide a concrete example of the consequences. The externally audited financial information and the investment office’s reported performance existed in the same annual reports, but they apparently did not produce the same result. The investment office’s preferred result was then used for compensation.

Thus, the problem is not simply that CFA-type investment personnel make more money than CPA-type accounting personnel. The deeper problem is that the better-paid side controls the performance number on which its own bonuses depend.

The CalPERS Parallel Is Even Larger

The CalPERS investigation identified a similar structure, although CalPERS accomplishes it primarily through engineered benchmarks and private-asset valuation conventions rather than the exact STRS calculation examined in the new paper.

CalPERS pays some of the highest public-pension compensation in the country despite chronic underperformance. The investigation found:

• four executives receiving more than $1 million;
• another four receiving more than $900,000;
• 26 employees between $500,000 and $900,000;
• 52 employees between $300,000 and $500,000;
• CEO compensation rising from approximately $406,000 in 2018 to more than $1.24 million in 2024. https://commonsense401kproject.com/2026/05/22/calpers-sets-its-own-excessive-pay-off-the-charts/
  
  

The report concluded that compensation was supported by internally constructed policy benchmarks and discretionary organizational measures rather than straightforward comparisons with investable, low-cost alternatives.

Only 15 percent of the CalPERS CEO incentive award was tied to total-fund investment performance, and even that portion was measured against CalPERS’ own policy benchmark. A five-basis-point advantage over that engineered benchmark could reportedly produce the full performance payout.

The CalPERS report describes a closed validation loop:

1. Staff help construct the strategy and benchmark.
2. Performance is measured against the internally designed benchmark.
3. Consultants validate the benchmark and compare compensation with selected peers.
4. The board approves bonuses based on the consultant-supported results.
5. No one tests compensation against the simple investable portfolio beneficiaries could actually have owned.

Private-market valuation lag adds another layer. CalPERS benchmarks include quarter-lagged private-market indexes, appraisal-based valuations and assumed illiquidity premiums. During market declines, those features defer recognition of losses, making interim performance appear better and allowing bonuses to be paid before economic deterioration becomes visible.

Ohio STRS chose the same Goverance Consultant  as CALPERS to reinforce the same excessive pay for false performance system.

Two Systems, the Same Basic Trick

The STRS and CalPERS mechanisms are not identical, but the governing principle is the same.

External economic reality	Compensation reality
Audited financial position	Internally reported return
Observable public-market alternatives	Custom policy benchmark
Current market losses	Lagged private-market valuations
Net returns and opportunity cost	Consultant-approved “value added”
Long-term beneficiary outcome	Annual bonus eligibility

At STRS, the new research calls this effectively two performance records: one exposed to external audit discipline and another used for internal evaluation and compensation.

At CalPERS, the second record is constructed through benchmarks, appraisal-based valuations, discretionary metrics and consultant certification.

In both cases, the staff are not necessarily falsifying a formal general ledger. Therefore, “two sets of books” should be understood as a description of two systems of performance measurement, not a claim that auditors discovered criminal double-entry accounting. But the economic result can be similar: the official number presented for compensation is more favorable than the measure stakeholders would use to evaluate the pension’s real opportunity cost.

The Real Scandal Is the Incentive Design

The report’s proposed minimum reform is straightforward: performance compensation should be based exclusively on independently verified results derived from audited financial information.

That is a start, but the CalPERS findings show that merely calling something “audited” may not be sufficient when private assets remain dependent on manager marks and lagged appraisals. A serious reform should require:

1. Compensation based on long-term net performance after all fees and expenses.
2. Comparison with transparent, investable opportunity-cost benchmarks.
3. Independent valuation authority outside the investment department.
4. Multi-year deferral and clawbacks when private-market values are subsequently reduced.
5. Public reconciliation of every performance figure to the audited financial statements.
6. An independent inspector general with access to valuation records, contracts, benchmark histories and compensation calculations.

Bottom Line

The new report strongly reinforces the Ohio and CalPERS investigations.

The May CommonSense articles on Ohio argued that opaque valuations, artificial benchmarks and excessive pension-staff compensation form a single system. The STRS study provides evidence of that system in operation: the performance number used to pay investment bonuses was systematically more favorable than the result the authors calculated from audited financial information.

The CalPERS investigation demonstrates the same underlying practice on a much larger scale. Staff and consultants construct the benchmarks, private-market marks soften or postpone losses, the internally generated result is declared successful, and enormous compensation follows.

Public pension staff do not need to beat the market when they are permitted to choose the accounting lens, design the measuring stick and collect bonuses from the version of reality that makes them look best.

—————————————————————–

Columbus: The Highest Public Salaries in America — and Ohio Teachers are Paying for It

The CFA Institute has diagnosed yesterday’s disease while today’s patient is dying from something entirely different.

By Chris Tobe, CFA, CAIA

The new CFA Institute Research Foundation monograph Investment Committees: Governance and Design Choices deserves praise. It is one of the best academic treatments of investment committee behavior I have read in years. It synthesizes decades of behavioral finance research into a thoughtful discussion of groupthink, status bias, anchoring, and decision-making “noise.” It even proposes an innovative idea: instead of allowing dominant personalities to steer committee discussions, require each committee member to independently submit portfolio recommendations anonymously before discussion begins. The committee’s decision would then reflect the average of those independent judgments rather than the loudest voice in the room. https://rpc.cfainstitute.org/sites/default/files/docs/research-reports/rf_scherer_investmentcommittees_online.pdf

Twenty years ago, this paper might have represented the cutting edge of institutional governance.

Today, however, it feels like a diagnosis of a disease that has largely disappeared.

The problem facing investment committees in 2026 is not that they are making honest mistakes. The problem is that many committees have stopped asking the questions that matter.

The World the CFA Paper Describes

The CFA paper assumes a traditional institutional investor.  Committee members gather monthly.  They review economic forecasts.  They debate equity versus bonds.   The CIO may dominate discussion.  Members may anchor on the first opinion expressed.  Groupthink can emerge.

Behavioral biases distort decisions. These are all real problems. The research on committee psychology is excellent, and the proposed reforms could improve many investment committees. But underlying the entire paper is one crucial assumption:

Committee members are honestly trying to maximize participant returns.

That assumption once described much of institutional investing.  It increasingly does not especially in my world of U.S. Public Pensions and 401(k) plans.

The Investment Committee Has Changed

Over the last two decades, alternatives have fundamentally changed the role of investment committees especially in U.S. Public Pension Plans.

The traditional committee once allocated among:

• U.S. equities
• International equities
• Bonds
• Cash

Today many public pension committees spend nearly half their meetings discussing:

• private equity
• private credit
• hedge funds
• infrastructure
• real estate partnerships
• continuation funds
• GP-led restructurings
• insurance products

These are not transparent securities.   They are contractual relationships.

And contracts create conflicts.  The committee’s most important job is no longer deciding whether stocks should be 58% or 62% of the portfolio.

It is determining whether fiduciaries are entering relationships that participants cannot evaluate.

The Questions That Never Get Asked

After serving as an expert witness in ERISA litigation for more than a decade, and doing public pension reviews for over 2 decades, I have reviewed thousands of committee materials.  I have served as a trustee of a $20 billion pension fund.

The missing discussions are remarkably consistent.

Committees rarely ask:

• How much are we really paying?
• Who receives every layer of compensation?
• What conflicts exist?
• How are these assets actually valued?
• What happens if liquidity disappears?
• Who benefits from secrecy?
• Why are these contracts unavailable for public review?

Instead, committees often spend hours debating issues around 1 of several hundred investments, and get just the consultants boiler plate presentations on the economy.   

The CFA paper spends nearly eighty pages discussing committee dynamics.  It spends almost no time discussing conflicts of interest.   That omission illustrates how much institutional investing has changed.

The New Governance Failure

Behavioral finance remains important.   But today’s governance failures are structural.

Increasingly, committees are approving investments whose economics cannot be independently verified.   Consider private equity.  Many public pensions now allocate 30% to 40% of assets to private markets.

Yet those investments frequently rely on:

• manager-supplied valuations
• confidential side letters
• confidential partnership agreements
• confidential fee arrangements
• confidential financing structures

In many cases even the Investment Committee members are not allowed to see these private equity contracts.

Ironically, many of these investments cannot satisfy the transparency principles long promoted by the CFA Institute’s own Global Investment Performance Standards (GIPS).   When nearly half of a pension portfolio consists of assets that resist standardized performance verification, governance problems become far more serious than groupthink.  They become problems of accountability.

Investment Policy Statements Have Become Hollow

This is where the CFA paper and modern ERISA litigation diverge.  The paper assumes committees operate within robust Investment Policy Statements.

My public pension investigations and litigation experience suggests something different.

Many IPS documents have become increasingly vague precisely where specificity matters most.

Instead of requiring fiduciaries to document:

• fee limits
• liquidity standards
• valuation methodologies
• conflict disclosures
• prohibited transaction reviews
• insurance credit standards

they often contain broad statements about “diversification,” “prudent investing,” or “appropriate alternative investments.”

An IPS that avoids measurable standards protects fiduciaries far better than it protects participants.

That is not an accident.

Governance Theater

One of the CFA paper’s best observations is that many investment committees have become governance rituals rather than genuine decision-making bodies. Meetings are held. Minutes are written. Consensus is achieved.   This is 99% of committee meetings.

As a Kentucky Pension trustee of a $20 billion fund,  I would make written objections to investment decisions around a lack of transparency  to be entered into the minutes, after I found them scrubbed from previous minutes.   The rest of the board then voted to scrub my written comments from the minutes.  I the only investment expert of 12 was removed from the investment committee led by a trustee who later served a 5 year prison term.   

Committees now often perform diligence around information that has already been filtered by consultants, investment managers, placement agents, legal counsel, and proprietary confidentiality agreements.

Trustees are frequently asked to approve billion-dollar commitments after seeing only a fraction of the relevant information.  The meeting itself becomes evidence that a prudent process occurred—even when the most important information was never available.

The Elephant in the Committee Room

Perhaps the most surprising omission in the CFA monograph is private equity.

Today, alternatives dominate institutional investing.

Yet there is remarkably little discussion of:

• opaque valuations
• carried interest
• subscription credit facilities
• secondary market discounts
• side letters
• manager conflicts
• performance reporting differences
• benchmark selection

These are no longer niche issues.  They define modern institutional governance.

From Behavioral Finance to Fiduciary Finance

The CFA Institute has made an important contribution. It explains how committees think.  The next generation of research must explain what committees are obligated to investigate. Those are very different questions.   Behavioral finance asks: How do groups make better decisions?

Modern fiduciary governance asks: What information must fiduciaries obtain before any prudent decision is even possible?  That distinction increasingly defines pension governance.

The Next Generation of Governance

The next major advance in committee governance will not come from better meeting procedures.

It will come from requiring committees to document objective fiduciary standards before investments are approved.

Future Investment Policy Statements should require documented analysis of:

• total fees from every source
• valuation methodology
• secondary market evidence
• liquidity stress testing
• conflicts of interest
• prohibited transaction analysis
• insurance credit risk
• benchmark selection
• GIPS compliance where applicable
• independent verification of reported returns

Those questions matter far more than who speaks first during committee meetings.

Conclusion

The CFA Institute deserves credit for improving the science of investment committee behavior.  But today’s governance crisis is no longer primarily behavioral.  It is informational.

When trustees knowingly approve billions of dollars in investments whose valuations, fees, contracts, and risks remain largely hidden, the problem is not groupthink. It is fiduciary blindness.   The greatest governance reform of the next decade will not be quieter committee meetings or anonymous portfolio voting.

It will be restoring the simple principle that fiduciaries cannot prudently approve what they are not allowed—or unwilling—to fully examine.

Investment Policy Statements (IPS) Are Avoided in 401(k)s to Hide Fees and Risks

Why 401(k) Plans Need a Strong Investment Policy Statement (IPS): A Fiduciary Firewall Against Risky and Conflicted Investments

Investment Policy Statements Crucial to Fiduciary Duty

The new Kitces article by Richard Chen is framed as a practical due-diligence guide for RIAs reviewing private equity, private credit, hedge funds, venture, and real estate funds. But read in the 401(k)/403(b) context, it becomes something more important: an admission that private funds require a level of legal, operational, valuation, liquidity, conflict, side-letter, expense, and monitoring diligence that most participant-directed retirement plans are not equipped to perform. https://www.kitces.com/blog/private-equity-debt-fund-due-diligence-checklist-ria-fiduciary-governing-documents-operational/?

That is the key point. Chen does not write like a private-equity critic. He writes like a careful securities lawyer. Yet his checklist confirms my core argument: private markets are not simply “another asset class.” They are structurally different from mutual funds and public securities because the investor often lacks reliable pricing, daily liquidity, standardized disclosure, transparent fees, equal rights, and meaningful legal recourse.

This fits directly with my earlier critique of PwC’s private-equity-in-401(k)s paper.  https://commonsense401kproject.com/2026/06/10/pwc-accidentally-says-the-quiet-part-out-loud-about-private-equity-in-401ks/    PwC emphasized “embedding” private markets inside defined contribution structures and estimated a massive fee opportunity for the industry. My response was that the real strategy is not participant choice, but default placement through TDFs, CITs, consultants, recordkeepers, and bundled fiduciary narratives.

Chen’s article strengthens that argument because he says fiduciaries cannot rely on sponsor pitch books or marketing materials. They must review governing documents, conflicts, gates, side pockets, side letters, expense allocation, indemnification, valuation procedures, service providers, cybersecurity, litigation history, and ongoing monitoring. That is not a minor administrative burden. That is a full legal and operational due-diligence regime.

The most important sentence for ERISA litigation is Chen’s warning that fiduciary diligence is not a one-time event. Even in closed-end illiquid funds, the inability to redeem “does not suspend the duty of care.” In fact, it intensifies monitoring obligations. That is devastating to the industry’s argument that private equity can be safely dropped into a TDF sleeve and forgotten for ten years.

Chen also highlights one of the central private-market fraud risks: valuation. Private fund sponsors often control or influence the values used to calculate management fees, carried interest, reported performance, and NAV. This matches my prior ERISA checklist: fiduciaries should not rely on IRR, custom benchmarks, stale marks, or manager-controlled accounting when deciding whether participants actually benefit.

The article is also useful on liquidity. Chen separates ordinary illiquidity from “very illiquid” structures: lockups, notice periods, fund-level gates, investor-level gates, side pockets, and suspension rights. In a daily-valued 401(k) system with loans, withdrawals, transfers, QDIA flows, and participant panic risk, that is not a feature. It is a structural mismatch.

The side-letter section may be especially important. Chen admits that different investors in the same fund may receive better fees, better reporting, better liquidity, co-investment rights, or most-favored-nation protections. That creates a simple ERISA question: how can a fiduciary prove participants received prudent, loyal, and comparable terms if other investors secretly received better ones?

The expense-allocation section also supports litigation. Chen notes that private funds may shift broken-deal costs, legal costs, regulatory expenses, travel, technology, insurance, placement-agent fees, and other overhead to investors. That directly supports the argument that private equity fee disclosure in DC plans is not merely incomplete — it may be fundamentally misleading.

The weakness in Chen’s piece is that it still treats private funds as suitable if the adviser checks enough boxes. For ERISA plans, that may be too forgiving. A retail RIA recommending a small allocation to a wealthy accredited investor is not the same as a plan fiduciary embedding opaque private assets inside default retirement vehicles for ordinary workers.

Chen/Kitches confirms that private equity in 401(k)s is a fiduciary minefield. If fiduciaries cannot obtain the LPAs, side letters, valuation files, expense allocations, liquidity terms, fee offsets, indemnification provisions, cyber controls, service-provider reports, litigation history, and ongoing monitoring records, they should not put private equity in participant-directed retirement plans. And if consultants, CIT providers, or managers refuse to provide those materials, that is not a diligence problem to be managed — it is the fiduciary red flag itself.

https://commonsense401kproject.com/2026/06/07/erisa-private-equity-fiduciary-due-diligence-checklist/ make a commonsense review

What Hospital Mergers, Legacy Insurance Products, and Weak Fiduciary Oversight Have in Common

By Christopher Tobe, CFA, CAIA

Ted Siedle and I have written extensively about billions of dollars trapped in aging private equity, venture capital, and real estate partnerships at CalPERS and other public pension systems. Those investments often survive long after their expected life, continuing to generate fees while producing little value.   Ted has labled them “zombie funds” https://pensionwarriorsdwardsiedle.substack.com/p/zombie-fund-billions-at-calpers?

But after reviewing dozens of hospital retirement plans over the past several years—including roughly twenty ERISA litigation matters and more than fifty hospital Form 5500 filings—I have become convinced that hospitals have their own zombie problem.

The assets are different.  The governance failure may be remarkably similar.

Hospital Zombie Funds

Instead of aging private equity partnerships, hospital 401(k) and 403(b) plans often contain dozens of tiny legacy investments:

• old VALIC insurance products
• Nationwide variable accounts
• Lincoln insurance contracts
• MetLife guaranteed accounts
• obsolete separate accounts
• forgotten mutual fund share classes
• legacy target-date funds
• investment options inherited through mergers decades ago

Many contain only a few thousand dollars.

Some have only one participant remaining.

Others have balances so small one wonders whether anyone has reviewed them in years.

These are what I call Hospital Zombie Funds.

A Retirement Plan Built Like an Archaeological Dig

Healthcare has experienced one of the largest merger waves in American history.

Every acquisition may bring:

• another 403(b)
• another 401(a)
• another insurance carrier
• another recordkeeper
• another consultant
• another investment committee

Few hospitals completely redesign the investment menu after every acquisition.

Instead, they often preserve legacy options to avoid disrupting participants.

Each merger adds another layer.

After twenty years, the investment menu resembles an archaeological excavation.

Every acquisition leaves artifacts.

Why Hospitals May Be Different

One observation from my work is that many hospital retirement plans appear to have less institutional investment infrastructure than large Fortune 500 companies.

Large corporations frequently have:

• treasury departments;
• dedicated pension professionals;
• experienced finance staffs;
• sophisticated fiduciary committees;
• long institutional memory.

Many hospitals instead rely heavily on:

• Human Resources;
• benefits administrators;
• volunteer committee members;
• outside consultants;
• recordkeepers.

Those functions often experience significant personnel turnover. As people leave, institutional knowledge can disappear with them. Successors inherit an investment lineup without necessarily understanding why certain legacy products remain.

This is an observation drawn from my experience across many healthcare plans rather than a universal conclusion, but it is a pattern that deserves closer study.

Insurance Products Create a Different Problem

Legacy mutual funds are generally straightforward to replace.

Insurance products frequently are not.

Many older fixed accounts and guaranteed contracts include provisions such as:

• surrender charges;
• market value adjustments (MVAs);
• book-value accounting;
• withdrawal restrictions;
• negotiated termination provisions.

These provisions vary by contract, but they can make replacing a legacy insurance product expensive.

Imagine a fiduciary committee learns that replacing an inherited insurance contract could immediately reduce participant account values because of contractual exit costs.

That creates a difficult choice.

Leave the contract in place and continue earning below-market crediting rates.

Or recognize a substantial immediate loss.

Few committees voluntarily choose the second option.

The Zombie Effect

This creates what might be called the Zombie Effect.

The investment survives not because anyone believes it is the best available option.

It survives because removing it has become politically, financially, or legally difficult.

Over time:

• committee members change;
• consultants change;
• recordkeepers change;
• memories fade.

Eventually no one remembers why the investment remains.

It simply stays.

The Public Pension Parallel

The governance dynamic resembles what Ted Siedle and I have documented in public pensions.

Public pension systems often hesitate to sell aging private equity or real estate partnerships because doing so requires recognizing losses or accepting discounts in the secondary market.

Hospital fiduciaries may face a comparable challenge when legacy insurance contracts carry meaningful exit costs.

Different assets.

Similar incentives.

Neither situation necessarily reflects bad faith.

Both may reflect governance systems that reward delaying difficult decisions.

The Duty to Monitor Never Ends

ERISA imposes a continuing duty to monitor plan investments.

That duty does not end after selecting an investment.

Nor does it disappear because an investment was inherited through a merger.

Every legacy option should periodically prompt basic questions:

• Why is this investment still here?
• How many participants remain invested?
• Is there a better alternative?
• What would it cost to replace?
• Has anyone recently analyzed those costs?
• Does the investment continue to serve participants’ best interests?

If no one can answer those questions, the plan may have a governance problem even if no single investment is independently imprudent.

Discovery Should Follow the Money

When litigation involves legacy insurance products, plaintiffs should seek discovery regarding:

• every insurance contract;
• every merger integration analysis;
• every recordkeeper conversion study;
• every surrender-value calculation;
• every market value adjustment analysis;
• every consultant recommendation concerning legacy contracts;
• every committee discussion about replacing insurance products;
• every analysis comparing the cost of exiting versus remaining.

Those documents may reveal whether fiduciaries actively evaluated legacy products—or simply allowed them to remain because changing them appeared difficult.

The real question is whether hospitals have allowed decades of mergers to create retirement plans filled with investments that no one meaningfully reviews anymore.

Just as public pensions accumulated billions in private equity zombie funds, hospital retirement plans may have accumulated a different generation of zombies—legacy insurance products and forgotten investment options that remain because they have become too complicated, too expensive, or simply too easy to ignore.

Why Jim Watkins’ Fiduciary Disclosure Theory May Be Even Stronger for Fixed Annuities and Pension Risk Transfer (PRT) Annuities

James Watkins’ latest article makes an important point that extends far beyond lifetime income annuities.  https://fiduciaryinvestsense.com/2026/06/23/may-it-please-the-court-closing-argument-on-fiduciary-duty-of-disclosure-under-erisa-section-404a-and-section-783-of-the-restatement-third-of-trusts/

His central argument is simple:

ERISA fiduciaries have an affirmative duty to conduct an independent investigation and disclose all material facts necessary for participants to make an informed decision under ERISA §§404(a) and 404(c), consistent with Section 783 of the Restatement (Third) of Trusts. A fiduciary cannot satisfy that duty by relying on opaque products or conflicted vendors.

I agree with that framework.

Where I part company with much of the retirement industry is that I believe the disclosure problem is far worse for fixed annuities and Pension Risk Transfer (PRT) annuities than it is for lifetime income products.

Those products are not merely difficult to understand.

They often make meaningful disclosure practically impossible.

---

ERISA Does Not Require Blind Trust

The insurance industry frequently argues that participants do not need to understand the insurer’s investment portfolio.

That argument turns ERISA upside down.

ERISA does not ask whether participants trust the insurer.

ERISA asks whether fiduciaries investigated the investment independently and disclosed the material facts necessary to make an informed decision.

Watkins correctly emphasizes that fiduciaries cannot simply rely on representations from product vendors or consultants with financial incentives. Courts have repeatedly described prudence as requiring an independent investigation rather than procedural box-checking.

If the fiduciary cannot independently verify the facts…

the fiduciary cannot honestly disclose them.

---

The Fixed Annuity Disclosure Problem

Fixed annuities are often marketed as “safe.”

Yet participants typically receive little or no disclosure regarding:

• actual composition of the insurer’s general account
• percentage invested in private credit
• percentage invested in private equity
• commercial real estate exposure
• leveraged loans
• derivative exposure
• affiliated investments
• securities lending
• liquidity risk
• downgrade risk
• surrender costs
• market value adjustment provisions
• conflicts created by affiliate asset managers

Participants are simply told:

“Your principal is guaranteed.”

That is marketing.

It is not meaningful fiduciary disclosure.

---

Lifetime Income Is Only the Beginning

My recent article described lifetime income products as the gateway drug for insurance products inside defined contribution plans.

Once fiduciaries become comfortable accepting opaque insurance accounting, the same logic naturally expands to:

• fixed annuities
• index annuities
• separate account annuities
• guaranteed lifetime withdrawal benefits
• collective investment trusts holding insurance contracts

The disclosure standards steadily decline.

Eventually, participants are expected to accept complex products based almost entirely on the insurer’s own representations.

That is precisely what ERISA was designed to prevent.

---

PRTs May Present the Biggest Disclosure Failure of All

The disclosure problem becomes even more severe in Pension Risk Transfers.

Participants are told:

“Nothing changes.”

In reality, almost everything changes.

The participant loses protection from:

• PBGC insurance
• ERISA funding rules
• minimum funding requirements
• fiduciary oversight
• trustee oversight
• public reporting

The participant instead becomes dependent upon:

• insurer solvency
• state insurance regulation
• state guaranty associations
• insurer investment decisions

Those are enormous changes.

Yet many retirees never receive a balanced explanation comparing those two systems.

Calling the transaction “de-risking” without explaining the risks transferred to retirees is itself arguably misleading.

---

Material Facts Are Often Missing

Watkins discusses ERISA’s requirement that participants receive sufficient information to make an informed decision.

Applying that principle to fixed annuities raises obvious questions.

Were participants told:

• that insurer portfolios increasingly contain private credit?
• that insurers frequently invest through affiliated asset managers?
• that portfolio risks can change dramatically after purchase?
• that investment guidelines often permit substantial discretion?
• that insurer ratings can change?
• that downgrade provisions may or may not exist?
• that surrender charges may prevent exiting?
• that participants cannot independently monitor portfolio quality?

If not…

how can the disclosure be considered complete?

---

PRT Participants Receive Even Less Information

Retirees transferred through Pension Risk Transfers frequently never receive meaningful disclosure regarding:

• insurer asset allocation
• private credit exposure
• affiliated investments
• investment guidelines
• liquidity management
• securities lending
• stress testing
• downgrade scenarios
• historical insurer failures
• differences between PBGC protection and state guaranty systems

Instead they receive reassuring marketing materials emphasizing guarantees.

Guarantees are important.

But guarantees themselves depend on the financial strength of the guarantor.

That relationship deserves explanation.

---

The General Account Is a Black Box

Unlike mutual funds or ETFs, insurer general accounts generally provide limited transparency into day-to-day holdings.

Participants therefore cannot independently determine whether the insurer has materially increased exposure to:

• private debt
• commercial real estate
• infrastructure lending
• leveraged finance
• affiliate transactions

The fiduciary often cannot either.

If neither participant nor fiduciary can independently verify portfolio risks, then meaningful disclosure becomes extraordinarily difficult.

That concern parallels Watkins’ broader observation that ERISA prudence requires objective investigation rather than reliance on opaque products.

---

Disclosure Is Not a Sales Brochure

Insurance marketing often emphasizes:

• guarantees
• lifetime income
• peace of mind
• certainty

ERISA requires something different.

It requires disclosure of material facts.

Material facts include both benefits and risks.

A disclosure document that highlights guarantees while omitting significant investment, liquidity, or counterparty risks may leave participants without the balanced information needed to make an informed decision.

Whether any particular disclosure is legally sufficient will depend on the specific facts, but fiduciaries should evaluate these materials carefully rather than assuming standard insurance brochures satisfy ERISA’s disclosure obligations.

---

The Litigation Risk Is Growing

Recent litigation increasingly focuses on process, transparency, conflicts of interest, and fiduciary investigation.

That trend creates additional exposure for sponsors offering insurance products inside retirement plans.

Future plaintiffs are unlikely to ask only:

“Was the product prudent?”

They may also ask:

• What independent investigation was performed?
• What information could the fiduciaries independently verify?
• What material facts were disclosed?
• What material facts were omitted?
• Could participants realistically understand the risks being transferred?

Those questions go directly to the fiduciary duties recognized under ERISA §404(a) and reflected in trust law principles discussed by Watkins.

---

Bottom Line

Jim Watkins’ article provides a useful framework for evaluating fiduciary disclosure obligations.

In my view, however, its implications extend well beyond lifetime income annuities.

Fixed annuities and Pension Risk Transfer annuities may present even greater disclosure challenges because participants are asked to rely on financial institutions whose risks cannot be independently verified through ordinary public disclosures.

ERISA was enacted to replace trust with transparency.

When participants cannot see the investments backing their retirement promises—and fiduciaries cannot independently verify or explain the material risks—courts may increasingly ask whether the disclosure obligations imposed by ERISA have truly been satisfied.

Lifetime Income: The Gateway Drug for Insurance Products in 401(k) Plans

PRT Updated Litigation Risk: Pension Risk Transfer Annuities

Vivek Ramaswamy is now the Republican nominee for Ohio governor, and the pension conflict question has become much sharper.

The issue is not simply that Ramaswamy likes Bitcoin. The issue is that he personally holds Bitcoin and Ethereum, retains roughly a 10% stake in Strive, and has supported Ohio House Bill 18, which would open the door for public funds and retirement systems to gain digital-asset exposure.

Recent reporting adds the campaign-money layer. TiffinOhio.net reported that founders of World Liberty Financial, the Trump-family-linked crypto venture, and related figures donated roughly $116,000 to Ramaswamy’s campaign in maximum-legal contributions clustered around primary day. The American Prospect, in partnership with CMD, separately reported that Ramaswamy was backing an Ohio crypto gamble while receiving millions from industry-linked donors.

This creates a classic public-pension conflict pattern: political power, donor money, personal financial exposure, and a proposed investment policy that could benefit the same ecosystem.

Ohio’s governor does not directly run the pension funds, but that is the wrong standard. CMD noted that Ohio’s five pension systems hold roughly a quarter-trillion dollars, and that the governor appoints an investment-expert trustee to each board. It also noted that the 2025 budget shifted the teachers’ pension board toward more government appointee control.

That is why my quote to CMD matters: the governor has “great influence” over state funds. With Ramaswamy, the concern is that influence could be used to normalize high-risk, politically connected investments—crypto, private equity, and other opaque products—inside public pension systems.

The Strive history is also relevant. Indiana’s public pension system contracted with Strive Advisory in 2022, with the contract capped at $150,000 and Ramaswamy reportedly eligible for $4,000 per hour for ad hoc work. That shows Strive was not merely a political brand. It was already seeking and receiving public-pension business.

The Missing Piece: Data Centers Connect Crypto, Private Equity, and Ohio Pensions

Perhaps the biggest conflict that has received the least attention is data centers.

Data centers are rapidly becoming the common denominator linking nearly every major financial interest surrounding Vivek Ramaswamy: private equity, private credit, artificial intelligence, cryptocurrency, electric utilities, real estate, and increasingly, public pension investments.

A recent report by Innovation Ohio concluded that Ramaswamy’s personal financial disclosure shows investments spanning virtually the entire Ohio data-center ecosystem, including semiconductor manufacturers, cloud computing companies, industrial real estate investment trusts (REITs), and cryptocurrency-related assets. The report argues that many of these holdings could benefit from state policies affecting tax incentives, utility regulation, infrastructure spending, and economic development.

For public pensions, this matters because data centers have become one of the fastest-growing investment themes within private equity and private credit.

According to recent S&P Global Market Intelligence data, private equity firms accounted for approximately 72% of all U.S. data-center investment during 2025, investing roughly $45.7 billion in the sector. Blackstone, Apollo, KKR, BlackRock, DigitalBridge and numerous other alternative asset managers are aggressively expanding their ownership of data centers and related infrastructure.

This is the same ecosystem that already receives billions of dollars from Ohio’s public pension systems.

Ohio pension funds have themselves been increasing allocations to data-center strategies. For example, the Ohio Police & Fire Pension Fund recently approved additional commitments specifically targeting data centers and digital infrastructure as part of its real-asset portfolio.

That creates a potentially significant overlap:

• Ramaswamy has financial exposure to companies throughout the data-center supply chain.
• His former company, Strive, has positioned itself to manage institutional investment assets while increasingly emphasizing Bitcoin-related investment products.
• Ohio public pension systems already invest heavily with many of the same private-equity firms financing and owning data-center infrastructure.
• As governor, Ramaswamy would influence appointments, economic-development incentives, utility policy, tax policy, and state investment priorities that could materially affect this industry.

The concern is not simply that data centers are profitable.

The concern is that public pension beneficiaries could unknowingly become financiers of an investment ecosystem in which political leaders, campaign donors, private-equity sponsors, crypto promoters, and asset managers all have overlapping financial interests.

Data centers have become the physical infrastructure supporting artificial intelligence, cloud computing, and cryptocurrency mining. They also represent one of the largest new destinations for private capital. In many cases, the same firms managing Ohio pension assets—Apollo, Blackstone, KKR, BlackRock infrastructure vehicles, DigitalBridge, and others—are simultaneously building, financing, lending to, or owning these facilities.

That is why the data-center issue cannot be separated from the crypto issue or the private-equity issue.

They are increasingly the same investment story.

Just as Ohio learned through Coingate that politically connected “alternative investments” can produce enormous conflicts of interest, today’s combination of crypto, private equity, artificial intelligence, and data centers presents a far larger and more sophisticated governance challenge.

Before Ohio taxpayers and pension beneficiaries are asked to finance this next investment boom, they deserve complete transparency regarding every financial interest, campaign

Ohio Has Been Here Before: From FirstEnergy to Epstein to Data Centers

Ohio does not suffer from a shortage of investment opportunities.

It suffers from a shortage of independent fiduciary oversight.

Ohio’s recent history should make every taxpayer cautious.

The FirstEnergy/House Bill 6 scandal demonstrated how campaign contributions, dark money organizations, political influence, and billions of dollars of public policy can become connected in ways that were largely invisible until federal investigators exposed the scheme. The scandal ultimately resulted in racketeering convictions and remains one of the largest public corruption cases in Ohio history.

Today the names are different.

Instead of electric utilities, the dominant interests are:

• cryptocurrency,
• artificial intelligence,
• data centers,
• private equity,
• private credit,
• and public pension assets.

But the governance questions are remarkably similar.

Ohio is becoming one of the nation’s largest data-center states. Billions of dollars in tax incentives, electric transmission upgrades, water infrastructure, and public policy decisions will determine who profits from that growth.

Those same data centers increasingly are owned or financed by the very private-equity firms that already manage billions for Ohio public pension systems.

Those same facilities support artificial intelligence and cryptocurrency mining.

Those same industries are major sources of political fundraising.

And now the leading candidate for governor has personal investments across much of that ecosystem while advocating policies favorable to digital assets.

That combination deserves far greater scrutiny than it has received.

---

The Epstein Lesson Should Not Be Forgotten

Earlier this year I wrote about another uncomfortable intersection between Ohio pensions and political influence: Apollo Global Management.

Apollo has managed billions of dollars for Ohio retirement systems while its former CEO, Leon Black, paid Jeffrey Epstein more than $150 million after Epstein’s 2008 conviction. Subsequent releases of Epstein-related materials renewed questions about Apollo’s governance and prompted calls by national teachers’ organizations for additional regulatory scrutiny.

My concern was never that pension beneficiaries’ money was invested with Jeffrey Epstein.

The concern was—and remains—that pension fiduciaries often ignore serious governance red flags whenever a politically connected Wall Street firm produces attractive marketing materials or promises higher returns.

That same governance failure is what allowed Ohio teachers to become deeply invested with Apollo despite years of controversy surrounding its leadership.

Today the governance question has expanded.

Instead of asking only whether Ohio pensions should invest with Apollo, we should ask whether public policy itself is becoming increasingly influenced by an interconnected financial network that includes:

• campaign contributors,
• crypto promoters,
• private-equity sponsors,
• data-center developers,
• institutional asset managers,
• and elected officials with financial interests in that same ecosystem.

---

The Common Thread Is Not Crypto—It Is Governance

Viewed separately, each issue appears manageable.

• Bitcoin.
• Data centers.
• Private equity.
• Artificial intelligence.
• Campaign contributions.
• Public pension investments.

Viewed together, however, they begin to resemble the same pattern Ohio has seen before.

FirstEnergy showed how concentrated financial interests can shape public policy through political influence.

The Apollo controversy demonstrated how pension fiduciaries can overlook governance concerns when large Wall Street firms are involved.

The emergence of crypto and data centers raises the possibility that these two patterns could merge into a new generation of conflicts.

Ohio should not wait for the next scandal before asking the obvious questions.

Public pensions exist to provide retirement security—not to become financing vehicles for politically connected investment ecosystems.

Vivek Ramaswamy, Private Equity, and Ohio’s Public Pensions

 Ohio has seen this movie before. Coingate was not just about rare coins. It was about politically connected actors persuading public officials to put public money into exotic, hard-to-value assets. Today’s version may be Bitcoin, crypto-linked funds, or private-market products wrapped in “innovation” rhetoric. The structure is familiar.

House Bill 18 remains pending, but its introduced version would affect public-fund investment authority and would clarify that Ohio retirement boards are not prohibited from investing in qualifying exchange-traded products tied to digital assets. Even if the bill does not force pension boards to buy crypto, it changes the political and legal permission structure.

The fiduciary concern is simple:

Teachers, police, firefighters, public employees, and retirees should not become exit liquidity for campaign donors, political allies, or investment firms tied to the governor.

A real reform agenda would require:

1. Full disclosure of Ramaswamy’s Strive ownership, crypto holdings, and related compensation.
2. Recusal from any appointment, policy, or budget decision involving crypto, Strive, affiliated ETFs, or related public-fund investments.
3. A statutory ban on public pension investments in crypto products promoted by campaign donors or governor-connected firms.
4. Public release of all pension-related communications with Strive, crypto firms, private equity firms, and politically connected asset managers.
5. Independent fiduciary review before any Ohio pension system invests in Bitcoin, crypto ETPs, or Strive-related products.

Ohio pensions already face enough risk from secrecy, alternative investments, and political interference. Ramaswamy’s campaign-money trail and Strive/crypto ties make the conflict too obvious to ignore.

EPSTEIN, APOLLO, AND OHIO TEACHERS’ BILLIONS