Private equity has found its most powerful argument for getting into 401(k) target-date funds:

“Private equity lowers portfolio risk because it has low correlation with public stocks.”

An ERISA fiduciary should be extremely careful before putting that sentence into an investment-committee memo.

Because the apparent diversification can be partly an artifact of how private assets are valued.

Public stocks are marked every trading day. Private-equity holdings may be valued periodically using estimates, models and manager judgments. Market movements therefore don’t necessarily appear immediately in reported NAV.

The result can be:

Smoothed NAV → artificially low measured volatility → artificially low measured correlation → artificially attractive Sharpe ratio → apparent diversification benefit.

The economic risk hasn’t necessarily disappeared.

The ruler changed.

And there is unusually strong independent support for that proposition.

Even T. Rowe Price warns that smoothing distorts diversification statistics

This isn’t merely an argument made by private-equity critics.

T. Rowe Price’s analysis of private-asset diversification acknowledges that appraisal-based valuations and the absence of mark-to-market pricing can make private-asset performance incomparable with public assets.

Its conclusion is particularly important: smoothed results do not accurately represent the actual volatility and correlation characteristics of private investments. Its analysis found that, over longer periods that diminish the smoothing effect, private-equity volatility was comparable with large-cap public equities over one-year periods and higher over rolling three-year periods.

That is potentially devastating to the simplistic TDF sales pitch.

Suppose an optimizer is given:

Input	Public equities	Reported PE
Standard deviation	18%	10%
Correlation	1.00	.50
Expected return	8%	10%

Of course the optimizer wants PE.

But suppose economic reality after correcting for stale pricing looks more like:

Input	Public equities	Unsmoothed PE
Standard deviation	18%	20%
Correlation	1.00	.85
Expected return	8%	10%

The alleged diversification miracle largely disappears.

Garbage risk statistics in → fiduciary-looking efficient frontier out.

---

The academic evidence is even stronger

Boyer, Nadauld, Vorkink and Weisbach published an important Journal of Finance paper using PE secondary-market transactions.

Their conclusion:

“Net asset values are too smooth.”

They found that NAVs fail to reflect changes in discount rates and warned that ignoring that variation can result in misallocation of capital.

That goes directly to the 401(k) issue.

The relevant fiduciary question isn’t:

“What standard deviation did the PE manager report?”

It is:

“What would the volatility, beta and correlation look like if these assets were continuously market-priced like everything else in the target-date fund?”

A fiduciary who doesn’t ask that question could be comparing apples with periodically appraised oranges.

Recent NBER research provides another warning. Ercan, Kaplan and Strebulaev found that the history of private-equity interim valuations contains information beyond the latest reported valuation; greater valuation staleness and repeated markdowns help predict subsequent outcomes.

In other words, the latest NAV isn’t necessarily the whole risk story.

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Bailey and López de Prado: serial correlation can hide enormous downside risk

David Bailey and Marcos López de Prado provide another piece of this puzzle. https://lnkd.in/eqvbp7qC

Their research examined the consequences of treating serially correlated investment returns as though returns were independent.

Their finding was remarkable:

Ignoring serial correlation can underestimate downside potential by as much as 70%.

Their paper concerns hedge-fund strategies rather than specifically PE target-date funds, so I would not claim they proved that PE risk is understated by 70%.

But the methodological warning is directly relevant.

When smoothed or stale marks create serial correlation, conventional risk measures can badly mischaracterize the underlying risk.

An ERISA fiduciary therefore shouldn’t accept a consultant’s standard deviation, Sharpe ratio or correlation matrix without asking:

How were the private-market returns adjusted for smoothing and serial correlation?

If the answer is they weren’t, the supposedly sophisticated asset-allocation model may be built on a fundamental statistical mismatch.

---

This is the same “Risk Illusion” we identified with TIAA

The structure closely resembles the problem I previously identified with TIAA’s target-date modeling.

TIAA’s annuity doesn’t fluctuate like a bond fund because there isn’t a continuously traded security producing a market price every day. The crediting process and insurance structure smooth what participants see.

That can make an illiquid contractual asset look statistically safer than a liquid security.

The CommonSense analysis called this “fake volatility”: risk can be transferred or hidden without disappearing.

Private equity potentially brings the same problem to the equity side of the glidepath.

Put the two together and a next-generation TDF could theoretically contain:

Public Stocks + Bonds + Private Equity + Private Credit + Real Estate + Annuities

and report beautifully diversified historical statistics.

But some of the apparent diversification may arise precisely because the assets aren’t being priced on the same basis.

That is not necessarily diversification.

It can be accounting diversification.

---

Why this creates ERISA litigation exposure

This is where the issue gets much more serious.

ERISA doesn’t ask whether a consultant’s PowerPoint produced an attractive efficient frontier.

The fiduciary must undertake a prudent process.

The Department of Labor’s PE guidance specifically recognized that private equity presents greater complexity, longer time horizons, less liquidity, different regulatory/disclosure standards, more complicated valuation and typically higher fees. It said fiduciaries considering PE should conduct an objective, thorough and analytical process, secure sufficient information to understand the investment and its risks, and compare a PE-containing fund against alternatives without PE.

Important current-law qualification: the Biden-era 2021 Supplemental Statement was rescinded in August 2025, so it should not be presented as current DOL policy. But its description of the underlying valuation/liquidity problems—and the underlying fiduciary principles—remains historically useful evidence of risks regulators specifically identified.

The original 2020 Information Letter itself did not authorize standalone participant PE investments; it addressed PE as a component of professionally managed asset-allocation funds.

That makes the target-date fund exactly where this fight is likely to occur.

The plaintiff’s discovery request practically writes itself

Imagine the investment committee approves a TDF containing 10% PE because the consultant says PE reduces volatility and improves diversification.

Five years later participants sue.

Plaintiffs ask for:

1. Every correlation matrix presented to the committee.
2. The raw return series underlying those correlations.
3. Reported and unsmoothed PE volatility.
4. The methodology used to correct quarterly/stale valuations.
5. Serial-correlation adjustments.
6. Public-market-equivalent analysis.
7. Secondary-market valuations.
8. Stress-period correlations.
9. The underlying LPAs and side letters.
10. Every analysis comparing the PE TDF with a low-cost liquid TDF without PE.

Then comes the deposition:

Q. You concluded private equity reduced the target-date fund’s risk?

A. Yes.

Q. You knew public equities were priced daily?

A. Yes.

Q. You knew the private investments weren’t?

A. Yes.

Q. What adjustment did you make before comparing their standard deviations and correlations?

A. None.

That’s the problem.

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The WSJ article raises the fiduciary standard even further

Jason Zweig’s new Wall Street Journal article warns ordinary investors about precisely the characteristics that can disappear behind the PE-diversification sales pitch: infrequent and potentially dubious valuations, limited liquidity, high and variable fees, adviser incentives and the complexity of private funds.

Zweig recommends asking detailed questions and getting the answers in writing.

Jason Zweig — What to Ask When Your Adviser Pushes Private Funds

That creates an uncomfortable ERISA question:

If the Wall Street Journal says a retail investor should question the valuation and liquidity of a $50,000 private investment, what excuse does an ERISA fiduciary have for accepting a consultant’s correlation matrix before putting $500 million of workers’ retirement money into PE?

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And then we reach the CIT

This is where your recent contract work and the risk-smoothing argument come together.

A conventional mutual fund provides investors a registered security with substantial standardized public disclosure.

The emerging private-market TDF can instead look like:

401(k)
↓
Target-Date CIT
↓
Private-Market CIT / Feeder
↓
Conduit / Alternative Investment Vehicle
↓
Private-Equity Partnership
↓
Portfolio Companies

Your recent CommonSense article argues that these structures can provide much less participant visibility into the underlying contracts and economics.

CommonSense — SEC Mutual Fund Standards Are Slipping, But Not Fast Enough for Private Equity

I would make one legal distinction very clear: a state-regulated CIT does not itself legalize bad valuation, an imprudent investment process, or an ERISA prohibited transaction.

Its importance to your thesis is different:

The CIT can obscure the evidence necessary to test the sales pitch.

The participant sees:

“2055 Target Retirement Fund.”

The fiduciary may be shown:

“Lower volatility + lower correlation + higher expected return.”

But underneath those statistics can sit bespoke PE contracts, GP valuations, feeder vehicles, different liquidity rights, leverage, affiliated fees and other contractual economics that aren’t apparent from the TDF’s name or headline statistics.

That makes your contract article the second half of this story.

CommonSense — The Contracts Private Equity Doesn’t Want 401(k) Participants to See

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Anderson v. Intel makes this especially dangerous

Anderson v. Intel Corporation Investment Policy Committee is about whether an ERISA underperformance complaint must allege a “meaningful benchmark” to survive dismissal. The underlying Intel plans invested through target-date/global-diversified funds containing alternative investments, including PE and hedge funds.

Now combine that litigation issue with private-market smoothing.

The PE industry can potentially argue on the front end:

“Our low correlation proves PE reduces risk.”

And defendants can argue after litigation begins:

“Plaintiff hasn’t identified an appropriate meaningful benchmark.”

But how does the participant construct the correct benchmark if the underlying contracts, valuations, leverage and actual economic exposures aren’t publicly available?

That is why valuation opacity + contractual secrecy + meaningful-benchmark pleading requirements could become an extraordinarily powerful defense mechanism.

Your argument shouldn’t be that every low correlation is “fake.”

It should be harder to rebut:

A fiduciary cannot prudently rely on reported PE correlation and volatility without determining whether stale or discretionary valuations materially suppress those statistics.

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The fiduciary litigation test

I would end the piece with this.

Before a fiduciary accepts the statement “private equity reduces TDF risk,” demand six numbers:

Reported PE volatility.
Unsmoothed PE volatility.
Reported stock/PE correlation.
Unsmoothed stock/PE correlation.
Stress-period correlation.
Secondary-market discount to reported NAV.

Then demand the methodology and underlying data in writing.

If the PE manager won’t provide them, don’t let the consultant put “diversification benefit” in the investment committee minutes.

Because after the lawsuit is filed, that phrase may become Exhibit A.

Bottom line

Private equity does not become safer because its price moves less often.

An asset that isn’t marked doesn’t have zero volatility. It has unreported volatility.

And a target-date fund doesn’t become diversified merely because a spreadsheet combines daily-priced public securities with quarterly manager-valued private assets and produces a low correlation coefficient.

For an ERISA fiduciary, mistaking valuation smoothing for risk reduction isn’t sophisticated diversification. It is potentially discoverable evidence of a flawed fiduciary process.

CommonSense — Private Equity Business Model Depends on Secrecy, Fake Benchmarks and Fiduciary Illusions

THE CONTRACTS PRIVATE EQUITY DOESN’T WANT 401(k) PARTICIPANTS TO SEE

SEC Mutual Fund Standards Are Slipping — But Not Fast Enough for Private Equity, Which Is Turning to State-Regulated CITs – 2 roads into your 401(k)

A Complaint-Style ERISA Analysis of Blackstone, Apollo, Carlyle, Vista, Oak Hill, New Mountain and KKR Partnership Agreements

Preliminary Statement

1. Private equity’s campaign to enter America’s 401(k) plans is commonly presented as a debate about asset allocation. It is not.
2. The more important question is contractual:

What exactly is the retirement plan buying?

3. Private-equity managers can argue that the products eventually sold through 401(k) target-date funds will be different from the institutional private-equity partnerships that have historically been sold to public pension funds.
4. There is a simple way to test that assertion.

Produce the contracts.

5. The historical contracts reviewed here include limited partnership agreements involving Blackstone, Apollo, Carlyle, Vista Equity Partners, Oak Hill, New Mountain and KKR. They are not hypothetical contracts reconstructed by critics. They are actual institutional private-equity agreements.
6. Many have been publicly available through the Naked Capitalism Document Trove for roughly a decade. The Trove describes its collection as including agreements obtained from Pennsylvania’s public contracting records, Kentucky public pensions and other authorized sources and notes the industry’s extraordinary efforts to maintain LPA confidentiality. https://trove.nakedcapitalism.com/
7. The contracts themselves demonstrate that secrecy is not incidental. Vista’s agreement, for example, says the agreement is confidential, may not be reproduced or transmitted, and may not be disclosed without Vista’s prior written consent.
8. Blackstone Capital Partners V goes even further on its cover: “HIGHLY CONFIDENTIAL & TRADE SECRET.”
9. Carlyle Partners V similarly labels its agreement “TRADE SECRET AND STRICTLY CONFIDENTIAL.”
10. Yet these agreements have been available for public inspection for years.
11. That history raises an obvious question as private equity seeks access to trillions of dollars of ERISA retirement savings:

If the contracts are suitable for workers’ retirement money, why shouldn’t the workers whose money is invested be allowed to read them?

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COUNT I

PRIVATE EQUITY’S CONTRACTS EXPRESSLY CONTEMPLATE AVOIDING ERISA PLAN-ASSET STATUS

12. The most important provisions in these documents may be the provisions discussing ERISA itself.
13. Apollo Investment Fund VIII defines “Significant Benefit Plan Investment” as ownership by ERISA investors of 25% or more of the value of any class of equity interests in the partnership or certain conduit vehicles.
14. Apollo then states its objective expressly. The General Partner will use reasonable best efforts to conduct the partnership so its assets will not be treated as Plan Assets, including by:

• qualifying for the VCOC exception;
• limiting ERISA investors to avoid “Significant Benefit Plan Investment”; or
• using another statutory or regulatory exception.

15. Carlyle’s agreement is equally revealing. Where benefit-plan investors own less than 25% of each equity class, the GP may certify that the partnership’s assets should not constitute ERISA plan assets.
16. Blackstone defines a benefit-plan-investor entity by reference to the same 25% threshold.
17. Blackstone also promises to use reasonable best efforts to maintain VCOC treatment and to structure alternative investment vehicles so that their assets do not constitute the plan assets of ERISA investors.
18. This distinction is critical.
19. Keeping ERISA investment below the relevant threshold does not mean the ERISA plan fiduciary that purchases the investment ceases to owe fiduciary duties.
20. Rather, the structure seeks to prevent ERISA from “looking through” the partnership interest and treating the partnership’s underlying assets as plan assets—with the resulting fiduciary and prohibited-transaction consequences for persons exercising authority over those assets.
21. In other words:

ERISA money can enter the front door while the private-equity manager seeks to keep ERISA’s fiduciary rules from following that money through the door.

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COUNT II

THE CONTRACTS SHOW THAT THIS IS AN INTENTIONAL STRUCTURAL OBJECTIVE, NOT AN ACCIDENT

22. These are not boilerplate references buried in definitions.
23. The agreements contain elaborate mechanisms for dealing with the possibility that ERISA might apply.
24. Vista permits a Limited Partner to be forced to withdraw if its participation could cause partnership assets to be characterized as employee-benefit-plan assets.
25. New Mountain similarly provides mechanisms for disposing of an ERISA investor’s interest to prevent the fund’s assets from becoming “plan assets.”
26. Blackstone restricts transfers that could cause partnership assets to become plan assets or cause the General Partner to become an ERISA fiduciary.
27. Apollo goes further still.
28. Its agreement permits an ERISA investor to opt out where participation could constitute a prohibited transaction under ERISA §406 or Code §4975 or cause partnership assets to become Plan Assets.
29. These provisions constitute powerful evidence of something that is often missing from the public discussion about “democratizing” private equity:

The private-equity industry knows exactly where the ERISA line is and drafts sophisticated contractual machinery around it.

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COUNT III

THE CONTRACTS CREATE MULTIPLE VEHICLES BETWEEN THE RETIREMENT INVESTOR AND THE ACTUAL ASSETS

30. The agreements also demonstrate why the structure of a future 401(k) private-equity product matters as much as its label.
31. Carlyle expressly authorizes parallel investment entities and feeder funds.
32. Apollo authorizes Alternative Investment Vehicles and still another category called a “Conduit Vehicle.”
33. Most strikingly, Apollo says that a Conduit Vehicle need not be structured to meet the VCOC exception or avoid Significant Benefit Plan Investment. Instead, the arrangement can deem the ERISA investor to have directed the investment and deem the vehicle’s manager a custodian rather than an ERISA fiduciary.
34. Blackstone contains a comparable concept involving an “Intermediate Entity.” It acknowledges that the intermediate entity’s assets may themselves constitute plan assets while stating that its manager is nevertheless “not intended to be a fiduciary” with respect to those assets.
35. These provisions deserve enormous scrutiny before analogous structures are placed beneath a 401(k) target-date fund.
36. A participant may see:

Target Date 2050

37. Underneath it may sit:

Target-Date CIT → Private-Market CIT/Feeder → Conduit/Intermediate Vehicle → PE Partnership → Portfolio Company.

38. That complexity isn’t merely operational. Each additional entity can affect regulatory status, valuation, liquidity, disclosure and who is—or is not—treated as exercising fiduciary authority.
39. This is why the current movement toward state-regulated CIT structures deserves examination. SEC mutual funds still face federal liquidity, valuation, disclosure and governance constraints. More complicated private-market arrangements can instead be layered beneath CITs that participants may find extraordinarily difficult to penetrate.

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COUNT IV

THE CONTRACTS CONTAIN THE VERY CONFLICTS AND AFFILIATED PAYMENTS ERISA IS SUPPOSED TO POLICE

40. These agreements aren’t simply passive investment mandates.
41. Blackstone VI expressly recognizes that Blackstone and its affiliates may receive financial-advisory fees, monitoring fees, organization and financing fees, divestment fees, directors’ fees and other compensation involving companies in which the partnership invests.
42. Another Blackstone VI provision says its adviser or affiliates may receive break-up and topping fees, monitoring and director fees, organization, financing and divestment fees and similar compensation.
43. Apollo’s definition of “Special Fees” is almost a catalog of potential conflicts:

consulting fees, monitoring fees, investment-banking fees, advisory fees, breakup fees, directors’ fees, closing fees, transaction fees and Bridge Fees, including noncash consideration such as options and warrants.

44. Oak Hill’s agreement expressly contemplates transactions involving partners and affiliates, subject to contractual protections and Advisory Board approval for material transactions.
45. None of those clauses standing alone proves an ERISA violation in a particular future 401(k) investment.
46. They prove something different and highly relevant:

Affiliated transactions and multiple streams of compensation are built into the contractual architecture of institutional private equity.

47. A prudent ERISA fiduciary therefore cannot responsibly approve a private-equity allocation by reviewing only the headline management fee.
48. The fiduciary must understand the entire economic relationship among the fund, GP, affiliates, portfolio companies, intermediaries, consultant, trustee and plan.

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COUNT V

CUNNINGHAM v. CORNELL MAKES THOSE TRANSACTIONS MORE IMPORTANT, NOT LESS

49. In Cunningham v. Cornell University, the Supreme Court unanimously held in 2025 that ERISA §406(a)(1)(C) defines the prohibited transaction and that the §408 exemptions operate as affirmative defenses rather than additional elements participants must plead.
50. That does not automatically make every private-equity fee or affiliated transaction prohibited.
51. But it makes contractual transparency extraordinarily important.
52. If plan assets are used in transactions involving parties in interest, the fiduciary must understand the transaction sufficiently to determine whether ERISA’s prohibited-transaction rules are implicated and, where relevant, whether an exemption can be established.
53. A fiduciary cannot perform that analysis from a marketing presentation saying:

“Private Equity — 10% Allocation.”

54. The contract matters.
55. The affiliates matter.
56. The fees matter.
57. The compensation flowing from portfolio companies matters.
58. The intermediate entities matter.
59. And the actual legal relationships matter.

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COUNT VI

THE CONTRACTS THEMSELVES UNDERMINE THE ARGUMENT THAT PARTICIPANTS DON’T NEED THEM

60. Private equity traditionally insists that LPAs are confidential.
61. KKR’s agreement provides a particularly revealing compromise.
62. A governmental plan may publicly disclose certain high-level information—commitments, capital drawn, distributions, reported value, IRRs, multiples and management fees—but the agreement still separately maintains confidentiality restrictions over broader partnership information.
63. That distinction matters.
64. Knowing that a pension invested $100 million and paid a reported management fee is not the same as knowing:

• what affiliated transactions are permitted;
• who controls valuation;
• what additional fees affiliates receive;
• what leverage is permitted;
• what side arrangements exist;
• what withdrawal rights exist;
• what indemnification protects the GP;
• what happens if ERISA plan-asset status arises; and
• what vehicles can be inserted between investor and asset.

65. Those questions require the governing documents.

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COUNT VII

ANDERSON v. INTEL EXPOSES THE PLEADING TRAP CREATED BY PRIVATE-EQUITY SECRECY

66. This becomes particularly important in Anderson v. Intel Corporation Investment Policy Committee, now before the Supreme Court.
67. Intel’s retirement funds invested in hedge funds and private equity. The Ninth Circuit nevertheless rejected Anderson’s prudence claim, reasoning that he had not identified an adequate “meaningful benchmark” and emphasizing that he supposedly had sufficient information about Intel’s underlying investments to develop comparators.
68. The Supreme Court granted review on January 16, 2026.
69. The case presents a potentially perverse result when applied to the next generation of private-market 401(k) products.
70. Wall Street could construct an investment whose underlying contracts are:

private, bespoke, illiquid, model-valued, layered through multiple vehicles and protected by confidentiality provisions.

71. Then, when a participant challenges the investment, defendants could demand that the participant identify a nearly identical “meaningful benchmark” before discovery.
72. But the information necessary to identify the benchmark—or to show why the investment was imprudent—may reside in documents the participant isn’t permitted to see.
73. That risks turning opacity itself into a pleading defense.
74. The Ninth Circuit said plaintiffs shouldn’t be required to plead facts “solely” in defendants’ possession, but simultaneously concluded that Anderson had enough information to identify comparators.
75. Private-equity LPAs expose why that assumption becomes increasingly problematic.
76. Knowing the name of the PE fund isn’t knowing the investment.
77. The investment is the contract.

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COUNT VIII

THE WALL STREET JOURNAL HAS NOW ASKED RETAIL INVESTORS TO DEMAND INFORMATION 401(k) PARTICIPANTS MAY NEVER RECEIVE

78. The irony became even sharper in August 2026.
79. Jason Zweig’s recent Wall Street Journal article warns individual investors considering private funds to investigate fees, liquidity restrictions, valuation reliability, adviser incentives, distributions and the adviser’s expertise—and recommends getting answers in writing.
80. Zweig reports that advisers could move approximately $2 trillion of client money into private funds through 2030 and describes the investments as complex and opaque, with high and variable fees, potentially questionable valuations and restricted liquidity.
81. That creates an extraordinary double standard.
82. The Wall Street Journal is effectively telling an individual investor:

Ask what you’re buying.
Ask what it costs.
Ask who gets paid.
Ask how it is valued.
Ask how you get out.
Get the answers in writing.

83. Yet a 401(k) participant whose fiduciary invests retirement savings through a target-date CIT may receive considerably less information about the underlying private-equity contract.
84. If those questions are appropriate before an individual puts $50,000 into a private fund, they are indispensable before an ERISA fiduciary places $500 million of workers’ retirement savings into one.

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COUNT IX

“OUR 401(k) CONTRACT WILL BE DIFFERENT” IS NOT AN ANSWER

85. Private-equity managers will undoubtedly respond that these agreements are old institutional contracts and that future 401(k) products will contain different protections.
86. Good.
87. Show us the new contracts.
88. The existence of historical LPAs does not prove that every future 401(k) PE agreement will contain identical provisions.
89. It does establish the appropriate baseline for due diligence.
90. A fiduciary considering a new PE vehicle should compare the proposed 401(k) contract provision-by-provision against the manager’s traditional institutional LPA.
91. The fiduciary should identify exactly what changed:

Historical PE provision	Required 401(k) inquiry
Keep benefit-plan ownership below plan-asset threshold	Has this survived?
VCOC exemption	Is the manager still avoiding look-through ERISA fiduciary status?
Alternative investment vehicles	What entities can participant money be moved into?
Feeder/conduit vehicles	Who is fiduciary at each level?
GP-controlled valuation	Who independently verifies NAV?
Monitoring/transaction/advisory fees	Who receives them and what offsets exist?
Affiliate transactions	Are they permitted? Under what safeguards?
Borrowing/guarantees	What leverage exists at every level?
Long lockups/transfer restrictions	How does the TDF provide daily participant liquidity?
Confidentiality	Can participants obtain the actual governing agreement?
ERISA withdrawal provisions	What happens if plan-asset status changes?
Indemnification/exculpation	Who bears the economic cost of misconduct?

92. If the industry says those provisions have disappeared, disclosure will establish that fact.
93. If it refuses to disclose the agreement, the fiduciary should not simply assume they disappeared.

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COUNT X

COMPLEX CIT STRUCTURES CAN MAKE THE CONTRACT HARDER TO FIND—THEY DO NOT MAKE THE CONTRACT DISAPPEAR

94. The emerging 401(k) structure may create several levels between participant and PE manager.
95. As discussed in the CommonSense analysis of the two emerging roads into 401(k)s, SEC mutual funds face public filings, liquidity regulation, valuation requirements and Investment Company Act governance. Some emerging private-market products instead use CITs and underlying vehicles. CommonSense: “SEC Mutual Fund Standards Are Slipping — But Not Fast Enough for Private Equity”
96. The critical question is therefore not merely:

“Does the TDF contain private equity?”

97. It is:

“Show us every contract underneath the TDF.”

98. Follow the participant’s dollar:

401(k) Plan
↓
Target-Date CIT
↓
Private-Market CIT / Feeder
↓
Conduit / Alternative Investment Vehicle
↓
Private-Equity Partnership
↓
Portfolio Company

99. Then identify at every level:

Who is the fiduciary?
Who values the asset?
Who receives compensation?
Who can transact with affiliates?
Who controls liquidity?
Who can borrow?
Who can pledge assets?
Who can change the structure?
And which entity is deliberately structured so that ERISA does not look through to its assets?

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PRAYER FOR RELIEF

DISCLOSE THE CONTRACT BEFORE INVESTING THE RETIREMENT MONEY

100. These historical agreements do not establish that private equity can never be prudently included in an ERISA plan.
101. They establish why no ERISA fiduciary should be permitted to rely on the words “private equity” as though they describe a standardized investment product.
102. They do not.
103. The economic investment is inseparable from its contractual terms.
104. Before investing participant assets, an ERISA fiduciary should obtain and analyze the complete LPA, subscription agreement, side letters, advisory agreement, fee-offset provisions, valuation provisions, credit arrangements, affiliated-transaction provisions, alternative-vehicle documents and ERISA provisions.
105. And participants challenging that decision should not be placed in the impossible position of having to plead what those secret contracts contain before they are allowed to obtain them.
106. The documents reviewed here reveal the fundamental contradiction in the private-equity industry’s push into defined-contribution retirement plans:

Private equity wants ERISA money.

Its own contracts show how carefully it has historically structured itself to prevent ERISA from following that money into the fund.

107. That does not by itself make the investment illegal.
108. But it makes disclosure, fiduciary due diligence and discovery indispensable.
109. And after Cunningham, with Anderson now before the Supreme Court, the governing contracts may become some of the most important documents in the next generation of ERISA private-equity litigation.

The simplest fiduciary test

Don’t tell participants the new 401(k) private-equity contract is different.

Show them.

For decades, SEC-registered mutual funds represented something close to the gold standard for retirement-plan investment transparency.

Daily NAV. Market-value accounting. Public filings. Liquidity requirements. Independent boards. Audited financial statements. Restrictions on affiliated transactions. And a federal regulator looking over the industry’s shoulder.

Wall Street increasingly wants to put private equity, private credit, private real estate and insurance contracts into 401(k) target-date funds.    The SEC has loosened enough to let some of this happen.  But apparently not enough.

That may help explain why some of the industry’s most ambitious new private-market target-date products are being built as state-regulated Collective Investment Trusts rather than SEC mutual funds.

And the history of stable value tells us why this matters.

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In 2004, the SEC wouldn’t swallow a synthetic stable-value mutual fund

I know these products because I worked with synthetic stable value and 4 specific mutual funds.

The old structure was relatively simple:

SEC mutual fund  

Primarily 95%-100% mostly liquid fixed-income securities

Around 1% to 5% bank/insurance-company wrap contracts

The underlying bonds generally had market prices and could generally be sold. The wrap contracts allowed participants to transact at contract value. Yet that was enough to make the SEC uncomfortable.

A 2004 Scudder filing disclosed:

“The staff of the Securities and Exchange Commission has inquired as to the valuation methodology for Wrapper Agreements utilized by ‘stable value’ mutual funds…”

The problem wasn’t that the bond portfolio was full of illiquid junk.

It was accounting and valuation.

Scudder disclosed that if the SEC rejected the valuation treatment of the wrappers, the fund could no longer maintain its stable NAV.

And that’s essentially what happened. On November 17, 2004, Scudder PreservationPlus eliminated its wrapper agreements and became a fluctuating-NAV short-term bond fund.

The stable-value mutual-fund experiment disappeared.

I previously called this the SEC quietly killing stable-value mutual funds.  https://commonsense401kproject.com/2026/06/09/the-sec-quietly-killed-stable-value-mutual-funds-in-2004-and-that-tells-you-everything-about-private-equity-fixed-annuities-and-prohibited-transactions-in-401ks/

Twenty-two years later, compare that regulatory skepticism with what’s being permitted today.

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Somehow a building can now have a daily “fair value”

The SEC hasn’t abandoned fair value.

But it has modernized how fair value can be determined.

SEC Rule 2a-5 allows investments without readily available market quotations to be assigned a good-faith fair value using established methodologies, inputs and assumptions. The valuation function can also be delegated to a valuation designee, typically the investment adviser, subject to board oversight and other requirements.

That has enormous implications for private assets.

Consider a private office building.

There is no NYSE closing price at 4 p.m.

Instead:

Private building >appraisal/model>$100 million “fair value”>private-real-estate fund NAV>target-date fund NAV>participant gets a daily price.

Nothing about putting a daily number on the building makes the building daily liquid.

Yet the accounting framework can produce a daily NAV.

Compare that with 2004

The irony is difficult to miss.

	2004 Synthetic Stable Value	2026 Private-Market TDF
Underlying asset	Mostly bonds	Private loans / buildings / PE
Observable market prices	Mostly yes	Often no
Actual underlying liquidity	Relatively high	Low to extremely low
Daily participant liquidity	Yes	Yes at TDF level
Valuation judgment	Mainly wrapper problem	Private-asset models/appraisals
SEC treatment	Structure disappeared after valuation challenge	Increasingly accommodated through fund structures

That looks like a substantial relaxation in practical terms.

But apparently it’s still not enough for private equity.

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Franklin shows how far the SEC will go

Franklin Templeton’s new Retirement Advantage Plus target-date mutual funds are particularly instructive.

They are SEC-registered mutual funds.  And Franklin says they will provide private-market exposure while maintaining daily liquidity.

But look at what Franklin actually did.  It didn’t simply drop a conventional 10-year private-equity LP into the TDF.

Instead:

Franklin Retirement Advantage Plus SEC mutual fund

Franklin BSP Lending Fund>registered interval fund>private credit

and

Clarion Partners Real Estate Income Fund>registered interval fund>private real estate.

Franklin says private-market allocations generally range from only about 2% to 8% over the glide path. That’s revealing. The private assets remain illiquid.

The TDF remains liquid largely because roughly 92%–98% isn’t allocated to those private-market sleeves.

---

SEC liquidity rules still have teeth

An ordinary open-end mutual fund generally cannot simply load itself with illiquid assets.

Rule 22e-4 prohibits a fund from acquiring additional illiquid investments if doing so would leave more than 15% of net assets in illiquid investments. It also imposes liquidity-risk-management requirements.

So Franklin uses another registered vehicle as the middle layer.  That’s clever.

Daily-liquid TDF>limited-liquidity interval fund>illiquid asset.

The private loan hasn’t become liquid.  The building hasn’t become liquid.

The illiquidity has been pushed down another level.

---

But Private Equity wants more

Now look at what’s happening in the CIT world. 2% to 8% is not enough.

Great Gray’s Panorix Target Date Series isn’t an SEC mutual fund.

Great Gray explicitly tells investors that its funds are collective investment funds exempt from registration under the Investment Company Act of 1940 and Securities Act of 1933.

And what is Panorix designed to hold?  Private equity and private credit.

BlackRock supplies the custom glidepath and public/private-market investment components, while Wilshire oversees implementation and liquidity management.

The disclosed structure includes BlackRock private-equity exposure and a private-credit CIT trusteed by Goldman Sachs Trust Company, N.A.

But the target-date CIT sitting at the top is:

Great Gray Trust Company — Nevada.

That’s the part retirement fiduciaries should be asking about.

---

If SEC standards have become more accommodating, why go to Nevada?

That’s a better question than whether private equity is technically “allowed” in a mutual fund.

Clearly some private exposure can be engineered into an SEC structure.

Franklin just demonstrated it. But look at the compromises Franklin makes:

small 2%–8% private allocation registered interval funds limited private-market sleeves

SEC fair-value rules

SEC liquidity rules

SEC filings

Investment Company Act governance

public expense disclosures.

Now compare that with the ambition of private-equity managers.

They don’t necessarily want 2%.

They want private markets to become a permanent asset class in the 401(k) glidepath.

And they would presumably prefer to use products resembling the institutional contracts they already sell to pension funds:

PE partnerships

private-credit funds

capital calls

GP valuations

subscription lines

NAV financing

carried interest

side letters

long lockups

limited secondary markets.

Those contracts weren’t designed for SEC mutual funds.

---

The regulatory race may therefore look like this

Regulatory wrapper	What Wall Street can currently accomplish	Problem for private markets
SEC open-end mutual fund	Small private allocations increasingly possible	15% illiquid limit, daily liquidity, public disclosure, Rule 2a-5 valuation
SEC TDF + interval fund	Franklin gets PC/RE into TDF at ~2%–8%	Extra wrapper; interval-fund constraints; SEC oversight remains
Pennsylvania CIT	TIAA SIA lifetime-income TDFs; conventional CITs	Detailed state CIT rules, valuation/reporting and unusual liquidity provisions
OCC CIT	Private assets legally possible	Detailed federal CIF regulation and bank examination
Nevada CIT	Emerging PE/PC and complex annuity TDF structures	No comparable detailed CIT-specific operating code that we’ve identified

This does not prove that Nevada permits something the SEC, OCC or Pennsylvania legally prohibit.

The evidence supports a subtler and more troubling question:

Does Nevada allow today’s private-market contracts to be placed into retirement CIT structures with fewer modifications, fewer fund-specific regulatory constraints and less public transparency?

That’s where regulators should be looking.

---

The SEC’s standards may be slipping in exactly the wrong place

The SEC deserves credit for recognizing that not every legitimate asset has an exchange price.

But there’s an enormous difference between:

no exchange price  and  no real market.

Rule 2a-5 says a market quotation is “readily available” only where there is an unadjusted quoted price in an active market for an identical investment. Otherwise, a registered fund can employ a good-faith fair-value process.

That’s reasonable for many securities.  Private equity pushes the concept toward its limit.

Imagine:

PE manager values portfolio company>PE partnership calculates NAV>private-market vehicle incorporates that value>TDF incorporates that NAV>401(k) participant receives daily TDF NAV.

There may be four layers between the participant and the company supposedly worth $1 billion.

Calling the final number “daily NAV” doesn’t create a daily market for the company.

---

The stable-value history makes the inconsistency glaring

In 2004, SEC staff challenged a structure consisting largely of market-priced bonds because it questioned how the relatively small insurance-wrap component was being valued.

Today we’re discussing putting:

private companies

private loans

private real estate

and potentially other difficult-to-value assets inside retirement products.

And rather than forcing all of them through the old mutual-fund transparency standard, the industry increasingly has another option:

Don’t use a mutual fund.

Use a CIT.

And if one state CIT regime is inconvenient?

Choose another state.

---

Follow the contract, not the asset class

The industry debate keeps asking:

Should 401(k) participants have access to private equity?

That’s almost the wrong question.

Ask instead:

Why can’t today’s predominant private-equity contract comfortably survive inside an SEC-registered mutual fund?

Then ask:

What has to be changed to make that same contract fit inside an OCC-regulated CIT?

Then:

What has to change under Pennsylvania’s detailed CIT rules?

And finally:

What has to change if the top-level target-date CIT is governed by a Nevada-chartered trust company?

If the answer gets progressively closer to “nothing,” we may have identified the real attraction.

---

A CommonSense 401(k) Test

Before any private-equity, private-credit, annuity or private-real-estate product enters a 401(k) TDF, every fiduciary should ask one very simple question:

Could this exact contract survive inside an SEC-registered mutual fund?

Not a sanitized version.

Not 2% exposure through an interval fund.

Not an entirely different registered wrapper.

This contract.

Same fees.

Same leverage.

Same GP valuation.

Same liquidity.

Same gates.

Same carry.

Same side letters.

Same affiliated transactions.

Same accounting.

If the answer is no, the next question shouldn’t be:

Which state-regulated CIT can we use instead?

It should be:

Why isn’t it good enough for an SEC mutual fund but good enough for somebody’s 401(k)?

The SEC’s standards have already moved far enough that a daily-liquid mutual fund can obtain exposure to private loans and private buildings through model-valued, limited-liquidity underlying funds.

Apparently that still isn’t flexible enough for the private-equity industry.

And the migration toward state-regulated target-date CITs may tell us more about the future of 401(k)s than all the industry’s talk about “democratizing” private markets combined.

Appendix — The October Intel Case Just Got Bigger

The Supreme Court’s Anderson v. Intel case could determine how difficult it is for 401(k) participants to challenge complicated target-date investments. Intel argues that plaintiffs challenging investment performance need a sufficiently comparable “meaningful benchmark.” The Court granted review in January and the merits briefing is now substantially underway.

That becomes increasingly problematic as target-date funds move beyond ordinary stocks and bonds into private equity, private credit, annuities and other difficult-to-value investments. Great Gray’s Panorix target-date CIT, for example, is expressly designed to incorporate private equity and private credit, while Nuveen’s Pennsylvania-regulated Lifecycle Income CIT embeds TIAA’s Secure Income Account annuity.

The participant may see a simple “Target Date 2050” fund, while underneath could be CITs, private funds, insurance contracts, GP valuations, leverage and multiple layers of fees.

That creates an obvious problem with the meaningful-benchmark requirement:

The more complicated and opaque Wall Street makes the investment, the harder it becomes for a participant to find the supposedly perfect comparable fund.

Indeed, an amicus brief supporting the Intel participants specifically argues that private equity and hedge funds are unusually opaque and difficult to monitor and value.

Don’t Let Opacity Become a Legal Defense

Before requiring a participant to produce the perfect benchmark, require the fiduciary to produce the information necessary to construct one:

Show the contract. Show the fees. Show the leverage. Show the valuation methodology. Show the affiliated transactions. Show the liquidity restrictions.

Then we can talk about benchmarks.

The Supreme Court should be very careful not to create a perverse rule under which the more opaque and complicated a 401(k) investment becomes, the harder it becomes to sue the fiduciaries who selected it.

Complexity should increase fiduciary diligence—not decrease fiduciary accountability.

Who Regulates Your 401(k) CIT? BlackRock, Goldman, Prudential and Lincoln Lead Back to Las Vegas

Many Retirement Plans Still Put Wall Street Over Participants- SCOTUS Intel case key

ERISA Investment Standards Should Be Higher Than Mutual-Fund Standards —Not Lower

Forget the speeches about public service for a moment. Follow the money.

For decades, becoming president could eventually make a family wealthy. Bill and Hillary Clinton made fortunes from books and speeches. George and Laura Bush did well after leaving Washington. Barack and Michelle Obama signed an enormous publishing deal and built a successful media business.

But the Trump family’s wealth accumulation is operating on an entirely different scale.

And perhaps the most remarkable comparison isn’t Donald Trump.

It’s Barron Trump.

A 20-Year-Old Versus Entire Presidential Families

Forbes estimated Barron Trump’s fortune at approximately $150 million, overwhelmingly attributable to the Trump family’s World Liberty Financial crypto venture. Forbes calculated that World Liberty had added more than $1.5 billion to Trump-family fortunes by October 2025, with roughly $150 million attributable to Barron under its ownership assumptions.

Put that number beside Forbes’ estimates for entire former presidential households:

Presidential family/person	Approximate net worth
Donald Trump	$6.4 billion
Jared Kushner	$1.0 billion
Eric Trump	Hundreds of millions
Donald Trump Jr.	~$300 million
Barron Trump	~$150 million
Barack + Michelle Obama	$70+ million
Bill + Hillary Clinton	$45+ million*
George W. + Laura Bush	$40+ million*

*For consistency, these last three figures use Forbes’ published estimates rather than the higher celebrity-net-worth estimates sometimes quoted online.

Forbes currently estimates Donald Trump at about $6.4 billion and Jared Kushner at $1 billion. Forbes estimated the Obamas at more than $70 million, the Clintons at more than $45 million and the Bushes at more than $40 million in its examination of presidential wealth.

So Barron Trump alone is estimated to be worth more than the Obama, Clinton or Bush presidential household under those Forbes estimates.

That deserves considerably more attention than it has received.

The Difference Is How the Money Was Made

The Obamas’ wealth is hardly mysterious.

They earned money as authors, speakers and media producers after Barack Obama left office. Forbes notes that Barack and Michelle Obama’s memoir rights reportedly sold for $65 million in 2017.

George W. Bush made money from books and more than 200 paid speeches after leaving office. Bill Clinton became extraordinarily successful on the speaking circuit after leaving the White House.

Whatever one thinks about former presidents monetizing celebrity, there is an important distinction:

They weren’t president anymore.

The Trump wealth explosion has occurred while Donald Trump returned to political power—and much of it has come from businesses whose economic value can be affected by government policy.

Crypto is the clearest example.

From $50 Million to $300 Million

Consider Donald Trump Jr.

Forbes estimated Don Jr. was worth about $50 million in November 2024.

About a year later?

Approximately $300 million.

Forbes says crypto accounts for much of that sixfold increase.

Eric Trump’s transformation may be even more dramatic.

Before the crypto boom, Forbes estimated that Eric had accumulated roughly $30 million in liquid assets in addition to his Trump Organization income. By September 2025, Forbes valued him at approximately $750 million, although subsequent declines in his American Bitcoin holdings reduced that figure substantially.

And then there is Barron.

Barron’s First Big Business Venture

Barron wasn’t an established real-estate developer.

He wasn’t running a hedge fund.

He wasn’t a Silicon Valley entrepreneur who spent 15 years building a company.

He was a college student.

Yet Forbes estimated his net worth at roughly $150 million by age 19.

The principal reason was World Liberty Financial.

Donald Trump, Don Jr., Eric and Barron became associated with the crypto venture during the 2024 presidential campaign. Forbes reports that Trump-family entities received extraordinarily favorable economics from the enterprise, including rights to a large percentage of token-sale revenues.

Barron’s estimated share included cash generated from token sales, interests connected with World Liberty’s stablecoin business and billions of still-restricted WLFI tokens whose ultimate value remains uncertain.

Forbes therefore arrived at the extraordinary number:

Barron Trump: approximately $150 million.

Before his 20th birthday.

Then There Is Jared Kushner

Jared Kushner provides another revealing comparison.

After leaving the first Trump administration, Kushner established private-equity firm Affinity Partners.

Forbes now estimates Kushner’s personal fortune at approximately $1 billion. Affinity had attracted billions from investors including sovereign wealth funds from Saudi Arabia and Qatar and other Middle Eastern sources.

That means Trump’s son-in-law alone is worth roughly:

14 Obamas.

22 Clintons.

25 Bushes.

Using Forbes’ published household estimates.

This isn’t a normal presidential-family wealth story.

The $10 Billion First Family

Forbes’ September 2025 investigation reached an extraordinary conclusion:

The broader Trump family, including Jared Kushner, had reached an estimated $10 billion in wealth, nearly doubling since the 2024 election. Forbes attributed much of the increase to crypto, alongside international licensing, private equity and other ventures.

That comparison changes the historical discussion.

The traditional controversy was:

Should former presidents become rich because they were president?

The Trump era presents a much bigger question:

Should a sitting president and his immediate family be able to become dramatically richer through businesses operating in industries that the president’s own administration regulates?

Crypto makes that question particularly difficult to avoid.

World Liberty Financial launched shortly before the 2024 election. Trump and his sons became associated with the venture. Trump returned to the White House. The administration pursued a dramatically friendlier approach toward cryptocurrency.

Meanwhile, the family’s crypto wealth exploded.

Forbes itself describes Donald Trump’s current presidency as extraordinarily lucrative and says billions were added to his fortune, largely through crypto.

CommonSense Bottom Line

Forget partisan labels.

Imagine that Chelsea Clinton had accumulated $150 million from a financial product launched around Hillary Clinton’s presidential campaign.

Imagine that George W. Bush’s children had suddenly become worth hundreds of millions from an industry his administration was simultaneously deregulating.

Imagine that Barack Obama’s son-in-law had raised billions of dollars from Middle Eastern governments after serving as a senior White House official.

Republicans would have investigated it.

And they should have.

Democrats should apply exactly the same standard now.

The issue isn’t whether Donald Trump, Eric Trump, Don Jr., Barron Trump or Jared Kushner are legally entitled to make money.

The issue is whether Americans have constructed a political system in which access to presidential power itself can become one of the world’s most valuable family assets.

The numbers make the question difficult to dismiss.

Donald Trump: $6.4 billion.

Jared Kushner: $1 billion.

Don Jr.: roughly $300 million.

Eric Trump: hundreds of millions.

Barron Trump: roughly $150 million.

And Barron hasn’t even turned 21.

Maybe the most valuable Trump family asset isn’t Mar-a-Lago.

Maybe it isn’t Trump Tower.

Maybe it isn’t even crypto.

Maybe it’s the presidency.

Great investigative work by Bloomberg’s Noah Buhayar and Jeff Kao.

The Trump Labor Department has been trying to make it easier for private equity, private credit, crypto and other alternative assets to enter ordinary Americans’ 401(k) plans. The Department’s March proposal would create a new framework—and importantly, a safe harbor for fiduciaries—when alternatives are included in participant-directed retirement plans.

Now Bloomberg has uncovered something remarkable about the supposed public support for that effort:

Some of the people supporting it were dead.

Nearly 12,000 Suspicious Pro-Private-Equity Comments

Bloomberg examined almost 12,000 comments supporting the DOL proposal and found evidence suggesting that a large block may have been manufactured to look like grassroots support.

The contrast is striking.

More than 30,000 comments opposed the proposal. Those submissions generally contained identifying or individualized information—cities, states, email addresses, signatures or other variations.

The roughly 12,000 supportive comments were different. They were concentrated into five virtually identical templates, with essentially identical wording, punctuation, formatting and even line breaks. The five batches arrived in remarkably similar daily quantities between April 29 and May 5—and then stopped.

That looks less like spontaneous public enthusiasm for private equity and more like what Washington calls astroturfing: manufactured grassroots support.

One Problem: Some of the “Supporters” Were Dead

Bloomberg reporters contacted dozens of people whose names appeared on the comments.

They found five cases in which individuals or relatives said the comments had not been submitted by the named person.

One was Danna Oderman, whose name appeared on a May 3 comment supporting the proposal.

There was a rather substantial problem.

She had died the previous December.

Her son Heath Oderman told Bloomberg that the comment was not from his mother and that its language wasn’t language she would have used.

Another supposed supporter was Lyngrid Rawlings, a former educator and U.S. Foreign Service officer who died in 2024. Her daughter told Bloomberg that using her mother’s name this way was deeply disrespectful.

Bloomberg deliberately investigated unusually distinctive names that could be matched with confidence against public records. That means finding five apparent false submissions does not establish that only five of the 12,000 were bogus. It raises the obvious question:

How many of the other 12,000 are real?

Who Created the Campaign?

That may be the most important unanswered question.

Bloomberg contacted more than two dozen investment firms, trade associations and advocacy organizations that publicly supported the DOL initiative.

According to the investigation, none acknowledged knowing who created the five supportive form-letter campaigns.

Bloomberg’s Silla Brush summed up the finding: big money managers have spent more than a year pushing a receptive Trump Labor Department to open 401(k)s further to private equity, private credit and alternatives, while Bloomberg’s examination found evidence that thousands of supportive comments may have been astroturfed.

That deserves considerably more investigation.

Who wrote the five templates?

Who assembled the names?

Who submitted them?

Who paid for it?

And perhaps most importantly: Did any private-equity manager, asset manager, trade association, lobbying firm, public-relations firm or political organization finance or participate in the campaign?

Follow the Money

There is an enormous economic incentive here.

Private-equity and private-credit managers oversee trillions of dollars, but their traditional institutional market—public pensions, endowments and other sophisticated investors—is increasingly questioning fees, valuations, liquidity and performance.

The American defined-contribution system represents an enormous new pool of capital.

Better Markets has made essentially this point in opposing the DOL proposal: private-market investments bring high fees, illiquidity and limited transparency, while the industry has a huge financial incentive to gain access to America’s retirement accounts.

Private credit provides a particularly awkward backdrop. Investors have recently requested redemptions well above quarterly limits at funds associated with BlackRock, Apollo, Ares, Carlyle and Blue Owl.

In other words:

Some sophisticated investors are trying to get money OUT of private markets at precisely the moment Washington is working to put ordinary 401(k) investors IN.

Academics Aren’t Exactly Clamoring for This Either

This also reinforces what we recently wrote in “More Academics Oppose Private Equity in 401(k)s — Clayton and de Fontenay.”

The intellectual case for putting private equity into ordinary participant-directed retirement accounts is far weaker than the industry’s marketing campaign would suggest.

Private equity brings higher fees, illiquidity, valuation problems, leverage, opaque related-party transactions and extraordinarily complicated benchmarking.

And after all that additional risk and expense, the incremental return to the 401(k) participant may be puny at best.

The incremental revenue opportunity for Wall Street?

Enormous.

That asymmetry is what should concern fiduciaries.

CommonSense Bottom Line

The Bloomberg investigation doesn’t prove who manufactured these comments or how many are fraudulent. It establishes something important enough on its own:

The supposed grassroots support for putting private equity into Americans’ 401(k)s is sufficiently questionable that Bloomberg found comments attributed to people who were already dead.

That should trigger scrutiny by DOL’s Inspector General, Congress and anyone reviewing the administrative record supporting this rule.

Before DOL relies upon these comments, it should determine who actually submitted them and who financed the campaign.

And until that happens, DOL certainly shouldn’t cite 12,000 supportive comments as evidence that American workers are clamoring for private equity in their retirement plans.

We aren’t dead.

Our opposition is real.

Our comment is legitimate, publicly available, and backed by years of research on fees, conflicts, valuations, liquidity and fiduciary risk.

As for the dead people supposedly supporting private equity?

One wonders who they voted for.

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Credit where it is due: outstanding investigative reporting by Noah Buhayar and Jeff Kao of Bloomberg News, with Bloomberg’s Silla Brush highlighting the findings today.

Bloomberg investigation: Trump’s 401(k) Proposal Shows Evidence of Phony Public Support

Related CommonSense: More Academics Oppose Private Equity in 401(k): Clayton and de Fontenay — August 3, 2026.

APPENDIX A: NBC — Private Equity Needs Your 401(k) Money

A timely new NBC News investigation provides important context for the private-equity industry’s push into 401(k)s:

“Private equity needs new investors. It’s targeting your 401(k).”

That may be the most important sentence in the entire debate.

NBC’s reporting focuses on something largely missing from Wall Street’s sales pitch: private equity needs new sources of capital.

The industry’s traditional institutional market is under pressure. Fundraising has slowed, distributions to investors have been weak, portfolio companies have remained trapped in funds longer, and institutional investors increasingly face their own liquidity and allocation constraints.

Enter the American 401(k).

The defined-contribution system represents trillions of dollars of potential new capital—much of it arriving automatically every two weeks through payroll deductions.

For private-equity managers, that’s an extraordinarily attractive new market.

Is This About Helping Workers—or Helping Private Equity?

The industry presents private assets in 401(k)s as “democratizing” investments previously available primarily to institutions and wealthy investors.

NBC’s framing suggests another way to look at it:

Private equity needs investors. 401(k)s contain an enormous pool of investors.

That distinction matters.

The traditional institutional investors private equity has served for decades have professional staffs, investment consultants, attorneys and substantial negotiating power. Even they have struggled with private-equity fees, valuations, liquidity, transparency and complicated partnership agreements.

Individual 401(k) participants have none of those advantages.

Yet the Trump Labor Department is working to make it easier to move these investments downstream into participant-directed retirement plans.

Wall Street’s Dream Customer: Automatic Contributions and Limited Liquidity

There is another reason 401(k)s could be especially valuable to private markets.

401(k) contributions are remarkably sticky.

Workers contribute paycheck after paycheck. Employers frequently contribute matching dollars. Participants often remain invested for decades.

That potentially gives private-equity and private-credit managers something they badly want:

a huge, recurring and relatively stable source of capital.

And the fee opportunity is dramatically larger than in today’s low-cost 401(k) marketplace.

A participant can buy broad public-market exposure for only a few basis points. Private-market investments can involve management fees, carried interest, underlying fund expenses, transaction costs and layers of intermediary expenses that are difficult for participants—and sometimes even fiduciaries—to see.

The question isn’t merely whether private equity can be placed inside a 401(k).

The fiduciary question is:

Why does the participant need it?

If an inexpensive diversified public-market portfolio already provides liquidity, daily pricing, transparency and strong long-term returns, the burden should be on Wall Street to demonstrate that the additional fees, leverage, illiquidity and valuation risk produce a meaningful net benefit to participants.

Not merely a new revenue stream for asset managers.

NBC Makes the Bloomberg Story More Important

That’s the connection to the Bloomberg investigation discussed above.

Bloomberg raises serious questions about whether some of the apparent public enthusiasm for private equity in 401(k)s was real.

NBC helps explain why generating enthusiasm would be so valuable.

The potential prize isn’t a small new investment product.

It’s access to trillions of dollars of American retirement savings.

That doesn’t prove who was responsible for the suspicious comments Bloomberg identified. It does make determining who organized and financed those comments considerably more important.

CommonSense Bottom Line

NBC has identified the issue that 401(k) fiduciaries should keep front and center:

Private equity needs new investors.

That is very different from saying:

401(k) participants need private equity.

Before Washington transforms America’s retirement system to solve Wall Street’s fundraising problem, fiduciaries should demand evidence that private equity actually improves participant outcomes after fees, after illiquidity, after leverage and after risk.

Until then, perhaps the simplest question is the best one:

Is private equity being brought into 401(k)s because workers need private equity—or because private equity needs workers’ money?

Read: NBC News, Private equity needs new investors. It’s targeting your 401(k). https://www.nbcnews.com/business/personal-finance/private-equity-needs-new-investors-s-targeting-401k-rcna588334

APPENDIX B: Follow the Money — Schwarzman’s 401(k) “Dream,” Trump and McConnell

There is another name worth adding to the story of Washington’s sudden enthusiasm for putting private equity into workers’ 401(k)s:

Stephen Schwarzman.

The billionaire co-founder and CEO of Blackstone didn’t recently discover the 401(k) market.

He has apparently been dreaming about it for years.

Back in 2017, Schwarzman told investors:

“In life, you have to have a dream.”  He then described that dream as greater retail access to alternative investments and said many people were not permitted to put them into “retirement vehicles.   He concluded that a regulatory change (from the new Trump Administration) would be a “huge opportunity for the firm.

That dream is now remarkably close to becoming government policy.

From Schwarzman’s Dream to Trump’s DOL

The chronology deserves attention.

2017: Schwarzman publicly describes access to retirement assets as a private-equity industry “dream.”

2020: The first Trump Labor Department issues guidance making it easier for professionally managed 401(k) investment options to contain private equity.

2025: President Trump signs an executive order directing regulators to facilitate alternative investments—including private equity—in defined-contribution retirement plans.

2026: Trump’s Labor Department proposes a regulatory framework providing additional protection for fiduciaries incorporating alternatives into participant-directed plans.

Meanwhile, Blackstone has moved from dreaming to building the infrastructure.

In October 2025, Blackstone created an entire Defined Contribution business unit specifically devoted to expanding private-market investments in retirement plans.

And in January 2026, Blackstone joined Empower’s private-markets retirement program, designed to put private equity, private credit, infrastructure and private real estate into defined-contribution plans through CIT structures.

This isn’t some theoretical policy debate anymore.

There is an enormous business being built around it.

Schwarzman and Trump

Schwarzman hasn’t merely been another Wall Street executive watching Trump from a distance.

After Trump’s 2016 election, Trump selected Schwarzman to chair his Strategic and Policy Forum, putting the Blackstone CEO at the center of a group of corporate advisers to the new administration.

The Washington Post subsequently described Schwarzman as one of Trump’s most generous donors and a key adviser with unusually regular access to the president.

Their social relationship went back even further.

Donald and Melania Trump attended Schwarzman’s infamous 60th birthday celebration in 2007.

Reported estimates put the cost at roughly $3 million to $5 million.

The Park Avenue Armory was transformed to resemble Schwarzman’s enormous apartment.

There were hundreds of guests.

Rod Stewart and Patti LaBelle performed.

If anyone ever needed a visual representation of how different the private-equity economy is from the world of the average 401(k) participant, this party might be difficult to beat.

Then There Was the Hitler Analogy

Schwarzman’s political rhetoric has occasionally been as extravagant as his parties.

When the Obama administration proposed changing the favorable tax treatment enjoyed by private-equity executives in 2010, Schwarzman compared the fight over taxes to war and invoked Hitler’s invasion of Poland in 1939.

He later apologized for the analogy.

But the episode illustrates something important about private equity’s relationship with Washington:

The industry takes government policies affecting its economics extremely seriously.

Carried interest matters.

Tax policy matters.

Regulation matters.

And gaining access to trillions of dollars sitting inside America’s defined-contribution retirement system matters enormously.

And Then There Is Mitch McConnell

This is where the Kentucky connection gets especially interesting.

Schwarzman became one of the biggest financiers of the Senate Leadership Fund, the powerful super PAC closely associated with Mitch McConnell’s Senate political operation.

In the 2018 election cycle, Schwarzman contributed $5 million to SLF.

His support subsequently became much larger.

By the 2020 election, Schwarzman’s contributions to the McConnell-aligned Senate Leadership Fund ultimately reached approximately:

$35 MILLION

That isn’t a typo.

Thirty-five million dollars.

Blackstone executives also showed up prominently among contributors to McConnell’s own campaign operation. The Louisville Courier Journal reported in 2019 that 29 Blackstone employees contributed $95,400 during a single fundraising quarter, one of the largest blocks of Wall Street money flowing into McConnell’s campaign.

Private equity wasn’t merely another industry contributing to Washington.

It had become a major source of political money.

Consider what has happened:

A private-equity billionaire publicly says accessing retirement assets is an industry “dream.”

He becomes a major Trump adviser and donor.

He pours tens of millions of dollars into the political operation associated with Mitch McConnell and the Republican Senate majority.

Trump subsequently directs his administration to open 401(k)s further to private equity.

Blackstone establishes a dedicated business unit to capitalize on the defined-contribution market.

And now Trump’s Labor Department is proposing rules designed to make it easier for fiduciaries to put alternatives into those plans.

Then, during the public-comment process, Bloomberg discovers thousands of suspiciously similar comments supporting the policy—including comments attributed to people who were already dead.

Stephen Schwarzman told us years ago what private equity wanted.

Your 401(k).

He called access to these retirement assets a “dream.”

Blackstone and the rest of the alternatives industry potentially stand to gain access to trillions of dollars of retirement savings—and the fees that come with managing them.

Schwarzman simultaneously became an extraordinarily important financial supporter of the political establishment capable of helping make that dream possible.

Now Washington is opening the door.

The relevant fiduciary question therefore isn’t:

Does Stephen Schwarzman’s dream benefit Blackstone?

That’s pretty easy.

The question is:

. The Washington Post documents Schwarzman’s access to Trump, Trump’s attendance at the lavish 2007 party, and Schwarzman’s $250,000 inaugural contribution.

For the McConnell money, FactCheck puts Schwarzman’s 2020 Senate Leadership Fund contributions at $35 million, while the Courier Journal reporting is independently quoted in a Kentucky pension-litigation filing identifying $95,400 from 29 Blackstone people to McConnell’s campaign in one 2019 quarter.

Blackstone’s Defined Contribution announcement · PBS/AP on Schwarzman’s 401(k) “dream” · Washington Post on Schwarzman and Trump · FactCheck on the McConnell-aligned Senate Leadership Fund

More Academics Oppose Private Equity in 401(k) – Clayton and de Fontenay  

ERISA plaintiff lawyers looking for the next generation of 401(k) and 403(b) cases may be looking in the wrong place.

The biggest opportunities may not be another mega-plan lawsuit over a few basis points of mutual-fund expenses or forfeitures.

They may be sitting quietly inside mid-sized retirement plans—especially hospitals and other plans dominated by insurance companies.

I recently discussed exactly this with Jeffrey Snyder on Broadcast Retirement Network’s “Retirement Risk Radar: Fresh ERISA Litigation Highlights.” The interview focuses on fixed annuities, hidden insurer spreads, private credit, target-date funds, CIT transparency and emerging ERISA litigation theories. BRN says its programming reaches an audience of more than 2.31 million and is syndicated through major websites and news outlets.

Watch the interview:
Retirement Risk Radar: Fresh ERISA Litigation Highlights — YouTube

The basic message to the plaintiff bar is simple:

There Are Potential Cases Everywhere

I have worked with ERISA plaintiff firms investigating and filing more than 40 fixed-annuity excessive-fee and prohibited-transaction cases.

I don’t think we’ve exhausted the market.

I think we’ve barely started.

I reviewed the Form 5500s for 9,404 ERISA defined-contribution plans with more than $100 million in assets. After screening out much of the lower-cost Vanguard/Fidelity/State Street/Schwab universe and concentrating on the insurance-heavy market, I reviewed roughly 4,000 plans.

I identified:

3,568 plans with more than $211 BILLION in fixed-annuity assets.

And that doesn’t include the enormous universe of plans below $100 million.

More Than 40 Fixed Annuity Cases Filed. Just Scratching the Surface

The Plaintiff May Not Even Know He Owns an Annuity

This is one reason these cases haven’t already flooded the courts.

Ask a participant whether his 401(k) owns an insurance-company general-account annuity and he will probably say no.

Ask whether he owns the:

Fixed Account.
Guaranteed Fund.
Stable Value Fund.
Capital Preservation Account.

Now you may have something.  The participant sees an account balance and an interest rate.

What he generally doesn’t see is the economics behind it.  If the insurer earns 5%, 6%, or more on the assets supporting the contract while crediting participants 2% or 3%, the participant doesn’t receive a mutual-fund-style expense ratio showing the insurer’s economic spread.

That difference can dwarf the investment-management fee disputes that have dominated 401(k) litigation.

A 200-basis-point differential on $50 million is $1 million a year or $6 million in damages over a 6 year class period

That is where plaintiff lawyers should be looking.

Hospitals May Be the Target-Rich Environment

Hospitals deserve special attention.

After years of mergers, acquisitions and recordkeeper changes, some hospital systems have accumulated what I call “Hospital Zombie Funds.”

One acquired hospital brings a VALIC contract.  Another brings Lincoln. Another has MetLife.

Twenty years later, the retirement program can resemble an archaeological dig of legacy insurance contracts, separate accounts and forgotten investment options. My review of dozens of hospital plans found examples of tiny legacy investments, sometimes with very few participants remaining.

Hospital Zombie Funds: The Hidden Retirement Plan Time Bomb No One Is Talking About

The litigation question practically writes itself:

Who is monitoring these investments?

ERISA’s continuing duty to monitor doesn’t disappear because an investment came into the plan through a merger.

And insurance contracts can create an especially interesting discovery trail because getting out may involve surrender charges, market-value adjustments, withdrawal restrictions or negotiated termination provisions.

That creates another question:

Did the fiduciaries retain the investment because it was prudent—or because terminating the contract would expose how expensive the original decision had become?

Then find a participant.

The participant often has no idea that the boring-looking “fixed” option inside the plan may be one of its most economically interesting investments.

:

Who got paid?

That can move the case beyond a conventional prudence claim and into potentially much more consequential conflict and prohibited-transaction issues. The precise claim, of course, depends on the particular contract, parties, transactions and facts.

Don’t Ignore the Target-Date Fund

The next frontier may be even larger.

As I discussed on Retirement Risk Radar, plaintiff lawyers should also start looking underneath target-date funds.

The familiar mutual-fund wrapper increasingly competes with collective investment trusts and other structures that can make it harder to see the underlying economics.

If a target-date vehicle begins holding:

private equity + private credit + annuities + affiliated products

the fiduciary investigation should not stop with the target-date fund’s headline fee.

The question becomes:

What contracts and compensation arrangements are hiding underneath it?

That’s where tomorrow’s cases may come from.

The Cases Are Out There. The Bottleneck Is Finding Plaintiffs.

That is the irony.   After more than 40 fixed-annuity cases, my biggest concern isn’t that we’re running out of defendants.   It’s the opposite.

My Form 5500 review identified 3,568 plans and $211 billion of fixed-annuity assets just among plans over $100 million.

The hard part is connecting potentially problematic plans with participants who have standing to challenge them.  So my message to ERISA plaintiff lawyers is straightforward:

Stop assuming the best cases are necessarily at the biggest companies.

Look at the $100 million-to-$1 billion plans.   Look at hospitals.

Look at insurance-heavy 401(k)s and 403(b)s.

Follow the contracts. Follow the money.

The plaintiff bar hasn’t exhausted the next generation of ERISA investment litigation.

It may not even have found 5% of it yet.

https://broadcastretirementnetwork.com/  Retirement Risk Radar Fresh ERISA Litigation Hihglights.

Hospital Zombie Funds: The Hidden Retirement Plan Time Bomb No One Is Talking About

More Than 40 Fixed Annuity Cases Filed. Just Scratching the Surface

STRS sends teachers’ pension money to private equity. Private equity makes money privatizing education. Ohio teachers get squeezed at both ends.

A new August 2026 report on Private Equity in Michigan Childcare and K-12 Education should be required reading for every Ohio teacher and every STRS trustee.

Its lesson is brutally simple:

Private equity doesn’t just invest teachers’ pension money. It increasingly makes money extracting dollars from the institutions that employ those teachers.

The Michigan report documents private-equity ownership of childcare companies and contractors providing teaching, special education, behavioral health, transportation and other school services. It argues that outsourcing can transfer money that once paid public employees into contracts carrying corporate overhead and investor returns.

Ohio teachers should recognize the business model.

STRS Helps Supply the Ammunition

STRS Ohio has poured billions into private equity, private credit and other alternatives.

At the same time, Ohio educators are watching the public-school ecosystem become increasingly privatized.

That creates one of the strangest circular money flows in American education:

Teacher contributions → STRS → private equity → education companies → contracts and public subsidies → private-equity profits.

Then teachers are told there isn’t enough money for salaries, benefits or reliable COLAs.

STRS isn’t merely an innocent investor standing outside this process. Its capital helps finance the industry doing the consolidating.

And the people administering this system can be paid extraordinary amounts.

According to STRS compensation data I previously analyzed, its investment staff averaged about $181,000, while its CIO received approximately $914,000—several times what Ohio pays its governor and far above the compensation of most Ohio educators.

Think about that incentive structure:

Teachers provide the capital.

Wall Street gets the fees.

STRS investment staff get Wall Street-style compensation.

Teachers get the pension risk.

And now teachers can also face the economic consequences of privatization in their workplaces.

Michigan Shows What the End Game Can Look Like

The Michigan report describes private-equity-backed contractors supplying critical K-12 positions including teachers, healthcare workers, transportation, food service and special-education personnel.

Detroit alone approved more than $22.5 million for four private-equity- or venture-backed special-education contractors for FY2026.

One company, Stepping Stones Group, grew through repeated acquisitions after its creation by Shore Capital and subsequent acquisition by Leonard Green & Partners. The Michigan report describes 20 additional acquisitions and a 2024 $4.25 million settlement of wage-and-hour claims, which the company denied.
This is important for Ohio because the same outsourcing model already operates here.

Soliant, for example, currently advertises contract special-education positions in the Cleveland and Mentor areas.

The economic question is obvious:

Why should a school district pay enough money to support a teacher plus a corporate staffing company plus private-equity investors when it may be able to employ the teacher directly?

The Michigan report cites previous PESP research estimating that one California district could have saved $6 million by bringing PE-backed special-education staffing positions back in-house.

Ohio should run the same calculation.

Ohio Has Another Privatization Accelerator: Vouchers

This is where the Michigan report becomes even more relevant.

Its final section argues that voucher-type programs can subsidize private providers and outsourced educational services, including transportation and before- and after-school programs.
Ohio is already far down this road.

Ohio spent approximately $1.09 billion on its five private-school voucher programs in FY2025.

The pro-school-choice organization EdChoice estimates Ohio private-school-choice spending at roughly $1.12 billion, or about 4.2% of combined choice-program and public K-12 current expenditures, ranking Ohio fifth nationally by that measure.

And there is another downstream expense rarely discussed.

As voucher enrollment expanded, Ohio public districts remained responsible for transporting many private-school students. AP reported in 2025 that the combination of driver shortages and expanded school choice left some districts struggling to provide transportation even to their own high-school students.

So public schools can lose students and funding while retaining infrastructure obligations.

That’s a remarkably attractive environment for outsourcing.

Enter Vivek Ramaswamy

Ramaswamy’s own gubernatorial platform says he wants to give parents more “meaningful choices over where and how their children learn.” It also says he wants Ohio to pay excellent teachers more.

Those goals aren’t inherently contradictory.

But there is a question his campaign should have to answer:

Where does the money come from?

If Ohio simultaneously expands school-choice subsidies, encourages privatization and outsourcing, and maintains enormous public-pension allocations to private equity, then “pay teachers more” runs into a financial system taking money out at several other points.

Ramaswamy is particularly relevant because his business career sits comfortably inside the broader private-capital ecosystem rather than outside it. As I have previously documented, his companies and investments intersect with private equity, data infrastructure and financial networks that depend heavily on institutional capital.

So don’t expect an Ohio governor from that ecosystem automatically to ask:

Why are Ohio teachers financing private equity in the first place?

The Epstein Issue Needs to Be Framed Correctly

Ramaswamy should not be accused of having a personal Jeffrey Epstein relationship without evidence. I have seen none.

That isn’t the argument.

The more defensible point is that Ramaswamy operates within the modern elite private-capital ecosystem in which many institutions and financiers overlap with firms touched by the Epstein scandal.

Apollo illustrates why this matters.

Ohio teacher retirement assets have been invested with Apollo-related strategies. Apollo co-founder Leon Black’s enormous payments to Epstein are documented, and the controversy has generated renewed scrutiny of Apollo governance.

That does not make every Apollo investor, executive, politician or business associate an Epstein associate.

It does create a legitimate fiduciary question:

At what point does a governance scandal become serious enough that a public pension reexamines the manager?

Ohio STRS appears much more comfortable asking teachers to bear private-market opacity than asking Wall Street managers uncomfortable questions.

The Great Ohio Irony

Ohio teachers are effectively participating in two different labor markets.

In one:

A teacher is a public employee whose compensation must be restrained because taxpayers supposedly can’t afford more.

In the other:

An STRS investment professional overseeing that teacher’s money can receive hundreds of thousands of dollars annually because STRS says it must compete with Wall Street for talent.

Meanwhile the actual Wall Street firms can take pension management fees and invest in companies positioned to take additional dollars out of education.

That isn’t capitalism versus socialism.

It is something much simpler:

The people closest to the financial plumbing get paid first.

Teachers Should Follow Their Own Money

The Michigan report gives Ohio teachers a roadmap.

STRS should publish a cross-reference showing:

Every STRS private-equity manager → every education, childcare, transportation, staffing, special-education and ed-tech company owned by that manager → every contract those companies have with Ohio public schools.

Then add:

STRS capital committed.

Fees paid to the private-equity manager.

Ohio school dollars paid to its portfolio companies.

Number of public positions outsourced.

Difference between contractor billing rates and employee compensation.

That would reveal something pension reports never show:

Teachers may be financing the companies replacing teachers.

And that is where pension policy becomes education policy.

The Bottom Line

The old argument about STRS private equity was:

Does private equity earn enough after fees to justify its risk and secrecy?

The Michigan study raises a bigger question for Ohio:

What if teachers’ retirement money is helping finance the privatization of the very public-school system that generates their salaries and pensions?

Ohio teachers could then lose three times:

Lower salaries and weaker public-school finances.

Hundreds of millions in opaque investment fees.

And retirement assets exposed to the same private-equity machine extracting money from education.

Meanwhile, some STRS investment employees make multiples of the governor’s compensation to keep that machine running.

That’s not diversification.

That’s teachers financing both sides of their own economic squeeze.

Table 1 — The clearest STRS → Private Equity → Ohio Education loop

STRS Ohio PE manager	Education portfolio company	What company sells to schools	Evidence of Ohio activity	Why it matters
Vistria Group	Soliant	Special-ed teachers, intervention specialists, school psychologists, SLPs and other outsourced personnel	Soliant is advertising 2026–27 contract intervention-specialist positions in Columbus and Cleveland	STRS teacher capital is invested with a PE manager whose portfolio company recruits licensed Ohio educators to work as contractors rather than district employees
Leonard Green & Partners	The Stepping Stones Group	Special-ed teachers, psychologists, therapists, nurses, behavioral specialists	Stepping Stones markets these contract services nationwide to school systems; Ohio district-by-district contract search should be next	Same basic model documented in Michigan: PE-owned middleman inserted between public schools and educators
Leonard Green & Partners	Invo Healthcare via Stepping Stones	Behavioral, autism and special-ed services	National school operations; Ohio contracts require district-record search	More consolidation under the same PE owner
EQT Partners	First Student	Outsourced school buses and special-needs transportation	Headquartered in Cincinnati; Ohio operating locations include the Germantown area	STRS invests with the owner of the largest outsourced school-transportation company in North America
Vistria Group	MGT	Outsourced technology, education and operational consulting	National school-market company; Ohio contracts need procurement search	Moves functions traditionally performed inside school systems to a PE-backed contractor
Vistria Group	ESS	Substitute teachers and school staffing	National K-12 staffing company; Ohio footprint needs contract-level verification	Another channel through which teacher shortages become a private-equity revenue opportunity

The ownership relationships are unusually easy to document. Vistria itself describes Soliant as a provider of outsourced workforce solutions to K-12 school districts, and its education portfolio also includes MGT, ESS and other education businesses. Leonard Green lists Stepping Stones as a current buyout investment providing therapy, autism and behavioral-health services for children. EQT identifies First Student as a current portfolio company headquartered in Cincinnati and focused on contracted school transportation.

Table 2 — Vistria may be the most important Ohio/STRS education cross-match

Vistria education investment	Business model	Potential Ohio public-school impact
Soliant	Outsourced teachers, intervention specialists, psychologists and healthcare professionals	Converts vacant district positions into contractor revenue
ESS	Substitute-teacher and school staffing	Takes a recurring function of school employment and monetizes staffing shortages
MGT Consulting	Technology, education and operational outsourcing	Turns school administrative/IT functions into outside contracts
Really Great Reading	Curriculum/literacy products	Public-school instructional spending becomes portfolio-company revenue
Edmentum	Digital curriculum and educational technology	District technology/curriculum appropriations become PE revenue
The Gardner School	Private early-childhood education	Competes in the broader publicly subsidized education/childcare market

This isn’t an inference about Vistria’s strategy. Vistria calls the area “Knowledge & Learning” and says one senior partner has directed about $4 billion across 14 investments in the sector, including Soliant, ESS, MGT and FullBloom.

And Soliant’s Ohio presence is concrete. It is currently advertising a 2026–27 full-time contract Intervention Specialist in Columbus and similar contract special-education positions in Cleveland.

That allows a very punchy formulation:

STRS gives Vistria teachers’ retirement capital. Vistria owns a company recruiting Ohio teachers out as contractors to schools.

We still need to determine whether any particular Ohio district paying Soliant is simultaneously contributing employer pension dollars to STRS for workers whose vacancies Soliant is filling. That requires district contract records before making the strongest version of that claim.

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Table 3 — Leonard Green and outsourced special education

Company	PE owner	Education service	Michigan study evidence	Ohio question
Stepping Stones Group	Leonard Green & Partners	Special-ed teachers, speech therapists, occupational therapists, psychologists, nurses and behavioral services	Detroit FY26: $8.71 million	Which Ohio districts pay Stepping Stones and how much?
Invo Healthcare	Leonard Green/Stepping Stones	Behavioral and special-ed staffing	Detroit FY26: $680,000	Identify Ohio contracts and staffing rates
Other acquired providers	Leonard Green/Stepping Stones	Related therapy and behavioral services	Michigan report says Stepping Stones completed numerous acquisitions	Determine acquired companies operating under different names in Ohio

The Michigan report says Stepping Stones was acquired by Leonard Green in 2021 and describes a rapid acquisition strategy; Detroit alone budgeted about $8.7 million for Stepping Stones and another $680,000 for Invo. It further reports that Stepping Stones agreed to a $4.25 million wage-and-hour settlement in 2024 while denying the allegations.

Stepping Stones’ own school-services page says it provides districts with special-ed teachers, school psychologists, therapists, nurses and other contracted personnel.

The Ohio audit question should therefore be: What is an Ohio district paying Stepping Stones per hour versus what the individual educator receives?

That is potentially a much more compelling number than the pension investment itself.

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Table 4 — EQT/First Student: probably the cleanest Ohio example

Item	Ohio connection
STRS investment manager	EQT Partners appears on STRS’s 2023 alternative-investment manager schedule
PE portfolio company	First Student
Headquarters	Cincinnati, Ohio
Business	Outsourced K-12 transportation
Scale	Approximately 1,000 school districts when EQT acquired it
PE acquisition	EQT announced a $4.6 billion acquisition of First Student and First Transit in 2021
Public subsidy angle	EQT says First Student’s fleet electrification has received roughly $400 million in EPA grants/rebates nationally
Ohio education connection	Ohio law expressly provides for both board-owned and contractor-owned and operated school buses
Pension loop	Ohio teacher pension capital → EQT → Ohio-based school contractor → public education spending

EQT explicitly says First Student benefits from increasing demand for outsourcing. Its 2021 acquisition announcement described First Student as serving roughly 1,000 districts and valued the combined acquisition of First Student and First Transit at $4.6 billion.

There is another Ohio twist. Ohio’s transportation rules explicitly recognize contractor-operated school buses as part of the state reimbursement structure.

Meanwhile, First Student is not some distant portfolio company. It is headquartered in Cincinnati. EQT also says its electrification program has attracted hundreds of millions of dollars of federal grants and rebates.

So this is a nearly perfect illustration of the circular capital flow:

Ohio teachers → STRS → EQT → First Student → Ohio school transportation spending + federal subsidies.

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Table 5 — Ohio childcare: PE penetration comparable to Michigan

The Michigan report found at least 160 PE-controlled childcare centers in Michigan and emphasized KinderCare, Learning Care Group, Goddard, The Learning Experience and Primrose.

Ohio clearly has substantial exposure to several of the same chains:

Childcare chain	PE owner/backer identified by CRS	Ohio footprint	STRS 2023 manager match presently verified?
KinderCare	Partners Group	Numerous Ohio centers including Akron, Cincinnati, Cleveland, Columbus, Dayton and others	Not yet established from STRS list
Learning Care Group	American Securities	Ohio operations need facility count	Not yet established
Goddard School	Sycamore Partners	Locations across 40+ Ohio communities/cities	Not yet established
Primrose Schools	Roark Capital	Ohio presence	Not yet established
Cadence Education	Apax Partners	Ohio presence needs count	Not yet established

The Congressional Research Service identified PE control of eight of the ten largest for-profit childcare organizations, including KinderCare, Learning Care Group, Primrose and Goddard.

KinderCare’s own locator shows a very large Ohio footprint stretching across the Cincinnati, Columbus, Cleveland, Akron, Canton and Dayton markets. Goddard lists Ohio schools in cities ranging from Akron and Cleveland to Cincinnati, Columbus, Dublin, Mason, Westerville and numerous suburbs.

Important distinction: I would not yet put those childcare companies in the direct STRS money-loop table because I have not verified their PE owners on the STRS manager schedule you supplied. They belong in a separate “PE in Ohio Education, but direct STRS LP connection not yet established” table.

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Table 6 — Michigan findings applied to Ohio

Michigan report finding	Ohio analogue	Evidence level
PE-owned companies replace/increasingly supply school employees	Soliant is recruiting Ohio intervention specialists and special-ed staff on contract	Verified
Teacher/therapy outsourcing generates PE revenue	Vistria owns Soliant; Leonard Green owns Stepping Stones	Verified
Pension systems can invest with firms that own education contractors	STRS lists Vistria, Leonard Green and EQT	Verified from STRS document
PE transportation company profits from public-school transportation	EQT owns Cincinnati-based First Student	Verified
Privatization can interact with vouchers and nonpublic-school expansion	Ohio districts face major transportation obligations for nonpublic/voucher students	Verified
Public districts can carry costs while education dollars migrate outside district payrolls	Dayton/Columbus transportation dispute demonstrates the structural issue	Verified, though causation needs careful wording
PE staffing can cost more than direct employment	Michigan report cites a California study estimating $6m savings from insourcing	Michigan evidence; Ohio calculation not yet done

The transportation angle deserves special attention. AP reported that Ohio’s expansion of private-school choice has added nearly 90,000 voucher students in four years, while public districts remain responsible for significant transportation obligations. Dayton reportedly operates more routes for nonpublic pupils than for its own students, while Columbus transports more than 3,000 nonpublic students.

That means the Ohio version can go beyond the Michigan report:

Voucher expansion creates transportation obligations → transportation shortages encourage outsourcing → EQT’s First Student sells outsourced transportation → STRS invests with EQT.

The last arrow is documented; what we still need is a district-by-district First Student contract list to quantify the dollars.

The table I would put at the center of your Commonsense article

Ohio teachers provide…	Money flows to…	Which owns…	Which earns money from…
STRS pension contributions	Vistria	Soliant	Contract teachers and special-ed staffing
STRS pension contributions	Leonard Green	Stepping Stones	Special-ed/therapy outsourcing
STRS pension contributions	EQT	First Student	Outsourced school transportation
STRS pension contributions	Vistria	MGT / ESS / Edmentum	Technology, substitute staffing and education services
Ohio tax dollars	School districts	PE-backed contractors	Staffing, transportation and services
Ohio tax dollars	Voucher/nonpublic education system	Private providers	Education and ancillary services

That’s the self-cannibalization story:

Ohio teachers’ retirement money is financing private-equity firms whose portfolio companies can make more money when school districts outsource work traditionally performed by public employees.

The evidence supports that formulation. I would avoid saying STRS investments caused layoffs or lower teacher salaries until we quantify individual Ohio district contracts and compare contractor rates with employee compensation.

The next level is worth doing: mine Columbus, Cleveland, Cincinnati, Dayton, Akron, Toledo and 20–30 other Ohio school districts’ board packets/check registers for Soliant, Stepping Stones/Invo and First Student, then add actual contract dollars and cross-match each payment back to STRS’s PE manager. That could produce a very damaging table with columns for District | PE contractor | STRS manager | Contract $ | Service | Estimated worker pay | PE/contractor spread.

Ohio STRS Investment Staff: Paid Excessively to Look the Other Way

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

EPSTEIN, APOLLO, AND OHIO TEACHERS’ BILLIONS

Ohio’s Epstein Blind Spot: While Wexner Dominates Headlines, Apollo’s Leon Black remains in Shadows

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

Ramaswamy, Crypto Money, Data Centers, Jeffrey Epstein, and Ohio Pensions

A new University of Kansas paper provides some of the strongest empirical evidence yet that affiliated financial advisers can hurt 401(k) participants by steering their money into proprietary products.

But Wall Street may already be moving the game to a much less transparent playing field.

William Bazley, Gjergji Cici and Junchao Liao studied thousands of 401(k) plans and found that when an adviser is affiliated with the plan’s recordkeeper, participant performance declines. The reason is particularly important: affiliated advisers steer participant money toward the recordkeeper’s proprietary funds. Unaffiliated advisers did not produce the same result.

The damage was concentrated in the proprietary investments. The researchers estimated roughly a 34-basis-point annual reduction in allocation alpha in proprietary funds, while finding no statistically significant comparable reduction in non-proprietary funds.

Even more damning, participants apparently weren’t getting much in return. The researchers found no meaningful improvement in participation, administrative fees or diversification.

University of Kansas 401(k) conflicts paper on SSRN

Wall Street’s Better Mousetrap

The Kansas researchers studied a relatively easy conflict to see:

Recordkeeper → affiliated adviser → proprietary mutual fund.

Mutual funds have tickers, SEC filings, published expense ratios and daily prices. Researchers can compare them.

The new 401(k) architecture can look more like this:

Recordkeeper → affiliated adviser → target-date CIT → affiliated stable-value/annuity product → lifetime-income guarantee → private equity/private credit.

Now try following the money.

Collective investment trusts don’t provide investors the same SEC-registered mutual-fund disclosure framework. Insurance-company general accounts add another layer. Private equity and private credit add valuation, liquidity and fee issues.

The conflict hasn’t disappeared.

It may simply have become harder to see.

Voya Shows Where This Could Be Going

Voya may be the clearest example.

Its MyCompass target-date products are three CIT series trusteed by Great Gray. Voya says those portfolios include either a guaranteed investment annuity contract or stable-value product issued by Voya itself.

So participant money can travel:

Voya retirement platform
→ MyCompass CIT
→ Great Gray trustee
→ Voya insurance product.

And Voya has separately partnered with Blue Owl to develop private-market investments for defined-contribution plans.

The old Kansas conflict involved a proprietary mutual fund.

The new version potentially involves recordkeeping + CIT + insurance + private markets.

That deserves considerably more scrutiny, not less.

AIG Corebridge/VALIC Doesn’t Even Make Us Draw the Corporate Chart

Corebridge essentially provides the chart itself.

Its disclosures say securities and investment advisory services are provided through VALIC Financial Advisors, while VALIC Retirement Services Company provides retirement-plan recordkeeping and acts as transfer agent for certain affiliated variable investment options.

And they’re all Corebridge subsidiaries.

That is:

Recordkeeper → affiliated adviser → affiliated investments → affiliated insurer.

The Kansas researchers found that affiliation matters.

Plan fiduciaries should probably start asking exactly how much money every entity in that chain makes.

John Hancock Calls It “Co-Manufacturing”

John Hancock has provided an unusually revealing description of where target-date funds may be headed.

It describes “co-manufactured” target-date CITs in which an asset manager’s conventional target-date strategy can be recreated as a CIT and some fixed-income exposure replaced by a recordkeeper’s proprietary stable-value product.

Think about what has changed.

Yesterday:

Participant chooses proprietary mutual fund.

Tomorrow:

Employer chooses target-date CIT as QDIA → participant is automatically enrolled → CIT buys proprietary product.

You don’t even need an adviser sitting across the table convincing the participant to buy something.

The default can do it automatically.

Then Come Private Equity and Private Credit

Private markets make the economics even more interesting.

Goldman Sachs developed a private-credit CIT for DC plans carrying roughly a 1% fee including expenses, and Great Gray target-date funds were among the first intended users. Those Great Gray funds also incorporate private investments managed by BlackRock.

Compare that with an institutional index fund costing a handful of basis points.

There is an enormous economic incentive to move retirement assets from cheap transparent public-market investments into products carrying insurance spreads, private-market management fees and other economics.

That doesn’t prove anyone is violating ERISA.

It does tell fiduciaries where they should look.

The Kansas researchers found a conflict when the money trail was relatively simple.

Now imagine repeating their study in 2026.

Instead of following:

401(k) → proprietary mutual fund

researchers may need to follow:

401(k) → recordkeeper → affiliated adviser → QDIA → CIT → trustee → investment manager → insurer → general account → private equity/private credit manager.

And at every step the fiduciary should ask:

Who gets paid?

How much?

Would this product have been selected if none of the parties selecting, recommending, administering or manufacturing it made money from it?

That may be the real sequel to the Kansas study.

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Appendix A — Tier Four Affiliation Matrix

● = documented/current; ◐ = partial, partnership, manufacturing or legacy relationship; — = not established in our initial review.

Company	RK	Affiliated Advice/Distribution	CIT/TDF	Affiliated Insurance/Stable Value	Lifetime Income	Private Markets DC	Conflict Priority
Principal	●	●	●	●	●	◐	Very High
Lincoln	◐	●	◐	●	●	—	High
John Hancock/Manulife	●	●	●	●	◐	◐	Very High
MassMutual	Legacy	◐	—	●	●	—	Medium/High
Prudential/PGIM	Legacy	◐	●	●	◐	◐	High
New York Life	Legacy	●	◐	●	●	—	Medium/High
Nationwide	●	●	●	●	●	—	Very High
Transamerica	●	●	●	●	●	—	Very High
Voya	●	●	●	●	●	●	EXTREME
AIG/VALIC	colspan	colspan	colspan	Now Corebridge — don’t double-count
MetLife	Legacy	◐	—	●	●	—	Medium
OneAmerica/AUL	●	●	◐	●	◐	—	High
Corebridge/VALIC	●	●	◐	●	●	—	EXTREME
Equitable	●/partner	●	●	●	●	—	EXTREME
Ameritas	●	●	●	◐	◐	—	High
Security Benefit	●	●	◐	●	●	—	High

Note: AIG/VALIC and Corebridge are now the same economic family and should not be treated as two independent companies.

Lifetime Income Annuities Need Downgrade Clauses to Work in 401(k)s

Who Regulates Your 401(k) CIT? BlackRock, Goldman, Prudential and Lincoln Lead Back to Las Vegas

All of the 4^th tier have all these affiliated deals with lifetime income annuities other  CITS with Private Equity

The Four-Tier Structure of the U.S. 401(k) Marketplace

If AA Was the Reason You Bought It, You Need the Right to Leave When It Isn’t AA

The insurance industry wants lifetime-income annuities in 401(k) plans.

A 401(k) fiduciary buys a lifetime-income annuity in large part because the insurance company is AA-rated.

Five years later the insurer gets downgraded.

AA becomes A. Maybe A eventually becomes BBB.

Now what?

If the fiduciary would not buy the annuity from that insurer today, why should participants be trapped in the annuity purchased five years ago?

They shouldn’t be.

The Answer Is a Downgrade Clause

Every 401(k) lifetime-income annuity should have a contractual downgrade provision.

If the insurer falls below a predetermined financial-strength standard, the plan should be able to move the participant’s money or guarantee to another qualified insurer without a surrender charge, market-value adjustment or other financial penalty.

It is a remarkably simple concept:

If AA was the reason the fiduciary bought the annuity, losing AA should give the fiduciary the right to leave.

Otherwise the fiduciary has purchased a 30- or 40-year credit risk with no meaningful exit door.

That is especially troubling as insurers increasingly reach for yield through private credit and other less-liquid investments, an issue I discussed in The Coming AI Bailout—and Why the Annuity Bailout Could Be Much Bigger and New York vs. Iowa: Where Does the Extra Annuity Spread Come From?.

Vanguard RST synthetic based stable value fund had 6 synthetic GIC Providers.   Each had a step-up clause that if one was downgraded that GIC would elapse with no loss and split among the remaining 5 insurers.    When AIG was downgraded in 2008 they were able to do this, way before the Federal Bailout.

We Already Have Multi-Insurer Lifetime Income

And here’s the important part: the retirement industry has already demonstrated that lifetime income doesn’t necessarily have to depend upon one insurance company.

AllianceBernstein developed a multi-insurer lifetime-income platform.

An earlier version used three insurers:

ING Life
AXA Equitable
Nationwide

The insurers split responsibility for the lifetime-income guarantees.

Voya subsequently described the AB Lifetime Income Strategy as using multiple insurers, specifically explaining that several insurance companies split responsibility under the contracts to diversify risk.

So the concept isn’t theoretical is just needs a step up clause to deal with a downgrade of one of the issuers.

Now Add a Step-Up Provision

Suppose a lifetime-income product has three AA insurers:

Insurer A — 33%
Insurer B — 33%
Insurer C — 34%

Insurer A gets downgraded below the plan’s predetermined credit standard.

Under a properly designed contract, A’s share could be transferred or replaced by B, C or another qualifying AA insurer—without imposing a surrender loss on participants.

That’s the lifetime-income version of counterparty diversification.

And it solves one of the biggest fiduciary problems with annuities.

But It Won’t Solve a Systemic Insurance Crisis

There is an important limitation.

This works beautifully when one insurer screws up.

It works much less well if everybody screws up together.

Suppose A, B and C all loaded their general accounts with similar private-credit loans, private-equity-related investments, commercial real estate and AI/data-center financing.

A gets downgraded.

Its exposure moves toward B and C.

Then B gets downgraded.

Then C.

Now the diversification wasn’t really diversification.

It was three different insurance-company names sitting on substantially correlated risks.

That is why fiduciaries need to examine what’s actually inside insurers—not merely their current ratings.

I’ve written repeatedly about this problem, including Who Regulates Your 401(k) CIT?, Annuities: Who Is Your Regulator? and Annuities Cherry-Pick the Weakest State Regulator.

A multi-insurer structure helps diversify company risk.

It doesn’t eliminate systemic risk.

Here’s Why Insurers Will Fight Downgrade Clauses

Downgrade protection isn’t merely about credit risk.

It attacks one of the most profitable parts of the traditional annuity business:

Captive money.

Once an insurer gets retirement money into its general account under a long-duration contract, getting it back can be difficult or expensive.

That captivity has enormous economic value.

I believe some general-account annuity economics can produce effective spreads in the neighborhood of 300–400 basis points between what the insurer earns on its assets and what participants ultimately receive.

Give fiduciaries a real exit right and suddenly the insurer has to worry about losing the money.

Competition comes back.

An insurer with deteriorating credit can’t simply say:

“Yes, we’ve been downgraded—but read page 137 of your contract. It will cost participants millions to leave.”

With a real downgrade clause, the answer becomes:

“You no longer meet our credit standard. We’re moving to another AA insurer.”

That could potentially compress a 300–400 basis-point spread toward perhaps 100–200 basis points.

Still plenty of money for the insurer.

But potentially a much better deal for participants.

Solve Two Problems With One Clause

This is what makes the downgrade clause so powerful.

It addresses two major annuity problems simultaneously.

Problem #1: Fiduciary Risk

The fiduciary can respond when the credit quality that justified purchasing the annuity disappears.

Problem #2: Excessive Spreads

The insurer loses some of the economic value of holding participants captive for decades.

The threat of losing billions of dollars creates something the annuity marketplace badly needs:

Competition after the contract is signed.

The ERISA Safe Harbor Should Require It

Congress has given fiduciaries substantial protection for selecting lifetime-income providers.

That protection should come with strings attached.

A lifetime-income annuity receiving favorable ERISA treatment should have, at minimum:

• a clearly defined financial-strength requirement;
• automatic review following a ratings downgrade;
• CDS, bond-spread and capital-deterioration monitoring;
• a contractual right to terminate or transfer after specified deterioration;
• no surrender charge or market-value adjustment following the trigger;
• a mechanism for replacing the downgraded insurer;
• multiple insurers where economically practical; and
• disclosure of the insurer’s actual spread and compensation.

I raised many of these issues in my ERISA Fixed Annuity Due Diligence Checklist.

And this becomes even more important as Washington pushes lifetime income deeper into defined-contribution plans. As I argued in Lifetime Income: The Gateway Drug for Insurance Products in 401(k) Plans, once insurance products become embedded in the retirement-plan infrastructure, getting them out may be much harder than getting them in.

The CommonSense Test

Forget 100 pages of actuarial jargon.

A 401(k) committee should ask its insurance company one question:

“If you get downgraded below the rating that caused us to select you, can we move every dollar to another highly rated insurer tomorrow without losing participant money?”

If the answer is yes, show us the contract provision.

If the answer is no, why is an ERISA fiduciary buying the product?

Lifetime income may have a legitimate place in 401(k) plans.

But a lifetime guarantee shouldn’t mean a lifetime hostage situation.

Require downgrade clauses.

Use multiple insurers.

Give fiduciaries an exit door.

And make insurance companies compete to keep retirement money rather than writing contracts designed to prevent fiduciaries from taking it away.

Fix the fiduciary-risk problem and you may cut the excessive-spread problem in half at the same time.

ERISA Investment Standards Should Be Higher Than Mutual-Fund Standards —Not Lower

 “Guaranteed” Annuity May Be Worth Only 70 to 80 Cents on the Dollar- Problematic for Retirement Plans – New Paper

DOL lax guidance on Pension Risk Transfers has cost Retirees billions while Enriching Insurance Companies

Jim Watkins’ Fiduciary Protocols Expose the Real Problem with Fixed Annuities -a Prohibited Transaction

David Dayen has another excellent piece in The American Prospect: “The AI Bailout Could Be Baked Into the AI Bubble.”  https://prospect.org/2026/08/03/ai-bailout-could-be-baked-into-bubble-private-equity-life-insurers-loans/ 

His basic argument is important: private equity firms have built a circular financial machine in which they own private-credit managers, finance AI and data-center investments, own life insurers stuffed with retirement savings, and increasingly use those insurers to buy private-credit assets generated by the same private-capital ecosystem. If those investments blow up, the losses don’t necessarily stop with Apollo, KKR or Blackstone.

They can land on retirees , competing insurers—and ultimately taxpayers.  State and Local pensions hold billions in Private Credit directly.  401k plans hold annuities that could default.  Corporate Pension plans hold Pension Risk Transfer annuities which could default.

I think Dayen is right. But he may actually understate the problem.

The weak link in this machine is something almost nobody understands:

State insurance guaranty associations are not the FDIC.

Dayen describes state guaranty funds as the mechanism that would step in if a life insurer failed.

Technically yes.  But calling them “funds” gives retirees completely the wrong picture.  https://commonsense401kproject.com/2025/06/24/state-guarantee-associations-behind-annuities-are-a-joke/

There isn’t an Iowa equivalent of the FDIC sitting on hundreds of billions of dollars waiting for Athene to fail. When an insurer becomes insolvent, the state guaranty association generally assesses the remaining solvent insurance companies operating in the state. The surviving companies therefore have to finance the failure after it has already occurred.  That design might work reasonably well when some small insurer fails.   What happens when the failed company has hundreds of billions of dollars of liabilities? That’s an entirely different question.

---

Now Put Athene Into That Equation

Athene isn’t Executive Life.  It’s vastly bigger.

Athene reported more than $445 billion in total assets as of March 31, 2026.  https://commonsense401kproject.com/2026/03/26/apollos-garbage-dump-athene-loading-up-on-risk-endangers-retirees-in-prts-and-other-annuity-investors/

  It was partially designed by Jeffrey Epstein as evidenced in this 2015 excerpt in the Epstein Files https://www.justice.gov/epstein/files/DataSet%209/EFTA00305994.pdf    https://commonsense401kproject.com/2026/02/25/jeffrey-epsteins-pension-destruction-engine-athene/

And Iowa has become perhaps the most important regulatory jurisdiction in this entire private-equity/annuity experiment.

According to the Financial Times, Iowa now oversees roughly $1.3 trillion of insurance assets, while Iowa-based insurers have transferred approximately $449 billion of reserves to reinsurers in jurisdictions including Bermuda and the Cayman Islands. Iowa Insurance Commissioner Doug Ommen himself has warned that the industry’s move toward private-market investments can involve assets that are less appropriate for retirees and that the resilience of these strategies has not yet been tested through a serious downturn.

That gets directly to the issue I raised recently in:

New York vs. Iowa Annuities: Where Does the Extra Spread Come From?

New York vs. Iowa Annuities: Where Does the Extra Spread Come From?

Higher annuity yields don’t magically appear.

They generally come from some combination of:

more credit risk, more liquidity risk, more leverage, more structured credit, more private credit, more regulatory arbitrage, or less capital supporting the same promise.

There is no free lunch in fixed income. Private Credit is increasing in offshore structures https://www.insurancebusinessmag.com/us/news/life-insurance/private-credit-backs-your-clients-annuities-but-disclosure-is-thin-585528.aspx

---

The Bigger Problem: The Assets Can All Go Bad Together

The insurance industry’s defense of guaranty associations often implicitly assumes something resembling independent failures.

Company A screws up.

Companies B through Z remain healthy.

B through Z get assessed and protect Company A’s policyholders.

Fine.

But Dayen is describing almost the exact opposite scenario.

Apollo, KKR, Blackstone, Ares and others participate in overlapping private-credit markets.

Insurers increasingly own private placements, structured securities, asset-backed loans and private credit.

Those same credit markets increasingly finance AI infrastructure, data centers and private-equity portfolio companies.

So imagine an AI/data-center/private-credit bust.

The company needing rescue may not be the only insurer experiencing losses.

The companies being asked to finance the rescue could simultaneously be trying to preserve their own capital.

That is the classic problem of correlated systemic risk.

And it is precisely the circumstance under which a post-failure assessment system becomes least credible.

---

Dayen Actually Gives the Numbers Showing How Fast This Changed

The academic research behind Dayen’s article found an extraordinary change after private-equity ownership.   https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7152239

In 2024, about 49.5% of new investments by PE-owned insurers went into privately placed instruments, compared with roughly 14% for unaffiliated insurers.

Private equity also gets something else enormously valuable from owning the insurer:

permanent captive assets under management.

The insurer can pay the affiliated asset manager billions.

The Financial Times reported that Athene Annuity and Life Company paid Apollo approximately $1.3 billion in management fees in 2024, while KKR’s Global Atlantic paid KKR approximately $536 million.

Think about that incentive structure.

Heads:

Apollo earns asset-management fees and spread income.

Tails:

The insurance subsidiary absorbs investment losses.

Extreme tails:

Policyholders, other insurers, guaranty associations—and potentially taxpayers—enter the equation.

That’s one hell of a business model.

---

And Athene Isn’t Simply Buying Random Bonds

The affiliated-investment issue deserves far more attention.

S&P Global data reported by the Financial Times showed Athene’s affiliated assets nearly doubled from about $22.6 billion at year-end 2023 to $40.1 billion at year-end 2024.

Athene accounted for roughly 30% of the entire industry’s increase in affiliated assets during that period.

This doesn’t prove the investments are bad.

It proves the conflicts deserve exceptional scrutiny.

The company manufacturing private credit can own the insurer buying private credit.

The asset manager earns fees.

The insurer earns additional spread.

The annuity salesman gets a more attractive crediting rate.

Everybody looks brilliant—until the credit cycle reverses.

---

Another Problem: Guaranty Coverage Isn’t Unlimited

There is another important qualification to Dayen’s description.

Guaranty associations don’t simply guarantee every dollar of every insurer liability.

Coverage is subject to statutory limits.

The Chicago Fed gives the example of a $400,000 present-value annuity obligation where only $250,000 is protected under a typical state limit—meaning the policyholder could receive substantially less than the promised benefit.

Iowa itself describes statutory coverage limits rather than an unlimited government guarantee.

That’s particularly important for:

• wealthy individual annuity owners;
• pension-risk-transfer retirees;
• corporate retirement plans;
• participants with large lifetime-income benefits.

Calling an annuity “guaranteed” without explaining who guarantees it, up to what amount, under which state’s law, backed by what assets, and through what insolvency process is financial malpractice.

---

Ben Bernanke Already Told Us What Happens When a Giant Insurer Actually Gets Into Trouble

We don’t have to speculate entirely.

We ran the experiment in 2008.

It was called AIG.  https://www.federalreserve.gov/newsevents/testimony/bernanke20090324a.htm

When explaining the Federal Reserve’s extraordinary rescue, Chairman Ben Bernanke testified that AIG’s collapse could have posed “unacceptable risks” to the global financial system.

He specifically said that AIG’s large insurance subsidiaries likely would have been placed into rehabilitation by state regulators, leaving policyholders facing considerable uncertainty about their claims.

That is enormously important.

If state insurance receivership and guaranty associations were such a powerful substitute for a federal backstop, why did the Federal Reserve commit extraordinary resources to keep AIG from collapsing?

Because when the institution becomes sufficiently large and interconnected, policymakers stop asking:

“What does the state guaranty statute say?”

and start asking:

“Will allowing this company to fail crash the financial system?”

That’s the real precedent.

---

From Executive Life to Athene

The irony is that regulators confronted versions of these issues after Executive Life and Mutual Benefit Life more than three decades ago.

The Minneapolis Fed wrote in 1993 about the incentives and moral hazard created by state insurance guarantees following the Executive Life collapse.

Yet today we have constructed institutions dramatically larger than Executive Life, holding dramatically more complex assets, intertwined with private equity, private credit, offshore reinsurance and now potentially the AI infrastructure boom.

And somehow we’re supposed to believe the same fragmented state guaranty system has become a stronger backstop.

I don’t buy it.

---

The Real AI–Annuity Bailout Chain

Dayen’s article lets us draw the complete circle:

401(k)s / pensions / retirees >Annuities and pension-risk transfers>PE-owned insurers>↓

Apollo / KKR / Blackstone asset managers>Private credit>AI companies / data centers / PE portfolio companies>Credit losses>Insurance-company losses>State receivership>State guaranty associations>Assessments on surviving insurers>Potential tax credits / taxpayer exposure

And if the company is too big? Washington.

That’s the story.

---

This Is Why Pension Risk Transfers Matter

And this brings us back to the pension-risk-transfer problem.  https://commonsense401kproject.com/2026/07/22/dol-lax-guidance-on-pension-risk-transfers-has-cost-retirees-billions-while-enriching-insurance-companies/

When an employer transfers a traditional pension to an insurance company, we are continually told that retirees haven’t lost anything because their pension has merely been replaced by an equally safe insurance-company promise.

That’s nonsense.

Before the transfer, the pension is governed by ERISA and backed by the federal PBGC system.

Afterward, the retiree can become a creditor of an insurance company regulated primarily by whichever state domiciles that insurer, with state guaranty-association protection subject to statutory limitations.

Meanwhile insurers increasingly compete by offering sponsors attractive PRT pricing while trying to earn higher investment spreads.

Where do those higher spreads come from?

See Iowa.

See private credit.

See offshore reinsurance.

See affiliated assets.

And now:

See AI.

---

CommonSense Bottom Line

David Dayen deserves considerable credit for connecting the AI bubble to private credit, private equity and life insurers.

But the scariest part isn’t simply that taxpayers may indirectly subsidize insurance failures.

It’s that the ostensible safety net may be structurally incapable of handling the failure of one of today’s gigantic annuity companies during a correlated private-credit crisis.

The state guaranty system was never designed to be the FDIC for a $445-billion retirement conglomerate tied into one of the world’s largest alternative-asset managers.

If Athene—or another insurer of similar scale—ever became genuinely insolvent, I have a very hard time believing America’s life insurers would simply write checks large enough to make everyone whole through Iowa’s guaranty-association machinery.

History suggests something else would happen.

Washington would arrive.

That means we may already have created exactly the arrangement Dayen fears:

Private profits.

Private-credit risk.

Retirement money as funding.

State regulation when things are good.

And federal taxpayers when things get really bad.

The bailout may not merely be baked into the AI bubble.

It may already be baked into the American annuity industry.

Appendix: Throughline Synthesis Maps the AI–Private Credit–Annuity Bailout Machine

One day after this article was published, Scott Ortkiese at Throughline Synthesis published an excellent companion piece: “The Bailout Is Already Written: A Short Course on Private Credit, the AI Bubble, and the Life Insurance Trap Set for the American Taxpayer.”

His analysis takes the argument here one important step further by diagramming the plumbing.

The Money Goes in a Circle

The old insurance model was relatively simple:

Policyholder premiums → insurer → mostly public bonds and mortgages → claims and annuity payments

The emerging private-equity insurance model can look very different:

Retiree / annuity premium
↓
PE-affiliated life insurer
↓
Private credit originated or managed within the same alternative-asset ecosystem
↓
AI companies / data centers / neoclouds / infrastructure SPVs
↓
Private valuations and credit ratings
↓
Back onto the insurer’s balance sheet

That is the critical point.

The insurer isn’t merely investing in private credit.

The insurance company can become the permanent funding source for the private-credit machine.

Throughline points to Apollo/Athene, KKR/Global Atlantic, Blackstone’s insurance relationships, Brookfield’s insurers and Ares/Aspida as examples of the convergence between alternative asset management and insurance.

Now Add the $500 Billion AI Financing Push

The timing makes this particularly important.

On August 10, Nvidia announced agreements with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR aimed at mobilizing more than $500 billion of third-party capital for AI infrastructure financing.

That makes the circle easier to see:

Retirement money → insurer → private credit → AI infrastructure → data centers and chips

If everything works, Wall Street earns fees and insurers earn additional spread.

But what happens if AI infrastructure doesn’t generate enough cash flow to support the debt?

The losses travel backward.

AI/data-center losses → private-credit losses → insurer losses → policyholders and annuitants → guaranty associations

And that is where taxpayers potentially enter the picture.

The Sleeper Issue: State Premium-Tax Credits

Throughline emphasizes something David Dayen highlighted and that deserves much more attention.

When an insurer fails, state guaranty associations generally assess surviving insurers.

But in most states, insurers can recover guaranty-association assessments through state premium-tax offsets or credits.

So describing the guaranty system as simply “the insurance industry protecting itself” can be misleading.

The economic chain can become:

Failed insurer
↓
Guaranty association
↓
Assessment on surviving insurers
↓
Premium-tax credit
↓
Reduced state tax revenue

In other words:

Wall Street takes the spread on the way up.

The state can absorb part of the bill on the way down.

That deserves much more scrutiny before trillions more retirement dollars migrate toward private-credit-heavy insurers.

But Throughline May Actually Understate the Biggest Risk

This is where my original article goes one step further.

The state guaranty system may work reasonably well when one modest-sized insurer fails in isolation.

But what happens in a correlated private-credit collapse?

What happens if several insurers own similar AI, data-center, private-credit and affiliated assets?

And most importantly:

What happens if a giant such as Athene gets into serious trouble?

Throughline describes the statutory bailout mechanism.

The bigger question is whether that mechanism is financially capable of handling the failure it is supposedly designed to address.

History gives us a warning.

When AIG threatened to collapse in 2008, policymakers didn’t simply say:

“Don’t worry. State insurance regulators and guaranty associations have this covered.”

Washington intervened.

That is why the ultimate AI-annuity bailout could be much larger than the state tax-credit mechanism identified by Dayen and Throughline.

The Complete Bailout Chain

Put the three analyses together — Dayen, Throughline and CommonSense — and we can finally see the entire structure:

401(k)s / pensions / retirees
↓
Annuities and pension-risk transfers
↓
PE-affiliated insurers
↓
Apollo / KKR / Blackstone / other alternative managers
↓
Private credit
↓
AI / data centers / infrastructure SPVs
↓
Credit losses
↓
Insurer losses
↓
State receivership
↓
Guaranty-association assessments
↓
State premium-tax credits
↓
State taxpayers

And if the insurer is too large or the failures too correlated?

Washington.

That last arrow may ultimately dwarf all the others.

CommonSense Bottom Line

Throughline Synthesis has done an excellent job explaining the plumbing.

The AI boom isn’t being financed exclusively by venture capitalists and technology billionaires willingly gambling their own money.

Increasingly, the capital stack reaches into private credit, insurance-company balance sheets, annuities and retirement savings.

That changes the public-policy question.

Before a 401(k) fiduciary, pension trustee or corporate pension sponsor hands retirement assets to an insurer heavily exposed to private credit, perhaps the most important question isn’t:

“What is the annuity’s guaranteed rate?”

It is:

“What assets are actually backing the guarantee?”

And immediately after that:

“Who pays if those assets aren’t worth what the insurer says they’re worth?”

Throughline’s answer is disturbing.

Mine is potentially worse.

First the insurer. Then the guaranty system. Then the states.

And if the hole is big enough, history says Washington may be next.

Annuities: Who Is Your Regulator—and Does Your 401(k) Fiduciary Even Know?

Annuities Cherry-Pick the Weakest State Regulator

Insurance Regulation in America: Fifty Watchdogs, One Closed Door