Fidelity now indexes roughly one-third of the assets it manages.
BlackRock became the world’s largest asset manager largely through index investing.
Large institutional 401(k) plans increasingly pay between 10 and 30 basis points for broadly diversified index portfolios.
For Wall Street, that is a crisis.
The traditional mutual fund business has become extraordinarily efficient—and extraordinarily unprofitable compared to what came before.
So the industry needed a new business model.
That model is built around products that are difficult to compare, difficult to value, and difficult to benchmark.
The Economics Tell the Story
Consider the economics.
Large index mutual funds:
10–30 basis points.
Traditional fixed annuities:
approximately 200–400 basis points once spreads and embedded compensation are considered.
Traditional private-equity funds:
approximately 300–600 basis points after management fees, carried interest and other costs, consistent with numerous academic studies, including work by Ludovic Phalippou.
This is not a small pricing difference.
It is an entirely different business.
Every trillion dollars that moves from a 20-basis-point product to a 300-basis-point product represents tens of billions of dollars of additional annual revenue.
That is the economic incentive driving today’s retirement-product innovation.
Mutual Funds Became Too Competitive
SEC-registered mutual funds are remarkably transparent.
Daily pricing.
Portfolio disclosure.
Comparable expense ratios.
Morningstar comparisons.
Independent boards.
Public filings.
Competition works.
When every investment manager owns essentially the same publicly traded securities, fees inevitably fall.
The index revolution proved that.
Wall Street’s answer was not to compete harder.
It was to move into investments that cannot easily be compared.
The New Business Model
The industry’s growth areas now have remarkably similar characteristics.
Private equity.
Private credit.
Insurance products.
Lifetime-income products.
Collective investment trusts.
Insurance separate accounts.
These products often involve multiple legal structures before participants reach the underlying investments.
A target-date collective investment trust may invest in another collective investment trust.
That trust may invest in an insurance-company separate account.
The separate account may invest in private-equity or private-credit funds.
Every additional legal structure creates another layer of administration.
Another layer of valuation.
Another layer of contracts.
Another layer of compensation.
Most importantly, another layer that makes straightforward fee comparisons increasingly difficult.
Why State-Regulated Collective Trusts?
This is where an interesting pattern emerges.
I have yet to identify a current SEC-registered open-end mutual fund that owns traditional annuity contracts.
Likewise, I have not identified a current OCC-supervised ERISA collective investment trust holding the kinds of private-equity partnerships now being promoted for participant-directed target-date funds.
Instead, many of the industry’s newest products appear to be organized through state-chartered trust companies.
Nevada.
Oregon.
Maine.
It raises an obvious question.
If these investments are as straightforward as their sponsors claim, why are they increasingly being introduced through legal structures outside SEC mutual funds and, increasingly, outside direct OCC-supervised collective investment trusts?
Complexity Protects High Fees
High fees are easiest to sustain when comparisons become difficult.
Participants know how to compare an S&P 500 index fund charging 0.03%.
They have a much harder time comparing:
a target-date collective investment trust;
investing in another collective investment trust;
investing in an insurance separate account;
investing in a portfolio of private-equity partnerships.
At that point, what exactly is the participant comparing?
The benchmark?
The valuation methodology?
The insurance spread?
The carried interest?
The management fee?
The consulting fee?
The recordkeeping fee?
The answer is often: all of them.
Or none of them.
The New Toll Road
Think of the modern retirement system as a highway.
Traditional index investing is a public interstate.
Efficient.
Transparent.
Low cost.
Private markets increasingly resemble a series of toll booths.
Every legal structure can collect a fee.
Every intermediary can justify another charge.
Every additional layer makes it more difficult for participants—and sometimes even fiduciaries—to determine the total cost of reaching the underlying investments.
The investment itself may not have changed very much.
The economics certainly have.
Fiduciaries Should Follow the Money
Investment committees are often told these products are about diversification.
Or access.
Or innovation.
Those claims deserve careful evaluation.
But fiduciaries should begin with a simpler question.
Who benefits economically from moving retirement assets out of 20-basis-point index funds and into products costing several hundred basis points?
Until that question is answered clearly, every additional legal structure should be viewed not simply as an investment vehicle, but as part of the product’s overall economic design.
The retirement industry did not abandon low-cost mutual funds because they stopped working.
It abandoned them because they became too inexpensive.
That is the story behind private equity, private credit and modern annuity products.
A new academic report provides unusually strong evidence for a central argument made in both the our investigation of Ohio STRS and our broader CalPERS report: public-pension compensation systems can reward staff for an internally manufactured version of performance that is materially better than the pension’s underlying financial record.
STRS’s publicly reported investment return exceeded the authors’ independently calculated return derived from audited financial information in 19 of the 20 fiscal years from 2003 through 2022.
The average difference was approximately 0.33 percentage points annually. The authors estimate that the annual differences represented about $4.8 billion when added together and approximately $9.3 billion when compounded over the full period. They emphasize that the $9.3 billion is not the amount of bonuses improperly paid; it is their estimate of the cumulative difference between the performance story presented to stakeholders and the growth indicated by their audited-data calculation.
The Critical Compensation Connection
The report does not merely identify two different performance figures. It connects the difference directly to incentives:
STRS reportedly based investment-staff bonuses on the higher, internally reported return.
Those reported returns were not themselves the subject of the CPA opinion covering the financial statements.
Ohio OPERS, used as a comparison, based bonuses on audited results.
OPERS showed a much smaller, bidirectional discrepancy: its reported return was higher in some years and lower in others.
That comparison is important. OPERS operated in the same state, under similar economic conditions, yet its differences looked more like ordinary measurement variation. At STRS, the difference overwhelmingly went in one direction—the direction that favored staff compensation.
The authors calculate that obtaining 19 favorable differences in 20 years would have a probability of less than 0.01 percent if overstatement and understatement were equally likely. Their conclusion is appropriately qualified: methodological differences may explain part of the gap, but the pattern is most consistent with an incentive problem.
This is about as close as an academic paper is likely to come to saying:
STRS maintained one performance number grounded in audited financial information and another, more favorable number used to justify bonuses.
It Reinforces the CommonSense “Everyone Gets Paid to Pretend” Thesis
In May, the CommonSense 401k Project described the private-market valuation system as a “perfectly aligned incentive system”:
private-equity managers benefit from high reported net asset values;
private-credit managers benefit from delaying defaults and write-downs;
consultants benefit from preserving complex, high-fee programs;
pension staff benefit from reported outperformance and bonuses.
The process was summarized in five steps:
Private assets are not marked to an observable market.
This is why Private Equity is not allowed in SEC registered Mutual Funds.
The new STRS study supplies direct empirical support for the pension-staff portion of that thesis. We previously argued that pension employees’ bonuses depend on reported returns and non-investable benchmarks, creating a powerful reason not to recognize losses promptly.
The academic study now finds precisely the pattern that theory predicts: the number associated with compensation was almost always higher than the number the authors derived from audited financial data.
This moves the issue beyond a generalized concern about opaque private assets. It identifies a measurable institutional mechanism through which optimistic reporting can enrich the people responsible for producing and defending it.
From our 2024 numbers it has gotten worse with higher excessive salaries many who now work from home
highly compensated investment personnel control private-market allocations, valuation inputs, benchmarks and performance narratives;
lower-paid accounting and financial-control personnel are expected to verify the resulting numbers;
boards generally rely more heavily on the investment staff than on the accountants.
That report argued that Ohio had created a system in which “the dealmakers are rewarded for growth and complexity” while “the watchdogs are underpaid and outgunned.”
Mendenhall and Sutter provide a concrete example of the consequences. The externally audited financial information and the investment office’s reported performance existed in the same annual reports, but they apparently did not produce the same result. The investment office’s preferred result was then used for compensation.
Thus, the problem is not simply that CFA-type investment personnel make more money than CPA-type accounting personnel. The deeper problem is that the better-paid side controls the performance number on which its own bonuses depend.
The CalPERS Parallel Is Even Larger
The CalPERS investigation identified a similar structure, although CalPERS accomplishes it primarily through engineered benchmarks and private-asset valuation conventions rather than the exact STRS calculation examined in the new paper.
CalPERS pays some of the highest public-pension compensation in the country despite chronic underperformance. The investigation found:
The report concluded that compensation was supported by internally constructed policy benchmarks and discretionary organizational measures rather than straightforward comparisons with investable, low-cost alternatives.
Only 15 percent of the CalPERS CEO incentive award was tied to total-fund investment performance, and even that portion was measured against CalPERS’ own policy benchmark. A five-basis-point advantage over that engineered benchmark could reportedly produce the full performance payout.
The CalPERS report describes a closed validation loop:
Staff help construct the strategy and benchmark.
Performance is measured against the internally designed benchmark.
Consultants validate the benchmark and compare compensation with selected peers.
The board approves bonuses based on the consultant-supported results.
No one tests compensation against the simple investable portfolio beneficiaries could actually have owned.
Private-market valuation lag adds another layer. CalPERS benchmarks include quarter-lagged private-market indexes, appraisal-based valuations and assumed illiquidity premiums. During market declines, those features defer recognition of losses, making interim performance appear better and allowing bonuses to be paid before economic deterioration becomes visible.
Ohio STRS chose the same Goverance Consultant as CALPERS to reinforce the same excessive pay for false performance system.
Two Systems, the Same Basic Trick
The STRS and CalPERS mechanisms are not identical, but the governing principle is the same.
External economic reality
Compensation reality
Audited financial position
Internally reported return
Observable public-market alternatives
Custom policy benchmark
Current market losses
Lagged private-market valuations
Net returns and opportunity cost
Consultant-approved “value added”
Long-term beneficiary outcome
Annual bonus eligibility
At STRS, the new research calls this effectively two performance records: one exposed to external audit discipline and another used for internal evaluation and compensation.
At CalPERS, the second record is constructed through benchmarks, appraisal-based valuations, discretionary metrics and consultant certification.
In both cases, the staff are not necessarily falsifying a formal general ledger. Therefore, “two sets of books” should be understood as a description of two systems of performance measurement, not a claim that auditors discovered criminal double-entry accounting. But the economic result can be similar: the official number presented for compensation is more favorable than the measure stakeholders would use to evaluate the pension’s real opportunity cost.
The Real Scandal Is the Incentive Design
The report’s proposed minimum reform is straightforward: performance compensation should be based exclusively on independently verified results derived from audited financial information.
That is a start, but the CalPERS findings show that merely calling something “audited” may not be sufficient when private assets remain dependent on manager marks and lagged appraisals. A serious reform should require:
Compensation based on long-term net performance after all fees and expenses.
Comparison with transparent, investable opportunity-cost benchmarks.
Independent valuation authority outside the investment department.
Multi-year deferral and clawbacks when private-market values are subsequently reduced.
Public reconciliation of every performance figure to the audited financial statements.
An independent inspector general with access to valuation records, contracts, benchmark histories and compensation calculations.
Bottom Line
The new report strongly reinforces the Ohio and CalPERS investigations.
The May CommonSense articles on Ohio argued that opaque valuations, artificial benchmarks and excessive pension-staff compensation form a single system. The STRS study provides evidence of that system in operation: the performance number used to pay investment bonuses was systematically more favorable than the result the authors calculated from audited financial information.
The CalPERS investigation demonstrates the same underlying practice on a much larger scale. Staff and consultants construct the benchmarks, private-market marks soften or postpone losses, the internally generated result is declared successful, and enormous compensation follows.
Public pension staff do not need to beat the market when they are permitted to choose the accounting lens, design the measuring stick and collect bonuses from the version of reality that makes them look best.
The CFA Institute has diagnosed yesterday’s disease while today’s patient is dying from something entirely different.
By Chris Tobe, CFA, CAIA
The new CFA Institute Research Foundation monograph Investment Committees: Governance and Design Choices deserves praise. It is one of the best academic treatments of investment committee behavior I have read in years. It synthesizes decades of behavioral finance research into a thoughtful discussion of groupthink, status bias, anchoring, and decision-making “noise.” It even proposes an innovative idea: instead of allowing dominant personalities to steer committee discussions, require each committee member to independently submit portfolio recommendations anonymously before discussion begins. The committee’s decision would then reflect the average of those independent judgments rather than the loudest voice in the room. https://rpc.cfainstitute.org/sites/default/files/docs/research-reports/rf_scherer_investmentcommittees_online.pdf
Twenty years ago, this paper might have represented the cutting edge of institutional governance.
Today, however, it feels like a diagnosis of a disease that has largely disappeared.
The problem facing investment committees in 2026 is not that they are making honest mistakes. The problem is that many committees have stopped asking the questions that matter.
The World the CFA Paper Describes
The CFA paper assumes a traditional institutional investor. Committee members gather monthly. They review economic forecasts. They debate equity versus bonds. The CIO may dominate discussion. Members may anchor on the first opinion expressed. Groupthink can emerge.
Behavioral biases distort decisions. These are all real problems. The research on committee psychology is excellent, and the proposed reforms could improve many investment committees. But underlying the entire paper is one crucial assumption:
Committee members are honestly trying to maximize participant returns.
That assumption once described much of institutional investing. It increasingly does not especially in my world of U.S. Public Pensions and 401(k) plans.
The Investment Committee Has Changed
Over the last two decades, alternatives have fundamentally changed the role of investment committees especially in U.S. Public Pension Plans.
The traditional committee once allocated among:
U.S. equities
International equities
Bonds
Cash
Today many public pension committees spend nearly half their meetings discussing:
private equity
private credit
hedge funds
infrastructure
real estate partnerships
continuation funds
GP-led restructurings
insurance products
These are not transparent securities. They are contractual relationships.
And contracts create conflicts. The committee’s most important job is no longer deciding whether stocks should be 58% or 62% of the portfolio.
It is determining whether fiduciaries are entering relationships that participants cannot evaluate.
The Questions That Never Get Asked
After serving as an expert witness in ERISA litigation for more than a decade, and doing public pension reviews for over 2 decades, I have reviewed thousands of committee materials. I have served as a trustee of a $20 billion pension fund.
The missing discussions are remarkably consistent.
Committees rarely ask:
How much are we really paying?
Who receives every layer of compensation?
What conflicts exist?
How are these assets actually valued?
What happens if liquidity disappears?
Who benefits from secrecy?
Why are these contracts unavailable for public review?
Instead, committees often spend hours debating issues around 1 of several hundred investments, and get just the consultants boiler plate presentations on the economy.
The CFA paper spends nearly eighty pages discussing committee dynamics. It spends almost no time discussing conflicts of interest. That omission illustrates how much institutional investing has changed.
The New Governance Failure
Behavioral finance remains important. But today’s governance failures are structural.
Increasingly, committees are approving investments whose economics cannot be independently verified. Consider private equity. Many public pensions now allocate 30% to 40% of assets to private markets.
Yet those investments frequently rely on:
manager-supplied valuations
confidential side letters
confidential partnership agreements
confidential fee arrangements
confidential financing structures
In many cases even the Investment Committee members are not allowed to see these private equity contracts.
Ironically, many of these investments cannot satisfy the transparency principles long promoted by the CFA Institute’s own Global Investment Performance Standards (GIPS). When nearly half of a pension portfolio consists of assets that resist standardized performance verification, governance problems become far more serious than groupthink. They become problems of accountability.
Investment Policy Statements Have Become Hollow
This is where the CFA paper and modern ERISA litigation diverge. The paper assumes committees operate within robust Investment Policy Statements.
My public pension investigations and litigation experience suggests something different.
Many IPS documents have become increasingly vague precisely where specificity matters most.
Instead of requiring fiduciaries to document:
fee limits
liquidity standards
valuation methodologies
conflict disclosures
prohibited transaction reviews
insurance credit standards
they often contain broad statements about “diversification,” “prudent investing,” or “appropriate alternative investments.”
An IPS that avoids measurable standards protects fiduciaries far better than it protects participants.
That is not an accident.
Governance Theater
One of the CFA paper’s best observations is that many investment committees have become governance rituals rather than genuine decision-making bodies. Meetings are held. Minutes are written. Consensus is achieved. This is 99% of committee meetings.
As a Kentucky Pension trustee of a $20 billion fund, I would make written objections to investment decisions around a lack of transparency to be entered into the minutes, after I found them scrubbed from previous minutes. The rest of the board then voted to scrub my written comments from the minutes. I the only investment expert of 12 was removed from the investment committee led by a trustee who later served a 5 year prison term.
Committees now often perform diligence around information that has already been filtered by consultants, investment managers, placement agents, legal counsel, and proprietary confidentiality agreements.
Trustees are frequently asked to approve billion-dollar commitments after seeing only a fraction of the relevant information. The meeting itself becomes evidence that a prudent process occurred—even when the most important information was never available.
The Elephant in the Committee Room
Perhaps the most surprising omission in the CFA monograph is private equity.
These are no longer niche issues. They define modern institutional governance.
From Behavioral Finance to Fiduciary Finance
The CFA Institute has made an important contribution. It explains how committees think. The next generation of research must explain what committees are obligated to investigate. Those are very different questions. Behavioral finance asks: How do groups make better decisions?
Modern fiduciary governance asks: What information must fiduciaries obtain before any prudent decision is even possible? That distinction increasingly defines pension governance.
The Next Generation of Governance
The next major advance in committee governance will not come from better meeting procedures.
It will come from requiring committees to document objective fiduciary standards before investments are approved.
Future Investment Policy Statements should require documented analysis of:
total fees from every source
valuation methodology
secondary market evidence
liquidity stress testing
conflicts of interest
prohibited transaction analysis
insurance credit risk
benchmark selection
GIPS compliance where applicable
independent verification of reported returns
Those questions matter far more than who speaks first during committee meetings.
Conclusion
The CFA Institute deserves credit for improving the science of investment committee behavior. But today’s governance crisis is no longer primarily behavioral. It is informational.
When trustees knowingly approve billions of dollars in investments whose valuations, fees, contracts, and risks remain largely hidden, the problem is not groupthink. It is fiduciary blindness. The greatest governance reform of the next decade will not be quieter committee meetings or anonymous portfolio voting.
It will be restoring the simple principle that fiduciaries cannot prudently approve what they are not allowed—or unwilling—to fully examine.
The new Kitces article by Richard Chen is framed as a practical due-diligence guide for RIAs reviewing private equity, private credit, hedge funds, venture, and real estate funds. But read in the 401(k)/403(b) context, it becomes something more important: an admission that private funds require a level of legal, operational, valuation, liquidity, conflict, side-letter, expense, and monitoring diligence that most participant-directed retirement plans are not equipped to perform. https://www.kitces.com/blog/private-equity-debt-fund-due-diligence-checklist-ria-fiduciary-governing-documents-operational/?
That is the key point. Chen does not write like a private-equity critic. He writes like a careful securities lawyer. Yet his checklist confirms my core argument: private markets are not simply “another asset class.” They are structurally different from mutual funds and public securities because the investor often lacks reliable pricing, daily liquidity, standardized disclosure, transparent fees, equal rights, and meaningful legal recourse.
This fits directly with my earlier critique of PwC’s private-equity-in-401(k)s paper. https://commonsense401kproject.com/2026/06/10/pwc-accidentally-says-the-quiet-part-out-loud-about-private-equity-in-401ks/ PwC emphasized “embedding” private markets inside defined contribution structures and estimated a massive fee opportunity for the industry. My response was that the real strategy is not participant choice, but default placement through TDFs, CITs, consultants, recordkeepers, and bundled fiduciary narratives.
Chen’s article strengthens that argument because he says fiduciaries cannot rely on sponsor pitch books or marketing materials. They must review governing documents, conflicts, gates, side pockets, side letters, expense allocation, indemnification, valuation procedures, service providers, cybersecurity, litigation history, and ongoing monitoring. That is not a minor administrative burden. That is a full legal and operational due-diligence regime.
The most important sentence for ERISA litigation is Chen’s warning that fiduciary diligence is not a one-time event. Even in closed-end illiquid funds, the inability to redeem “does not suspend the duty of care.” In fact, it intensifies monitoring obligations. That is devastating to the industry’s argument that private equity can be safely dropped into a TDF sleeve and forgotten for ten years.
Chen also highlights one of the central private-market fraud risks: valuation. Private fund sponsors often control or influence the values used to calculate management fees, carried interest, reported performance, and NAV. This matches my prior ERISA checklist: fiduciaries should not rely on IRR, custom benchmarks, stale marks, or manager-controlled accounting when deciding whether participants actually benefit.
The article is also useful on liquidity. Chen separates ordinary illiquidity from “very illiquid” structures: lockups, notice periods, fund-level gates, investor-level gates, side pockets, and suspension rights. In a daily-valued 401(k) system with loans, withdrawals, transfers, QDIA flows, and participant panic risk, that is not a feature. It is a structural mismatch.
The side-letter section may be especially important. Chen admits that different investors in the same fund may receive better fees, better reporting, better liquidity, co-investment rights, or most-favored-nation protections. That creates a simple ERISA question: how can a fiduciary prove participants received prudent, loyal, and comparable terms if other investors secretly received better ones?
The expense-allocation section also supports litigation. Chen notes that private funds may shift broken-deal costs, legal costs, regulatory expenses, travel, technology, insurance, placement-agent fees, and other overhead to investors. That directly supports the argument that private equity fee disclosure in DC plans is not merely incomplete — it may be fundamentally misleading.
The weakness in Chen’s piece is that it still treats private funds as suitable if the adviser checks enough boxes. For ERISA plans, that may be too forgiving. A retail RIA recommending a small allocation to a wealthy accredited investor is not the same as a plan fiduciary embedding opaque private assets inside default retirement vehicles for ordinary workers.
Chen/Kitches confirms that private equity in 401(k)s is a fiduciary minefield. If fiduciaries cannot obtain the LPAs, side letters, valuation files, expense allocations, liquidity terms, fee offsets, indemnification provisions, cyber controls, service-provider reports, litigation history, and ongoing monitoring records, they should not put private equity in participant-directed retirement plans. And if consultants, CIT providers, or managers refuse to provide those materials, that is not a diligence problem to be managed — it is the fiduciary red flag itself.
What Hospital Mergers, Legacy Insurance Products, and Weak Fiduciary Oversight Have in Common
By Christopher Tobe, CFA, CAIA
Ted Siedle and I have written extensively about billions of dollars trapped in aging private equity, venture capital, and real estate partnerships at CalPERS and other public pension systems. Those investments often survive long after their expected life, continuing to generate fees while producing little value. Ted has labled them “zombie funds” https://pensionwarriorsdwardsiedle.substack.com/p/zombie-fund-billions-at-calpers?
But after reviewing dozens of hospital retirement plans over the past several years—including roughly twenty ERISA litigation matters and more than fifty hospital Form 5500 filings—I have become convinced that hospitals have their own zombie problem.
The assets are different. The governance failure may be remarkably similar.
Hospital Zombie Funds
Instead of aging private equity partnerships, hospital 401(k) and 403(b) plans often contain dozens of tiny legacy investments:
old VALIC insurance products
Nationwide variable accounts
Lincoln insurance contracts
MetLife guaranteed accounts
obsolete separate accounts
forgotten mutual fund share classes
legacy target-date funds
investment options inherited through mergers decades ago
Many contain only a few thousand dollars.
Some have only one participant remaining.
Others have balances so small one wonders whether anyone has reviewed them in years.
These are what I call Hospital Zombie Funds.
A Retirement Plan Built Like an Archaeological Dig
Healthcare has experienced one of the largest merger waves in American history.
Every acquisition may bring:
another 403(b)
another 401(a)
another insurance carrier
another recordkeeper
another consultant
another investment committee
Few hospitals completely redesign the investment menu after every acquisition.
Instead, they often preserve legacy options to avoid disrupting participants.
Each merger adds another layer.
After twenty years, the investment menu resembles an archaeological excavation.
Every acquisition leaves artifacts.
Why Hospitals May Be Different
One observation from my work is that many hospital retirement plans appear to have less institutional investment infrastructure than large Fortune 500 companies.
Large corporations frequently have:
treasury departments;
dedicated pension professionals;
experienced finance staffs;
sophisticated fiduciary committees;
long institutional memory.
Many hospitals instead rely heavily on:
Human Resources;
benefits administrators;
volunteer committee members;
outside consultants;
recordkeepers.
Those functions often experience significant personnel turnover. As people leave, institutional knowledge can disappear with them. Successors inherit an investment lineup without necessarily understanding why certain legacy products remain.
This is an observation drawn from my experience across many healthcare plans rather than a universal conclusion, but it is a pattern that deserves closer study.
Insurance Products Create a Different Problem
Legacy mutual funds are generally straightforward to replace.
Insurance products frequently are not.
Many older fixed accounts and guaranteed contracts include provisions such as:
surrender charges;
market value adjustments (MVAs);
book-value accounting;
withdrawal restrictions;
negotiated termination provisions.
These provisions vary by contract, but they can make replacing a legacy insurance product expensive.
Imagine a fiduciary committee learns that replacing an inherited insurance contract could immediately reduce participant account values because of contractual exit costs.
That creates a difficult choice.
Leave the contract in place and continue earning below-market crediting rates.
Or recognize a substantial immediate loss.
Few committees voluntarily choose the second option.
The Zombie Effect
This creates what might be called the Zombie Effect.
The investment survives not because anyone believes it is the best available option.
It survives because removing it has become politically, financially, or legally difficult.
Over time:
committee members change;
consultants change;
recordkeepers change;
memories fade.
Eventually no one remembers why the investment remains.
It simply stays.
The Public Pension Parallel
The governance dynamic resembles what Ted Siedle and I have documented in public pensions.
Public pension systems often hesitate to sell aging private equity or real estate partnerships because doing so requires recognizing losses or accepting discounts in the secondary market.
Hospital fiduciaries may face a comparable challenge when legacy insurance contracts carry meaningful exit costs.
Different assets.
Similar incentives.
Neither situation necessarily reflects bad faith.
Both may reflect governance systems that reward delaying difficult decisions.
The Duty to Monitor Never Ends
ERISA imposes a continuing duty to monitor plan investments.
That duty does not end after selecting an investment.
Nor does it disappear because an investment was inherited through a merger.
Every legacy option should periodically prompt basic questions:
Why is this investment still here?
How many participants remain invested?
Is there a better alternative?
What would it cost to replace?
Has anyone recently analyzed those costs?
Does the investment continue to serve participants’ best interests?
If no one can answer those questions, the plan may have a governance problem even if no single investment is independently imprudent.
Discovery Should Follow the Money
When litigation involves legacy insurance products, plaintiffs should seek discovery regarding:
every insurance contract;
every merger integration analysis;
every recordkeeper conversion study;
every surrender-value calculation;
every market value adjustment analysis;
every consultant recommendation concerning legacy contracts;
every committee discussion about replacing insurance products;
every analysis comparing the cost of exiting versus remaining.
Those documents may reveal whether fiduciaries actively evaluated legacy products—or simply allowed them to remain because changing them appeared difficult.
The real question is whether hospitals have allowed decades of mergers to create retirement plans filled with investments that no one meaningfully reviews anymore.
Just as public pensions accumulated billions in private equity zombie funds, hospital retirement plans may have accumulated a different generation of zombies—legacy insurance products and forgotten investment options that remain because they have become too complicated, too expensive, or simply too easy to ignore.
ERISA fiduciaries have an affirmative duty to conduct an independent investigation and disclose all material facts necessary for participants to make an informed decision under ERISA §§404(a) and 404(c), consistent with Section 783 of the Restatement (Third) of Trusts. A fiduciary cannot satisfy that duty by relying on opaque products or conflicted vendors.
I agree with that framework.
Where I part company with much of the retirement industry is that I believe the disclosure problem is far worse for fixed annuities and Pension Risk Transfer (PRT) annuities than it is for lifetime income products.
Those products are not merely difficult to understand.
They often make meaningful disclosure practically impossible.
ERISA Does Not Require Blind Trust
The insurance industry frequently argues that participants do not need to understand the insurer’s investment portfolio.
That argument turns ERISA upside down.
ERISA does not ask whether participants trust the insurer.
ERISA asks whether fiduciaries investigated the investment independently and disclosed the material facts necessary to make an informed decision.
Watkins correctly emphasizes that fiduciaries cannot simply rely on representations from product vendors or consultants with financial incentives. Courts have repeatedly described prudence as requiring an independent investigation rather than procedural box-checking.
If the fiduciary cannot independently verify the facts…
the fiduciary cannot honestly disclose them.
The Fixed Annuity Disclosure Problem
Fixed annuities are often marketed as “safe.”
Yet participants typically receive little or no disclosure regarding:
actual composition of the insurer’s general account
percentage invested in private credit
percentage invested in private equity
commercial real estate exposure
leveraged loans
derivative exposure
affiliated investments
securities lending
liquidity risk
downgrade risk
surrender costs
market value adjustment provisions
conflicts created by affiliate asset managers
Participants are simply told:
“Your principal is guaranteed.”
That is marketing.
It is not meaningful fiduciary disclosure.
Lifetime Income Is Only the Beginning
My recent article described lifetime income products as the gateway drug for insurance products inside defined contribution plans.
Once fiduciaries become comfortable accepting opaque insurance accounting, the same logic naturally expands to:
Eventually, participants are expected to accept complex products based almost entirely on the insurer’s own representations.
That is precisely what ERISA was designed to prevent.
PRTs May Present the Biggest Disclosure Failure of All
The disclosure problem becomes even more severe in Pension Risk Transfers.
Participants are told:
“Nothing changes.”
In reality, almost everything changes.
The participant loses protection from:
PBGC insurance
ERISA funding rules
minimum funding requirements
fiduciary oversight
trustee oversight
public reporting
The participant instead becomes dependent upon:
insurer solvency
state insurance regulation
state guaranty associations
insurer investment decisions
Those are enormous changes.
Yet many retirees never receive a balanced explanation comparing those two systems.
Calling the transaction “de-risking” without explaining the risks transferred to retirees is itself arguably misleading.
Material Facts Are Often Missing
Watkins discusses ERISA’s requirement that participants receive sufficient information to make an informed decision.
Applying that principle to fixed annuities raises obvious questions.
Were participants told:
that insurer portfolios increasingly contain private credit?
that insurers frequently invest through affiliated asset managers?
that portfolio risks can change dramatically after purchase?
that investment guidelines often permit substantial discretion?
that insurer ratings can change?
that downgrade provisions may or may not exist?
that surrender charges may prevent exiting?
that participants cannot independently monitor portfolio quality?
If not…
how can the disclosure be considered complete?
PRT Participants Receive Even Less Information
Retirees transferred through Pension Risk Transfers frequently never receive meaningful disclosure regarding:
insurer asset allocation
private credit exposure
affiliated investments
investment guidelines
liquidity management
securities lending
stress testing
downgrade scenarios
historical insurer failures
differences between PBGC protection and state guaranty systems
Instead they receive reassuring marketing materials emphasizing guarantees.
Guarantees are important.
But guarantees themselves depend on the financial strength of the guarantor.
That relationship deserves explanation.
The General Account Is a Black Box
Unlike mutual funds or ETFs, insurer general accounts generally provide limited transparency into day-to-day holdings.
Participants therefore cannot independently determine whether the insurer has materially increased exposure to:
private debt
commercial real estate
infrastructure lending
leveraged finance
affiliate transactions
The fiduciary often cannot either.
If neither participant nor fiduciary can independently verify portfolio risks, then meaningful disclosure becomes extraordinarily difficult.
That concern parallels Watkins’ broader observation that ERISA prudence requires objective investigation rather than reliance on opaque products.
Disclosure Is Not a Sales Brochure
Insurance marketing often emphasizes:
guarantees
lifetime income
peace of mind
certainty
ERISA requires something different.
It requires disclosure of material facts.
Material facts include both benefits and risks.
A disclosure document that highlights guarantees while omitting significant investment, liquidity, or counterparty risks may leave participants without the balanced information needed to make an informed decision.
Whether any particular disclosure is legally sufficient will depend on the specific facts, but fiduciaries should evaluate these materials carefully rather than assuming standard insurance brochures satisfy ERISA’s disclosure obligations.
The Litigation Risk Is Growing
Recent litigation increasingly focuses on process, transparency, conflicts of interest, and fiduciary investigation.
That trend creates additional exposure for sponsors offering insurance products inside retirement plans.
Future plaintiffs are unlikely to ask only:
“Was the product prudent?”
They may also ask:
What independent investigation was performed?
What information could the fiduciaries independently verify?
What material facts were disclosed?
What material facts were omitted?
Could participants realistically understand the risks being transferred?
Those questions go directly to the fiduciary duties recognized under ERISA §404(a) and reflected in trust law principles discussed by Watkins.
Bottom Line
Jim Watkins’ article provides a useful framework for evaluating fiduciary disclosure obligations.
In my view, however, its implications extend well beyond lifetime income annuities.
Fixed annuities and Pension Risk Transfer annuities may present even greater disclosure challenges because participants are asked to rely on financial institutions whose risks cannot be independently verified through ordinary public disclosures.
ERISA was enacted to replace trust with transparency.
When participants cannot see the investments backing their retirement promises—and fiduciaries cannot independently verify or explain the material risks—courts may increasingly ask whether the disclosure obligations imposed by ERISA have truly been satisfied.
Vivek Ramaswamy is now the Republican nominee for Ohio governor, and the pension conflict question has become much sharper.
The issue is not simply that Ramaswamy likes Bitcoin. The issue is that he personally holds Bitcoin and Ethereum, retains roughly a 10% stake in Strive, and has supported Ohio House Bill 18, which would open the door for public funds and retirement systems to gain digital-asset exposure.
Recent reporting adds the campaign-money layer. TiffinOhio.net reported that founders of World Liberty Financial, the Trump-family-linked crypto venture, and related figures donated roughly $116,000 to Ramaswamy’s campaign in maximum-legal contributions clustered around primary day. The American Prospect, in partnership with CMD, separately reported that Ramaswamy was backing an Ohio crypto gamble while receiving millions from industry-linked donors.
This creates a classic public-pension conflict pattern: political power, donor money, personal financial exposure, and a proposed investment policy that could benefit the same ecosystem.
Ohio’s governor does not directly run the pension funds, but that is the wrong standard. CMD noted that Ohio’s five pension systems hold roughly a quarter-trillion dollars, and that the governor appoints an investment-expert trustee to each board. It also noted that the 2025 budget shifted the teachers’ pension board toward more government appointee control.
That is why my quote to CMD matters: the governor has “great influence” over state funds. With Ramaswamy, the concern is that influence could be used to normalize high-risk, politically connected investments—crypto, private equity, and other opaque products—inside public pension systems.
The Strive history is also relevant. Indiana’s public pension system contracted with Strive Advisory in 2022, with the contract capped at $150,000 and Ramaswamy reportedly eligible for $4,000 per hour for ad hoc work. That shows Strive was not merely a political brand. It was already seeking and receiving public-pension business.
The Missing Piece: Data Centers Connect Crypto, Private Equity, and Ohio Pensions
Perhaps the biggest conflict that has received the least attention is data centers.
Data centers are rapidly becoming the common denominator linking nearly every major financial interest surrounding Vivek Ramaswamy: private equity, private credit, artificial intelligence, cryptocurrency, electric utilities, real estate, and increasingly, public pension investments.
A recent report by Innovation Ohio concluded that Ramaswamy’s personal financial disclosure shows investments spanning virtually the entire Ohio data-center ecosystem, including semiconductor manufacturers, cloud computing companies, industrial real estate investment trusts (REITs), and cryptocurrency-related assets. The report argues that many of these holdings could benefit from state policies affecting tax incentives, utility regulation, infrastructure spending, and economic development.
For public pensions, this matters because data centers have become one of the fastest-growing investment themes within private equity and private credit.
According to recent S&P Global Market Intelligence data, private equity firms accounted for approximately 72% of all U.S. data-center investment during 2025, investing roughly $45.7 billion in the sector. Blackstone, Apollo, KKR, BlackRock, DigitalBridge and numerous other alternative asset managers are aggressively expanding their ownership of data centers and related infrastructure.
This is the same ecosystem that already receives billions of dollars from Ohio’s public pension systems.
Ohio pension funds have themselves been increasing allocations to data-center strategies. For example, the Ohio Police & Fire Pension Fund recently approved additional commitments specifically targeting data centers and digital infrastructure as part of its real-asset portfolio.
That creates a potentially significant overlap:
Ramaswamy has financial exposure to companies throughout the data-center supply chain.
His former company, Strive, has positioned itself to manage institutional investment assets while increasingly emphasizing Bitcoin-related investment products.
Ohio public pension systems already invest heavily with many of the same private-equity firms financing and owning data-center infrastructure.
As governor, Ramaswamy would influence appointments, economic-development incentives, utility policy, tax policy, and state investment priorities that could materially affect this industry.
The concern is not simply that data centers are profitable.
The concern is that public pension beneficiaries could unknowingly become financiers of an investment ecosystem in which political leaders, campaign donors, private-equity sponsors, crypto promoters, and asset managers all have overlapping financial interests.
Data centers have become the physical infrastructure supporting artificial intelligence, cloud computing, and cryptocurrency mining. They also represent one of the largest new destinations for private capital. In many cases, the same firms managing Ohio pension assets—Apollo, Blackstone, KKR, BlackRock infrastructure vehicles, DigitalBridge, and others—are simultaneously building, financing, lending to, or owning these facilities.
That is why the data-center issue cannot be separated from the crypto issue or the private-equity issue.
They are increasingly the same investment story.
Just as Ohio learned through Coingate that politically connected “alternative investments” can produce enormous conflicts of interest, today’s combination of crypto, private equity, artificial intelligence, and data centers presents a far larger and more sophisticated governance challenge.
Before Ohio taxpayers and pension beneficiaries are asked to finance this next investment boom, they deserve complete transparency regarding every financial interest, campaign
Ohio Has Been Here Before: From FirstEnergy to Epstein to Data Centers
Ohio does not suffer from a shortage of investment opportunities.
It suffers from a shortage of independent fiduciary oversight.
Ohio’s recent history should make every taxpayer cautious.
The FirstEnergy/House Bill 6 scandal demonstrated how campaign contributions, dark money organizations, political influence, and billions of dollars of public policy can become connected in ways that were largely invisible until federal investigators exposed the scheme. The scandal ultimately resulted in racketeering convictions and remains one of the largest public corruption cases in Ohio history.
Today the names are different.
Instead of electric utilities, the dominant interests are:
cryptocurrency,
artificial intelligence,
data centers,
private equity,
private credit,
and public pension assets.
But the governance questions are remarkably similar.
Ohio is becoming one of the nation’s largest data-center states. Billions of dollars in tax incentives, electric transmission upgrades, water infrastructure, and public policy decisions will determine who profits from that growth.
Those same data centers increasingly are owned or financed by the very private-equity firms that already manage billions for Ohio public pension systems.
Those same facilities support artificial intelligence and cryptocurrency mining.
Those same industries are major sources of political fundraising.
And now the leading candidate for governor has personal investments across much of that ecosystem while advocating policies favorable to digital assets.
That combination deserves far greater scrutiny than it has received.
The Epstein Lesson Should Not Be Forgotten
Earlier this year I wrote about another uncomfortable intersection between Ohio pensions and political influence: Apollo Global Management.
Apollo has managed billions of dollars for Ohio retirement systems while its former CEO, Leon Black, paid Jeffrey Epstein more than $150 million after Epstein’s 2008 conviction. Subsequent releases of Epstein-related materials renewed questions about Apollo’s governance and prompted calls by national teachers’ organizations for additional regulatory scrutiny.
My concern was never that pension beneficiaries’ money was invested with Jeffrey Epstein.
The concern was—and remains—that pension fiduciaries often ignore serious governance red flags whenever a politically connected Wall Street firm produces attractive marketing materials or promises higher returns.
That same governance failure is what allowed Ohio teachers to become deeply invested with Apollo despite years of controversy surrounding its leadership.
Today the governance question has expanded.
Instead of asking only whether Ohio pensions should invest with Apollo, we should ask whether public policy itself is becoming increasingly influenced by an interconnected financial network that includes:
campaign contributors,
crypto promoters,
private-equity sponsors,
data-center developers,
institutional asset managers,
and elected officials with financial interests in that same ecosystem.
The Common Thread Is Not Crypto—It Is Governance
Viewed separately, each issue appears manageable.
Bitcoin.
Data centers.
Private equity.
Artificial intelligence.
Campaign contributions.
Public pension investments.
Viewed together, however, they begin to resemble the same pattern Ohio has seen before.
FirstEnergy showed how concentrated financial interests can shape public policy through political influence.
The Apollo controversy demonstrated how pension fiduciaries can overlook governance concerns when large Wall Street firms are involved.
The emergence of crypto and data centers raises the possibility that these two patterns could merge into a new generation of conflicts.
Ohio should not wait for the next scandal before asking the obvious questions.
Public pensions exist to provide retirement security—not to become financing vehicles for politically connected investment ecosystems.
Ohio has seen this movie before. Coingate was not just about rare coins. It was about politically connected actors persuading public officials to put public money into exotic, hard-to-value assets. Today’s version may be Bitcoin, crypto-linked funds, or private-market products wrapped in “innovation” rhetoric. The structure is familiar.
House Bill 18 remains pending, but its introduced version would affect public-fund investment authority and would clarify that Ohio retirement boards are not prohibited from investing in qualifying exchange-traded products tied to digital assets. Even if the bill does not force pension boards to buy crypto, it changes the political and legal permission structure.
The fiduciary concern is simple:
Teachers, police, firefighters, public employees, and retirees should not become exit liquidity for campaign donors, political allies, or investment firms tied to the governor.
A real reform agenda would require:
Full disclosure of Ramaswamy’s Strive ownership, crypto holdings, and related compensation.
Recusal from any appointment, policy, or budget decision involving crypto, Strive, affiliated ETFs, or related public-fund investments.
A statutory ban on public pension investments in crypto products promoted by campaign donors or governor-connected firms.
Public release of all pension-related communications with Strive, crypto firms, private equity firms, and politically connected asset managers.
Independent fiduciary review before any Ohio pension system invests in Bitcoin, crypto ETPs, or Strive-related products.
Ohio pensions already face enough risk from secrecy, alternative investments, and political interference. Ramaswamy’s campaign-money trail and Strive/crypto ties make the conflict too obvious to ignore.
The litigation risk around Pension Risk Transfer annuities is increasing, not decreasing. Recent developments expose the central contradiction in the industry’s defense: sponsors, insurers, and regulators describe PRTs as a harmless substitution of one payor for another, while the transaction actually strips retirees of ERISA fiduciary protections, PBGC insurance, federal disclosure rights, and diversified plan assets, replacing them with a single insurer credit.
PBGC concludes that an annuity buyout does not itself create a reportable active participant reduction event because, once liabilities are transferred to an insurer, PBGC is no longer obligated to pay benefits if the insurer fails. Industry will cite this as validation. Plaintiffs should cite it differently: it is an admission that the PRT removes participants from the PBGC safety net. The very reason PBGC says it no longer needs early warning is the same reason retirees suffer a present legal and economic injury.
That is the core standing argument courts have been missing. The injury is not limited to whether the insurer has already failed. The injury occurs at transfer: retirees lose federal insurance, ERISA fiduciary oversight, federal remedies, and the protection of a diversified pension trust. A court that treats this as “no harm unless default is certain” effectively converts ERISA into a wait-for-collapse statute.
The Phoenix/LPL litigation makes this risk harder for courts to ignore. The alleged harm was not merely that investment assets disappeared; it was that policyholders lost practical access to their retirement assets after insurer distress and rehabilitation. That is directly relevant to PRTs. A retiree transferred to an insurer is exposed not only to ultimate nonpayment risk, but also to freeze risk, rehabilitation risk, downgrade risk, liquidity risk, and the risk that state insurance processes will replace ERISA remedies.
Athene and Apollo-related PRTs present an even sharper risk profile. Private credit, commercial real estate loans, affiliated transactions, FHLB borrowing, opaque valuation practices, and rising market concern over insurer balance sheets all undermine the industry’s claim that a PRT annuity is equivalent to a federally protected pension benefit. It is not equivalent. It is a concentrated insurance-company credit exposure.
The litigation theory should therefore be reframed around present injury and fiduciary process:
Loss of PBGC insurance is a current economic injury.
Loss of ERISA fiduciary protections is a current legal injury.
Replacement of a diversified pension trust with a single insurer credit is a current risk-concentration injury.
Failure to evaluate downgrade, rehabilitation, liquidity, affiliate-transaction, and private-credit risk is a fiduciary breach.
Sponsor self-interest is central because PRTs primarily remove balance-sheet volatility, PBGC premiums, and pension obligations from the corporation.
IB 95-1 should not be treated as a check-the-box safe harbor, especially where the fiduciary process ignores modern insurer balance-sheet risks.
The PBGC opinion does not reduce litigation risk. It increases it by making the transfer’s legal effect unmistakable: the participant has been moved out of the federal pension-protection system. That is precisely why PRT fiduciary litigation should survive standing challenges and why adverse district court rulings need appellate review.
Addendum: State Guaranty Associations Are Not a Replacement for PBGC Insurance
Defendants often argue that Pension Risk Transfer participants lose nothing because state guaranty associations stand behind annuity insurers just as PBGC stands behind pension plans. That comparison is fundamentally false.
PBGC is an actual insurance system.
State guaranty associations are not.
PBGC maintains an insurance program established by Congress, collects ongoing premiums from pension plans, maintains significant financial resources, and has an independent federal statutory obligation to protect participants when covered pension plans fail.
State guaranty associations generally operate under an entirely different model. They do not function as pre-funded insurance companies with investment portfolios available to satisfy future claims. Instead, they generally rely on post-insolvency assessments of surviving insurers after a member company fails. In effect, they operate largely as an assessment mechanism that looks to the remaining insurance industry to finance claims after the fact, subject to state law and statutory limits.
From a credit perspective, this distinction is significant.
A pension participant transferred through a PRT no longer enjoys protection backed by a federal insurance program. Instead, that participant becomes dependent upon the future willingness and legal obligation of competing insurance companies to finance the failure of another insurer.
No sophisticated institutional investor would treat those two forms of protection as economically equivalent.
History demonstrates why.
The Executive Life insolvency exposed significant weaknesses in the guaranty association system. Resolution depended upon years of litigation, restructuring, and state-by-state action rather than the immediate operation of a fully funded insurance program. Critics have argued that guaranty associations proved uneven in practice and that many obligations ultimately depended on complex settlements, court intervention, and assessments against the broader insurance industry rather than payment from pre-existing reserves.
That history stands in sharp contrast to the PBGC model, which was specifically designed by Congress to provide a national pension insurance framework.
The differences extend well beyond funding.
PBGC provides participants with:
federal statutory insurance;
uniform nationwide administration;
ERISA fiduciary protections;
federal disclosure requirements;
federal judicial remedies.
Following a Pension Risk Transfer, participants instead receive:
limited state insolvency protection;
differing protections depending upon state law;
statutory coverage limits;
no ERISA fiduciary duties;
no PBGC guarantee;
no federally insured pension.
The recent PBGC opinion letter makes this distinction unmistakable. PBGC concluded that once pension liabilities are transferred to an insurer, PBGC’s obligations effectively disappear because the insurance company—not PBGC—becomes responsible for future payments.
That observation destroys defendants’ “no injury” argument.
The injury is the transfer itself.
Participants are removed from a federally insured pension system and placed into a fundamentally different regulatory framework whose protections depend upon state insurance law and the financial capacity of the insurance industry.
Courts should reject any suggestion that these two systems provide equivalent protection.
A fiduciary cannot satisfy ERISA’s duty of prudence simply by asserting that some other safety net exists after federal pension protections have been surrendered. The relevant question is whether retirees received protection equivalent to what they lost. They plainly did not.
The California Public Employees’ Retirement System is presenting its new “Total Portfolio Approach” (“TPA”) as a sophisticated modernization of pension investing. According to consultants and pension executives, TPA will make the fund more agile, more collaborative, and more focused on total-fund outcomes rather than rigid asset-class silos.
But beneath the polished institutional language lies a much simpler reality.
“CalPERS couldn’t beat its own rigged benchmarks — so it abolished them.”
TPA is primarily a governance and compensation restructuring mechanism designed to reduce transparency precisely when transparency is becoming most politically dangerous for CalPERS.
For years CalPERS relied on increasingly subjective and internally constructed benchmark systems to justify both mediocre performance and extraordinary compensation.
The problem for CalPERS is not merely investment performance. The problem is that the compensation structure depends on maintaining the appearance of alpha generation.
Today CalPERS has:
multiple employees making over $1 million annually,
CEO Marcie Frost reportedly earns over $1.4 million per year despite lacking even a college degree.
The upcoming scrutiny surrounding private equity fees, hidden leverage, valuation smoothing, and benchmark manipulation threatens both the investment narrative and the compensation narrative simultaneously.
So the institution is changing the rules.
Not by reducing fees.
Not by simplifying the portfolio.
Not by increasing transparency.
Not by opening private equity agreements to public scrutiny.
Instead, CalPERS is eliminating many of the scoreboards themselves.
Under the traditional framework, each asset class had its own benchmark:
public equities,
fixed income,
real estate,
private equity,
private credit.
The system was imperfect, but at least beneficiaries and watchdogs could attempt to isolate which programs were adding value and which were not.
TPA collapses those distinctions into a single “reference portfolio,” generally resembling a passive mix of global equities and bonds.
Once individual scoreboards disappear, accountability disappears with them.
A poorly performing private equity program can now be masked inside broader total-fund narratives. Excessive fees become harder to isolate. Hidden leverage becomes harder to evaluate. Valuation smoothing becomes more politically useful.
The institutional bureaucracy gains discretion while beneficiaries lose visibility.
This is not an accident.
The compensation changes surrounding TPA reveal the real purpose of the transition. CalPERS has openly discussed moving compensation away from transparent benchmark-based systems toward more subjective concepts such as:
“cross-asset collaboration,”
organizational behavior,
and total-fund participation.
In practice this means: when measurable performance becomes harder to defend, redefine success itself.
The shift from objective benchmarks to subjective collaboration is enormously important because subjective systems are easier to manipulate institutionally. If performance disappoints:
broaden the metrics,
increase managerial discretion,
redefine outcomes,
and reward “collaboration.”
This is not investment modernization.
It is bureaucratic self-protection.
The contradictions become even more revealing when private equity enters the discussion.
At PEI Nexus 2026, CalPERS CEO Marcie Frost reportedly stated that the private equity program “will be run independently of TPA.”
That admission effectively undermines the philosophical foundation of the entire project.
TPA was sold as:
integrated governance,
unified capital allocation,
and total portfolio accountability.
Yet the single largest, most opaque, most fee-intensive asset class receives a carve-out from the discipline itself.
Why?
Because private equity has become the political and financial center of the modern pension ecosystem.
Private equity:
generates enormous hidden fees,
depends on subjective valuations,
relies on confidential contracts,
and produces the accounting smoothness necessary to sustain compensation narratives.
A truly transparent Total Portfolio Approach would force uncomfortable questions:
Are the returns real?
Are the valuations realistic?
Are the diversification claims genuine?
Are the fees justified?
Are the benchmarks manipulated?
TPA helps blur those questions.
And when even TPA threatens to expose too much, private equity receives special insulation.
The result is a system where:
public markets remain fully transparent and continuously priced,
while private equity remains confidential, quarterly marked, politically protected, and partially exempt from the new governance structure itself.
That is not equal treatment under a total portfolio framework.
It is institutional asymmetry.
Supporters of TPA argue that the old asset-class structure prevented flexibility and slowed decision-making. There is some truth to that criticism. But replacing transparent benchmarks with broad total-fund narratives and subjective compensation metrics does not improve accountability.
It weakens it.
Public pensions already suffer from severe information asymmetry. Board members often depend heavily on consultants. Beneficiaries rarely see the underlying agreements. Journalists and watchdogs struggle to piece together fragmented disclosures.
In that environment, removing benchmark transparency does not empower beneficiaries.
It empowers the bureaucracy.
The pattern is familiar across financial institutions. When performance is strong, managers welcome scrutiny. When performance becomes difficult to defend, reporting structures become more complicated.
The Total Portfolio Approach fits that pattern almost perfectly.
At bottom, TPA is not primarily about portfolio construction.
It is about protecting a compensation and governance structure built around opaque private markets, subjective valuations, and increasingly discretionary definitions of success.
If private equity truly delivers superior risk-adjusted returns after fees, it should withstand transparent benchmarking and public scrutiny.
If it instead requires:
secret contracts,
benchmark redesign,
subjective compensation,
carve-outs from TPA,
and diminished transparency,
then beneficiaries should begin asking a simple question:
Does this system exist primarily to protect retirees — or to protect the investment bureaucracy itself?
TPA: The Wall Street Trick CalPERS Uses to Hide Underperformance and Protect Million-Dollar Bonuses
The crypto industry keeps insisting that regulation will somehow make crypto “safe” for retirement plans.
But the new PwC Global Crypto Regulation Report 2026 accidentally says the quiet part out loud again:
Crypto only works if you build an entirely separate legal, custody, governance, valuation, disclosure, liquidity, and operational framework around it.
That is not an argument for putting crypto in 401(k) plans. It is the strongest argument against it.
The entire report reads less like a normal investment discussion and more like a manual for managing systemic instability.
PwC’s Real Message
PwC openly admits that crypto requires:
special prudential rules
special custody regimes
special liquidity rules
special disclosure rules
special operational resilience systems
special market conduct rules
special governance structures
special stablecoin reserve frameworks
special supervisory systems
cross-border enforcement coordination
new collateral frameworks
new redemption standards
new segregation standards
In other words:
Crypto cannot survive inside normal securities law and normal fiduciary standards.
PwC says the industry is moving from “policy design to implementation” and that stablecoin, custody, and disclosure regimes are now becoming operational. That alone tells you the product itself is inherently unstable without constant regulatory intervention.
Traditional diversified mutual funds do not require a global emergency architecture to function.
Crypto does.
“Same Activity, Same Risk, Same Regulation”
The PwC report repeatedly cites the Financial Stability Board principle:
“same activity, same risk, same regulation.”
That phrase destroys much of the political sales pitch around crypto in 401(k) plans.
Because if crypto is truly subject to the same fiduciary standards as traditional retirement investments, it immediately runs into enormous ERISA problems:
valuation uncertainty
liquidity concerns
custody risk
counterparty risk
operational risk
conflicts of interest
prohibited transaction exposure
impossible benchmarking
excessive spreads and fees
market manipulation risk
unstable collateral frameworks
The crypto industry wants the legitimacy of securities law while simultaneously arguing it should not be regulated like securities.
That contradiction sits at the center of the entire debate.
PwC Accidentally Admits Crypto Depends on Regulatory Arbitrage
One of the most revealing passages in the report warns that differing global frameworks create:
“regulatory arbitrage”
“localisation pressures”
fragmented supervision
inconsistent implementation
PwC openly admits that global implementation remains “incomplete and inconsistent” and warns about weak oversight and fragmented supervision.
That is not a retirement plan investment thesis.
That is a warning label.
ERISA fiduciaries are supposed to minimize conflicts, opacity, instability, and uncompensated risks.
Crypto multiplies all four.
Impossible Benchmarking
One of the core fiduciary problems with crypto is that there is no meaningful benchmark framework.
This is the exact same problem that exists with:
private equity
private credit
annuity wrappers
state-regulated CIT structures
tokenized “alternative” products
Crypto pricing is fragmented across exchanges, jurisdictions, liquidity pools, stablecoin systems, and offshore entities.
Even the so-called “stable” part of crypto depends on reserve assumptions, redemption mechanics, and counterparty structures that regulators still cannot consistently supervise globally.
And retirement plans are now being asked to trust these systems with lifetime savings.
The Warren Letter Gets the Real Issue Right
Senator Elizabeth Warren’s January 2026 letter correctly highlights the central issue:
Crypto volatility, weak investor protections, lack of transparency, and potential manipulation are fundamentally incompatible with retirement security.
The letter points out that Bitcoin lost roughly 33% in six weeks, wiping out nearly $800 billion in value.
That is not retirement investing.
That is speculation.
And under ERISA, fiduciaries are not supposed to gamble with participant retirement savings simply because political pressure or industry lobbying demands it.
The Real Problem Is Structural
Crypto supporters keep arguing: “Regulation will fix crypto.”
But the PwC report unintentionally shows the opposite.
The more regulation required to stabilize crypto, the more obvious it becomes that crypto itself creates the instability.
Normal retirement investments do not require:
global enforcement coordination
special reserve systems
cross-border supervision
tokenized collateral rules
systemic redemption frameworks
continuous prudential intervention
Crypto does.
That is why crypto in 401(k) plans increasingly looks less like innovation and more like another prohibited transaction ecosystem searching for a wrapper.
Just like:
private equity
private credit
annuity contracts
opaque CIT structures
The common thread is always the same:
Opacity creates spreads. Spreads create profits. And participants absorb the risk.
The CommonSense 401k Project 