A big thank you to ERISA attorney Fred Reish for calling attention to one of the most important—and least understood—parts of the Department of Labor’s proposed alternative-investment rule: liquidity.   https://www.linkedin.com/pulse/alternative-assets-20dol-proposal-six-defined-factors-fred-reish-17mgc/  

The DOL’s proposal identifies six factors for fiduciaries to consider: performance, fees, liquidity, valuation, performance benchmarks and complexity. But from the perspective of an ordinary 401(k) participant, liquidity deserves considerably more attention.

Fred makes an especially important distinction: there are really two liquidity questions.

Can the participant get his or her money out?

And:

Can the plan get its money out?

Those are not necessarily the same thing.

401(k)s Already Have Illiquid Investments: Annuities

The debate over bringing private equity and private credit into 401(k)s sometimes makes illiquidity sound like a completely new problem.

It isn’t.

Historically, some of the largest illiquid investments in ERISA defined-contribution plans have been insurance-company annuity and stable-value contracts.

Fred specifically points to general-account guaranteed income products that may contain surrender charges or 12-month puts, as well as stable-value collective trusts that can impose market-value adjustments when a plan removes the investment.

That is plan-level illiquidity.    To get book value accounting treatment, stable value must provide participant-level liquidity or “benefit responsiveness.”   These are very different.

Plan level liquidity can become extremely important when a fiduciary decides that an investment is no longer prudent.

Imagine discovering that your insurer has been downgraded, its private-credit portfolio is deteriorating, or its credit spreads have exploded—and then discovering that getting the plan’s money out requires waiting 12 months or longer or accepting a substantial market-value adjustment.

The liquidity restriction that seemed harmless when everything was going well suddenly becomes extraordinarily important.

Annuity Liquidity Risk Is Getting Bigger, Not Smaller

This deserves even greater scrutiny as the retirement industry pushes lifetime-income annuities deeper into 401(k) plans.

At the same time, the insurance companies backing those promises have themselves moved further into private credit, structured assets, affiliated investments and offshore reinsurance.

As I recently documented, regulators are increasingly concerned about insurers’ growing exposure to illiquid assets. The IMF has found that private-equity-influenced insurers tend to hold more illiquid assets, while the BIS has specifically identified increased liquidity risk, valuation opacity and supervisory complexity in the transformed life-insurance industry.

That creates liquidity risk on top of liquidity risk:

The participant owns an illiquid insurance contract backed by an insurer increasingly investing in illiquid assets.

A supposed long-term retirement advantage can become a serious disadvantage precisely when the fiduciary most needs the ability to act.

Now Add Private Equity and Private Credit

Private equity and private credit make this problem much more complicated.

The DOL acknowledges that alternative assets are often less liquid than publicly traded stocks and bonds. It also says fiduciaries must consider whether redemptions by other plans or investors could adversely affect the investment’s liquidity.

That second point is crucial.

Liquidity isn’t merely a contractual question:

“Can we redeem this investment?”

The better question is:

“What happens when everybody wants to redeem it at the same time?”

A private-credit fund might normally satisfy redemptions without difficulty because new money is coming in and few investors are leaving.

A financial crisis reverses those flows.

Suddenly the manager has three choices: sell loans into a distressed market, impose gates or restrict withdrawals, or have remaining investors effectively provide liquidity to investors who escape first.

That is precisely when reported private-asset values may prove very different from actual cash values.

Daily Liquidity Can Become an Accounting Illusion

The most interesting—and potentially dangerous—development is likely to be putting private assets inside target-date funds.

Fred predicts that this is probably where private funds will enter participant-directed plans. The participant could continue trading the TDF daily while the fund itself owns illiquid private investments.

That raises a fundamental consumer-protection question:

How can an investment containing assets that cannot be sold daily promise participants daily liquidity?

Someone has to provide the liquidity.

A TDF might own:

60% publicly traded stocks,

25% publicly traded bonds,

10% private equity/private credit,

and 5% insurance or other illiquid assets.

A participant sees one price every afternoon and assumes everything underneath that number is comparable.

It isn’t.

The public stocks were priced by actual transactions seconds before the market closed.

The private-equity holding might be based on a manager valuation weeks or months old.

A private loan might be carried near par even though selling it immediately would require a substantial discount.

An insurance contract might be carried at contract value even though terminating it could trigger a surrender restriction or market-value adjustment.

Yet they are blended together into one daily TDF price.

Liquidity and Valuation Cannot Be Separated

This is why I don’t think fiduciaries can responsibly analyze the DOL’s Liquidity Factor independently from its Valuation Factor.

Suppose a participant wants $100,000 from a TDF.

The TDF pays $100,000 in cash.

But if the private assets supporting part of that $100,000 cannot actually be sold at their reported values, the participant who leaves may receive more than his or her economically accurate share of the portfolio.

Who absorbs that difference?

The participants who remain.

That creates the possibility of a first-mover advantage—the exact opposite of what we should want inside retirement plans.

A participant shouldn’t have to understand private-market valuation methodologies to determine whether yesterday’s $10 TDF share was really worth $10.

Crypto Is Different—but It Doesn’t Solve the Problem

Crypto presents a somewhat different liquidity issue.

Major cryptocurrencies can trade continuously and can sometimes be extremely liquid. So I would not simply put Bitcoin into the same “illiquid asset” category as private equity, private credit or an insurance general-account contract.

The larger concerns are extreme volatility, market structure, custody, valuation during market disruption, and whether liquidity remains dependable during stress.

The recent push to make crypto available through 401(k) brokerage windows nevertheless illustrates the broader problem: the retirement system is rapidly introducing investments with risks that the traditional mutual-fund 401(k) architecture was not designed around.

“Long-Term Investor” Should Not Become an Excuse

The DOL makes a reasonable observation: retirement investors, particularly younger workers, have long investment horizons and therefore may be capable of accepting some illiquidity in exchange for an illiquidity premium.

But fiduciaries should be careful with that argument.

A plan may have a 50-year life. A participant does not.  People retire. They change jobs.

They roll over their accounts. They get divorced. They die. They take distributions.

Companies merge. Plans terminate. Investment committees replace managers.

And sometimes a fiduciary needs to remove an investment because something has gone badly wrong.

That is when liquidity matters most.

The Participant Question Should Be Simple

The financial industry can produce hundreds of pages explaining liquidity waterfalls, tender mechanisms, NAV methodologies, redemption gates, insurance-company puts and secondary-market transactions.

The participant needs something much simpler.

If I need my money tomorrow, what is it actually worth tomorrow?

And the fiduciary needs to ask an equally simple question:

If we decide tomorrow that this investment is no longer prudent, how quickly can we get every participant’s money out—and at what price?

Fred Reish deserves credit for bringing attention to the Liquidity Factor. The DOL is also right to require fiduciaries to consider liquidity at both the participant and plan levels and to require investments to be capable of delivering the liquidity promised to participants.

But I would go further.

Liquidity should not merely be another box on a six-factor fiduciary checklist.

For annuities, private equity, private credit and target-date funds mixing liquid and illiquid investments under different valuation systems, liquidity may be one of the most important risks of all.

Because an investment’s reported value matters considerably less when you discover you can’t actually sell it for that value.

And retirement participants shouldn’t discover that distinction when they need their money.

———————————————

State Guaranty Associations Behind Annuities Are Still a Joke—And Private Equity Has Made the Joke More Dangerous

Crypto Is Exposing the 401(k) Brokerage-Window Loophole — Private Equity Could Be Next

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)

ERISA Private Equity Fiduciary Due Diligence Checklist

Target Date Fund Fiduciary Due Diligence Guardrail Checklist

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

When I wrote in 2025 that state guaranty associations were a flimsy substitute for real insurance of annuity promises, the industry could dismiss the concern as theoretical.     https://commonsense401kproject.com/2025/06/24/state-guarantee-associations-behind-annuities-are-a-joke/

It isn’t theoretical anymore.

The Federal Reserve, Treasury, IMF, Bank for International Settlements and even state insurance regulators are now wrestling with a life-insurance industry that has fundamentally changed. Insurers are holding more private credit and other illiquid assets. Private-equity firms and affiliated asset managers increasingly control insurance assets. Enormous blocks of U.S. annuity liabilities have been moved through offshore reinsurance structures, particularly Bermuda. And the state guaranty-association system standing behind these promises remains essentially the same post-failure assessment mechanism designed decades ago.

It isn’t the FDIC. It isn’t even close.

The Chicago Fed Has Now Said the Quiet Part Out Loud

A remarkably useful 2024 Federal Reserve Bank of Chicago study explains exactly how different the insurance guaranty system is from federal deposit insurance.

The FDIC is designed around a national, prefunded system capable of resolving banks quickly. State insurance guaranty associations instead operate state by state and are funded after an insolvency occurs, primarily by assessing surviving insurers. Those assessments are subject to annual statutory limits.

The Chicago Fed concludes that it is simply “unclear how the insolvency of a relatively large U.S. insurer would impact the state guaranty fund system.”

It goes further. A sufficiently large failure could require states to assess surviving insurers for many years, while benefit payments could exceed the money coming in from those assessments. Associations might then have to borrow to bridge the difference.

That is a long way from:

Your annuity is guaranteed.

A more accurate description is:

If your insurer fails, a state-created association may eventually provide statutorily limited benefits, financed largely by assessments imposed on the other insurers that have not yet failed.

The Numbers Show How Thin the Backstop Is

NOLHGA’s own nationwide data make the scale problem obvious.

Its November 2024 report showed nationwide annual assessment capacity in 2023 of approximately:

Account	Reported annual capacity
Life	$4.08 billion
Allocated annuity	$7.53 billion
Unallocated annuity	$73 million
Health	$8.47 billion
All categories combined	$20.16 billion

Those numbers are not a giant pool of cash sitting in a vault waiting for claims. They are principally the statutory capacity to assess insurers after failures occur.

For perspective, Federal Reserve data show that U.S. life insurers’ general accounts alone held about $7.53 trillion of financial assets at year-end 2025.

I would not claim that the $20 billion capacity should equal $7.5 trillion of insurer assets—the two numbers measure different things. But the comparison demonstrates the magnitude problem. The supposed backstop is tiny relative to the insurance balance sheets it ultimately stands behind.

And annuity protection is capped at the individual-policy level as well. NOLHGA itself gives the example of a $300,000 annuity in a state with a $250,000 guaranty benefit: the association guarantees $250,000, while the remaining $50,000 generally becomes a claim against the failed insurer’s estate.

That matters enormously for wealthy retirees, pension-risk-transfer retirees and institutional retirement arrangements involving benefits far above ordinary individual coverage limits.

We Already Ran the Experiment: It Was Called AIG

The best historical evidence remains AIG.

Ben Bernanke testified in March 2009 that without the federal rescue, some of AIG’s enormous insurance subsidiaries likely would have entered state rehabilitation proceedings, “leaving policyholders facing considerable uncertainty about the status of their claims.”

He also warned that doubts about insurance products could have produced a run on the broader insurance industry.

Bernanke later gave an even more revealing answer when Senator Jim Bunning suggested that New York’s insurance regulator should have handled AIG. Bernanke responded that the state regulator:

“did not have the capacity to deal with a global insurance company”

whose failure threatened the financial system.

But the Congressional Oversight Panel made the guaranty-association point even more explicitly.

Its investigation concluded that an AIG failure likely would have imposed a significant burden on state guaranty funds and the surviving insurers assessed to finance them. More importantly, because state laws limit annual assessments, the Panel found that AIG’s size likely would have caused guaranty-fund assessments to hit those statutory caps.

The Panel further concluded that it was unclear whether individual state guaranty funds had sufficient capital—or access to capital—to deal with the resulting shortfall.

That is the citation I would put immediately after the Bernanke discussion.

The federal government didn’t wait around in 2008 to see whether fifty state mechanisms could handle a giant insurer collapse.

It rescued AIG.

And Today’s Insurers May Be Harder to Resolve Than the Insurers the Guaranty System Was Built For

The disturbing part is what has happened since AIG.

The Federal Reserve reported in 2025 that life insurers’ exposure to below-investment-grade corporate debt had roughly doubled since the financial crisis. Insurers increasingly obtain this exposure not only through direct loans but through CLOs, BDCs, joint-venture loan funds and other structures involving affiliated asset managers.

The Fed describes some of these arrangements as “complex and arguably opaque” and says they can exploit loopholes in rating methodologies and accounting standards. It even describes an insurer-affiliated structure in which underlying consolidated leverage could reach approximately 12-to-1, while substantial exposures were not transparently consolidated at the insurer level.

That should terrify anyone whose answer to annuity credit risk is:

Don’t worry. There is a state guaranty association.

Private Equity Has Turned Insurance Into a Private-Credit Funding Machine

The NAIC says it had identified 137 private-equity-owned U.S. insurers at year-end 2024, rising to 139 by June 2025. The NAIC specifically identifies related-party investments, structured securities and cross-border reinsurance as areas demanding additional monitoring.

The IMF estimates that U.S. private-equity-influenced life insurers control well over $1 trillion of assets, more than 15% of U.S. life-insurance assets in its analysis. It also finds that PE-influenced insurers tend to hold more illiquid assets.

The Bank for International Settlements reached an even broader conclusion in 2025. It said the life-insurance industry had undergone a “profound structural transformation” involving:

private equity ownership, riskier and more opaque assets, increased derivatives usage and greater reliance on asset-intensive offshore reinsurance.

The BIS concluded that insurers’ systemic importance has increased and specifically identified greater liquidity risk, interconnectedness, valuation opacity and supervisory complexity.

In other words, the insurance industry has moved toward structures that are harder to value, harder to understand, more interconnected and potentially harder to liquidate.

The guaranty system hasn’t remotely evolved at the same speed.

Then Wall Street Moved the Annuity Liabilities Offshore

The offshore numbers may be the biggest addition to the original article.

The IMF found that Bermuda long-term reinsurance assets exceeded $1 trillion, with PE-influenced reinsurers accounting for roughly half of Bermuda’s long-term reinsurance assets in the data it examined. It also found that PE-influenced Bermuda reinsurers allocated substantially more assets to illiquid investments than typical global insurers.

And it has accelerated.

AM Best reported that Bermuda accounted for more than 40% of all reserves ceded by U.S. life-annuity writers in 2024 and more than 60% of reserves associated with transactions effective during 2023 and 2024.

Recent 2026 reporting based on AM Best data indicates that offshore reinsurers accounted for almost 56% of ceded annuity reserves in 2025, with Bermuda still dominant and Cayman gaining ground.

Even Treasury is now paying attention. In May 2026, Treasury Secretary Scott Bessent met with state insurance commissioners specifically to discuss private credit, “the movement of U.S. life and annuity reserves to offshore jurisdictions,” private-letter ratings and offshore reinsurance supervision.

That is an extraordinary sentence.

America is selling retirees a product marketed as guaranteed, while an increasingly large share of the economic machinery supporting those guarantees has migrated through complex offshore reinsurance structures.

PHL Variable Shows What “Guaranteed” Means Before the Guaranty Association Even Arrives

We don’t need to wait for the next AIG to see how messy this can become.

PHL Variable Insurance Company entered rehabilitation in Connecticut in May 2024. By December 2025, its rehabilitator concluded that rehabilitation was not feasible and that liquidation would ultimately be required.

During rehabilitation, some annuity payments and transactions have been restricted by court order.

Its own SEC disclosures now warn customers:

“There is a significant risk that the financial guarantees and obligations under your contract will not be fulfilled.”

The disclosures say liquidation benefits will be subject to state guaranty-association limits—typically $250,000 for annuities—and explicitly warn that general-account guarantees may not be paid in full.

That is what an insurance “guarantee” looks like when the guarantor actually gets into trouble.

The guarantee does not magically transform into Treasury securities.

First comes rehabilitation.

Then restrictions.

Then litigation.

Then valuation.

Then potentially liquidation.

Only then does the statutory guaranty system become fully relevant.

And anything over applicable coverage limits may become a creditor claim against an insolvent estate.

Private Credit Makes the Timing Problem Worse

This is where the private-credit problem connects directly to guaranty associations.

A guaranty association doesn’t create economic value. Ultimately someone has to recover value from the insolvent insurer’s assets, transfer policies to another insurer, or raise money by assessing surviving insurers.

That process is much easier when an insurer owns transparent, liquid securities.

It becomes harder when the balance sheet contains private loans, affiliated investments, CLOs, private asset-backed securities and offshore reinsurance recoverables whose real cash value may be uncertain during a crisis.

The Fed recently noted that leverage among the largest life insurers remained in the upper quartile of its historical range and that insurers have steadily increased holdings of risky and illiquid assets.

And we are now seeing real-world evidence of the gap between private-credit NAVs and cash prices. Recent private-credit tender offers have produced bids at substantial discounts to reported values. As I recently wrote, refusing to sell at 74 cents allows an investor to continue reporting something much closer to $1.00.

That accounting option becomes much less useful when an insurer needs actual cash to meet policyholder obligations.

The Fundamental Flaw: The Healthy Insurers Have to Rescue the Failed Insurers

This is the part most retirement savers are never told.

The guaranty association generally doesn’t sit on a gigantic prefunded reserve comparable to the FDIC Deposit Insurance Fund.

The system largely works by sending an assessment to the surviving insurers.

That was manageable when failures were isolated.

But imagine several heavily interconnected annuity insurers simultaneously suffering losses on:

private credit, CLOs, affiliated loans, real estate, asset-backed finance or offshore reinsurance recoverables.

The companies being assessed to rescue the failed insurers could themselves own similar assets.

That creates a procyclical mechanism:

Insurer A fails → Insurers B, C and D are assessed → B, C and D are already suffering the same market losses → their liquidity and capital decline just when the guaranty system asks them for more cash.

The Congressional Oversight Panel recognized exactly this danger in examining AIG: guaranty-fund assessments could have pulled additional liquidity out of surviving insurers during an already severe liquidity crunch.

Private equity and private credit have made that common-exposure problem substantially more important.

State Guaranty Associations Were Designed for a House Fire. Wall Street Is Building a Wildfire.

That is the updated argument.

State guaranty associations have a legitimate purpose. They can work reasonably well when an individual insurer fails and the rest of the industry remains healthy.

That does not mean they are adequate protection against systemic annuity risk.

They are:

post-funded rather than meaningfully prefunded;

state-by-state rather than national;

subject to policyholder benefit limits;

subject to annual assessment limits;

dependent on surviving insurers remaining solvent and liquid;

potentially slow because they operate through rehabilitation and liquidation proceedings;

and essentially untested against simultaneous failures of today’s giant, private-credit-heavy, offshore-reinsured annuity complexes.

The Chicago Fed admits the system has never really been tested against the failure of a relatively large U.S. insurer.

The Congressional Oversight Panel concluded that AIG likely would have pushed guaranty assessments to their statutory caps.

Bernanke warned that AIG’s insurers could have ended up in rehabilitation with policyholders uncertain about their claims.

And Washington responded by bailing AIG out rather than conducting the experiment.

What ERISA Fiduciaries Should Ask

This is particularly important for pension-risk transfers, fixed annuities in 401(k)s and new lifetime-income products.

A fiduciary shouldn’t be allowed to say simply:

The insurer is highly rated and the state guaranty association provides additional protection.

The questions ought to be:

What is the participant’s actual guaranty-association coverage limit?

How much of the insurer’s portfolio is private or otherwise illiquid?

How much is affiliated?

How much has been reinsured?

Where is the reinsurer domiciled?

What collateral actually secures that reinsurance?

What happens if the reinsurer fails?

What happens if the domestic insurer is downgraded?

Can the participant exit before insolvency?

What are the insurer’s CDS and bond spreads telling us?

And what happens to the guaranty association if several insurers owning the same private-credit risks fail together?

That is why I continue to believe a meaningful downgrade clause is vastly more valuable than telling retirees that somebody may protect them after the insurer is already insolvent.

The sensible time to protect a retiree is before the fire reaches the guaranty association.

Could Teachers’ Annuities Be the Next Casualty of the LA Dodgers Insurance Unwind?

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

Bloomberg: Private Credit Investors Would Rather be Trapped and Hide a 26% Loss Than Admit It

Kansas 401(k) Conflicts Paper -documents participant losses from historic affiliate relationships  –  Wall Street moves to new deceptive practices

Private equity, state-regulated CITs and annuities could make the “best-performing 2040 fund” the fund with the most aggressively manufactured numbers.

For years, one of the simplest ways to evaluate a target-date fund has been to compare it with other funds having the same vintage.

Compare a 2040 fund with other 2040 funds. Compare a 2050 fund with other 2050 funds.

That sounds reasonable.

It is also becoming dangerously easy to game.

I could design a 2040 target-date fund that appears to outperform most conventional 2040 funds without appearing to take substantially more risk.

The trick is not necessarily superior investment management.

The trick is changing the ruler used to measure risk.

How I Would Build the “Best” 2040 Fund

Start with an ordinary 2040 target-date fund holding publicly traded stocks and bonds.

Then replace part of it with private equity and private credit.

Public stocks are marked to market every trading day. If stocks fall 20%, everybody sees the loss.

Private equity is different. Managers periodically estimate what their investments are worth. Those valuations can move slowly even when public markets are crashing.

That creates an enormous statistical advantage.

Smoothed valuations → lower reported volatility → lower measured correlation → apparently better diversification → apparently better risk-adjusted performance.

I have previously called this the private-equity diversification illusion.

It doesn’t necessarily mean the investment became less risky.

It means the reported price moved less frequently.

My recent discussion of continuation funds shows how the valuation problem can go even further. A private-equity manager can potentially participate on both sides of a transaction in which an asset moves from an existing fund into a continuation vehicle. The resulting transaction can then appear to validate a valuation even though the same manager remains involved with the asset.

That is a very different price-discovery mechanism from selling 100,000 shares of Microsoft on Nasdaq.

Now Use the Fake Low Volatility to Buy More Stocks

Here is where the target-date comparison really breaks down.

Suppose a conventional 2040 fund holds:

70% stocks + 30% bonds.

Now suppose my competing 2040 fund contains private equity whose reported volatility and correlation are artificially suppressed by stale or smoothed valuations.

My portfolio model may conclude that private equity provides wonderful “diversification.”

Suddenly I can build something economically closer to:

80%–90% equity and equity-like risk + much less conventional fixed income.

During a rising market, my 2040 fund should outperform the boring 70/30 competitor.

But when Morningstar, consultants or fiduciaries compare the two funds, my reported standard deviation may not look dramatically higher.

I have seemingly created something wonderful:

Higher return without higher risk.

Except I haven’t.

I have combined real market volatility with accounting volatility and treated them as if they were the same thing.

Garbage risk statistics in.

Beautiful efficient frontier out.

Private Equity Can Juice Both Sides of the Equation

This isn’t merely about understated risk.

Private-market valuation practices can potentially improve both sides of the conventional risk/return comparison.

On the return side, private assets are not continuously marked by independent markets. Managers exercise substantial valuation judgment.

On the risk side, those same infrequent valuations suppress measured volatility and correlation.

Jay Rogers makes the larger transparency problem forcefully in his recent column, “Private Equity’s Trojan Horse Is Headed for Your 401(k).” Rogers notes that private equity and private credit increasingly can reach workers through target-date funds and CITs, while asking the fundamental question: who verifies the price? He also points to the enormous migration of target-date assets toward CIT structures.   https://www.bedfordgazette.com/editorial/private-equitys-trojan-horse-is-headed-for-your-401-k/article_002fc029-f229-4d70-9b55-a2d13689475d.html

That question becomes even more important when fiduciaries start comparing one target-date vintage against another.

The manager controlling the least transparent assets may be given a statistical advantage over the manager holding transparent securities.

Then I Would Game the “Safe” Side of the Portfolio

Why stop with private equity?

I can potentially make the fixed-income portion look artificially safe too.

Instead of holding publicly traded bonds that are continuously marked to market, put some of the supposedly conservative allocation into fixed annuities backed by an insurance company’s general or separate account.

The insurer may itself hold large amounts of private credit and other illiquid assets.

Now we have another layer where market volatility can disappear from the target-date fund’s reported statistics.

A conventional bond fund immediately reflects changing interest rates, credit spreads and market prices.

An insurance contract may continue reporting a stable contract value or crediting rate.

That does not mean its underlying economic risk disappeared.

The volatility disappeared from the reported number.

That distinction is critical.

A fixed annuity backed by increasingly illiquid private credit should not magically receive a lower risk score merely because nobody marks the contract to market every afternoon.

And Then There Are State-Regulated CITs

This becomes especially concerning as the target-date market migrates from SEC-registered mutual funds toward collective investment trusts.

As I discussed previously, private equity has potentially found two roads into the 401(k): loosening restrictions involving registered products and the much less uniform world of state-regulated CITs.

CITs are not subject to the same registration, disclosure and reporting regime as mutual funds. Rogers reports that CITs have now overtaken mutual funds in target-date assets, citing Sway Research data showing CITs at 55% of TDF assets as of June 30, 2026.

CIT regulation varies by state.  Pennsylvania is fairly solid.   In Nevada anything goes.

But it makes the fiduciary’s job harder, particularly if a CIT contains layers of private equity, private credit, insurance products or other assets whose valuations cannot easily be independently reconstructed.

A label saying “2040 Target Retirement CIT” tells you almost nothing about what is underneath it.

Crypto Could Make the Problem Almost Absurd

Once we accept the proposition that assets with unusual pricing characteristics can be mixed with conventional securities and evaluated using conventional risk statistics, where does it stop?

Crypto demonstrates the problem from the opposite direction.

Its volatility is obvious, but establishing a sensible expected return, correlation regime and long-term retirement-risk assumption is extraordinarily difficult.

Yet an optimizer needs numbers.

Give it assumptions and it will produce an allocation.

That doesn’t make those assumptions reliable.

Private equity can make risk appear artificially low because prices don’t move enough.

Crypto can produce optimization results that are extremely sensitive to whatever return, volatility and correlation assumptions somebody decides to feed into the model.

Different problem.

Same warning:

The sophistication of the output does not improve the quality of the inputs.

The “2040” Label Is Not a Benchmark

This is why fiduciaries need to stop treating vintage-year comparisons as if they were apples-to-apples comparisons.

Two funds can both say 2040 while having radically different:

• public-equity exposure;
• private-equity exposure;
• private-credit exposure;
• liquidity;
• valuation frequency;
• insurance-company credit exposure;
• leverage;
• true equity beta; and
• dependence on manager-estimated prices.

Comparing their returns and standard deviations without adjusting for those differences could reward the fund with the least transparent valuation system.

That turns prudent benchmarking upside down.

The manager marking everything to market gets punished with volatility.

The manager estimating private assets quarterly gets rewarded with “stability.”

Fiduciaries Need a New Target-Date Guardrail

My earlier Target Date Fund Fiduciary Due Diligence Guardrail Checklist argued that fiduciaries need to look through the target-date wrapper and understand what they actually own. https://commonsense401kproject.com/2026/05/30/target-date-fund-fiduciary-due-diligence-guardrail-checklist/

That principle becomes even more important as private markets enter TDFs.

A fiduciary comparing target-date funds should not simply ask:

“How did this 2040 fund perform versus other 2040 funds?”

The better questions are:

How much actual economic risk did each manager take?

Which assets were independently marked to market?

Which returns came from manager-estimated NAVs?

Have private-market returns been unsmoothed before calculating volatility and correlation?

How much equity-equivalent exposure does the portfolio really contain?

Are annuity values masking changes in insurer credit or liquidity risk?

Could private-credit valuations be suppressing apparent fixed-income volatility?

Can the fiduciary independently reproduce the valuation, risk and benchmark calculations?

If the answer to the last question is no, the fiduciary should be extremely reluctant to call one 2040 fund “better” than another.

The Perfect Rigged Target-Date Fund

If my objective were simply to win the target-date-fund horse race, I know what I would be tempted to build.

Load the growth allocation with private equity whose valuations move slowly.

Use those artificially attractive volatility and correlation statistics to justify more equity exposure.

Put private credit and fixed annuities into the supposedly conservative side of the portfolio.

Package everything inside a lightly disclosed state-regulated CIT.

Perhaps sprinkle in crypto using whatever long-term assumptions make the optimizer happy.

Then compare my fund’s reported return and reported standard deviation against boring SEC-regulated 2040 mutual funds holding publicly traded stocks and bonds.

My fund could look brilliant.

More return.

Less apparent volatility.

Wonderful diversification.

Same 2040 label.

But the comparison could be largely meaningless.

Private equity doesn’t become safer because somebody hasn’t marked it down yet.

An insurance contract doesn’t become riskless because its value doesn’t flash on a Bloomberg screen.

And two target-date funds don’t become comparable simply because somebody stamped “2040” on both of them.

As Wall Street moves private equity, private credit and insurance products deeper into America’s default retirement investments, the easiest target-date fund to make look good may increasingly be the one whose risks are hardest to see.

Appendix: New Research Confirms the Problem — “Same Target Date” Does Not Mean “Same Risk”

A new target-date-fund study provides unusually direct empirical support for the central argument of this article: a 2040 fund is not necessarily comparable to another 2040 fund simply because both have “2040” in their names.

Mitchell Bollinger’s forthcoming research, Same Target Date, Different Risk: A Survivor-Bias-Free Reassessment of Target-Date Funds with Investable Style Analysis, examines the CRSP survivor-bias-free universe of target-date funds using a methodology designed to recover their changing investment exposures. Its central conclusion is remarkably straightforward: “The label on a target-date fund fixes the year, not the risk.” Among major TDF providers, two funds with the same retirement year can differ by roughly 20 percentage points of equity exposure and several percentage points of expected volatility.

That distinction matters enormously when funds are ranked by historical performance. Bollinger finds that, following rising equity markets, selecting the best-performing fund within a target-date vintage tends to select the higher-risk fund rather than the more skilled manager. The three-year rank correlation between trailing returns and recovered equity exposure is approximately +0.30 overall and rises to +0.36 following equity-market gains. After equity losses, the relationship reverses. In other words, performance chasing among same-vintage TDFs can become risk chasing.

The economic consequences can be enormous. Bollinger stress-tests today’s TDF allocations against the Global Financial Crisis. Among 2025 funds, the highest-equity fund would have suffered an estimated drawdown of roughly 34%, compared with about 10% for the lowest-equity fund bearing the same 2025 label. For 2030 funds, the corresponding figures were approximately 35% versus 19%.

Earlier NBER Research Was Already Warning Us

This builds on John Shoven and Daniel Walton’s 2020 NBER study, An Analysis of the Performance of Target Date Funds. Their returns-based style analysis found that TDFs generally followed their advertised glide paths, but also demonstrated substantial risk even as participants approached retirement. During the February 19–March 23, 2020 market collapse, long-dated TDFs generally lost 30–35%, while 2025 funds—then designed for workers only about five years from retirement—lost approximately 20–25%.

Shoven and Walton also found that past TDF performance had remarkably little predictive power. A fund that outperformed by one percentage point annually in the earlier period was associated with only about 9 basis points of additional annual performance in the subsequent period. Their conclusion was essentially that past winners largely reverted toward the mean.

Their study also showed why looking underneath the vintage label matters. Style analysis found long-dated TDFs with effective equity exposure exceeding 80%, while equity exposure declined as retirement approached and bonds increased. Importantly, their results were distributions—not a single mandatory asset allocation dictated by the year printed on the fund.

Even the Measurement Tools Can Be Gamed or Mislead

Bollinger’s companion methodological research adds another warning that is particularly relevant to fiduciaries comparing TDF performance. Conventional returns-based style analysis can itself mismeasure exposures and alpha.

The standard methodology often constrains style weights to sum to one without providing a free intercept. Bollinger finds that this can cause a flat investment-management fee to leak into the estimated exposures rather than appearing fully as reduced alpha. In his example, of a 50-basis-point fee, only about 22 basis points appeared as lower measured alpha; roughly 28 basis points were absorbed into the fitted benchmark. The higher the fee, the greater the potential distortion.

Performance fees can create an even stranger result: because they alter the shape of net returns, they can reduce fitted upside beta and thereby create the appearance of market-timing skill.

Bollinger proposes “Investable Style Analysis,” which attempts to solve these problems by tracking changing exposures and comparing the fund against actual investable factor portfolios. In simulated funds, the method approximately halved the error of conventional rolling-window analysis and eliminated an approximately 20-basis-point upward bias over five years. On Vanguard’s TDFs, it reconstructed the published equity glide path from returns alone to within roughly 0.9 percentage point across eleven vintages.

There is an additional benchmark warning. If the benchmark fails to contain an exposure actually held by the fund, the omitted exposure can show up as supposed managerial skill. Bollinger demonstrates the problem with a passive Canadian index fund: when Canada was absent from the benchmark opportunity set, the completely passive fund generated approximately two percentage points per year of spurious “alpha.”

Why This Could Become Much Worse With Private Markets

This last point is where the research intersects with the concern raised in this article.

Bollinger’s empirical work is principally about publicly traded assets. It does not establish that private equity, private credit, annuities or crypto are currently being used to manipulate TDF comparisons. But the methodology illustrates why introducing difficult-to-measure assets could make vintage comparisons even more problematic.

If two public-market 2040 funds can already differ by 20 percentage points of equity exposure, calling them both “2040” plainly does not establish equivalent risk.

Now imagine that one 2040 fund also contains private equity carried at manager-reported valuations, private credit without continuous market prices, or an insurance general-account product whose reported value does not fluctuate like a publicly traded bond portfolio.

The comparison problem becomes substantially harder.

A fund can potentially appear to have lower volatility without actually bearing less economic risk. That apparent reduction in measured volatility can then provide room for additional return-seeking exposure elsewhere in the portfolio. A conventional comparison may conclude that Fund A produced a higher return at similar measured risk when the real difference is that some of Fund A’s risk was simply harder to observe.

That is the critical lesson from these papers for fiduciaries:

Do not compare the performance of two target-date funds until you have first established that you are actually comparing comparable risks.

The target year is a label. It is not a risk classification.

And once private assets, insurance products and other non-marked or difficult-to-benchmark investments enter target-date funds, the opportunity for a misleading same-vintage comparison becomes greater, not smaller.

Suggested citations

Bollinger, Mitchell. Same Target Date, Different Risk: A Survivor-Bias-Free Reassessment of Target-Date Funds with Investable Style Analysis. Manuscript prepared for peer review. The study uses the CRSP Survivor-Bias-Free U.S. Mutual Fund Database and reports that roughly 54% of TDFs ever launched had closed, with defunct funds having worse nominal returns and higher fees than survivors—another reason historical comparisons based only on today’s available TDFs can flatter the industry.

Bollinger, Mitchell. When Fees and Alphas Distort Style Recovery: Introducing Fee and Alpha Robust Investable Style Analysis. Research manuscript. The paper argues that conventional no-intercept returns-based style analysis can push fees and alpha into estimated factor loadings and proposes a fee-robust investable alternative.

Shoven, John B., and Daniel B. Walton. “An Analysis of the Performance of Target Date Funds.” NBER Working Paper No. 27971, October 2020.

I think the 34% versus 10% drawdown for two 2025 funds is the killer statistic for your article. It makes the point immediately: same vintage, radically different risk. Then your private-equity/private-credit argument becomes the next logical question—if vintage comparisons are already this unreliable with observable public-market exposures, what happens when some of the risk is buried in assets whose prices themselves are smoothed?

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)

Private Equity Can Sell an Asset to Itself—and Call It a Market Price

By Chris Tobe, CFA, CAIA

Four years ago I warned that crypto was exposing a major weakness in 401(k) regulation: the self-directed brokerage window. https://commonsense401kproject.com/2022/06/18/brokerage-windows-exposed-by-crypto/

Now a new federal court ruling involving AT&T makes that warning even more important.

The issue is bigger than Bitcoin.

If courts and regulators treat brokerage windows too loosely, they could become the back door through which crypto, private equity, private credit and other high-fee alternative investments enter ERISA plans—with substantially less fiduciary scrutiny than they would receive if they appeared directly on the plan’s investment menu.

And there is another issue that should concern every 401(k) fiduciary:

Who is paying the brokerage-window provider to make these investments available?

That question goes directly to conflicts of interest and potentially to ERISA’s prohibited-transaction rules.

The AT&T Decision Should Not Become a Brokerage-Window Safe Harbor

In Alas v. AT&T, a federal district court recently reconsidered an earlier ruling concerning disclosures of indirect compensation received by Fidelity in connection with AT&T’s brokerage window.  https://www.aol.com/articles/judge-just-changed-major-401-110500000.html

The ERISA Industry Committee celebrated the decision, explaining that Fidelity may receive payments from mutual funds available through the brokerage window and that the dispute concerned whether disclosure of that compensation was sufficient for fiduciaries to determine whether the arrangement was reasonable.

That may sound like a technical disclosure dispute.

It isn’t.

The underlying structure is exactly what fiduciaries should be examining:

401(k) money → brokerage window → investment provider → payments to recordkeeper/platform.

Once money starts moving in that circle, ERISA fiduciaries should be asking much more than whether a compensation range was adequately disclosed.

They should be asking:

Who pays Fidelity or another brokerage provider?

How much?

What are they paying for?

Does compensation affect which investments get access to the platform?

Are there revenue-sharing, shelf-space, servicing, data, custody, trading or other payments?

Are affiliates receiving compensation?

And most importantly:

Does any of this constitute a prohibited transaction involving plan assets and a party in interest?

ERISA’s prohibited-transaction rules do not disappear because an investment is located behind a brokerage-window button.

Crypto Has Exposed the Problem

I first wrote about this in 2022 in “Brokerage Windows Exposed by Crypto.”

The basic problem hasn’t changed.

A traditional 401(k) menu might contain 10, 15 or 20 investments. Fiduciaries select those investments, monitor them, evaluate their fees and hopefully understand who is getting paid.

Then the same fiduciary opens a brokerage window containing hundreds or thousands of investments.

Suddenly everyone starts pretending that fiduciary responsibility somehow became radically different.

Why?

The participant clicked the mouse.

That strikes me as an extraordinarily weak foundation upon which to build ERISA policy.

The plan fiduciary still selected the brokerage-window provider.

The plan fiduciary still approved the arrangement.

The plan fiduciary still negotiated—or failed to negotiate—the provider’s compensation.

And the brokerage-window provider can still make money from transactions involving retirement assets.

Participant choice should not become a magic ERISA eraser.

Professor Hilary Allen Identified Who Really Needs Whom

My August article, “Professor Hilary Allen Is Right: Crypto Has No Place in a 401(k),” addressed an even more fundamental problem.  https://commonsense401kproject.com/2026/08/11/professor-hilary-allen-is-right-crypto-has-no-place-in-a-401k/

Professor Allen turns Wall Street’s “democratization” argument upside down.

The question isn’t whether 401(k) participants desperately need access to crypto.

It is whether crypto desperately needs access to 401(k) participants.

That is an enormously important distinction.

America’s defined-contribution retirement system contains trillions of dollars of assets plus something extraordinarily valuable to an asset manager: a continuing stream of payroll contributions.

Money comes in every two weeks.

Month after month.

Year after year.

For decades.

For an industry needing new buyers, 401(k)s aren’t simply another distribution channel.

They may be the ultimate source of permanent demand.

That is why Professor Allen’s “bagholder” argument is so important. Large existing crypto holders eventually need someone willing to buy from them.

Putting crypto into retirement accounts potentially creates millions of new buyers contributing automatically.

The fiduciary question therefore shouldn’t be:

How can we give workers access to crypto?

It should be:

Why does the crypto industry want access to workers’ retirement money?

And who gets paid when that access is provided?

PwC Accidentally Explained Why Crypto Doesn’t Belong Here

My June article, “Crypto in 401(k)s: PwC Accidentally Says the Quiet Part Out Loud Again,” approached the problem from another direction.  https://commonsense401kproject.com/2026/06/10/crypto-in-401ks-pwc-accidentally-says-the-quiet-part-out-loud-again/

PwC’s own global crypto-regulation analysis describes an extraordinary infrastructure necessary to make crypto markets function safely:

special custody regimes;

special liquidity requirements;

special disclosure standards;

special operational-resilience systems;

special market-conduct rules;

special stablecoin reserve requirements;

special governance structures;

special supervisory regimes;

and cross-border regulatory coordination.

Traditional diversified stock and bond funds don’t require an entirely new global financial-regulatory architecture just to make them suitable investments.

Crypto does.

PwC also acknowledges continuing problems involving regulatory arbitrage, fragmented supervision and inconsistent implementation across jurisdictions.

That doesn’t sound like an asset class crying out to become part of America’s retirement system.

It sounds like a warning label.

And it makes the brokerage-window issue even more important.

If an investment is too complicated, opaque and conflicted to survive normal fiduciary scrutiny, the solution shouldn’t be:

Put it in the brokerage window.

Then There Is ERISA §406

This is where I think the brokerage-window debate has been much too timid.

ERISA doesn’t merely impose a general prudence requirement.

It contains prohibited-transaction rules.

The IRS summarizes prohibited transactions as including the use of plan assets for the benefit of a disqualified person, fiduciary self-dealing, a fiduciary’s receipt of consideration in connection with transactions involving plan assets, and certain transactions involving services or facilities between a plan and a disqualified person. Exemptions exist, but they have conditions.

That matters enormously when a brokerage window involves:

Recordkeepers.
Broker-dealers.
Custodians.
Crypto exchanges.
Fund companies.
Asset managers.
Trust companies.
Affiliated investment products.
Revenue sharing.
Indirect compensation.

My 2025 article, “Crypto as a Prohibited Transaction in 401(k) Plans—Target Date and Brokerage Windows,” argued that this is where crypto creates an entirely different ERISA problem.  https://commonsense401kproject.com/2025/11/03/crypto-as-a-prohibited-transaction-in-401k-plans-target-date-and-brokerage-windows/

Imagine a plan recordkeeper or affiliate receives direct or indirect economic benefits because participants buy particular products through its brokerage window.

Calling the transaction “participant directed” doesn’t answer the prohibited-transaction question.

The fiduciary created the window.

The fiduciary selected the service provider.

The service provider is a party in interest.

And somebody is getting paid.

The question is whether the transaction falls within ERISA §406 and, if so, whether all the requirements of an applicable exemption are actually satisfied.

That analysis should happen before participants’ retirement money starts flowing—not after somebody files a lawsuit.

Cunningham v. Cornell Makes This More Important, Not Less

The Supreme Court’s unanimous Cunningham v. Cornell University decision makes the distinction particularly important.

The industry would understandably like fiduciaries and courts to jump immediately to whether a service-provider arrangement is reasonable.

But §406 and §408 are not the same thing.

A transaction can first fall within the prohibited-transaction provisions and then require an exemption.

That means the existence of a brokerage window shouldn’t end the inquiry.

It should begin it.

Who is the party in interest?

What transaction occurred?

What direct or indirect compensation was received?

Who received it?

Was it reasonable?

Was the arrangement properly disclosed?

What exemption is being relied upon?

Those questions become especially important when the investment providers themselves have enormous financial incentives to obtain access to retirement assets.

Private Equity Is Watching

This is why the crypto debate matters even to people who couldn’t care less about Bitcoin.

Crypto may merely be the test case.

Private equity and private credit managers have the same fundamental business problem:

They need assets.

And America’s 401(k) system contains trillions of dollars of them.

The sales pitch is remarkably similar.

First call the investment “alternative.”

Then call it “institutional.”

Then say wealthy people have access and ordinary workers unfairly don’t.

Call expanded distribution “democratization.”

Package complicated assets inside simpler-looking wrappers.

Put them inside target-date funds, CITs—or potentially brokerage windows.

And collect fees that become progressively harder for participants to identify.

The brokerage window could become the perfect delivery mechanism because it creates the appearance that the employer didn’t select the investment.

The participant did.

But that ignores the architecture that made the transaction possible.

Someone selected the window.

Someone selected the brokerage provider.

Someone negotiated the compensation arrangement.

Someone decided what investments could be sold through it.

And someone is making money.

ERISA fiduciaries should follow that money.

The Brokerage Window Could Become Wall Street’s ERISA Back Door

Imagine where this could lead.

A fiduciary committee might reject putting Bitcoin directly on the core menu.

Too risky.

Reject putting a private-equity fund directly on the menu.

Too illiquid.

Reject a private-credit fund.

Too difficult to value.

Then someone says:

Don’t worry. Just put them in the brokerage window. Participants can decide for themselves.

That could turn brokerage windows into an enormous regulatory arbitrage machine.

The investments carrying the greatest valuation problems, liquidity risks, fees and conflicts could end up receiving less fiduciary scrutiny precisely because they are more complicated.

That is backwards.

The more complicated an investment becomes, the more fiduciary scrutiny should be required.

The more illiquid it becomes, the more scrutiny should be required.

The more difficult its valuation becomes, the more scrutiny should be required.

And the more compensation flowing among service providers and investment managers, the more important ERISA’s prohibited-transaction protections become.

Crypto Is the Canary in the 401(k) Coal Mine

Crypto didn’t create the brokerage-window problem.

Crypto exposed it.

It exposed the fiction that moving an investment from a core menu into a brokerage window somehow transforms the fiduciary economics of the transaction.

It exposed the danger of participant choice being used as an excuse for weaker oversight.

And most importantly, it exposed the enormous commercial value of gaining access to America’s retirement savings infrastructure.

Today the product is crypto.

Tomorrow it could be private equity.

Private credit may be right behind it.

The industry’s argument will always sound attractive:

More choice. More access. More democratization.

ERISA asks a different set of questions:

Is it prudent?

Is it loyal?

Who is getting paid?

Is there a conflict?

Is there a prohibited transaction?

Those questions shouldn’t disappear when a participant enters a brokerage window.

They should become even more important.

CommonSense Bottom Line

A brokerage window should never become a prohibited-transaction window.

Professor Hilary Allen has correctly identified the economic danger of turning workers into the next generation of crypto buyers. PwC has inadvertently documented the extraordinary regulatory machinery required to support crypto. And the emerging brokerage-window litigation demonstrates how complicated the indirect-compensation relationships already are.

Put those three issues together and the warning is pretty simple:

Wall Street wants access to trillions of dollars of retirement savings.

Crypto is showing us how the plumbing could work.

Private equity and private credit could use the same plumbing on a much larger scale.

Before opening that door, every ERISA fiduciary should ask the oldest and most useful question in finance:

Who gets paid?

Then ask the question ERISA adds:

Are they allowed to get paid that way?

Update: The Fidelity Brokerage Window May Be a Pay-to-Play Marketplace

There is an even more troubling economic issue behind Fidelity’s brokerage-window loophole.

The Financial Times reported that Fidelity has obtained revenue-sharing agreements with dozens of ETF manufacturers, allowing Fidelity to collect as much as 15% of an ETF’s revenues in exchange for supporting the product on its enormous brokerage platform. ETF companies that decline can see Fidelity impose punitive purchase charges on their customers.

The Boston Globe reported an additional detail that should get every ERISA fiduciary’s attention: Fidelity reportedly told at least one investment manager that if an agreement was not reached, Fidelity would not populate the manager’s funds in its online search bar.

That begins to look considerably less like neutral brokerage infrastructure and considerably more like paid investment-product distribution.

More recent reporting from Barron’s describes these payments plainly as placement fees, with ETF companies negotiating payments reportedly ranging from approximately 4% to 15% of their ETF revenues for access to Fidelity’s brokerage platform.

Now consider Bitcoin.

BlackRock’s iShares Bitcoin Trust, IBIT, has recently had approximately $55 billion of assets and charges about 25 basis points annually. At that asset level the fund generates roughly $137 million of annual sponsor-fee revenue.

Applying Fidelity’s reported 4%-15% platform-payment range to that revenue produces numbers between approximately $5.5 million and $20.6 million annually.

That is not evidence that BlackRock actually pays Fidelity $5 million, $10 million or $20 million. We do not know BlackRock’s Fidelity contract, whether it pays such a fee, or how Fidelity calculates assets subject to any agreement.

But even limiting the calculation only to assets actually custodied through Fidelity quickly produces multimillion-dollar economics.

For example, if $5 billion of a 25-basis-point Bitcoin ETF were held through Fidelity, the fund would generate $12.5 million in annual management-fee revenue on those assets. A 15% Fidelity revenue share would equal approximately $1.875 million per year.

At $10 billion of Fidelity-platform assets, it would be $3.75 million per year.

At $25 billion, it would approach $9.4 million annually.

That is why ERISA fiduciaries need to know far more than whether their recordkeeper technically labels something a “brokerage window.”

Fidelity itself says that spot Bitcoin and other crypto ETPs may be purchased through a 401(k) self-directed brokerage window when the plan permits ETPs. Meanwhile, the same Fidelity brokerage platform reportedly receives substantial revenue-sharing or placement payments from ETF manufacturers.

The obvious question is therefore:

Do BlackRock, Grayscale, Bitwise, ARK/21Shares, VanEck or other crypto-product sponsors pay Fidelity—directly or indirectly—to make their crypto products available, searchable or economically attractive through Fidelity BrokerageLink?

And if so:

How much of that compensation is attributable to ERISA retirement-plan assets?

Those questions matter because Fidelity’s own product is competing on the same platform. Fidelity’s FBTC charges 25 basis points, Fidelity affiliates sponsor and service it, and Fidelity expressly permits FBTC and competing spot-crypto ETPs to be accessed through qualifying workplace brokerage windows.

So Fidelity can potentially occupy multiple sides of the transaction: 401(k) recordkeeper, brokerage-window gatekeeper, ETF distributor, Bitcoin fund sponsor and digital-asset service provider.

That is precisely the type of financial architecture in which ERISA’s compensation and conflict-of-interest rules should matter most—not least.

The Department of Labor should require every BrokerageLink plan sponsor to obtain a simple disclosure from Fidelity:

For every investment available through the plan’s brokerage window, identify every dollar of direct or indirect compensation Fidelity or an affiliate receives from the investment manager, sponsor, custodian, market maker or related party, and separately identify compensation attributable to ERISA plan assets.

Until that information is disclosed, calling a 401(k) brokerage window an innocent exercise of “participant choice” tells us very little about who chose what products participants were allowed to see—and who got paid for putting them there.

One more recent development strengthens this theme: two days ago, August 27, 2026, the Wall Street Journal reported that Fidelity has begun accepting payment for order flow on stock trades  – this is not related to Crypto but to trades done on the Brokerage window

The widening insurance controversy surrounding the Los Angeles Dodgers is no longer just a story about billionaires, private credit and professional sports. It may also be a story about schoolteachers and their retirement savings.

Security Benefit Life Insurance Company has a huge presence in the K-12 retirement market. More importantly, Security Benefit has a remarkably close financial relationship with the National Education Association’s Member Benefits organization. The NEA Retirement Program says it has served more than 3 million NEA members through its relationship with Security Benefit.

And the relationship isn’t merely an endorsement.

Security Benefit pays NEA Member Benefits for the relationship. NEA Member Benefits currently discloses that the payment was approximately $4 million in 2025, that Security Benefit receives the exclusive right to offer products through the NEA Retirement Program, and that NEA Member Benefits generally cannot promote competing retirement investment programs to its members. NEA even acknowledges that this arrangement creates a “potential conflict of interest.” NEA Retirement Specialists, when making recommendations to members, offer only Security Benefit products when appropriate.

That makes what is happening at Security Benefit important to teachers.

The Dodgers Are in the Insurance Story

Security Benefit is controlled by Todd Boehly’s Eldridge organization. Boehly, of course, is also part of the ownership group of the Los Angeles Dodgers.

The Financial Times recently exposed how deeply Security Benefit embraced a form of investment called a collateral loan. At year-end 2024, Security Benefit reportedly held about $12.9 billion — roughly 47% of all collateral loans held by the entire U.S. life insurance industry. Regulators have been concerned that existing rules allowed insurers to hold substantially less capital against some collateral loans than they might have to hold against the underlying assets themselves.

One particularly eye-catching example reportedly involved approximately $185 million connected to Boehly’s interest in the Los Angeles Dodgers.

Security Benefit disputes the implication that these investments represent excessive risk. It says its collateral loans are secured, originated at no more than 80% loan-to-value, and have experienced zero principal losses since inception. The company reported an RBC ratio of 424% entering 2026.

But Security Benefit is nevertheless preparing to substantially reduce or restructure the collateral-loan portfolio before new NAIC capital rules take effect. Its own plan contemplates repayments, recapitalizations, capital injections, restructuring assets into rated securities, risk transfers and reinsurance. Security Benefit acknowledges that failure to take effective management actions could have a material adverse effect.

And this month Fitch supplied another warning sign.

Fitch maintained Security Benefit Life’s A- financial-strength rating, but changed the outlook on issuer ratings from stable to negative, focusing particularly on the collateral-loan portfolio and the execution risk associated with reducing it. Security Benefit strongly disagrees with Fitch’s decision.

That doesn’t mean Security Benefit is about to fail. It means somebody responsible for protecting retirement savers should be asking questions.

Tom Gober’s Bigger Concern: Look at the Reinsurance

Forensic insurance accountant Tom Gober has been warning about captive and affiliated reinsurance structures for years. The Security Benefit structure provides an extraordinary example of why.

Security Benefit owns Sixth Avenue Reinsurance Company, or SARC, a special-purpose financial insurance company domiciled in Vermont. Security Benefit ceded to Sixth Avenue certain guaranteed-lifetime-withdrawal-benefit obligations associated with annuities issued principally in 2018, 2019 and the first half of 2020.

Here is where it gets remarkable.

Vermont permitted Sixth Avenue to use an accounting practice different from normal NAIC statutory accounting. Security Benefit’s own statutory disclosure showed that the practice increased Sixth Avenue’s surplus by hundreds of millions of dollars.

The Kansas Insurance Department’s examination report couldn’t be much clearer:

“The Risk-Based Capital of SARC would have triggered a regulatory event had it not used the permitted practice.”

Security Benefit’s audited statutory statements repeat essentially the same disclosure. Without the permitted accounting treatment, the reported statutory value of its investment in Sixth Avenue would have been deeply negative.

That does not establish that Sixth Avenue or Security Benefit is currently insolvent. The excess-of-loss reinsurance supporting the permitted asset has economic value, and Vermont has legally authorized the treatment.

But it raises exactly the question Gober has been asking regulators for years:

How much of an insurer’s apparent capital is hard capital, and how much depends upon reinsurance, affiliated structures, regulatory exceptions and accounting treatment?

Now Put the Teacher Back Into the Picture

This is where the story becomes much more troubling.

The NEA tells teachers that it is proud to partner with Security Benefit. Its website says the relationship has lasted more than 20 years and reaches more than 3 million members. Security Benefit offers 403(b)s and annuities through the program, while NEA Member Benefits receives millions of dollars annually from Security Benefit.

Meanwhile Security Benefit is working through one of the most significant balance-sheet restructurings in the annuity industry.

Its collateral-loan concentration has attracted regulatory attention. The capital treatment of those loans is changing. Fitch has changed its issuer outlook to negative. Security Benefit is planning substantial changes to the portfolio. And buried deeper in the structure is a Vermont captive whose RBC would have triggered regulatory intervention without a special permitted accounting practice.

None of that proves teachers will lose money.

It proves something much simpler:

NEA Member Benefits should be asking Security Benefit some very hard questions on behalf of its members.

How much NEA retirement money ultimately depends upon Security Benefit’s general account? Which NEA annuity guarantees are exposed to Security Benefit credit risk? Which liabilities have been reinsured? How much exposure ultimately reaches Sixth Avenue or other reinsurers? What happens if Security Benefit is downgraded? Can teachers transfer their money without surrender charges or other penalties? And does the NEA program have a contractual downgrade provision that allows members to escape if Security Benefit’s financial condition materially deteriorates?

Those questions matter because an annuity guarantee is ultimately only as good as the financial structure standing behind it.

Teachers Need a Downgrade Escape Hatch

I have argued repeatedly that retirement annuities should contain meaningful downgrade provisions. A retirement saver shouldn’t have to wait until an insurance company actually fails before being allowed to protect himself or herself.

The Security Benefit story demonstrates why.

A teacher doesn’t need to understand collateral-loan RBC charges, Vermont captive accounting, excess-of-loss reinsurance or the capital structure behind the Los Angeles Dodgers.

The teacher needs something much simpler:

If the financial strength supporting my retirement guarantee deteriorates substantially, can I get my money out?

The NEA receives millions of dollars from Security Benefit and says it performs ongoing due diligence to protect its members.

Now would be a very good time for the nation’s largest teachers union to demonstrate exactly what that due diligence means.

Ask Security Benefit about the Dodgers. Ask about the $14 billion-scale collateral-loan restructuring. Ask about Sixth Avenue Reinsurance. Ask what happens after another downgrade. And most importantly, ask whether teachers have the contractual right to leave before a financial problem becomes a retirement crisis.

APPENDIX: NEA’s Security Benefit Annuity Relationship Has Been Litigated Before

The financial relationship between the National Education Association and Security Benefit is not new — and neither are questions about whether NEA’s financial incentives could conflict with the interests of teachers buying retirement products.

Nearly twenty years ago, NEA members brought a proposed class action over essentially this relationship.

Daniels-Hall v. NEA: Nationwide, Security Benefit and the Valuebuilder Annuities

In Daniels-Hall v. National Education Association, filed in federal court in Washington in 2007, two teachers sued the NEA, NEA Member Benefits Corporation, Nationwide Life Insurance Company, Security Benefit Life Insurance Company and related entities over the NEA Valuebuilder 403(b) program.

The proposed class potentially covered more than 57,000 NEA members and more than $1 billion in annuity investments. The complaint sought to reach NEA members participating in the Valuebuilder program dating back to 1991.

The history is particularly interesting today.

During the 1990s, Nationwide was NEA’s exclusively endorsed provider. After 2000, Security Benefit replaced Nationwide. According to the Ninth Circuit’s description of the allegations, NEA didn’t merely permit the companies to advertise to its members. NEA allegedly helped negotiate the annuity terms, exclusively endorsed the products, aggressively marketed them to teachers, and monitored the Valuebuilder program.

And there was money flowing the other direction.

According to the court’s description of the complaint, Nationwide and Security Benefit paid royalties and annual fees to NEA, paid the salaries of approximately 110 NEA Member Benefits representatives, and contributed to NEA charitable foundations.

Security Benefit alone was alleged to have generated approximately $2 million a year in royalty income for NEA.

The plaintiffs also alleged that Nationwide and Security Benefit received payments from investment companies whose mutual funds were placed inside the Valuebuilder annuities.

That is remarkably close to the conflict-of-interest issue that remains relevant today.

The Allegations Were About More Than Investment Performance

The teachers alleged that NEA did not adequately disclose the nature and amount of the payments it received from Nationwide and Security Benefit.

At the same time, according to the complaint, NEA marketed Valuebuilder as an attractive retirement solution for its members even though plaintiffs alleged that some Valuebuilder fees were as much as ten times those of comparable annuity contracts.

The Ninth Circuit summarized the plaintiffs’ theory as NEA exploiting the trust of its members for financial gain.

A contemporary Los Angeles Times investigation had already raised similar concerns. It reported that Valuebuilder investors could face total annual expenses ranging from roughly 1.73% to 4.85%, depending upon the investments and insurance features selected. The newspaper also reported substantial endorsement revenue flowing to NEA and that Security Benefit sponsored numerous NEA conferences.

Forbes had raised the issue even earlier. In 2005, Neil Weinberg of Forbes reported that Nationwide had reportedly paid NEA about $3 million annually under the previous arrangement. When NEA later solicited bids, according to Forbes, Great-West proposed a low-cost mutual-fund-only alternative charging approximately 0.15% annually with no surrender charge — but was unwilling to pay NEA for an endorsement. NEA ultimately selected Security Benefit, explaining that members wanted access to in-person financial representatives. https://www.forbes.com/forbes/2005/0425/100.html?

That history deserves renewed attention today.

Security Benefit Actually Bought the Old Nationwide NEA Business

There is another important historical connection.

According to accounts of the litigation, Nationwide was NEA’s exclusive provider from approximately 1991 through 2000. Nationwide then reportedly sold approximately $860 million of NEA Valuebuilder accounts to Security Benefit for $72 million.

So the present NEA-Security Benefit relationship did not arise from nowhere. Security Benefit effectively acquired an already-established NEA retirement franchise and then continued developing it.

SEC filings from the period also contain Security Benefit commission schedules specifically for the NEA Valuebuilder Variable Annuity TSA & IRA, providing documentary evidence of the sales and compensation infrastructure surrounding the product.

The Teachers Lost — But Not Because a Court Found the Arrangement Prudent

This distinction is important.

The lawsuit was ultimately dismissed, and the Ninth Circuit affirmed in 2010. But the court did not conduct a trial and conclude that the payments, fees or conflicts alleged by the teachers were prudent or harmless.

Instead, the case largely failed on an ERISA coverage problem.

Most of the teachers involved were public-school employees. The Ninth Circuit concluded that the school districts’ 403(b) arrangements were governmental plans exempt from Title I of ERISA. It also concluded that NEA’s marketing and endorsement program did not itself constitute an ERISA pension plan and that the individual Valuebuilder annuity contracts had not been “established or maintained” by NEA in the manner necessary to create an ERISA plan.

In other words, the defendants won primarily at the courthouse door.

The decision therefore should not be read as judicial approval of the underlying financial arrangement.

Fast Forward to 2026: The Conflict Never Really Went Away

What makes Daniels-Hall particularly relevant now is how recognizable the structure remains.

Today, NEA Member Benefits openly discloses that Security Benefit has the exclusive right to offer products through the NEA Retirement Program and that NEA Member Benefits generally may not promote competing retirement investment programs to its members.

NEA also discloses that its Retirement Specialists, when making recommendations to members, offer only Security Benefit products when deemed appropriate.

And Security Benefit continues paying NEA Member Benefits for the relationship.

The disclosed payment was approximately $4 million in 2025.

To NEA’s credit, today’s disclosure is much clearer than the arrangement described in the old litigation. NEA Member Benefits expressly tells members that receipt of the Security Benefit payment creates a “potential conflict of interest” and says it conducts ongoing due diligence on Security Benefit.

But that disclosure creates an obvious follow-up question:

What exactly does that ongoing due diligence consist of?

Twenty years ago, teachers challenged NEA’s financial relationship with the insurance companies selling them annuities.

Today the issue is potentially more serious than whether an annuity charges excessive fees.

Security Benefit has its own captive regulator blocks from its Topeka headquarters – the Kansas Department of Insurance. 

Annuities Cherry-Pick the Weakest State Regulator

NEA annuities via Security Benefit do not have downgrade provisions, so teachers are out of luck if a spiral of downgrades occur.

There so-called guaranty is provided by an unfunded Kansas Guaranty Association https://commonsense401kproject.com/2026/08/30/state-guaranty-associations-behind-annuities-are-still-a-joke-and-private-equity-has-made-the-joke-more-dangerous/

Security Benefit’s balance sheet now includes the private-credit, collateral-loan, affiliate and reinsurance issues discussed in this article. If NEA Member Benefits receives roughly $4 million annually from Security Benefit while granting Security Benefit exclusive access to its retirement program, then NEA’s acknowledged conflict makes rigorous independent monitoring of Security Benefit’s financial condition especially important.

NEA should be able to show its members that its due diligence has examined not merely product fees and investment performance, but also Security Benefit’s credit quality, liquidity, affiliated investments, collateral loans, reinsurance arrangements, Sixth Avenue Reinsurance, permitted accounting practices, capital adequacy and potential exposure of NEA annuity holders if Security Benefit were downgraded.

The history makes the question difficult to dismiss.

NEA teachers raised concerns about the financial incentives behind these annuities nearly twenty years ago. The insurer changed from Nationwide to Security Benefit, the disclosures improved, and the annual payments grew. But the fundamental question remains: When the organization recommending the retirement product is being paid millions of dollars by the company selling it, who is independently watching the insurer for the teachers?

Bloomberg just accidentally demonstrated one of the biggest problems in private credit.  https://www.bloomberg.com/news/articles/2026-08-27/private-credit-investors-prefer-to-be-trapped-than-take-26-loss

A buyer showed up with cash. 

Cox Capital Partners offered investors immediate liquidity for shares of five non-traded private-credit BDCs managed by HPS, Apollo, Ares and Blue Owl. The average offer was reportedly at a 26% discount. There is already nearly $15 billion of redemption requests backed up in private-credit funds.

Yet investors barely sold. Cox reportedly attracted less than $5 million of orders for an offer that could have purchased as much as $90 million.

The Magic of Private-Market Accounting

Suppose a pension owns a private-credit investment carried at $100.

Someone offers $74 in cash.

The pension has two choices.

Sell it for $74 and immediately recognize a $26 loss.

Or keep reporting something much closer to $100 based upon the fund manager’s NAV and wait.

Guess which choice is more attractive to an institution whose investment staff may receive performance bonuses based partly upon reported investment results?

This is precisely the problem I have been writing about.

Private assets are commonly valued using models rather than continuous exchange prices. That can smooth reported returns, delay recognition of deterioration and make private assets appear less volatile than comparable publicly traded investments.

Earlier this year I called this the basic private-market accounting rule:

If you don’t trade it, you don’t have to price it.

The new Bloomberg story gives us something much better than a theoretical argument. It gives us an actual price offered by an outside buyer.

74 cents on the reported dollar.

That does not establish that every underlying loan is worth 74 cents. A secondary buyer also demands compensation for illiquidity, uncertainty and profit.  But that is exactly the point.

A reported NAV is not the same thing as the amount of cash an investor can actually obtain for the investment today.   Given this 74 cent price there are probably other Private Credit contracts that would sell at 60 cents, 80 cents or 90 cents.   Even 90 cents a 10% loss is a huge problem

Public Pensions Have a Powerful Reason Not to Find Out

This becomes especially troubling with public pension funds.

Many public pension investment staffs are compensated based upon investment performance. Private equity and private credit valuations feed into that reported performance.

Imagine what happens if a pension portfolio carrying billions of dollars of private assets suddenly has to mark those investments to observable secondary-market prices.

Reported performance falls.  Reported “alpha” disappears. Funding ratios may deteriorate.

Questions get asked by trustees, legislators and taxpayers.

And performance bonuses can disappear.

That doesn’t mean every pension employee is deliberately mispricing investments. It means the incentive structure overwhelmingly rewards not discovering the market price.

I previously estimated that American public pensions could be carrying hundreds of billions of dollars of unrecognized private-market losses if observable discounts were broadly applied. Whatever the exact number ultimately proves to be, Bloomberg has now supplied another important piece of evidence for the underlying thesis: investors facing a substantial cash discount frequently prefer the manager’s NAV to price discovery.

The $500 Billion Lie: How State Pension Staff, Private Equity, and Private Credit Collude to Hide Losses

Insurers Have an Even Bigger Reason to Avoid Price Discovery

Now take the same problem and put it inside a life insurance company.

The stakes become much larger.

Life insurers increasingly own enormous portfolios of private placements, mortgages, structured credit and other illiquid assets. Those assets back products Americans have been taught to regard as “safe”: fixed annuities, indexed annuities, stable-value contracts and pension-risk-transfer annuities.

The problem isn’t merely whether those investments eventually default.

It is what happens if their economic values deteriorate without the deterioration being reflected promptly in accounting values and ratings.

An insurer forced to recognize substantial losses can face declining statutory capital, ratings pressure and ultimately higher funding and liquidity pressure.

And a downgrade can alert precisely the people the insurer does not want alerted:

annuity holders.

That creates a potentially dangerous feedback loop.

Private-credit losses are recognized → insurer capital weakens → ratings come under pressure → annuity owners become concerned → surrender and liquidity demands increase → the insurer needs liquidity → illiquid assets may have to be sold → previously hidden losses become real.

That is why private-credit valuation isn’t some academic accounting debate.

It can become a liquidity problem on both sides of an insurance company’s balance sheet.

Columbia Already Identified the Ratings Problem

The Columbia Business School paper Rating Without Market Discipline makes this even more troubling.

The researchers found that privately rated insurer bonds carrying the same ratings as publicly rated bonds were roughly twice as likely to suffer impairments, while also being downgraded less frequently.

In other words, deterioration can potentially remain hidden in two places at once:

the valuation and the rating.

An illiquid private asset can avoid continuous market price discovery while its private rating can also be slower to reflect deterioration.

That is an extraordinarily convenient combination for an insurer.

A security can remain near par on the books.

Its investment-grade rating can remain intact.

The insurer avoids recognizing the full economic loss.

Capital ratios look stronger.

The insurer’s own rating is less threatened.

And annuity owners remain unaware of the deterioration occurring inside the balance sheet supporting their guarantees.    

By the time the annuity is downgraded it is in free fall and since annuities do not have downgrade clauses holders may ride them to default

Columbia’s Private Credit Ratings Paper May Be the Most Important Annuity Risk Paper of 2026

The Same Incentive Exists Everywhere

That is the real private-credit story.

The private-credit manager doesn’t want the loss recognized because lower NAV hurts performance and fees.

The public pension doesn’t want it recognized because lower returns can hurt performance numbers and bonuses.

The insurer doesn’t want it recognized because losses can weaken capital and potentially threaten ratings.

The consultant doesn’t necessarily want price discovery either, because acknowledging a huge valuation problem raises the obvious question of why so much money was allocated to the asset class in the first place.

And the investor who refuses a $74 cash offer can continue carrying an investment at the manager’s much higher reported NAV.

Everyone gets another quarter.

Bloomberg Has Given Us a Market Test

This is why Bloomberg’s new article matters.

We have spent years hearing that private credit’s lack of volatility demonstrates its stability.

Perhaps some of that “stability” exists because nobody wants to conduct the experiment Bloomberg just described.

Put the asset up for sale.

Ask for cash.

See what somebody will actually pay.

Cox did that.

The average offer was approximately 74 cents on the dollar. Investors overwhelmingly declined to transact.

That doesn’t prove NAV should universally be marked down 26%.

It proves something arguably more important:

There can be an enormous difference between a private asset’s reported value and the price at which somebody is actually willing to provide immediate liquidity.

That difference is liquidity risk.

And when investors can avoid recognizing that difference simply by refusing to sell, it also becomes an accounting and governance problem.

The Biggest Version of This Problem May Be Sitting Inside Your Annuity

The financial press understandably focuses on wealthy investors trapped behind private-credit redemption gates.

But the much larger retirement issue may be insurance.

Annuity owners generally don’t see the underlying private-credit prices at all. They see a guaranteed account value and an insurer credit rating.

Behind that guarantee may sit hundreds of billions of dollars of private placements, mortgages, structured credit and other assets without transparent daily market prices.

That is why I have argued that America’s largest private-credit exposure to ordinary individuals isn’t necessarily a private-credit fund.

It is the insurance balance sheet backing their annuity.

The Biggest Private Credit Fund in America Isn’t a Fund—It’s Your Annuity

The Bloomberg story therefore shouldn’t reassure anyone because investors refused to accept a 26% haircut.

It should raise the opposite question:

What would happen to pensions, insurers and private-credit funds if everybody actually had to discover what these assets were worth in cash today?

Private markets have built an enormous financial system around avoiding that question.

Bloomberg just showed us why.

Ohio politicians want voters to believe the state’s exploding data-center industry, its pension investments, Wall Street money and Republican political network are separate stories.

I don’t believe that anymore. Follow the money and they increasingly look like one story.

Start with U.S. Sen. Jon Husted. As lieutenant governor, Husted helped sell Ohio as a data-center destination, celebrating multibillion-dollar expansions by Amazon Web Services and others. Now that voters are discovering that giant data centers can mean enormous electricity demand, infrastructure costs and tax subsidies, Husted has reinvented himself as a ratepayer protector.

That’s convenient.

It gets more interesting when you follow Wall Street’s money. Employees identifying Blackstone and KKR as their employers have contributed tens of thousands of dollars to Husted’s federal campaign, and Blackstone CEO Stephen Schwarzman personally contributed the federal maximum. Those are individual contributions, not corporate donations—but they matter because Blackstone and KKR are becoming financial giants of the AI/data-center boom.

Blackstone, KKR and Apollo are pouring staggering amounts of capital into AI computing, data centers and the power infrastructure needed to run them. Carlyle-backed Ark Data Centers already operates facilities in Ohio. Ohio pension systems simultaneously invest billions through private equity, private credit, real estate and other alternative-investment structures involving this same Wall Street universe.

Ohio taxpayers subsidize the data centers. Ohio ratepayers help build the electrical infrastructure. Ohio pensioners provide Wall Street capital. Wall Street collects the fees. And Wall Street executives and employees contribute to politicians.

Maybe every piece of that is perfectly legitimate.

That’s why we have auditors.

Unfortunately, Ohio’s Auditor Just Joined SFOF

Ohio Auditor Keith Faber should be the obvious person to follow this money.

Instead, in 2026 Faber joined the State Financial Officers Foundation (SFOF).

Ohio Treasurer Robert Sprague was already there.

SFOF is particularly interesting because historically it didn’t merely bring Republican financial officials together to complain about ESG. It took sponsorship money from financial companies—including Fidelity, Invesco, Wells Fargo, JPMorgan and, historically, KKR—while providing its financial supporters access to state treasurers and other officials.

That’s quite a business model.

And Ohio is deeply embedded in the SFOF story.

Former Ohio Deputy Treasurer Seth Metcalf became president of SFOF’s board. Metcalf later became the QED figure at the center of Ohio’s bizarre STRS controversy.

And who did SFOF prominently feature and honor while Metcalf headed its board?

Vivek Ramaswamy.

Ramaswamy subsequently launched Strive Asset Management and became one of America’s loudest anti-ESG investment crusaders.

Now he wants to be governor of Ohio.

Metcalf. Sprague. Ramaswamy. Faber.

At some point, SFOF stops looking like a footnote.

Ohio Investigated the People Who Questioned STRS

The irony is almost too perfect.

Ohio Attorney General Dave Yost aggressively pursued STRS reform trustees Wade Steen and Rudy Fichtenbaum over their relationship with Metcalf and QED.

How much STRS money did QED ultimately receive?

Zero.

Meanwhile STRS continued putting billions of dollars into its existing investment structure and paying substantial investment-staff bonuses.

That’s where Ohio’s investigative enthusiasm suddenly became much less impressive.

Faber himself audited STRS in 2022. Even that audit raised concerns about investment bonuses and secrecy. More recent academic research raises an even more disturbing question: Did STRS have two performance numbers and use the more favorable one when calculating bonuses?

That deserves investigation.

Instead, Ohio spent years attacking the reform trustees who questioned STRS.

Now Faber wants Yost’s job.

He is running for Ohio Attorney General.

Meet the New Boss?

That’s what should concern Ohio teachers.

Yost demonstrated just how aggressively an Ohio Attorney General can use the power of his office against pension reformers.

What evidence is there that Faber would change direction?

He audited STRS without fundamentally disrupting its investment establishment. He has now joined SFOF, an organization intertwined with the same Ohio political-financial network he should be scrutinizing. And I have yet to see anything suggesting that Attorney General Faber would turn Ohio’s investigative machinery away from pension reformers and toward the people actually receiving billions of dollars of pension and infrastructure money.

I hope he proves me wrong.

Because Ohio has a spectacular forensic audit sitting in plain sight.

Follow Husted’s campaign money.

Follow Ramaswamy and SFOF.

Follow Sprague and Ohio’s public money.

Follow STRS and the private-market managers.

Follow Blackstone, KKR, Apollo, Carlyle and Blue Owl.

Follow the data centers, power plants, tax exemptions and electric bills.

And follow the investment bonuses.

Ohio already knows how to investigate pension trustees who challenge the establishment.

Now let’s see Keith Faber investigate the establishment.

https://zeteo.com/p/kreifels-war-on-woke-cash-grab-alaska

Ohio’s Data Center Election: Follow the Money- Break the Republican Stranglehold – Block Ramaswamy

Ohio STRS: Follow the Money — And Follow QED’s Seth Metcalf – SFOF Ramaswamy connection

Ohio should Already Have a Data-Center Watchdog:  but Auditor Keith Faber is being a Lapdog

Kentucky Auditor Allison Ball has apparently found something more important to audit than Kentucky’s exploding data-center gold rush.

Woke investments.

Ball’s office is paying $285,000 to Prinse LLC, doing business as Prospr Aligned, in a no-bid contract to conduct a special examination of Kentucky public pension investments involving so-called “restricted financial companies.”

Meanwhile, Kentucky is handing enormous advantages to data centers—tax breaks, infrastructure, electricity, water and secrecy—and Ball isn’t conducting the comprehensive data-center audit Kentucky taxpayers desperately need.

That’s an interesting choice of priorities.

Zeteo Followed the Money

Lauren Windsor at Zeteo recently exposed the national network surrounding Prospr and its CEO Derek Kreifels.  https://zeteo.com/p/kreifels-war-on-woke-cash-grab-alaska

Kreifels isn’t some independent auditor who wandered into Kentucky.

He co-founded and spent years running the State Financial Officers Foundation—SFOF, the national organization that helped turn opposition to ESG into a Republican political movement.

Allison Ball herself rose through SFOF.

Her former Kentucky Treasury aide O.J. Oleka now runs SFOF.

Kreifels left SFOF’s CEO job, created Prospr, and remains part of the SFOF network.

Then Allison Ball’s Auditor’s office hired Kreifels’s company.

For $285,000.

Apparently government spending isn’t always bad.

Prospr Isn’t Neutral About Data Centers

Here’s where this gets especially interesting.

Prospr has promoted AI data centers and high-performance computing as an economic-development opportunity.

It specifically points to abundant energy—including natural gas—as an advantage for powering them.

That fits neatly with SFOF’s longstanding campaign against climate-oriented investment restrictions, decarbonization pressure and restrictions on fossil fuels.

So Ball isn’t paying an ordinary accounting firm $285,000 to examine Kentucky pension investments.

She is paying a firm embedded in the very political network that has been fighting environmental and climate constraints while promoting the energy infrastructure needed for the AI boom.

Kentucky’s Auditor Could Be Auditing Data Centers

I recently pointed out something Kentucky politicians don’t seem anxious to advertise:

Kentucky already has a data-center watchdog.

Her name is Allison Ball.   https://commonsense401kproject.com/2026/08/23/kentucky-already-has-a-data-center-watchdog-with-subpoena-power-the-state-auditor-will-she-uncover-the-republican-corruption/

The Auditor has substantial authority to examine public money, obtain records and conduct special examinations.

Kentucky data-center projects raise obvious audit questions.

Who gets the tax breaks?

Who pays for the new electrical infrastructure?

Who pays for water and sewer expansion?

What happens to residential utility rates?

What promises were made behind NDAs?

Who owns and finances the projects?

What private-equity firms are involved?

What political relationships exist?

And are Kentucky taxpayers getting remotely close to what they’re giving away?

Ball could follow that money.

She apparently has other priorities.

Instead, Audit the Pensions for Being Too Woke

Kentucky’s official contract says Prospr is examining whether state retirement systems invested with “restricted financial companies.”

Think about the irony.

Kentucky pensions have billions invested through private equity, private credit, infrastructure and other Wall Street vehicles.   https://commonsense401kproject.com/2026/08/18/allison-balls-esg-shell-game-follow-the-money-from-kentucky-to-kkr-to-sfof/

Firms including KKR are deeply involved in financing the data-center and energy-infrastructure boom.

While Ball was Kentucky Treasurer and a Kentucky Teachers’ Retirement System trustee, Teachers approved substantial additional commitments to KKR funds.

KKR had ESG policies.

That apparently wasn’t the problem.

Now Ball’s office is paying an anti-ESG consultant to examine whether Kentucky pension investments conflict with Kentucky’s interests.

Maybe somebody should examine whether Kentucky’s pensions are financing the data-center interests receiving favorable treatment from Kentucky government.

The Taxpayer Can Pay Twice

This is the part of the data-center story almost nobody wants to discuss.

Kentucky taxpayers can subsidize data centers through:

tax incentives, infrastructure, water, electricity and economic-development programs.

Then Kentucky public employees’ retirement money can be invested with Wall Street managers financing:

data centers, natural-gas generation, transmission, pipelines and digital infrastructure.

The Kentucky citizen can therefore be financing the same data-center boom from both pockets.

That’s exactly the kind of financial ecosystem an independent Auditor should investigate.

Instead Ball is spending $285,000 investigating whether the pension funds are sufficiently anti-ESG.

Follow the Money—In Both Directions

Ball says ESG can cause fiduciaries to put politics ahead of financial interests.

Fine.

Apply that principle consistently.

If environmental politics shouldn’t determine pension investments, neither should anti-environmental politics.

If BlackRock shouldn’t use pension money to advance climate policy, Kentucky politicians shouldn’t use pension money to advance their energy policy.

And if Allison Ball really wants to protect Kentucky taxpayers from politically connected Wall Street interests, there is an enormous audit waiting for her:

Audit Kentucky’s data-center gold rush.

Follow the tax breaks.

Follow the utility infrastructure.

Follow the water.

Follow the NDAs.

Follow the private-equity money.

Follow the pension money.

And follow the political relationships.

Kentucky Doesn’t Need a $285,000 Anti-Woke Audit

It needs an Auditor.

Zeteo has already started following the Prospr/SFOF money.

Kentucky taxpayers should now ask why their own Auditor isn’t following the much larger pile of money sitting right in front of her.

Allison Ball has the authority to investigate Kentucky’s data-center boom.

Instead she’s paying an SFOF-connected anti-ESG consultant $285,000 to investigate Kentucky pensions.

Maybe the problem isn’t that Kentucky doesn’t have a data-center watchdog.

Maybe the watchdog is looking the other way.

Texas Governor Greg Abbott has suddenly discovered that data centers can be a problem.

They can raise electric-system costs.

They can consume enormous amounts of water.

They can overwhelm rural communities.

They can depend on tax incentives.

Their ownership can be difficult to trace.

And hundreds of proposed projects can threaten the stability of the Texas electric grid.

So on August 3, Abbott ordered the Public Utility Commission and ERCOT to conduct what he called a “comprehensive verification and audit” of data centers seeking to connect to the Texas grid.

No project is supposed to move forward until the review is completed.

That sounds tough.

It also raises a very simple question:

Where was Greg Abbott before the data-center boom became politically toxic?

Because Abbott isn’t an outsider arriving to clean up somebody else’s mess.

He helped build the Texas data-center gold rush.

Abbott Loved the Boom Before Voters Hated It

For years, Abbott sold Texas as the place where technology, private capital, energy and lightly regulated economic development could flourish.

He celebrated enormous technology investments.

He welcomed private-equity giant Apollo to Austin and declared:

“Texas is the new financial capital of America.”

He championed AI growth and massive technology investments.

Texas offered one of the most generous data-center tax structures in the country.

Then the bills started arriving.

Electric demand exploded.

Water became a local issue.

Rural landowners began organizing.

Communities complained about noise, infrastructure and loss of control.

And ERCOT’s interconnection queue became almost absurd.

By August 2026, ERCOT was dealing with approximately 474 gigawatts of proposed new electricity demand.

Abbott’s office says roughly 90% of those requests are data centers.

For perspective, that proposed demand is more than five times Texas’ record ERCOT peak load.

This isn’t ordinary economic development anymore.

It is potentially a restructuring of the Texas electric system.

And somebody has to pay for it.

Now Abbott Says: Data Centers Must “Pay Their Own Way”

On June 10, Abbott ordered the PUC and ERCOT to ensure that data centers pay the electric-infrastructure costs necessary to serve them rather than shifting those costs onto residential customers.

Good.

That principle should have existed from Day One.

Abbott also called for:

data centers to add generation rather than merely adding demand;

water-efficient cooling;

annual electricity and water reporting;

community protections;

and repeal of outdated data-center tax incentives.

Again:

Good ideas.

But this isn’t a new governor taking office and cleaning up an inherited policy.

This is the same governor who presided over the expansion.

The question is therefore not merely:

Are Abbott’s new rules reasonable?

The harder question is:

Why weren’t these protections required before Texas invited hundreds of enormous electricity consumers onto the grid?

Abbott Is Now Auditing His Own Boom

The August 3 directive goes even further.

Abbott ordered regulators to obtain from every data-center project information showing:

Public subsidies.

All state and local tax incentives, grants, abatements and other government financial assistance.

Electricity demand.

Projected annual and peak consumption and plans for on-site generation.

Water demand.

Projected consumption, water sources and cooling technology.

Community effects.

Noise, lighting, traffic, setbacks and emergency-response issues.

And perhaps most interestingly:

Ownership and controlling interests.

That last item is exceptionally important.

Private equity, infrastructure funds, developers, private-credit vehicles and special-purpose entities can make the ultimate economic ownership of a project extraordinarily difficult for ordinary citizens to determine.

Abbott now apparently agrees that Texas needs to know who actually owns these projects.

So do I.

But why only now?

Follow Abbott’s Money Too

The data-center audit should not stop with developers.

It should include the political system that welcomed them.

Transparency USA reports approximately $71.4 million in Abbott campaign contributions during the current 2026 election cycle.

Some of Abbott’s largest donors operate in businesses positioned to benefit directly or indirectly from Texas’ enormous buildout of data centers, electricity generation, natural-gas infrastructure, real estate and AI.

Among them:

Edward Roski Jr. — approximately $2 million.

Roski chairs Majestic Realty.

Majestic’s industrial real-estate network has connections to facilities leased to major technology companies.

Kelcy Warren — approximately $1.5 million this cycle.

Warren controls Energy Transfer, whose natural-gas pipeline infrastructure sits squarely inside the economic ecosystem that can supply enormous new power demand.

Black Mountain interests — approximately $1 million through identified contributions from the company/founder.

Black Mountain has direct Texas data-center and power-development interests.

Elon Musk — $500,000.

Musk sits at the intersection of AI, enormous computing requirements and electricity-intensive infrastructure.

Harlan Crow — identified campaign contributor.

Crow Holdings has announced data-center development activity.

Ray Hunt interests — Abbott donor connections.

Hunt interests span energy, real estate and power infrastructure.

None of those contributions proves that Abbott made a policy decision because someone gave him money.

That isn’t the point.

The point is disclosure.

When a governor receives enormous campaign contributions from people whose businesses can profit from the same economic boom his administration is promoting, citizens deserve to be able to follow the money.

Abbott’s Own Opponent Is Making This an Election Issue

Democratic gubernatorial nominee Gina Hinojosa has made Abbott’s campaign financing part of her attack.

Her campaign alleges that donors with substantial interests in the data-center economy have contributed more than $20 million to Abbott over time.

That aggregate figure is a campaign claim and should be independently reconstructed before being treated as a definitive number.

But several individual connections are independently visible in campaign-finance records.

Hinojosa specifically points to recent contributions from Roski, Warren, Black Mountain’s Rhett Bennett, Elon Musk, Harlan Crow and Hunt-related interests.

The existence of those individual contributions is much easier to document than a sweeping corruption allegation.

The proper question is therefore:

Who gave Abbott money, what do they own, and how do their businesses intersect with Texas’ data-center, electricity and infrastructure policies?

Put that in a public database.

The Pension Money Makes Texas Different

Texas has another enormous source of capital sitting quietly in the background:

Public pensions.

The Teacher Retirement System of Texas alone had approximately $225 billion of investment assets as of August 31, 2025.

Its private-market exposure is enormous.

TRS reported roughly:

$34.5 billion in private equity.

$30.2 billion in real estate.

$15.5 billion in energy, natural resources and infrastructure.

That’s roughly $80 billion in those three categories alone.

TRS says its long-term target for private markets is approximately one-third of the entire trust.

Its manager roster reads like a Who’s Who of the private-capital industry:

Apollo.

Blackstone.

Blue Owl.

BlackRock.

DigitalBridge.

Antin Infrastructure.

EIG.

I Squared.

ECP.

KKR-related managers.

And many others.

Those firms increasingly invest in:

data centers;

digital infrastructure;

private credit;

natural gas;

power plants;

transmission;

real estate;

and AI infrastructure.

That does not mean Texas teachers financed every Texas data center.

It means Texas has an enormous look-through problem.

Abbott Welcomes Apollo While Texas Teachers Invest With Apollo

Apollo illustrates the circularity.

TRS has invested substantial sums with Apollo, including a reported $400 million commitment to Apollo Investment Fund X.

Then in August, Abbott welcomed Apollo’s new strategic hub in Austin.

Again, there is nothing inherently wrong with a Texas pension investing with Apollo or Apollo opening an office in Austin.

But put the pieces together:

Texas politicians want private capital in Texas.

Texas pension systems supply private capital with billions of dollars.

Private capital finances energy, infrastructure and data centers.

Texas grants tax incentives and builds an economic environment designed to attract those projects.

Data centers create enormous electricity demand.

Energy and infrastructure investors profit from serving that demand.

Some people involved in those industries contribute heavily to Texas politicians.

That isn’t proof of corruption.

It is precisely the kind of circular financial system that demands transparency.

Texas Teachers Can Be on Both Sides of the Trade

A Texas teacher might reasonably believe her retirement contribution has one purpose:

Pay her pension.

Follow that dollar through modern private markets and it can become much more complicated.

Teacher contribution

→ TRS

→ private-equity/infrastructure manager

→ power project

→ private-credit financing

→ digital infrastructure

→ data-center ecosystem.

Meanwhile, the same teacher pays an electric bill.

Her community may finance infrastructure.

Her local government may grant incentives.

And the governor may celebrate the economic-development project.

Wall Street potentially earns fees at several different stages.

This is why simply categorizing an investment as “private equity,” “real estate” or “infrastructure” is no longer enough.

Texas retirees should be able to see the underlying economic exposure.

Abbott Has Appointed Wall Street Directly Into Pension Governance

The pension issue isn’t entirely separate from Abbott’s political network.

Abbott controls appointments to important Texas boards.

In June 2026, Abbott appointed Dan West of SCF Partners, an energy-focused private-equity professional, to the TRS Board of Trustees.

Again, private-equity experience can be useful on an investment board.

But Texas already has an enormous private-market allocation.

The governance question should therefore be:

Who represents skepticism?

Who on the TRS board challenges private-equity fees?

Who challenges private valuations?

Who demands LPAs?

Who examines private-credit risk?

Who independently challenges benchmarks?

Who asks whether Texas pension capital is financing an economic-development ecosystem favored by the same political establishment appointing the board?

Texas appears very good at bringing investment professionals into pension governance.

It should be equally good at bringing independent fiduciary skepticism into the room.

The Tax Breaks Were Built Before the Backlash

Texas Tax Code §§151.359 and 151.3595 created substantial sales-and-use-tax exemptions for qualifying data centers.

For ordinary qualifying facilities, the law historically required at least a $200 million investment and 20 qualifying jobs.

Large projects can qualify with at least a $500 million investment and 40 jobs.

For certain qualifying large projects, the exemption can last as long as 20 years.

Twenty years is a long time.

Especially for an industry evolving as quickly as AI.

Abbott now calls some of those incentives outdated and says Texas should repeal unnecessary data-center subsidies.

That is an important admission.

Because if an incentive has become outdated, taxpayers deserve to know:

How much has it already cost?

Which companies received it?

For how many years?

How many jobs were created?

What infrastructure did the public finance?

What electricity costs were shifted elsewhere?

And what return did Texans receive?

Don’t Just Repeal the Incentives—Audit Them

This is where Abbott’s new “audit” doesn’t go far enough.

ERCOT’s immediate problem is grid reliability.

But Texas needs a financial audit too.

For every qualifying data center, publish:

Developer and ultimate owner.

Private-equity/infrastructure sponsor.

Lenders.

State tax exemptions.

Local tax abatements.

Public infrastructure assistance.

Electricity demand.

Water demand.

Permanent jobs promised.

Permanent jobs delivered.

Capital investment promised.

Capital investment delivered.

Political contributions from owners and executives.

Texas public-pension investments with the owners/managers.

And then calculate:

Public subsidy per permanent job.

That would tell Texans far more than another ribbon cutting.

The Electric Grid Is the Real Subsidy Risk

The largest public cost may eventually have very little to do with formal tax abatements.

It may be electricity infrastructure.

ERCOT has already begun a new batch process for connecting large loads of 75 megawatts and above because the ordinary project-by-project system couldn’t handle the scale of the requests.

Texas is also spending enormous sums to expand electric infrastructure.

Abbott has championed the Texas Energy Fund.

In June alone he announced a $200 million grant for electric-system improvements in Northeast Texas and a Texas Energy Fund loan supporting 860 MW of new natural-gas generation in West Texas.

Those individual projects may serve much broader reliability needs and should not automatically be labeled data-center subsidies.

But Texas now has to answer the allocation question:

When new infrastructure is required substantially because of massive new data-center demand, who pays for it?

Abbott now says the data centers should.

Good.

Enforce it.

And publish the accounting.

Abbott’s Sudden Conversion Is the Political Story

By August, the politics had changed so dramatically that Abbott was openly saying data-center developers had essentially “dug their own grave” with the public.

That’s remarkable.

This is the governor who previously celebrated Texas becoming an AI and technology capital.

Now he is criticizing the industry’s political judgment.

What changed?

Not the physics.

Data centers required huge amounts of electricity before this summer.

They required water before this summer.

Tax exemptions existed before this summer.

Private capital was financing the boom before this summer.

What changed was public opinion.

Data centers became politically dangerous.

Rural Texas started pushing back.

The issue entered the governor’s race.

And suddenly Austin discovered “guardrails.”

That doesn’t make the guardrails bad.

It makes them late.

Give Abbott Credit for One Thing

There is one aspect of Abbott’s August order that deserves real credit.

He isn’t merely asking whether data centers can technically connect.

He is asking:

Who owns them?

Who subsidizes them?

Where does their electricity come from?

Where does their water come from?

What happens to neighboring communities?

Those are exactly the questions Texas should be asking.

So expand the inquiry.

Add:

Who finances them?

Which private-equity funds own them?

Which private-credit firms lend to them?

Which Texas pensions invest with those firms?

What fees are the pension systems paying?

Which political donors benefit?

Which gubernatorial appointees have financial relationships with the managers?

Which tax incentives have already been granted?

That’s the actual Texas money map.

Don’t Let Abbott Audit Only the Last Mile

Right now, Abbott’s audit starts with the data center seeking an ERCOT connection.

That’s too late.

Follow the money backward.

Data center

← developer

← private-equity/infrastructure fund

← private credit

← institutional investors

← Texas public pensions.

Then follow the public side:

Data center

← tax exemption

← local incentive

← public infrastructure

← transmission

← generation

← ratepayers and taxpayers.

Then follow the political side:

Developer / energy company / financier

→ campaign contribution

→ political appointment

→ public policy.

Those three maps should be laid on top of one another.

That is how Texans discover whether there are conflicts.

The Texas Data Center Accountability Test

Abbott says data centers must pay their own way.

Fine.

Then Texas should require:

No hidden subsidies.

No undisclosed ownership.

No infrastructure-cost shifting.

No secret local deals involving public money.

No pension investments hidden behind generic private-market labels.

No political appointments without full conflict disclosure.

No incentive without an independently measurable public return.

And no politician—Republican or Democrat—should get to call a project “economic development” without showing taxpayers the complete economics.

Follow the Abbott Money

Texas has assembled nearly every ingredient required for a private-capital gold rush:

Enormous pension funds.

Private equity.

Private credit.

Cheap land.

Natural gas.

Tax incentives.

Data centers.

AI.

Massive electricity demand.

Political contributions.

And politicians eager to proclaim that Texas is open for business.

Now Greg Abbott wants to become the sheriff.

Better late than never.

But a sheriff investigating a gold rush he helped create shouldn’t be allowed to stop at the town limits.

Follow the developer.

Follow the tax break.

Follow the power plant.

Follow the pension dollar.

Follow the private-equity fund.

Follow the campaign contribution.

And finally:

Follow Greg Abbott.

His own new data-center audit proves the fundamental point.

Texas waited too long to ask who pays, who owns, who profits and who carries the risk.

Now that Abbott has finally asked those questions of the data centers, Texans should ask the same questions of the political and financial system that brought them here

Annuities can play a useful role in 401(k) plans. Retirees face a real problem converting a retirement account into income they cannot outlive, and insurance companies are uniquely positioned to provide that guarantee. The challenge is making sure that a decision that looks prudent when an annuity is purchased remains prudent 10, 20 or 30 years later.

One relatively simple improvement is a downgrade clause. A fiduciary may select an insurance company partly because it has strong financial ratings—perhaps AA or better. But ratings change. If that insurer later falls below the credit standard that justified its selection, the plan should have a contractual right to transfer the guarantee or assets to another financially strong insurer without a surrender charge, market-value adjustment or other participant penalty. As I argued in my earlier article, if the insurer’s credit quality was important enough to justify buying the annuity, deterioration in that credit quality should give the fiduciary a meaningful ability to act.

There is precedent for this approach. Stable-value products have long used multiple insurance counterparties to diversify risk, and multi-insurer lifetime-income structures have also been developed. A well-designed 401(k) annuity could combine those concepts: diversify guarantees among several strong insurers and provide a mechanism to replace an insurer that falls below predetermined financial-strength standards. That would allow fiduciaries to monitor credit risk rather than simply accept it for decades.

A downgrade provision could also improve competition. An insurer would know that maintaining the plan’s business depends not merely on winning the initial contract, but on continuing to meet the plan’s financial-strength requirements. Fiduciaries could supplement ratings with monitoring of capital strength, bond spreads, CDS spreads and other indicators of deterioration. The objective isn’t to predict an insurance-company failure. It is to give the fiduciary the ability to respond before a serious credit problem becomes a participant problem.

Lifetime-income annuities therefore don’t have to be an all-or-nothing proposition for 401(k) plans. Better contracts can make them safer. Strong initial credit standards, ongoing monitoring, multiple insurers where practical, and a penalty-free downgrade clause could preserve the valuable lifetime-income feature while substantially improving fiduciary control over long-term insurer risk. The goal should be straightforward: give participants the benefit of an insurance guarantee while giving their fiduciaries a reasonable exit if the financial strength behind that guarantee materially deteriorates.