Jason Zweig’s recent Wall Street Journal piece — “Do You Really Know What’s Inside Your 401(k)?” —https://www.msn.com/en-us/money/markets/do-you-really-know-what-s-inside-your-401-k/ar-AA1RLP3d?ocid=finance-verthp-feeds is the first major mainstream financial article to openly challenge the great myth of Target Date Funds (TDFs): that because they’re labeled “retirement funds,” they must be safe, prudent, and transparent.
Zweig is right:
Target Date CITs are black boxes.
Participants are flying blind.
Even fiduciaries often have no idea what they’re buying.
But here’s the deeper truth Zweig could only gesture toward:
State-regulated Collective Investment Trusts (CITs) are the primary mechanism Wall Street now uses to hide high-risk, high-fee products inside 401(k) plans — including Private Equity, annuities, structured credit, and even crypto.
This isn’t accidental.
This is regulatory arbitrage by design. While I testified on this issue at the July 2024 DOL EBSA Advisory Committee, I was pretty much dismissed and ignored https://commonsense401kproject.com/2025/06/29/erisa-advisory-council-testimony-released/ the industry ignored a study by Boston College Law Professor Natalya Schnitser “Regulators lack visibility into CIT investment strategies and conflicts. Plan fiduciaries are similarly limited.” https://clsbluesky.law.columbia.edu/2023/11/09/overtaking-mutual-funds-the- hidden-rise-and-risk-of-collective-investment-trusts/ and a warning by SEC Chair Gary Gensler “Rules for these funds lack limits on illiquid investments and minimum levels of liquid assets. There is no limit on leverage, requirement for regular reporting on holdings to investors, or requirement for an independent board.” https://www.sec.gov/newsroom/speeches-statements/gensler-remarks-investment-company-institute-05252023#_ftnref27 Evan Vanguard has cut a deal with TIAA to put an annuity in a
CIT.
And the industry is now lobbying Congress to expand these opaque products even further — through the INVEST Act, which would open the door for CITs in 403(b) plans, especially for teachers and nonprofit workers.
This is not investor protection.
This is a massive subsidy and legal shield for Private Equity and insurers who have already hijacked the Target Date market.
Below is how Zweig’s reporting validates — and amplifies — the very warnings I’ve been documenting for years.
1. Zweig Exposed the Key Weakness of TDF CITs: Zero Transparency
Zweig’s article highlights what most participants do not know:
- CIT TDFs do not file SEC prospectuses
- CITs provide no daily portfolio holdings
- CITs are regulated only by weak state trust departments, not the SEC
- CITs routinely change allocations without public notice
- CITs often use opaque pricing, smoothing, and valuation methods
This is exactly the structural opacity I detailed in:
📌 State-Regulated CITs as Vehicles for ERISA Prohibited Transactions
(https://commonsense401kproject.com/2025/11/18/state-regulated-collective-investment-trusts-cits-as-vehicles-for-erisa-prohibited-transactions/)
Zweig showed the symptoms.
But he did not go into the deeper pathology:
The entire CIT TDF ecosystem is built to avoid ERISA and avoid SEC oversight.
It is no coincidence TDF managers moved from mutual funds to CITs.
They didn’t do it to save participants fees.
They did it to avoid public scrutiny and to create a regulatory gray zone where anything can be hidden.
2. Weak State CIT Oversight Enables Hidden Private Equity, Annuities, and Crypto
As my research has documented:
CITs can legally contain:
- Private Equity and Venture Capital
- Private Credit / Direct Lending
- Insurance annuity contracts
- Structured products
- Commodities
- Crypto ETFs or crypto derivatives
- Offshore vehicles
- Securitized real estate
- High-fee alternative managers
- Use excessive leverage
None of this would be allowed inside an SEC-registered mutual fund without substantial disclosure.
Zweig asked the right question — “Do you know what’s inside your 401(k)?”
But the deeper answer is:
You don’t know. And you’re not supposed to know.
CITs are built specifically so you cannot know.
Even the Department of Labor cannot easily assess CIT risks because the data is not reported to them.
3. CIT TDFs Create Automatic ERISA Prohibited Transactions
Zweig’s article implicitly acknowledged something the legal community has missed:
If a Target Date CIT is affiliated with the plan’s recordkeeper or consultant,
→ the TDF is a party-in-interest,
→ and ANY compensation they earn (even indirect)
→ becomes a prohibited transaction under ERISA §406.
What Zweig showed is that almost all large TDF CITs are run by:
- The same company that provides recordkeeping (Fidelity, TIAA, Empower, Voya)
- Or the same firm that provides “advice” or consulting
- Or an affiliate of the plan’s service provider
This is exactly what I wrote in:
📌 Why 401(k) Consultants Should Be Included as Defendants in ERISA Litigation
(https://commonsense401kproject.com/2025/11/18/why-401k-consultants-should-be-included-as-defendants-in-erisa-litigation/)
The ERISA implication:
Any Target Date Fund run by a party-in-interest is vulnerable to a prohibited transaction lawsuit that cannot be dismissed at the pleading stage.
This is because:
- Compensation exists
- The CIT is proprietary or affiliated
- The 5500 filings show the affiliation
- §406 violations are strict liability — no intent required
And Zweig just gave the public the roadmap.
4. 5500 Forms Make It Easy to Identify Party-in-Interest TDFs
Zweig showed investors are unaware of what is inside their 401(k)s.
But what he didn’t say is that lawyers and fiduciaries and even participants can easily identify party-in-interest relationships by checking:
- Schedule C (service providers)
- Schedule D (CCT/CIT holdings)
- Trustee and custodian identities
- Indirect compensation disclosures
- Affiliated service provider names
This allows plaintiffs to identify:
- TDFs run by the recordkeeper
- CITs operated by plan consultants
- CITs relying on affiliates for valuation services
- Platforms that receive crypto pay-to-play or revenue-sharing
- Spread-based GICs embedded in CIT “fixed income”
Wherever a TDF manager is also:
- the recordkeeper,
- the broker-dealer (BrokerageLink),
- the consultant/advisor,
- the custodian,
- or the CIT trustee,
a prohibited transaction theory is not only viable — it is almost guaranteed.
5. Wall Street Is Now Trying to Change ERISA Rather Than Comply With It
Zweig highlights how confusing and opaque CITs have become.
But the next chapter is even worse:
Wall Street firm and Plan Defense firms know how vulnerable plans are to litigation after Cunningham v. Cornell https://drive.google.com/file/d/1YOyJ3-8SSw6AjCmyF5clejwdl0ve_VyS/view
The industry is now trying to rewrite ERISA so their hidden practices become legal.
That is the purpose of:
- Rep. Randy Fine’s bill forcing Private Equity, annuities, and crypto into 401(k)s,
📌 Rep. Randy Fine’s Bill Forces Hidden Alternatives Into 401(k)s
(https://commonsense401kproject.com/2025/11/29/rep-randy-fine-files-bill-to-force-private-equity-annuities-and-crypto-into-401ks)
The goal of these bills is simple:
If Private Equity, annuities, and crypto cannot legally be placed inside Target Date CITs under ERISA today, change ERISA so they can.
Congress is being used to rubber-stamp what would otherwise be:
- clear party-in-interest violations,
- clear §406 prohibited transactions,
- and clear breaches of loyalty and prudence.
However, Cunningham v. Cornell was a 9-0 Supreme Court decision showing that even the most Wall Street friendly judges have refused to destroy ERISA protections of DC plan.
6. Wall Street Changing laws to allow Target DATE CITs in non-ERISA plans
That is the purpose of:
The INVEST Act (allowing CITs in 403(b) plans), and as I explained here:
📌 Why the INVEST Act Should Be Opposed
(https://commonsense401kproject.com/2025/12/05/why-the-invest-act-should-be-opposed-forcing-hidden-private-equity-onto-public-school-teachers/)
7. Zweig’s Article Strengthens ERISA Litigation Theories
Zweig’s findings strengthen four major litigation arguments:
1. CIT opacity = fiduciary breach per Tibble v. Edison
Fiduciaries cannot prudently monitor an investment whose holdings are secret.
2. CITs operated by a plan’s own service provider = prohibited transaction (§406)
Zweig just provided mainstream confirmation that these relationships are common.
3. Hidden alternatives (PE, annuities, crypto) = breach of duty of loyalty
Fiduciaries who cannot see risks cannot act in participants’ best interest.
4. CITs conceal revenue-sharing and indirect compensation = §406(b)(3) violation
Zweig’s discussion of hidden fees matches precisely what I’ve shown in multiple ERISA analyses.
Conclusion: The WSJ Just Confirmed What I’ve Warned for Years — But the Real CIT Corruption Is Still Hidden
Jason Zweig’s reporting is essential.
But it is only the beginning.
CIT corruption runs far deeper:
- Hidden Private Equity allocations
- Hidden annuity spread profits
- Hidden crypto exposure through derivatives and brokerage windows
- Hidden trustee wrap fees
- Hidden sub-advisor platform payments
- Hidden GIC spread extraction
- Hidden recordkeeper revenue-sharing
The WSJ piece has now validated what fiduciary experts and whistleblowers have documented for years:
Target Date CITs are the most dangerous, opaque, conflict-ridden investment vehicles in the 401(k) and 403(b) system — and they are at the core of modern ERISA prohibited transactions.
Zweig opened the door.
It’s now time for litigators, fiduciaries, regulators, and Congress to walk through it.
Appendix: Why “Fee Disclosure Parity” Claims by State-Regulated CIT Trustees Miss the Fiduciary Point
A. The Great Gray Statement: Technically Accurate, Fiduciarily Irrelevant
I wanted to test my theories on CITs. A consultant and I were discussing and he decided to see what Great Grays response would be. He recently shared the following statement from Great Gray Trust, the largest trustee and promoter of state-regulated Collective Investment Trusts (CITs): who is owned by the Private Equity firm Madison Dearborn.
“The OCC has regulations specific to CITs (Regulation 9)… and a couple of states cross-reference or incorporate those regulations… While Great Gray has generally followed those regulations… OCC regulations do not have any specific disclosure requirements regarding CIT fees and expenses. Instead, DOL Rule 404a-5 dictates what must be disclosed… Therefore, it is our view that there should be no distinction between the fees and expenses required to be disclosed for a mutual fund or a CIT… Any attempt to hide fees would be inconsistent with the DOL rule.”
This statement is not blatantly false—but it is misdirection, and from a fiduciary and prohibited-transaction perspective, it is largely irrelevant.
The issue with state-regulated CITs is not whether a standardized fee table is technically disclosed.
The issue is whether the underlying assets, valuation methods, revenue flows, and conflicts are capable of being truthfully and reliably disclosed at all.
That is precisely why annuities, private equity, private credit, and crypto are prohibited from mutual funds—and why their migration into state-regulated CITs is a regulatory end-run around ERISA.
B. Why Mutual Funds Prohibit Annuities, Private Equity, and Crypto
Mutual funds are subject to the Investment Company Act of 1940, SEC valuation rules, daily NAV requirements, and independent board oversight. These regimes do not permit assets whose pricing, fees, or performance are inherently opaque or manipulable.
As a result:
- Annuities are excluded because spread profits, crediting rates, and insurer balance-sheet economics cannot be independently verified.
- Private equity and private credit are excluded because non-market valuations allow fee and performance manipulation.
- Crypto is excluded because custody, pricing, liquidity, and auditability are unreliable.
The prohibition is structural, not disclosure-based.
The SEC does not say, “You may include these assets if you disclose them better.”
It says, you may not include them at all.
That distinction is fatal to Great Gray’s argument.
C. Why OCC Regulation 9 Is a Red Herring
Great Gray correctly notes that OCC Regulation 9 governs national-bank-sponsored CITs and does not impose detailed participant-level disclosure requirements.
But that observation cuts against their position.
Regulation 9 was designed decades ago for traditional bank collective trusts investing in publicly traded securities—not for modern vehicles embedding:
- Insurance contracts
- Private equity
- Private credit
- Offshore reinsurance
- Derivatives
- Annuity-wrapped structures
The OCC never contemplated CITs being used as containers for assets explicitly barred from mutual funds. The absence of detailed disclosure rules in Regulation 9 reflects the assumption of simple, transparent underlying assets, not a regulatory blessing for opacity.
State regulators who “cross-reference” Regulation 9 inherit the same limitations—and often lack the staff, expertise, or independence to challenge aggressive product design.
D. Why DOL Rule 404a-5 Cannot Cure Structural Opacity
Great Gray argues that DOL Rule 404a-5 ensures fee disclosure parity between mutual funds and CITs.
This argument fails for a simple reason:
404a-5 assumes that the disclosed information is accurate, reliable, and economically meaningful.
404a-5:
- Does not validate valuations
- Does not audit fee flows
- Does not test spread profits
- Does not examine affiliate compensation
- Does not penetrate insurance or private-market structures
If the underlying accounting is unreliable, the disclosure is meaningless.
A fee table that reports “0.45%” is not informative if:
- The underlying assets are not market-priced
- Fees are embedded in spreads
- Revenue flows through affiliates
- Performance is smoothed or discretionary
Disclosure of fiction is not transparency.
E. Why State-Regulated CITs Enable Prohibited Transactions
This is the central fiduciary issue.
State-regulated CITs allow plan fiduciaries to:
- Claim compliance with disclosure rules
- While holding assets that cannot exist in mutual funds
- And engaging in transactions with parties-in-interest that would otherwise be plainly prohibited
In effect, state-regulated CITs function as regulatory laundering vehicles:
- They launder annuities into DC plans
- They launder private equity into QDIAs
- They launder conflicted compensation through trust structures
That is not a disclosure problem.
It is a prohibited-transaction problem.
my response to Great Gray captured the core issue succinctly:
F. Why my Response Is Exactly Right
“Annuities, private equity, and crypto are not allowed in mutual funds because their poor accounting standards make performance and fee information unreliable and subject to manipulation… while their statement is not blatantly false, it is irrelevant.”
Appendix: “NAV = Not Actual Value” — How State-Regulated CITs Allow Private-Market Accounting Fraud Inside 401(k) Plans
A. The WSJ’s Breakthrough — and Its Limits
In When Your Private Fund Turns $1 Into 60 Cents, Jason Zweig documents a phenomenon long understood by institutional fiduciaries but largely hidden from retail and 401(k) investors: private-market net asset values (NAVs) often collapse the moment they are exposed to real price discovery
NAV = _Not Actual Value_Zweig https://www.wsj.com/finance/investing/when-your-private-fund-turns-1-into-60-cents-445d63c2?
.Zweig describes multiple non-traded private real estate and private credit funds that, upon listing on public exchanges, immediately traded at 25%–40% discounts to stated NAV—turning a dollar of “value” into roughly sixty cents overnight
NAV = _Not Actual Value_Zweig
. His conclusion is blunt: for many private funds, NAV does not mean net asset value but “not actual value.”
The WSJ article is correct—and devastating. But it only scratches the surface of a far more serious problem: this same fictional NAV accounting is now being imported directly into 401(k) plans through state-regulated Collective Investment Trusts (CITs).
B. Why This Is a 401(k) Problem — Not Just a Private-Fund Problem
The WSJ article focuses on:
- Non-traded REITs
- Private credit funds
- Business development companies (BDCs)
sold primarily to high-net-worth or accredited investors.
What it does not address is that identical valuation methodologies are now being embedded in 401(k) Target-Date Funds via CIT structures, where:
- Participants cannot evaluate valuations,
- Fiduciaries rely on trust-level accounting,
- And ERISA protections are weakened by regulatory arbitrage.
This is not accidental. It is structural.
C. The Accounting Trick: Smoothed NAVs and “Liquidity Theater”
As Zweig explains, private funds appear stable because:
- Assets are not traded,
- Valuations are manager-determined,
- Price volatility is suppressed by appraisal models rather than markets
NAV = _Not Actual Value_Zweig
.
Once public trading begins, markets immediately apply:
- Liquidity discounts,
- Leverage risk adjustments,
- Governance and fee haircuts,
and the NAV collapses.
Inside state-regulated CITs, that moment of truth never occurs:
- There is no exchange trading,
- No independent market price,
- No daily redemption pressure,
- No public discount mechanism.
As a result, fictional NAVs can persist indefinitely inside 401(k) plans.
D. Why Mutual Funds Cannot Do This — But State-Regulated CITs Can
The Investment Company Act of 1940 effectively prevents mutual funds from holding assets whose values:
- Cannot be independently verified,
- Are not market-priced,
- Depend on manager discretion.
That is why:
- Private equity,
- Private credit,
- Non-traded real estate,
- Illiquid structured products,
have historically been excluded from mutual funds.
State-regulated CITs evade this regime entirely.
By operating outside the SEC’s valuation, governance, and liquidity rules, CITs allow:
- Appraisal-based NAVs,
- Internal valuation committees,
- Manager-controlled assumptions,
to be passed directly into participant accounts—with no effective regulatory backstop.
E. Why This Is Worse in Target-Date CITs
Target-Date Funds (TDFs) are uniquely dangerous vehicles for this accounting fiction because:
- Participants cannot opt out
TDFs are QDIAs. Most participants never choose them—they are defaulted. - Asset allocation masks valuation risk
Private assets are buried inside multi-asset portfolios, making losses difficult to attribute. - Losses are discovered late
As Zweig shows, losses become visible only when liquidity is forced. In TDF CITs, that may not happen for decades. - Fiduciaries rely on consultant models
Consultants validate the “smoothing” as volatility reduction—confusing accounting suppression with risk reduction.
In short, Target-Date CITs are the perfect hiding place for “$1 into 60 cents” accounting.
F. ERISA Implications: Prudence, Valuation, and Prohibited Transactions
Zweig’s article bolsters multiple ERISA claims:
1. Prudence (§404)
A fiduciary cannot prudently rely on valuations that:
- Are not market-tested,
- Are manager-controlled,
- Have repeatedly proven to be overstated when exposed to markets.
2. Disclosure Failures
Fee and performance disclosures are meaningless if the underlying NAV is fictional. Disclosure of false precision is not transparency.
3. Prohibited Transactions (§406)
Many of these private-asset CIT structures involve:
- Related-party managers,
- Affiliated valuation agents,
- Revenue sharing,
- Insurance or credit guarantees,
all of which are party-in-interest transactions masked by trust structures.
Zweig’s reporting provides real-world evidence that these structures systematically overstate value, strengthening disgorgement and rescission theories.
G. The Central Irony the WSJ Identifies — and 401(k)s Ignore
Zweig captures the irony succinctly:
Investors were told they could have the stability of private assets and liquidity—until markets proved they could not have both
NAV = _Not Actual Value_Zweig
.
401(k) CITs perpetuate this lie indefinitely:
- Participants see “stability,”
- But it is manufactured by accounting,
- Not by economics.
The losses are merely delayed, not eliminated.
H. Why This Appendix Matters
The WSJ has documented the symptom.
This Appendix identifies the disease.
State-regulated CITs allow private-market accounting failures—already exposed in public markets—to be hidden inside America’s retirement system, where:
- Participants cannot see them,
- Fiduciaries rely on conflicted consultants,
- And regulators lack jurisdiction or expertise.
This is not innovation.
It is valuation laundering.
Bottom Line
Jason Zweig has shown that in private markets, NAV often means Not Actual Value
NAV = _Not Actual Value_Zweig
.
State-regulated CITs now allow that same fiction to live permanently inside 401(k) plans.
When these losses eventually surface—through plan terminations, withdrawals, or litigation—the question will not be what went wrong.
Appendix this disclosure by Private Equity owned Great Grey Trust on their Stable Value CIT is typical. https://greatgray.com/wp-content/uploads/2025/05/0.08-Stable-Value-Funds-2024-Final.pdf The “stable value fund” is overwhelmingly a general-account insurance contract, not a diversified bond portfolio
In the Schedule of Investments, the Great Gray Trust Stable Value Fund reports “Guaranteed Investment Contracts – 90.5%” and identifies the holding as “Empower Guaranteed Funding Agreement 599950-01” “exempt from registration under the Investment Company Act of 1940 … and the Securities Act of 1933,” Private Equity owned Great Gray Trust Company, LLC is the trustee and “maintains ultimate fiduciary authority
It also states the credited rate process is “discretionary and proprietary.” This is a direct admission that the plan’s return is not the transparent output of a portfolio—it’s the output of an insurer’s internal pricing decision, i.e., classic general-account spread mechanics.
Certain events could limit transacting at contract value, and “certain events allow Empower to terminate the Agreements … and settle at an amount different from contract value.”
These admissions by the trustee prove that the CIT and underlying General Account Fixed Annuities
It will be why fiduciaries allowed it in the first place.
https://commonsense401kproject.com/2025/11/02/target-date-funds-in-state-regulated-collective-investment-trusts-citsrisk-and-the-basis-for-a-prohibited-transaction-claim/
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