A Conversation with Christopher Tobe, CFA, CAIA
Broadcast Retirement Network Interview https://www.msn.com/en-us/money/topstocks/retirement-risk-radar-fresh-erisa-litigation-highlights/vi-AA24fVQR?ocid=finance-verthp-feeds
Interviewer: Jeffrey H. Snyder
Guest: Christopher Tobe, CFA, CAIA
Topic: ERISA litigation, annuity risk, private credit, target-date funds, and pension transparency
Film Referenced: Pension Fight Club
Introduction
Jeffrey Snyder:
Christopher, welcome back. You’ve been deeply involved in ERISA litigation and fiduciary analysis for years, especially surrounding retirement-plan annuities and alternative investments. There seems to be a new wave of litigation developing around these products. What are you seeing?
Christopher Tobe:
What we’re seeing now is a widening divide between the very largest retirement plans and the mid-sized plans that receive far less public attention. The mega-plans attract headlines, but many of the most significant fiduciary issues are occurring in plans ranging from roughly $100 million to $1 billion in assets—particularly regional hospital systems and similar employers.
A major issue is the use of fixed annuity products paying participants approximately 2%, while comparable products in the marketplace are paying closer to 4% or higher. That spread can represent a very large transfer of value away from participants over time.
The litigation focus increasingly comes down to a simple question: Are participants receiving reasonable value for the risks they are taking?
The Hidden Economics of Fixed Annuities
Snyder:
You spent years inside the insurance industry helping structure these products. Explain how the economics actually work.
Tobe:
I spent seven years at Transamerica helping manufacture and manage these products, including separate-account and synthetic annuity structures. One of the least understood aspects of the industry is the insurer spread.
Insurance companies may earn 6% or 7% on underlying investments—today often including private credit, private mortgages, and less liquid assets—while crediting participants only 2%.
The difference becomes the insurer’s spread.
That spread is rarely transparent. In many cases, participants have no meaningful way to evaluate whether they are being compensated fairly relative to the underlying risks.
Some providers, such as TIAA, historically paid substantially higher crediting rates and maintained lower spreads. Other providers may pay rates far below market alternatives.
From a litigation standpoint, those differences become measurable damages.
Private Credit and Insurance Company Risk
Snyder:
There has been growing concern about insurance companies loading up on private credit exposure. Is that risk being underestimated?
Tobe:
Yes—significantly underestimated.
Many people still assume insurance-company general accounts primarily hold traditional investment-grade bonds. Increasingly, that is no longer true.
Today, many insurers are heavily invested in private credit and less transparent structured investments. Participants often do not realize that their supposedly “safe” retirement products may contain substantial liquidity and credit risk.
In my view, these products can represent some of the riskiest investments inside retirement plans precisely because participants bear risks they cannot properly see or evaluate.
The fundamental fiduciary question becomes whether these structures constitute prohibited transactions under ERISA and whether plan fiduciaries fully understand the embedded conflicts.
Retirement Income Products and Fiduciary Exposure
Snyder:
Retirement-income solutions are being heavily marketed right now. Are plan sponsors prepared for the fiduciary responsibilities that come with them?
Tobe:
I remain skeptical of placing annuity products inside retirement plans.
Participants who want annuities can purchase them independently outside the plan structure. Embedding them inside ERISA plans creates additional fiduciary complexity and litigation exposure.
Despite the marketing push, actual adoption of many of these products remains relatively modest. The larger issue continues to be traditional fixed annuity arrangements and the lack of transparency surrounding them.
Many fiduciaries still do not fully understand how these products are priced, how spreads are generated, or how much risk is being transferred to participants.
Target-Date Funds: Looking Beneath the Label
Snyder:
Target-date funds now dominate many retirement plans. What are fiduciaries missing?
Tobe:
About half of retirement-plan assets are now invested through target-date structures, which means fiduciaries absolutely must understand what is inside them.
Many target-date funds are well-designed products. But fiduciaries cannot simply compare performance charts without understanding the underlying asset allocation and investment structure.
Asset allocation drives the majority of long-term outcomes.
Much of the litigation surrounding target-date funds ignores that reality. Two funds with different glide paths, different equity allocations, or different exposure to private assets should not automatically be compared as if they are interchangeable.
The real question is transparency: What exactly does the participant own?
Collective Investment Trusts and Regulatory Arbitrage
Snyder:
You’ve raised concerns about collective investment trusts, or CITs. Why?
Tobe:
Traditional SEC-regulated mutual funds operate under robust disclosure and accounting standards. Increasingly, however, retirement plans are moving toward state-regulated collective investment trusts.
Some CITs are entirely appropriate. Others are beginning to incorporate harder-to-value investments such as private equity, private credit, and annuity structures.
My concern is that the industry is gradually moving toward less transparent regulatory environments.
Whenever financial structures become more opaque, fiduciary risk increases.
Plan sponsors need to understand not only the investment itself, but also the regulatory framework governing it and the protections—or lack of protections—available to participants.
Transparency and the Problem of “Black Box” Investing
Snyder:
You often talk about transparency as the core issue. Why is it so important?
Tobe:
Because transparency ultimately determines accountability.
With traditional mutual funds, fiduciaries can generally see the underlying holdings, pricing mechanisms, and expenses.
With many contract-based investments—annuities, private equity partnerships, private credit vehicles, and certain alternative structures—that visibility disappears.
Once transparency disappears, meaningful oversight becomes much more difficult.
That is true in both ERISA plans and public pension systems.
Pension Fight Club
Snyder:
You recently released a documentary film titled Pension Fight Club. What is the film about?
Tobe:
The film examines the growing conflicts surrounding public pensions, private equity, hidden fees, and pension governance.
It includes pension trustees, whistleblowers, journalists, fiduciary experts, and former public officials discussing how secrecy increasingly dominates parts of the pension-investment system.
One of the most troubling realities is that even pension trustees themselves are sometimes denied access to underlying private equity contracts and side letters.
That level of secrecy creates enormous governance concerns because these arrangements can involve billions of dollars in commitments, substantial hidden fees, and highly subjective valuation methodologies.
Many of the same transparency issues we see emerging in 401(k) litigation also exist inside large public pension systems.
pensionfightclub.com
Closing Thoughts
Snyder:
What is the larger takeaway for fiduciaries and retirement investors?
Tobe:
The central issue is transparency.
Participants, fiduciaries, and trustees cannot properly evaluate risks they are not allowed to see.
Whether we are discussing annuities, private credit, collective investment trusts, or private equity, the common theme is the gradual migration toward more opaque investment structures.
That trend increases both fiduciary risk and systemic risk.
The retirement system functions best when investments are transparent, independently priced, and fully understandable to the people whose retirement savings are at stake.
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