How can cryptocurrency not be an ERISA Prohibited Transaction under the Impartial Conduct Standards? Is Bitcoin different than other types? Does putting Crypto in an ETF fix it?
ChatGPT said:
Great question—cryptocurrency, including Bitcoin, poses serious risks under ERISA’s fiduciary and prohibited transaction rules, especially when evaluated through the lens of the Impartial Conduct Standards (ICS) issued by the Department of Labor (DOL) in the context of the Fiduciary Rule and PTE 2020-02.
Act loyally (duty of loyalty—no self-dealing or conflicts)
Pay only reasonable compensation
Not make misleading statements or omissions
The Impartial Conduct Standards, applicable to rollovers and IRA advice under PTE 2020-02, reinforce these duties and apply broadly when fiduciaries recommend or select investments for ERISA-covered plans or IRAs.
🔶 Why Cryptocurrency (like Bitcoin) Often Violates These Standards
Lack of a prudent process:
DOL issued Compliance Assistance Release 2022-01 warning fiduciaries to “exercise extreme care” before including crypto in retirement plans.
Crypto’s volatility, speculative nature, custodial risks, and regulatory uncertainty raise prudence red flags.
Duty of loyalty / potential for conflicts:
Many crypto providers (e.g., exchanges, fund managers) stand to profit from high fees or self-dealing structures.
Fiduciaries recommending crypto could be conflicted if they share revenue, hold equity in crypto firms, or lack independence.
Reasonable compensation:
Many crypto platforms and funds (e.g., Grayscale Bitcoin Trust) charge excessive fees relative to the risk/return profile—potentially violating the “reasonable compensation” standard.
Risk of misleading statements:
Marketing crypto as “hedges against inflation,” “digital gold,” or “safe diversification” can be misleading if not backed by robust fiduciary analysis.
⚖️ Prohibited Transaction Risk
Crypto holdings may involve:
Conflicted compensation (e.g., revenue-sharing with crypto platforms),
Use of plan assets in self-dealing by fiduciaries or related parties,
Indirect party-in-interest transactions, such as recommending affiliated crypto custodians or ETFs.
This could trigger ERISA §§ 406(a) and 406(b) violations unless a DOL exemption applies—and none exist specific to crypto.
🔹 Is Bitcoin Different from Other Cryptocurrencies?
Yes, Bitcoin is viewed somewhat differently, but it’s not exempt from fiduciary scrutiny:
Bitcoin is not a security, per SEC Chair Gensler (most others are), which may reduce some regulatory hurdles.
Bitcoin has longer history, greater liquidity, and institutional acceptance than most altcoins.
However, its volatility, custodial concerns, and speculative nature still pose ICS and prudence issues under ERISA.
🔹 Does Putting Bitcoin in an ETF Solve the Problem?
Not necessarily. Using a Bitcoin ETF (e.g., BlackRock’s IBIT or Grayscale’s GBTC) addresses some custodial and valuation issues, but fiduciary risks remain:
Still speculative and volatile—may not meet prudence test.
High fees (especially with trusts like GBTC) may violate “reasonable compensation.”
ETF sponsor conflicts (e.g., marketing fees, cross-selling) may still trigger 406(b) violations.
DOL has not approved any PTE specific to crypto ETFs in retirement plans.
🔍 Key DOL Guidance & Enforcement
2022 DOL Crypto Guidance: Warned fiduciaries about crypto’s inclusion in 401(k)s; issued investigative subpoenas to plans considering it.
ForUsAll v. DOL: Lawsuit over DOL’s crypto warning; DOL defended its authority to flag fiduciary risks.
Ongoing enforcement: DOL is watching this space closely and likely to bring enforcement actions if crypto is imprudently included in plans.
✅ Summary
Question
Crypto (esp. Bitcoin) in DC Plans
Is it a Prohibited Transaction under ERISA?
Very likely yes unless clearly exempt and without conflicts
Does it violate the Impartial Conduct Standards?
Often yes — due to volatility, lack of prudence, high fees, and conflicts
Is Bitcoin treated differently?
Slightly, but not enough to justify inclusion
Does a Bitcoin ETF fix this?
No — may reduce some risks, but not prudence or ICS violations
📌 Bottom Line for Fiduciaries
Unless crypto becomes clearly supported by regulatory exemptions, has stable pricing, low fees, and a credible long-term track record in retirement portfolios, its inclusion in ERISA plans is a high-risk move likely to draw litigation and regulatory scrutiny.
Charge high, opaque fees (violating the reasonable compensation prong),
Rely on complex, non-transparent disclosures (violating the no misleading statements prong),
Are marketed by non-fiduciary parties (violating care and loyalty obligations),
Fail to accept ERISA fiduciary status in the PE offering documents, disclaiming responsibility.
This makes them vulnerable on all four elements of the Impartial Conduct Standards, which apply to the DOL’s Prohibited Transaction Exemption (PTE) 2020-02 that governs conflicts of interest.
So, on its face, allowing Private Equity into 401(k)s should be a prohibited transaction unless a strong exemption applies.
🧩 2. How PE Tries to Avoid Prohibited Transaction Classification
Despite these red flags, here’s how PE sponsors and platforms often try to thread the needle:
A. Structuring through Commingled Products
PE is typically offered via:
Target Date Funds (TDFs) or
Collective Investment Trusts (CITs) These are multi-manager, pooled vehicles in which PE is only a sleeve. The fiduciary responsibilities then shift to the TDF or CIT manager, who may be a fiduciary — but the underlying PE managers are not.
➤ This layering dilutes fiduciary clarity and avoids direct ERISA responsibility for the PE firms themselves.
B. Relying on the DOL’s 2020 “Information Letter”
The Department of Labor’s 2020 Information Letter (requested by Pantheon and Partners Group) did not bless PE in DC plans, but it did not ban it either. It merely said:
“…a plan fiduciary would not violate the duties of prudence and loyalty per se by including PE as a component of a diversified investment option.”
This gave cover — but did not offer an exemption or remove fiduciary obligations. Yet many sponsors are treating it as a green light.
C. Outsourcing Fiduciary Responsibility
Plan sponsors may rely on third-party investment consultants (e.g., Mercer, Aon, Callan) or TDF providers (e.g., BlackRock, Fidelity) and claim reliance on prudence of the delegated manager.
However, delegation does not absolve fiduciary liability under ERISA § 405 (co-fiduciary liability), especially if the sponsor fails to monitor the advisor or conduct due diligence on PE’s costs, liquidity, and performance opacity.
📉 3. Why This Still Fails Under the Impartial Conduct Standards
The Impartial Conduct Standards (ICS) were developed under the DOL fiduciary rule and carried into PTE 2020-02, which applies when there are conflicted recommendations (e.g., plan fiduciaries profiting from fund inclusion or relying on conflicted consultants).
Private Equity fails ICS because:
Fees and valuation models are rarely benchmarked objectively.
Performance data is not standardized (e.g., IRRs vs. time-weighted returns).
Contracts often contain waivers of fiduciary duty, arbitration, or non-transparent fee disclosures.
There is often no fiduciary warranty under ERISA by the PE provider.
This opens the door to prohibited transaction claims, especially if the PE recommendation:
Directly or indirectly benefits the advisor/fiduciary financially.
Lacks documentation of a prudent process.
⚖️ 4. What Would Trigger Liability
Plaintiffs could pursue claims under:
ERISA §406(a) (dealing with conflicts of interest/self-dealing),
ERISA §404(a) (fiduciary duties of prudence and loyalty),
And potentially ICS violations under PTE 2020-02.
Courts and regulators could hold:
Plan fiduciaries liable for imprudence or prohibited transactions,
PE managers liable if they acted as de facto fiduciaries or benefited from self-dealing.
I think any plan sponsor who is pitched a Target date fund with any Private Equity, however small, to be wary. Private Equity will sneak into Target Date Funds first, maybe at 5% then grow to perhaps 20% to increase fees. BlackRock and Empower are cutting deals in which I believe they are getting lucrative fees from Private Equity in exchange for taking the fiduciary liability for the Private Equity in their target date funds. I would think when looking at the Private Equity sleave, it would be a party in interest. My contention is that if the Private Equity sleeve is a prohibited transaction, then the entire target date fund is a prohibited transaction.
Investment Fiduciaries James Watkins and Chris Tobe
James Watkins is an attorney with Invest Sense LLC. His current practice provides forensic fiduciary audits for plans and other trustees. Chris Tobe is the Chief Investment Officer for the Hackett Robertson Tobe Group. He works as a consultant to retirement plans and serves as a litigation consultant.
Mr. Watkins stated there are three cases that he refers to as the “responsibility trinity,” that defines the area of fiduciary responsibility right now: 1. Tibble v. Edison – recognized the Restatement of Trusts (Restatement) as a legitimate resource in resolving fiduciary issues and ruled that a plan sponsor has an ongoing fiduciary duty to monitor plan investment options for prudence 2. Hughes v. Northwestern – ruled that a plan sponsor has a fiduciary duty to ensure that each investment option within a plan is prudent and to remove any that are not 3. Brotherston v. Putnam – ruled that comparable index funds can be used for benchmarking purposes, citing Section 100 b(1) of the Restatement, that index funds are proper comparators Mr. Watkins stressed that he is a big proponent of cost benefit analysis and believes the math is not that hard to do, especially as it is being used to determine whether an investment is in the best interest of a participant. Mr. Watkins stated that the industry does not support his focus on cost benefit analysis given studies that show the majority of actively managed funds are not cost efficient.
Regarding annuities within a QDIA, Mr. Watkins noted that he most often is asked by the plan sponsor considering an in-plan annuity solution whether a participant can get out of it, and if so, how. Mr. Watkins’s understanding is the only way a participant can get out of an annuity without harsh tax penalties is to do a 1035 exchange (a tax-free exchange of an existing annuity contract, life insurance policy, or endowment for another of like kind). Mr. Watkins stated that he is aware of a lot of annuity providers trying to embed annuities into target date funds within qualified plans. He suggested that this raises the question about the 50 feasibility of a 1035 exchange in a qualified plan, and whether it is the only way you can make this move or can a participant make an exchange from a like product to another like product.
Mr. Watkins thinks that enhanced disclosures should be provided to participants with the appropriate information to ensure that they understand the annuity product, which should include the conditions for them to “break even” and how that would work if they were to surrender the annuity contract. Mr. Watkins stated that, if annuities are embedded in QDIAs, there needs to be much more meaningful, clear, and simple disclosures provided to enable the participant to make an informed decision and comply with IRC section 404(c). Mr. Watkins concluded by stating he does not believe annuities should be offered in a plan nor specifically in a QDIA. If ERISA does not require that a plan offer guaranteed income products or annuities, he does not see a reason to do so. His biggest concern is that once a participant is in an annuity, they lose control and are locked in. Mr. Watkins was asked if he has seen any ERISA 3(38) fiduciaries (those who have the authority to buy and sell assets, make strategic decisions, and otherwise handle all aspects of account investing) implementing annuity solutions in collective investment trusts or in unregistered products. He indicated that many plan sponsors are encountering products embedded in collective investment trusts and a lot of proprietary products. He believes that collective investment trusts are not transparent enough and participants do not understand or have access to information, as they would in a mutual fund that posts information in a newspaper or Morningstar. He stated that collective investment trusts typically do not publicly publish their performance results or their fees.
Mr. Tobe began his testimony by stating that target date funds hold 50% of all 401(k) assets and thinks they deserve more fiduciary oversight by regulatory agencies. Historically, TDFs have been primarily offered in mutual funds registered with the Securities and Exchange Commission (“SEC”), but the trend is that more target date assets are flowing into weakly regulated state collective investment trusts. The SEC does not allow investments in annuities, crypto currency, and private equity, for example, in mutual funds. By contrast, state-governed collective investment trusts do permit these types of investments, and do not offer the same level of disclosures and transparency as mutual funds. They also have lower capital requirements as well. 51 Mr. Tobe suggested the Council should examine federally-regulated investment vehicles being used as they are more transparent. He believes that collective investment trusts should become federally-regulated rather than being regulated at a state level. He noted that there are some collective investment trusts that are superior to mutual funds because they are “clones of a mutual fund” but have lower fees.
In his opinion, the collective investment trusts being offered by insurance companies are deploying illiquid investments (annuities, private equity). He stated that this is just a way to get highpriced annuities into the mainstream target date fund solutions. He raised concerns that there are no requirements for the insurance companies to disclose interest spreads, and that there is no transparency into the revenue that the insurance companies are earning. Mr. Tobe believes that QDIAs should be held to the highest standard, that all investments should be held to the highest federal standards, such as compliance with Global Investment Performance Standards, and that the Department should be pushing for more transparency for collective investment trusts. Mr. Tobe testified that he would not recommend annuities, private equity or crypto currency in any DC plan or embedded in a QDIA as those investments are too expensive and risky right now. When asked how participants should protect themselves from market volatility, Mr. Tobe suggested that a participant should move into the lowest risk target date fund; annuities bear embedded risks that are not readily transparent to the holder. He believes that annuities could be downgraded and that insurance companies have high default risk that translates to high risk for that component of a participants’ investment. He stated that the risks for partial annuitization are the same until there is more transparency and information on annuities.
Mr. Watkins stated that a lot of the concerns could be addressed if the insurance companies could guarantee that annuities could provide a commensurate return, but historically that has been very expensive.
Some Council members noted this was inconsistent with their professional experience and 52 suggested it should be researched further. Members of Council also questioned the witnesses’ opinions regarding the insurance companies default risks, noting that historical failure of insurance companies has been very low and less than 0.03%.
When asked where they would want to see changes that would provide them with comfort with the annuity products, Mr. Tobe suggested federal regulations that oversee the insurance agencies, coordinated in partnership with the Department for ERISA-based assets. When asked what level of fees and risk would satisfy the witnesses that a product is worthwhile, Mr. Watkins responded that the issuer would need to provide a cost benefit analysis that shows the return and guarantee. Mr. Tobe also offered a detailed example of how to diversify over 4 to 5 insurance companies to minimize the default risk and use synthetic stable value-like solutions for annuities to keep the fees low.
When asked if defined contribution plans should only use mutual funds due to their greater transparency, Mr. Tobe replied no and that he would rather see greater transparency requirements for collective investment trusts.
State Guaranty Associations are so flimsy that none are rated by S&P or Moody’s. There is no money in them, the reserves are not in the association, only in the companies themselves.
Most did not even pay out claims in the last major default, Executive Life – only Illinois and Pennsylvania associations made partial payments, only after court orders.
I asked ChatGPT about Guarantee Associations in the context of an ERISA Fiduciary and got the following response.
⚖️ ERISA Fiduciary Standards vs. State Guaranty Associations
1. Duty of Prudence and Care (§404(a)(1)(B))
ERISA requires fiduciaries to act:
“with the care, skill, prudence, and diligence under the circumstances then prevailing…”
SIGAs do not meet the “prudent expert” standard. A prudent expert would not rely on:
An entity with no prefunding or reserve capital
No federal backing
No credit rating from any recognized rating agency
A history of failure to pay during systemic defaults (e.g., Executive Life)
As you noted, only Illinois and Pennsylvania eventually made partial payouts, and only after litigation. That alone defeats the fiduciary standard of prudent selection and monitoring.
2. Duty of Loyalty (§404(a)(1)(A))
Fiduciaries must act solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits.
If a fiduciary chooses an annuity or insurance-based structure based on a belief that the SIGA will protect beneficiaries, without disclosing its inadequacy, they may be violating their loyalty duty.
Relying on industry marketing or regulatory illusion about SIGAs—when informed sources (like the Federal Reserve, EU regulators, and academics) have raised red flags—could be seen as self-serving or negligent.
3. Duty to Monitor and Evaluate Risk
ERISA fiduciaries must continually evaluate risks and the financial condition of providers.
Given the known systemic risks, including:
Private equity ownership of insurers (Kirti & Sarin 2020)
Long-duration illiquid assets in General Accounts
Minimal real oversight by state regulators
EU regulator concern in 2017 about systemic fragility of U.S. insurance regulation
…it’s arguable that no prudent fiduciary should rely solely—or even primarily—on SIGAs as a source of security.
📚 Supporting Academic and Regulatory Warnings
Lambert & Tobe (2024) – Warn of “a possible US retirement crisis” driven by misleading safety claims of annuities.
Todd & Wallace (1992, Fed Minneapolis) – Exposed the moral hazard of undercapitalized SIGAs and deceptive perceptions of insurance safety.
Perez (2016) – Documents political interference and regulatory capture at the state level.
EU Concerns (2017) – EU regulators raised cross-border solvency concerns for U.S. insurers, especially given weak state regulation.
🚫 What This Means for Fiduciary Actions
ERISA fiduciaries should not rely on State Guaranty Associations as a primary or sufficient reason to:
Justify annuity purchases for pension risk transfers (PRTs) or 401(k) plans.
Accept insurer counterparty risk without thorough, independent due diligence.
Claim “safety” without disclosing SIGA limits, lack of reserves, and legal uncertainty.
Instead, fiduciaries should:
Require contractual provisions for downgrade protections and capital reserves.
Insist on federal-level guarantees or fully collateralized structures.
Disclose the inadequacy of SIGAs in plan documents and fiduciary reports.
🧾 Bottom Line
State Guaranty Associations offer the illusion of safety, not the substance. No fiduciary acting under the ERISA standard of prudence and loyalty should rely on them as a meaningful risk mitigator.
First I started with the four pillars of the DOL’s Impartial Conduct Standards under PTE 2020‑02:
A. Care Obligation B. Loyalty Obligation C. Reasonable Compensation D. No Materially Misleading Statements (including omissions)
Many annuity sales into ERISA plans currently fail one or more of these obligations, particularly with respect to:
Hidden spread compensation,
Inadequate due diligence on the general account backing the annuity,
Opaque or omitted disclosures,
And advisors who do not formally acknowledge fiduciary status in writing.
Have Any Annuity Contracts Accepted ERISA Fiduciary Responsibility?
✅ Very Few — and Almost Never in the Contract Itself
In general:
Group annuity contracts (e.g., used in 401(k) plans or defined benefit de-risking) may be accompanied by side agreements or representations from advisors, but:
The insurance contract itself typically does not declare the insurer (or even the selling agent) as a fiduciary.
Fiduciary acknowledgments, if they exist, come in the form of separate representations or appendices (required under PTE 2020-02 or 84-24).
🟥 In Most Cases:
Insurers explicitly disclaim fiduciary status in contracts.
Brokers or agents resist fiduciary acknowledgments—unless they’re affiliated RIAs under pressure.
Disclosure documents are vague, omitting spread compensation or how crediting rates are determined.
Examples of Industry Practice:
1. Disclaiming Fiduciary Status
Many annuity providers include contract clauses like:
“The insurer and its agents are not acting in a fiduciary capacity under ERISA or any applicable law in connection with the sale of this product.”
2. Delegating Due Diligence to the Plan Sponsor
Even in group annuity settings (e.g., stable value GICs, fixed annuity options), the language often places full fiduciary duty on the plan sponsor, e.g.:
“The Plan Fiduciary represents that it has independently evaluated the investment and insurance features of this contract.”
3. PTE 84-24 Acknowledgments—But Weakly Enforced
Some insurers may have separate PTE 84‑24 disclosure forms, which technically acknowledge:
Reasonable compensation,
Advisor acting in the best interest,
No misleading info.
But in practice, these are often:
Not thoroughly explained to the plan,
Signed by non-fiduciary agents,
Not integrated into the contract,
Poorly documented or monitored.
Recommendations for Plan Sponsors
If a plan is considering an annuity product under ERISA, the following should be required:
Fiduciary Acknowledgment Letter — from the advisor or insurer.
PTE 2020-02 or 84-24 Compliance Certificate — signed and included with plan records.
Full Disclosure Statement — fees, conflicts, and spread compensation outlined clearly.
Contract Review — ensure it doesn’t disclaim fiduciary responsibility while shifting burden to the sponsor.
Annuities have always flunked but no one has ever challenged them because of their total lack of transparency. Now with SCOTUS Cornell decision, the burden of proof has shifted to the plans to defend why they think annuities are exempt from being prohibited transactions, and for the most part they are clueless.
Most annuities in most DC plans are labeled “parties in interest” because they have a relationship with the administrator/recordkeeper. This relationship creates a potential conflict of interest and labeled a Prohibited Transaction. A Prohibited Transaction Exemption (PTE) must be used to include the annuities in the plan.
PTE’s are subject to the ERISA Impartial Conduct Standards which are a set of requirements for fiduciaries providing investment advice to retirement investors, ensuring they act in the best interest of the client, receive reasonable compensation, and avoid making misleading statements.
Annuities for decades have claimed Prohibited transaction exemptions behind PTE 84-24 and more recently PTE 2020-02 with few challenges or any accountability.[1] However, the recent SCOTUS decision clearly says plans are responsible for verifying that their investments qualify for the prohibited transaction exemptions. The PTEs that apply to the insurance products they put in their plans where most are “parties in interest” must meet the Impartial Conduct Standards.[2]
Judge Lynn when ruling on Fixed Index Annuities in 2017 stated Because “insurers generally reserve rights to change participation rates, interest caps, and fees,” FIAs can “effectively transfer investment risks from insurers to investors.”[3]this control by insurers clearly violates Impartial Conduct Standards.[4]
ERISA PTE 84-24, which is based on the Restatement of Trust, states the annuities must meet the following requirements called the Impartial Conduct Standards and Written Disclosures and Policies and Procedures backing up these standards. Most annuities I have seen do not even come close.
Care Obligation This obligation reflects the care, skill, prudence, and diligence – similar to Prudent Person Fiduciary standard. Diversification is one of the most basic fiduciary duties. Under the CFA pension trustee standard for acting with prudence and reasonable care the plan should seek appropriate levels of diversification.[5]Fixed annuities flunk this diversification test with single entity credit and liquidity risk. [6]
The Federal Reserve in April 2025 said “Life insurers continued to hold a significant share of risky and illiquid assets on their balance sheets”[7] Under the CFA pension trustee standard Principle #3 to Act with skill competence and diligence it cites need for awareness of investments liquidity, and any other risks. Certain types of investments …necessitate more thorough investigation and understanding than do fundamental investments, such as straightforward and transparent equity, fixed-income, or mutual fund products Annuities call for more diligence by sponsors which needs to be fully documented by plans. Plan sponsors could mitigate this credit and liquidity risk in their annuity contracts with downgrade clauses which allow liquidity at book value if the annuity issuer is downgraded but these type clauses have not been adopted for most plans.[8]
Loyalty Obligation Annuity contracts are designed to avoid all fiduciary obligation with no loyalty to participants. Diligence is nearly impossible with misleading, nontransparent contracts, and the lack of plan/participant ownership of securities. Secret kickbacks and commissions place the financial interests of the Insurers and their affiliates over those of retirement investors. The new fiduciary rule requires the advisor to show their loyalty with a “Fiduciary Acknowledgement Disclosure.” which has been strongly opposed by the Annuity industry. Plans typically agree to Annuity contracts that avoid any fiduciary language or responsibility on the part of the issuer. [9] The Federal Reserve in 1992 exposed the varying weak state regulatory and reserve claims and most plans are not even aware of which state issued their annuity contract.[10]
Reasonable compensation limitation Annuities have a total lack of disclosure of profits, fees and compensation – effectively denying any chance for a prospective purchaser to make an “informed decision.” CFA Institute Global Investment Performance Standards (GIPS) are transparency standards on performance and fees. Annuities typically do not comply with CFA GIPS standards.[11]
Noted Morningstar analyst John Rekenthaler said in April 2022 that in selecting 401(k) investment options, “inappropriate are investments that don’t price daily.” Annuities typically do not price daily and do not provide valuation transparency.[12]
A number of lawsuits have settled with claims of excessive secret fees and spreads in annuities. An insurance executive bragged at a conference of fees over 200 basis points (2%) in 2013. [13] In a report, Morningstar acknowledges that annuities fees inside 401(k) plans are challenging to understand. ‘No insurer tells you what is in the spread.’ ‘Insurance firms collect a spread”[14] I was quoted on NBC that the TIAA Fixed Annuity made spread fees of around 120 basis points. TIAA makes $billions in undisclosed profits on their fixed annuity products. TIAA annuity has been called the company’s profit “engine” driving $46.2 in bonuses to their top five executives.[15] These IPG fixed annuity contracts have been characterized by DC plan group NAGDCA as having serious fiduciary issues with hidden fees. “Due to the fact that the plan sponsor does not own the underlying investments, the portfolio holdings, performance, risk, and management fees are generally not disclosed. This limits the ability of plan sponsors to compare returns with other SVFs [stable-value funds]. It also makes it nearly impossible for plan sponsors to know the fees (which can be increased without disclosure) paid by participants in these funds—a critical component of a fiduciary’s responsibility “[16]
The Annuity industry thrives on secret commissions.[19] The GAO and Senator Warren reported on these commissions.[20] The annuity industry has fought the so-called Biden Fiduciary rule which would expose many annuity commissions in 401(k) plans. The annuity industry trade group that coordinates weak state insurance commissioners National Association Insurance Commissioners (NAIC) best interest rule was ridiculed by a DOL Official “compensation is not considered a conflict of interest,” All 50 State Insurance Commissioners have rejected Fiduciary standards by adopting the NAIC best interest rules.[21]
Annuities claim principal protection, but some fixed annuity contracts recently have “broken the buck” and violated their contracts by forcing significant losses on participants. The written disclosures under weak state regulations omit critical information on risks and fees also prevents any opportunity for an “informed decision.”
Conclusion
Annuities clearly flunk all 4 major obligations of the Impartial Conduct Standards and are not exempt as Prohibited Transactions.
Plans with annuities have huge fiduciary liabilities which grow larger each year. With the new Supreme Court Case CunninghamV.Cornell the risk of litigation, and potential damages have grown greatly. [22] Within 2 weeks of the decision a case of annuities as prohibited transactions has already been filed.
Plan sponsors should amend their Annuity contracts to at least stop the growth of fiduciary liability.
1. A Most Favored Nation (MFN) clause to make sure they have the best rate/largest payouts/ lowest spread fees of all the annuity providers similar clients
2. A downgrade clause that allows liquidity at full book value if the insurance company issuing the annuity is downgraded.
3. Annuity provider agrees to be ERISA Fiduciary
If they cannot get these 3 clauses – the plan must demand that the annuity provider let them out of the contract, and if not consider legal action against the insurance company.
SCOTUS 9-0 ERISA decision – confirms my view on Annuities as Prohibited Transactions
By Chris Tobe, CFA, CAIA
The Supreme Court ruled unanimously in favor of 401(k) Transparency, while also placing the burden of proof on plan sponsors alleging that they are protected under an exception to the Prohibited Transaction rules. This rule facilitates forcing disclosures on conflicts of interest and hidden fees.[i] Investments that the managers have the potential for a conflict of interest are labeled “Parties of Interest” in the DOL/IRS 5500 forms attached financials for ERISA plans. These parties in interest have the burden of proof that they have an exemption from the Prohibited Transactions rules.
Fixed Annuities, known as IPG’s, are prevalent in large ERISA DC plans. The largest IPG is TIAA Retirement Choice Annuity which is central in the Cornell plan and, along with Fidelity, the focus of the SCOTUS decision.
I believe that all annuities are prohibited transactions due to the inherent conflict of interest issues, and in most cases, the annuity issuer and annuity salesperson are labeled in plans as parties in interest. Prohibited transaction exemptions are subject to meeting certain requirements. But the DOL does not even attempt to enforce them. Many plans just blindly accept the claims of annuity salesmen that these contracts have a “get out of jail free card” in the form of a PTE.
Prohibited Transactions Exemption PTE 84-24
Annuities for decades have claimed Prohibited transaction exemptions behind PTE 84-24. However, plans are responsible for verifying that the prohibited transaction exemptions apply to the insurance products they put in their plans. This SCOTUS decision and future similar cases may force accountability for the first time.
ERISA PTE 84-24, which is based on the Restatement of Trust, states the annuities must meet the following requirements called the Impartial Conduct Standards and Written Disclosures and Policies and Procedures backing up these standards. Most annuities I have seen do not even come close.
The Impartial Conduct Standards have 4 major obligations. A. Care Obligation B. Loyalty Obligation C. Reasonable compensation limitation D. No materially misleading statements (including by omission)
Care Obligation This obligation reflects the care, skill, prudence, and diligence – similar to Prudent Person Fiduciary standard. Diversification is one of the most basic fiduciary duties. Fixed annuities flunk this with single entity credit and liquidity risk. Diligence is nearly impossible with misleading, nontransparent contracts, and the lack of plan/participant ownership of securities.[ii] The Federal Reserve in 1992 exposed the weak state regulatory and reserve claims.[iii]
Loyalty Obligation Annuity contracts are designed to avoid all fiduciary obligation with no loyalty to participants. Secret kickbacks and commissions place the financial interests of the Insurers and their affiliates over those of retirement investors. In most cases, the annuity investor has little chance of even breaking even on the investment. The exemption requires the advisor to show their loyalty with a “Fiduciary Acknowledgement Disclosure.” Annuity contracts avoid any fiduciary language or responsibility.
Reasonable compensation limitation Annuities have a total lack of disclosure of profits, fees and compensation – effectively denying any chance for a prospective purchaser to make an “informed decision.” They also have secret kickback commissions.[iv] A number of lawsuits have settled with claims of excessive secret fees and spreads. An insurance executive bragged at a conference of fees over 200 basis points (2%) in 2013. [v]
No materially misleading statements (including by omission) Annuities have numerous material misleading statements, including the total lack of disclosure of spread/fees. They claim principal protection, but some fixed annuity contracts recently have “broken the buck” and violated their contracts. The written disclosures under weak state regulations omit critical information on risks and fees also prevents any opportunity for an “informed decision.”
GOING FORWARD
While Annuities are by far the largest area involved, I believe SCOTUS’ Cunningham decision will result in some significant consequwemces:
ERISA class action 401k litigation will explode especially against conflicted products like annuities[vi]
Plans are now talking about taking legal action against vendors, who tricked them into these non-transparent products[vii]
Plans will be more reluctant to take on non-transparent products like annuities[viii]
Plans will be more reluctant to take on non-transparent products like crypto and private equity[ix]
Plans will be more reluctant to do non-transparent administrative practices like revenue sharing[x]
Plan Sponsors with fixed annuity contracts should demand : 1. A MFN clause to make sure they have the best rate. A MNF (Most Favored Nation) clause is a clause that states that money managers are getting the lowest fee for their pension clients. 2. A downgrade lause that allows liquidity at full book value if the insurance company issuing the annuity is downgraded.
Annuities are clearly prohibited transactions that do not qualify for an exemption but have used their lobbying power in Washington and in states, to exempt themselves from all accountability. This recent SCOTUS decision may help get accountability and transparency in plans through litigation.
“Cerulli Edge—U.S. Retirement Edition,” finds that as of 2024, 91% of asset managers believe guaranteed lifetime income options carry a negative stigma. “Annuities continue to face perception issues due to high fees, complexity, lack of transparency, and concerns about insurer solvency, all of which deter plan participants,” says Idin Eftekhari, a senior analyst at Cerulli. “The tradeoff between liquidity and a guaranteed income stream is unappealing for many participants.[iii]
The argument that you need annuities to provide lifetime income is debunked as well.
Cerulli also points to lower cost transparent liquid methods of providing monthly income called “structured drawdown strategies” as superior alternatives to annuities.[iv]
Annuities are a Fiduciary Breach
I wrote in 2022 that all annuities are a fiduciary breach [v] While Guaranteed Income Annuities are still small in 401(k)s, I believe they are being used to justify even worse annuity products like IPG Fixed Annuities and Index annuities. Immediate Participation Guarantee (IPG) is a Group fixed annuity contract (GAC) written to a group of investors in a DC Plan and not individuals. [v]
IPG group annuities have no maturity, and set whatever rate they want without a set formula.
Annuities are contracts that are an ERISA Prohibited Transaction. Annuity providers claim their products are subject to Prohibited Transaction Exemption 84-4, but I have found that most annuities I have seen do not qualify for the exemption.[vi]
Annuity contracts are regulated by weak state insurance commissioners, and most plan sponsors are clueless to that fact. The National Association of Insurance Commissioners (NAIC) sets weak national standards, but some state insurance commissioners have even weaker regulations. NAIC’s prime goal is to prevent any national regulation or transparency as evidenced in this letter to Congress. [vii] NAIC is currently trying to hide insurers Risk Based Capital (RBC) scores to hide significant risk from consumers. [viii]
There is an attempt to hide annuities in Target Date Funds in weak state regulated CIT’s in which I testified on to the DOL Advisory Committee in July 2024.[ix]
Annuity contracts shift all the fiduciary burden from themselves to the plan. Thus, the burden of proof is on plan sponsors regarding if their plan annuity qualifies for an exemption from being classified as a prohibited transaction.[x]
Annuities Credit & Liquidity Risk High & Getting Higher
A recent Federal Reserve paper exposes poor state & offshore regulation of Life Insurance companies that issue Annuities. The FED’s main problem is the hiding and understating of credit, liquidity & leverage risks.[xi]
The FED economists contend that life and annuity issuers make investments in what amount to loans to risky firms look stronger by funneling the weak loans through arrangements — such as business development companies, broadly syndicated loan pools, collateralized loan obligations, middle-market CLOs and joint venture loan funds — that qualify for higher credit ratings.[xii]“These arrangements seek to shift portfolio allocations towards risky corporate debt while exploiting loopholes stemming from rating agency methodologies and accounting standards.”[xiii]
Insurance risk experts Larry Rybka, Thomas Gober, Dick Weber Michelle Gordon highlight the addition of risks from Reinsurance in a recent trade publication. Rybka says The life insurance and annuities industry, he said, has become “like the Wild West.” Carriers are abusing reinsurance,”[xiv] “It’s a shell game and, in general, the regulators are not paying attention,” said Dick Weber,[xv]Gober says It’s not just offshore reinsurers that can largely skirt U.S. accounting standards, he said. There are also “captive” reinsurance companies within the U.S. mostly in Vermont, South Carolina, and Delaware. “The lack of transparency with these affiliated reinsurance companies, both captive and offshore, is the single biggest threat to U.S. policyholders and annuitants,” said Gober.[xvi]
Michelle Gordon says that advisors should check the creditworthiness of any insurance companies they recommend to clients, she said, though most don’t or can’t because of lax ratings standards. “The non-codification of insurance advisement results in sub-optimization of consumer protections,” she said.[xvii]
Fiduciaries should be aware of these risks and have a duty to defend and justify these risks if they put annuities in their plans.
The recent Sixth Circuit decision in Johnson v. Parker-Hannifin Corp. indicates a possible 2025 trend in fiduciary litigation in favor of plan participants according to attorney Jim Watkins in his latest piece. [i] The ruling confirms that in most cases participants do not have adequate information and disclosure until discovery and that premature dismissal is unfair to participants.
The lack of transparency and disclosures in 401(k) plans requires the discovery process to give plan participants a fair shot at recovery of damages from poorly managed plans. This decision seems to recognize these facts and puts the burden of proof to show a prudent fiduciary process on the plan sponsor, which requires discovery.
The 401(k) type plans being litigated are a small fraction of the total 700,000 plans in the U.S. Around 7,000 or 1% are $100 million or more in assets which are the ones currently large enough to litigate. Of this 7000 around 5000 are low (Vanguard) to below average cost (Fidelity) recordkeepers. This leaves around 2000 that are worth while litigating for plaintiff attorneys. The DOL EBSA is understaffed having to cover 700,000 plans, so many participants rely on litigation or the threat of it to drive better outcomes. My analysis is limited to these top 1% of plans.
Current Disclosures
The IRS/DOL 5500 form and accompanied financial statement is the major and primary form of public disclosure. It lists total assets of the plan and the number of participants. It lists an aggregate total of administrative costs. Financials usually have a list of investment options, but does not disclose their fees, or even what share class they are so you can look up the fees. It usually lists the recordkeeper. Plaintiffs’ attorneys to narrow down potential poorly managed cases primarily rely on their ability to spot high fee recordkeepers and high fee funds just by their names. There is no disclosure of administrative or fund fees or performance, so no data to show the level of damages.
Participant statements are a mixed bag. Some have partial fee information, some do not. in 2012, the DOL mandated annual 404a-5 participant disclosures due to this lack of information. Some plans include these with their quarterly statements, but many firms send it out in a separate not easy to understand piece of paper and participants typically throw it away. However, participants can request these 404a-5 disclosures without discovery.
404a-5 disclosures essentially only provide an accurate description by ticker for the SEC registered mutual funds in the fund. This is a small step forward because some plans do not even provide ticker (which shows share classes) on statements (or 5500) which has only one real purpose – to hide fee information. Once the ticker is disclosed, data like performance and fees can be easily found on the internet. So the disclosure of fees and performance on the 404a-5 is merely creating an impression of additional transparency.
I believe target date funds in SEC registered mutual funds were designed to hide fees and manipulate performance. They bundle funds into other funds, and without sub-fund level detail, it is nearly impossible to evaluate their performance and fees. The aggregate fee & performance data from the 404a-5 disclosure statements is a start, but far from a complete means of evaluating funds.
404a-5 statements have totally inadequate disclosure on collective investment trusts (CITs), a growing sector in the large plan market, especially with target date funds. CITs often have inadequate state oversight and regulation, which requires little or no disclosure.[ii]
404a-5 statements also have totally inadequate disclosure on insurance products, especially with regard to IPG Fixed Annuities, but also regarding index annuities,and the new fad lifetime annuities.[iii]
The 404a-5 disclosures only cover the most recent 10 year period. SEC mutual fund share class violations constitute a small fraction of the damages in current cases.
It is the current inadequate disclosures from the 5500 and 404a-5 statements that makes discovery essential. Most of what plaintiffs need in discovery is information that really should have been disclosed already in both the 5500 and 404a-5 statements..
For the state-regulated insurance products and CIT’s, a plaintiff needs the same level of information on fees/spreads that you would receive in a SEC registered Mutual Fund. Defense attorneys want to block this information since it can reveal prohibited transactions and hidden fees.[iv]
The 6th Circuit stated that “The ultimate question is whether the fiduciary engaged in a reasoned decision-making process.” [v]401(k) plan fiduciaries hold monthly or quarterly meeting. To determine if this was a prudent process, at a minimum, you need the minutes and materials from these meetings. Defense attorneys want to block access to this information because it almost always reveals flaws in a plan’s oversight.
According to attorney Watkins:
“Based upon my experience, I submit the real reason that the plans oppose any type or amount of discovery is to conceal the fact that (1) the investment committee never developed a prudent process for managing the plan, but rather blindly accepted the recommendations of the plan adviser or other conflicted, and (2) the fact that the plan never conducted the independent investigation and evaluation required under ERISA, but blindly accepted the recommendations of others.” [vi]
In my ownexperience, I regularly find a clueless committee without even an investment policy, driven by blind reliance on a conflicted broker or consultant who receives undisclosed hidden compensation from recommending high fee high risk products.[vii]
This information is readily and easily available at a minimal cost to the plan and should have already been disclosed.
Additional Discovery
Administrative costs, which include record keeping costs, are totaled on the 5500 form, and you can divide this number by the amount of participants. Many lpaintiff firms may file a claim if they find a number above $40 a participant per year. The defense’s argument is often that number is not correct, basically that they lied on their DOL/IRS form, offering convoluted and self-serving reasons for the alleged error. They basically want the court to take the story that what they really charged was less than what they told the DOL/IRS, hoping that the3 plaintiff and the court will take their word for it without documentation. The participants have no access to any information on these administrative costs. This information is convoluted and complex, so much so that few committees understand it. It needs extensive discovery to get to the details.
Because of the lack of transparency in administrative costs. plaintiff’s need at least some limited discovery. In a recent Sixth Circuit case, Forman v. TriHealth 40 F.4th 443, 450},, Judge Sutton of the Sixth Circuit spoke out in this issue, stating that too many ERISA actions alleging a breach of fiduciary duties were being inequitably and prematurely dismissed without allowing plaintiffs any discovery whatsoever:
This is because “[n]o matter how clever or diligent, ERISA plaintiffs generally lack the inside information necessary to make out their claims in detail unless and until discovery commences. . . . If plaintiffs cannot state a claim without pleading facts which tend systemically to be in the sole possession of defendants, the remedial scheme of the statute will fail, and the crucial rights secured by ERISA will suffer.” “Plausibility requires the plaintiff to plead sufficient facts and law to allow ‘the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.. Because imprudence “is plausible, the Rules of Civil Procedure entitle” the plaintiffs “to pursue [their imprudence] claim . . . to the next stage.”
Sponsors many times select vendors that cherry-pick their own state regulator for both insurance products and most collective investment trusts (CIT)s.[viii] Sponsors typically do not have any documentation that these products are exempt from prohibited transaction restrictions. You need extensive discovery to get the details on fees and risks in these products.
Most discovery needed by plaintiffs is information that should be public or at least accessible to plaintiffs already, so it is essential to have it in most cases. Some more detailed discovery is needed to accurately compute the damages.
It is unfair to put the burden of proof on Plaintiffs who are blocked from seeing the information they need to prove damages. The burden of proof needs to be on the plan sponsor who controls all the information. [ix]
Crypto, Private Equity, and Annuity contracts are impossible to Benchmark because of a lack of transparency accountability and liquidity. Valid Benchmarks require investable securities. These issues make it nearly impossible for any of these contracts to be exempted from being a prohibited transaction in an ERISA plan. [i]
According to the CFA Institute, a valid benchmark should meet the following criteria:
Specified in advance: The benchmark is defined before the evaluation period begins.
Measurable: The benchmark’s return can be calculated regularly and in a timely manner.
Unambiguous: The identities and weights of the securities in the benchmark are clearly defined.
Reflective of current investment opinions: The manager is knowledgeable about the securities in the benchmark and their factor exposures.
Accountable: The manager is aware of and accepts responsibility for the benchmark’s performance and constituents.
Investable: The assets of the underlying index are available for purchase by investors.
These attributes are impossible for contract-based investments like Crypto, Private Equity, and Annuities since you do not own any securities. There is no accountability, they are ambiguous and use different forms of accounting than securities.
Benchmarks can work when you compare a security-based active investment fund with a security-based index fund as highlighted in Brotherston vs. Putnam.[ii]
These are one sided contracts, not securities, in favor of the vendor and to the detriment of the investor. Looking at these from an ERISA particularly 401(k) context these contracts have severe fiduciary issues which I feel prevent them from an exemption from prohibited transaction rules. The Burden of Proof is on the Plan Sponsor to document that these contracts are not Prohibited Transactions.[iii]
I think the conflicted contract nature of these investments allows them to manipulate or avoid benchmarks altogether. While plan sponsors should never have entered into these contracts in the first place, how do you hold them accountable for the damages they have caused participants. If you compare them against benchmarks to the lower risk investments they should have invested in, it conceals the damages. You must find comparable contracts with the same types of high risk to find the actual damages.
Annuity Contracts
I wrote last month that Annuities should not be allowed in 401(k)s as Prohibited Transactions. Annuities are a Fiduciary Breach for 4 basic reasons. [iv]
Structure -weak cherry-picked state regulated contracts, not securities and useless reserves [viii]
These breaches make it impossible for most annuity products to qualify for exemptions to Prohibited Transactions which need to fill these 4 major obligations. [ix]
A. Care Obligation
B. Loyalty Obligation
C. Reasonable compensation limitation
D. No materially misleading statements (including by omission
I do not believe few if any annuities meet these 4 obligations, and the
burden of proof is on the plan sponsor that the annuities they use in their ERISA plans have a valid exemption. [x]
I have extensive experience showing damage by annuity contracts in large 401(k) and 403(b) plans. These are primarily fixed annuity IPG contracts within the broad category of stable value with no maturity and discretion by the insurer to pay rates that maximize their profits, at the detriment of participants. Some Fixed Annuity providers will claim money markets as a benchmark, despite having over 20 times the risk. The Federal Thrift Savings Plan has a high-quality stable value product, the G fund which they state is impossible to benchmark. [xi]
Single entity Fixed annuity providers have attempted to compare to the diversified Hueler Stable Alue Index despite having 10 times the risk. The proper comparable has been to other IPG fixed annuities with single entity risk, which has used in over a dozen cases specifically comparables like TIAA and MassMutual cited in detail in 2 ERISA Hospital Cases: Columbus, GA and Norton Hospital.
Private Equity Contracts
Private Equity contracts have mostly been contained in non-ERISA plans but this may be changing. Economic and Policy Research’s Eileen Appelbaum said “Much as private equity firms may wish it were different, they have been mostly unable to worm their way into workers’ 401(k)s and abscond with their retirement savings,”[xii]
Private Equity flunks all the impartial conduct standards in numerous ways.
Private equity offering documents generally prominently state (in capital, bold letters) that an investment in a private equity fund is speculative, involves a high degree of risk, and is suitable only for persons who are willing and able to assume the risk of losing their entire investment. Can engage in borrowing, or leverage, on a moderate or unlimited basis. No assurance of diversification since funds generally reserve the right to invest 100 percent of their assets in one investment. Heightened offshore legal, regulatory, operational and custody risk.[xiii]
Private Equity has a myriad of conflicts of interest, self-dealing practices. The investment manager determines the value of the securities held by the fund. Such a valuation affects both reported fund performance as well as the calculation of the management fee and any performance fee payable to the manager. [xiv]
Private Equity has business practices that may violate ERISA. Private equity fund offering documents often disclose that investors agree to permit managers to withhold complete and timely disclosure of material information regarding assets in their funds. Further, the fund may have agreed to permit the investment manager to retain absolute discretion to provide certain mystery investors with greater information and the managers are not required to disclose such arrangements. As a result, the fund you invest in is at risk that other unknown investors are profiting at its expense—stealing from you. [xv]
Plan sponsors will have a tough time justifying Private Equity as being exempted as a prohibited transaction given these facts. With such a lack of controls on the contracts, benchmarks are mostly useless.
Private Equity Benchmarks have been manipulated in U.S. public pensions to get higher bonuses not only for the Private Equity managers but for public government staff. [xvi] Private Equity benchmarks typically add a premium of 2%-6% to small cap index for leverage and liquidity. I think the high end of this range could be appropriate for damage comparisons given the fiduciary issues of the assets.
Crypto Contracts
Crypto has not been used extensively in ERISA plans as of now, but it is increasing.[xvii]
It was first discovered in Brokerage Windows, in which plans feel they have less fiduciary accountability. Companies running Brokerage Windows have been paid $millions by Crypto companies to put their options on their Brokerage Window Platform. In the article, “401(k)s with Bitcoin Should Expect Lawsuits: Lawyers,” the trade publication “Ignites” quotes Jerry Schlichter as saying that. Any employer who would follow the Fidelity lead by offering cryptocurrency and a 401(k) plan is exposing itself to very serious risk of a fiduciary breach…. As an unproven, highly volatile investment, Bitcoin would test the prudence standard under the Employee Retirement Income Security Act….The account will carry a fee of up to 90 basis points plus undisclosed commission fees, which would be 20 times as much as a simple index fund. Any 401(k) plans with a brokerage window will be subject to severe fiduciary liability unless they can prove they have provided 100% prudent options. This will most likely lead to much more litigation and many more settlements, as the cost of proving 100% prudent options will be extremely expensive. [xviii]
Burden of proof is on plan sponsors that Prohibited Transactions crypto in their plans qualify for a Prohibited Transaction Exemption. I have seen no evidence that any form of Crypto has met the qualifications for an exemption.
The Department of Labor in 2022 severely questions the reliability and accuracy of cryptocurrency valuations. A major concern is that cryptocurrency market intermediaries may not adopt consistent accounting treatment and may not be subject to the same reporting and data integrity requirements with respect to pricing as other intermediaries working with more traditional investment products.[xix]Under that guidance, which the DOL issued last month (April 22), employers could be responsible for risky crypto trades their workers make in workplace 401(k)s. The DOL’s employee benefits enforcement agency will launch what it’s calling “an investigative program” that requires plan officials to “square their actions with their duties of prudence and loyalty” if they allow crypto investments in self-directed accounts, according to the guidance.[xx]
The CFA institute writes. The unfortunate reality is that none of the proposed valuation models are as sound or academically defensible as traditional discounted cash flow analysis is for equities or interest and credit models are for debt. This should not come as a surprise. Crypto assets are more similar to commodities or currencies than to cash-flow producing instruments, such as equities or debt, and valuation frameworks for commodities and currencies are challenging. Custody is challenging and there is significant technological risk. As recently as 2018, researchers uncovered a bug in the bitcoin code that, if left unchecked and exploited, could have led to significant (theoretically infinite) inflation in the issuance of new bitcoin [xxi]
The lack of any valuation parameters makes benchmarks impossible. Comparisons should be flexible. One of the main comparisons should be the most popular Crypto asset Bitcoin.
Corrupt Structures
Crypto, Private Equity and Annuities in ERISA plan are mostly hidden in corrupt structures. Besides brokerage windows poorly state regulated separate account annuity products and Collective investment Trusts are places to hide these prohibited assets.
Over 50% of 401(k) assets are in Target Date Funds which are made up of underlying funds. This allows for less transparency of the underlying funds.
However, historically the largest structure for Target Date Funds has been SEC registered Mutual Funds. Mutual Funds have transparency and fiduciary standards that do not allow Crypto, Private Equity and Annuities. [xxii] Federal OCC regulated Collective Investment Trusts (CITs) have transparency and fiduciary standards that do not allow Crypto, Private Equity and Annuities.[xxiii] However, many state regulated CIT’s have weak or no transparency or fiduciary standards, so you can allow Crypto, Private Equity and Annuities.
Currently I believe the biggest threat of prohibited investments like Crypto, Private Equity and Annuities will be hidden in target date funds structured as state regulated CIT’s that I outlined in my DOL Advisory testimony in July 2024.[xxiv]
Conclusions
Since Crypto, Private Equity, Annuity contracts are impossible to Benchmark you need to use Comparables. To make valid comparisons you have to compare them to other prohibited transactions that are materially similar, and looking at those similar funds with the best performance is valid for damages.
The CommonSense 401k Project 