On December 11, 2025, PBS NewsHour did something that almost no mainstream media outlet has done to date: it warned the public—plainly and directly—about the risks of private credit. The segment, airing roughly between the 20- and 28-minute mark of the broadcast, treated private credit not as an exotic investment strategy for sophisticated institutions, but as a growing systemic risk that already touches ordinary Americans through pensions, insurance products, and retirement plans. https://www.pbs.org/video/december-11-2025-pbs-news-hour-full-episode-1765429201/
That alone is significant. PBS is not a sensationalist outlet. When PBS NewsHour devotes prime airtime to a financial product, it is usually because the issue has matured from “industry concern” into a matter of broad public interest and potential harm. Private credit has now crossed that threshold.
PBS Breaks the Silence on Private Credit Risk
What makes the PBS NewsHour segment so important is not just that it covered private credit, but how plainly it described the regulatory hole surrounding it. As PBS explained, “private credit is just lending by nonbanks — financial institutions like pension funds, insurance companies, sovereign wealth funds — but not regulated like the traditional banking system.” That simple framing strips away years of industry marketing and exposes the core issue: private credit performs a bank-like function without bank-level oversight.
Even more telling was the warning from Tom Gober, an insurance fraud examiner, who focused on who ultimately bears the risk. Gober stated: “A very large percent of the population is affected by this higher risk without knowing it.” That observation goes to the heart of the problem. Private credit risk is no longer confined to hedge funds or wealthy investors. It is increasingly embedded—quietly and indirectly—inside pension plans, insurance general accounts, pension risk transfer annuities, target date funds, and state-regulated collective investment trusts, where workers and retirees have no visibility, no pricing transparency, and no meaningful ability to opt out.
When PBS elevates this issue to a national audience, it confirms what fiduciary advocates have been warning for years: private credit is not just an alternative investment—it is a public exposure problem.
The BIS, Financial Times, and the Credit Ratings Problem
PBS’s warning aligns closely with concerns raised by global regulators. In a recent report highlighted by the Financial Times, the Bank for International Settlements (BIS) warned that private loan credit ratings may be “systematically inflated.” The BIS focused on the growing reliance on small or lightly regulated ratings firms—particularly in insurance and private credit markets—where inflated ratings can dramatically reduce capital requirements and mask real credit risk. https://www.ft.com/content/9d1f4e49-5edc-4815-9efb-d4ef41756d72
This is not an academic issue. Inflated ratings distort pricing, suppress risk premiums, and create the conditions for sudden repricing and fire sales when defaults rise or liquidity dries up. The BIS explicitly tied these dynamics to systemic fragility, drawing uncomfortable parallels to the mis-rated mortgage securities that fueled the 2008 financial crisis.
The danger is magnified because private credit assets are illiquid, thinly traded, and often self-priced. When confidence breaks, there is no transparent market to absorb losses—only forced write-downs that cascade through insurance balance sheets and pension portfolios.
What This Means for ERISA Plans and Retirement Savers
These systemic warnings directly reinforce the concerns raised earlier this year in my CommonSense 401k Project’s article, “Private Debt Problematic in ERISA Plans.” https://commonsense401kproject.com/2025/07/18/private-debt-problematic-in-erisa-plans/ As that piece explained, private debt and private credit are fundamentally misaligned with ERISA’s core fiduciary requirements of prudence, diversification, and fair valuation. This will be dealt with in litigation around prohibited transactions in which the burden of proof is on the fiduciary that their private debt is exempt.
Private credit’s lack of observable market pricing, combined with long lockups and opaque fee structures, makes it exceptionally difficult for plan fiduciaries to demonstrate that participants are receiving commensurate value for the risks being taken. Embedding these assets inside target date funds or insurance-wrapped vehicles does not solve the problem—it hides it.
PBS’s reporting underscores an uncomfortable truth: millions of retirement savers are already exposed to private credit risk without knowing it, precisely the scenario ERISA was designed to prevent.
Shadow Banking, Then and Now
None of this is new. Nearly a decade ago, analysts warned that private equity firms were evolving into shadow banks, providing credit outside the regulated banking system. That prediction has now fully materialized. Private equity sponsors control vast private credit platforms that originate, warehouse, and distribute loans with minimal public disclosure.
PBS’s segment confirms that these concerns are no longer fringe critiques—they are entering mainstream financial discourse.
Why the PBS Warning Matters Now
The convergence of warnings—from PBS, the BIS, the Financial Times, and independent analysts—signals that private credit has reached a dangerous inflection point:
It has grown to systemic scale
It operates largely outside traditional regulatory frameworks
Its risks are mispriced through inflated ratings
And its losses will not be confined to “sophisticated investors,” but absorbed by workers, retirees, and policyholders
When a trusted public broadcaster like PBS feels compelled to warn viewers, fiduciaries and regulators should take notice. The question is no longer whether private credit can create systemic problems—it is whether policymakers will act before those problems become visible through losses.
Conclusion: An Alarm Bell for Fiduciaries
PBS did not mince words, and neither should fiduciaries. Private credit is increasingly intertwined with retirement systems that were never designed to absorb opaque, illiquid credit risk. The warning from Tom Gober—that a large portion of the population is already exposed without knowing it—should be taken as a direct challenge to ERISA fiduciaries, regulators, and courts.
Transparency, prudence, and accountability are not optional under ERISA. If private credit cannot meet those standards, it does not belong in retirement plans—no matter how attractive the yield looks on paper.
Employee-owned, publicly traded, or PE-backed—every major consultant now has financial incentives to push higher-fee private equity and private credit.
For years, institutional investment consultants have marketed themselves as independent fiduciaries guiding pension funds, 401(k) plans, endowments, and public retirement systems through the complexities of modern markets.
But the truth is far different. In 2025, the consulting industry has quietly transformed into the single most important distribution channel for private equity.
This shift cuts across every ownership model:
PE-owned consultants like NEPC (via Hightower/THL), Wilshire (CC Capital & Motive Partners), Russell Investments (TA Associates & Reverence Capital), and SageView (Aquiline).
Public-company-owned consultants like Mercer (Marsh & McLennan), Aon, and WTW—with earnings models tied to alternatives growth.
Employee-owned consultants like Callan, Meketa, RVK, Verus, and Marquette, who rely on higher-priced alternative consulting services to drive revenue and consultant compensation.
Whether PE-owned or “independent,” the economic incentives all point in the same direction: Push pensions and retirement plans into higher-fee private equity and private credit—regardless of long-term risk to beneficiaries.
PE-Owned Consultants: Conflict at the Core
NEPC – Now indirectly PE-controlled
In 2025, Hightower Holding acquired a majority stake in NEPC. Hightower is itself majority-owned by private equity firm Thomas H. Lee Partners.
This means NEPC—long positioned as a “fiduciary-only” advisor—is now part of a private-equity-backed distribution platform.
Wilshire Advisors – Apollo’s footprint via Motive & CC Capital
Wilshire was taken private by Motive Partners and CC Capital, whose leadership and capital partners maintain deep ties to Apollo and the private markets ecosystem.
Wilshire has since pivoted aggressively toward alternatives advisory and OCIO mandates.
Russell Investments
Owned by TA Associates (majority) and Reverence Capital Partners, Russell is one of the largest OCIO platforms in the world. It profits directly when clients allocate more to alternatives under its discretionary management.
SageView Advisory Group (Aquiline)
For several years, private equity firm Aquiline Capital Partners held a controlling stake in SageView. Aquiline’s strategy: consolidate RIAs and drive asset growth into high-margin private-market solutions.
In short: When the owners of a consultant profit from private equity, the advice will inevitably steer clients toward private equity. Angeles Investment Advisors owned by PE firm Levine Leichtman Capital Partners. Prime Bucholz has been in minority partnerships with PE over the years.
Even consultants not owned by private equity have public shareholders pushing them toward higher-margin advisory services—namely private equity, private credit, and OCIO.
Mercer (owned by Marsh & McLennan)
Mercer operates one of the largest:
OCIO businesses in the world
Proprietary private equity funds-of-funds
Alternative investment research and distribution groups Mercer Alternatives bought Pavillion from PE firm TriWest Capital Partners in 2018, and still influences platform.
Mercer earns much higher fees for:
Private markets due diligence
Access to Mercer-managed PE vehicles
OCIO discretionary mandates
Marsh & McLennan’s investor calls make it clear: alternatives and OCIO growth drive shareholder value.
Aon
Aon aggressively markets:
Aon Private Markets
Aon Private Credit solutions
Aon OCIO
Aon’s 10-K filings explicitly list “delegated investment management” and private markets as key revenue drivers.
WTW (Willis Towers Watson)
WTW operates its own private equity platform:
WTW Private Equity Solutions
Commingled alternative funds
Infrastructure/real asset vehicles
WTW extracts multiple layers of fees when a pension allocates to alternatives through their platform.
Conclusion: Mercer, Aon, and WTW have financial obligations to public shareholders that directly incentivize recommending higher-fee private equity allocations. Rocaton was bought by Goldman Sachs a firm deeply embedded in private equity
This is the category most trustees and regulators mistakenly assume is “independent.” But employee-owned consultants still have major conflicts of interest tied to private equity fee structures.
Callan – Pay-to-Play Through Callan College
Callan promotes itself as independent and employee-owned. Yet:
Callan College allows asset managers—including private equity firms—to pay for access to plan sponsors.
Callan charges premium fees for alternatives consulting.
This creates a baked-in incentive to recommend private equity.
Meketa – Higher Fees for Private Markets
Meketa earns:
Standard fees for public markets consulting
Much higher fees for private equity, private credit, and hedge fund oversight
Plus, Meketa markets itself as a leader in private markets advisory, turning private equity consulting into a profit engine.
Charge materially higher fees for alternatives consulting
Promote themselves as experts in private markets
Benefit through staff growth and enhanced margins when clients increase private equity allocations
Even without PE owners, the internal compensation systems reward consultants who grow alternatives business. Others with substantial conflicts around PE include CEM, Global Governance Advisors, and Funston.
The Industry-Wide Conflict: Alternatives = Higher Fees
Across all ownership structures, the economic truth is the same:
Higher consulting fees; pay-to-play structures; prestige and internal incentives
APPENDIX 1
How Consultants Use Smoothed Returns to Justify Overallocations to Private Equity and Private Credit
Summary
Pension consultants systematically overallocate to private equity and private credit not because these assets demonstrably improve risk-adjusted outcomes, but because smoothed, appraisal-based return data mechanically overstates returns and understates risk in asset-allocation models. This distortion aligns with consultants’ economic conflicts and effectively turns asset-allocation modeling into a distribution mechanism for high-fee private assets.
1. Smoothed Returns Are a Known, Documented Problem
Illiquid private assets do not trade continuously and are typically valued using appraisals, models, or manager-supplied marks. This produces stale and artificially smoothed return series.
The CFA Institute (2025) explicitly warns that analysts must test for serial correlation and states that analysts “need to unsmooth the returns to get a more accurate representation of the risk and return characteristics of the asset class.”
Failure to unsmooth causes:
Understated standard deviation (volatility)
Artificially low correlation to public markets
Inflated Sharpe ratios
Illusory diversification benefits
This is not controversial; it is widely accepted in the academic and professional literature.
2. Optimization Models Convert Smoothing into Overallocation
Consultants then feed these distorted inputs into:
mean-variance optimization,
risk-parity frameworks, or
efficient frontier analyses.
When an asset shows:
high historical returns,
low reported volatility, and
low correlation,
optimization must recommend a larger allocation. The result is mathematically predetermined.
In other words, the model is not discovering diversification—it is laundering volatility.
3. Academic Evidence Confirms the Distortion
The 2019 SSRN paper “Unsmoothing Returns of Illiquid Assets” (Couts, Gonçalves, and Rossi) demonstrates that commonly used unsmoothing techniques are often inadequate and that true risk exposures—especially market beta and downside risk—are materially higher than reported.
Once proper unsmoothing is applied:
correlations to public equities rise,
volatility increases,
and much of the apparent alpha disappears.
This finding directly undermines consultant claims that private equity and private credit offer persistent, low-risk diversification benefits.
4. Why This Serves Consultant Conflicts
As documented in How America’s Largest Pension Consultants Became the Distribution Arm for Private Equity, consultants often have:
ownership ties to private-market platforms,
revenue relationships with private managers,
internal compensation incentives linked to alternatives adoption.
Smoothed returns provide the technical justification for conflicted recommendations. They allow consultants to present sales outcomes as fiduciary analytics.
This same logic applies to private credit, where appraisal-based pricing and delayed loss recognition further suppress volatility and correlation—despite operating in highly competitive credit markets where true excess returns are measured in basis points.
5. Fiduciary Implications
Asset-allocation decisions based on smoothed private-market returns:
overstate expected returns,
understate portfolio risk,
misrepresent diversification benefits,
and systematically bias portfolios toward high-fee private assets.
From a fiduciary perspective, an allocation recommendation that collapses once returns are properly unsmoothed is not prudent—it is misleading.
6. Minimum Disclosures Fiduciaries Should Demand
Any consultant recommending private equity or private credit should be required to provide:
Serial-correlation diagnostics on private-asset returns
Full disclosure of unsmoothing methodology and parameters
Asset-allocation results before and after unsmoothing
Changes in volatility, correlation, and beta post-unsmoothing
A clear explanation of how much of the recommended allocation depends solely on smoothed data
Absent these disclosures, claims of diversification and superior risk-adjusted returns lack credibility.
Appendix 2 : Incentive Misalignment in Private Markets — Insights from CFA Institute Blog Analysis (Jan. 7, 2026)
1. Systemic Incentives Drive Supply Expansion Over Prudence
The CFA Institute piece characterizes the private markets “supply chain” as a **system driven by near-perfect incentive alignment among participants that encourages ever-greater production of private-market vehicles while de-emphasizing underwriting discipline and risk restraint.” CFA Institute Daily Browse
This dynamic applies directly to pension consultants. Once consultants expand roles from independent performance reporters into architects of portfolio design (especially alternative allocations), their professional incentives shift toward increasing portfolio complexity and assets under advisory — because:
Compensation and reputation become tied to the scale and complexity of allocations rather than outcomes.
With private market allocations embedded into policy targets, deviating toward simpler, lower-cost portfolios carries career risk.
Consultant forecasts and capital markets assumptions themselves can rise in tandem with private markets allocations — even as underlying returns lag expectations. CFA Institute Daily Browse
This precisely matches the pattern the CFA Institute warns about: incentives to expand product adoption overshadow incentives to ensure prudence or transparency.CFA Institute Daily Browse
2. Consultants Have Become Structural Amplifiers of Private-Market Narratives
According to the CFA Institute analysis, one of the most dangerous aspects of the private-market ecosystem is when various actors — from advisors to trade media and academia — reinforce a growth narrative, giving “unearned legitimacy” to private market products. CFA Institute Daily Browse
For pension consultants, this confirms two troubling dynamics previously documented in this report:
Consultants are highly influential in driving fund flows without evidence that their recommendations add value to plan sponsors. CFA Institute Daily Browse
By evolving from independent analysts into portfolio constructors and allocators, consultants become part of the amplification machinery that promotes private market adoption, not just neutrally reports it — a conflict of interest the CFA Institute explicitly identifies. CFA Institute Daily Browse
Thus, consultants do not merely advise private market allocations; they structurally reinforce the narrative that these allocations are necessary, beneficial, and inevitable — even when systemic risks and performance realities suggest caution.
3. Structural Conflicts of Interest Echo Across the Supply Chain
The CFA Institute analysis frames private markets as a complex system in which no single actor fully comprehends compounding risk, yet each participant’s incentives promote expansion rather than discipline. CFA Institute Daily Browse
In the context of pension plans, this aligns with the critical observation that:
“Consultants now evaluate outcomes generated by portfolio architectures that they themselves design, reintroducing the same conflict of interest they originally sought to eliminate.” CFA Institute Daily Browse
According to CFA Institute:
Structural incentive alignment among institutional allocators, fund managers, and distribution intermediaries has created a system in which risk segmentation and collective momentum override prudent risk analysis. CFA Institute Daily Browse
Consultants are part of this alignment; their roles have expanded from independent evaluator to essential agent of product adoption — often without accountability for long-term outcomes. CFA Institute Daily Browse
4. The Speculative Supply Chain and Retirement Plans
The CFA Institute’s “speculative supply chain” analogy applies directly to pension plans and defined contribution vehicles:
Private equity and private debt allocations have moved from niche alternatives into core portfolio components in many large plans. CFA Institute Daily Browse
Once participation becomes routinized, collective incentives can orient toward preserving allocations rather than assessing whether those allocations truly benefit participants in net risk-adjusted, cost-adjusted terms. CFA Institute Daily Browse
The narrative of illiquidity as sophistication and complexity as diversification is reinforced by administrators, advisors, consultants, and trade associations alike — exactly the type of amplifier behavior the CFA Institute warns about. CFA Institute Daily Browse
5. Evergreen and Semi-Liquid Structures — A Cautionary Parallel
Although not exclusively about consultants, the analysis highlights evergreen and semi-liquid structures as vehicles that warehouse risk, obscure valuation, and sustain the appearance of performance without transparent price discovery. CFA Institute Daily Browse
This structural design undermines the basic fiduciary principles of:
fair valuation,
periodic accountability, and
participant protection — principles central to ERISA and to the prudent management of retirement plan assets.
That these vehicles are now widely marketed — and often recommended by pension consultants — reinforces why distribution is not neutral and why incentives matter for plan governance.
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.
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
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.
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.
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
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
.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.
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.
The INVEST Act seeks to open 403(b) plans — often held by teachers, nonprofit employees, and others — to Collective Investment Trusts (CITs). On the surface, supporters call this “modernizing retirement,” “parity with 401(k),” and “lower cost institutional investing.” Sadly, rhetoric like that obscures a far darker truth: for many Americans, this law would legalize a structural conduit for hidden fees, opaque private-market gambles, and regulatory arbitrage — all at the expense of transparency, fiduciary duty, and retirement safety.
🚨 CITs Are Fundamentally Different From Mutual Funds — and Risky
CITs are not SEC-regulated; rather than SEC oversight, they operate under state banking/trust law (or OCC, IRS/DOL) when they’re “state-regulated.” That means no mandatory prospectus, no N-PORT/N-CEN holdings/flow disclosures, no regular public reports, no independent boards, and — critically — no restrictions on illiquid or alternative assets. The CommonSense 401k Project+2CLS Blue Sky Blog+2
As documented in my own recent analysis, this regulatory structure is tailor-made for ERISA §406 prohibited transactions — self-dealing, hidden revenue sharing, affiliated-manager placements, “alternative sleeves” — all far harder to spot or challenge than in a mutual-fund wrapper. The CommonSense 401k Project
The risk isn’t just theoretical: CITs now manage trillions (by some estimates ~$7 trillion) in defined-contribution assets; many major 401(k) Target-Date Funds (TDFs) have migrated from transparent mutual funds into opaque CIT wrappers. CLS Blue Sky Blog+2Yale Law Journal+2
Thus CITs are not simply a “cheaper mutual-fund alternative.” They are — structurally — a different and far riskier regime.
🧱 Private-Equity, Private Credit, Crypto — Hidden in Plain Sight
The real danger is not just opacity; it is that CITs under the new regime become the delivery vehicle for private markets, annuities, and alternative investments into retirement plans that ordinary savers trust to be safe. As I laid out previously: CIT TDFs as QDIAs are perfectly positioned to:
quietly embed private equity, private credit, crypto, real-asset private placements, or other illiquid/alternative investments under a “Target Date Fund” label; The CommonSense 401k Project+2CLS Blue Sky Blog+2
hide multiple layers of fees (sub-TA, wrap, trustee, platform, revenue-sharing), none of which are transparently disclosed; The CommonSense 401k Project+1
create “vertical stack” conflicts of interest — e.g., the same private-equity sponsor owning the trustee, the CIT issuer, the recordkeeper, and possibly advisor-platform arms — meaning that each layer profits when savers’ money is funneled into opaque investments. The CommonSense 401k Project
In effect: under the INVEST Act, retirement savings — even for teachers, nonprofit staff, lower-paid workers — could get funneled into the same private-market gambits that now benefit ultra-wealthy fund investors. And with minimal transparency, no signal, and little chance for participants to know what’s going on until it’s too late.
🏦 Regulatory Arbitrage — The “Hole” That Saves Private Markets
The shift to CITs represents classic regulatory arbitrage: by moving plan assets from SEC-regulated mutual funds into state-chartered trust vehicles, fund managers and private-equity sponsors escape public disclosure, liquidity/resale requirements, independent boards, and robust oversight. The CommonSense 401k Project+2NYU Law+2
That’s not just a compliance tweak — it’s a fundamental renaming of risk. A “Target-Date Fund” under a CIT is no longer the transparent, retail-friendly product most plan participants think they’re getting. It is a private-market trust in a cloak of respectability.
⚖️ For Retirement Savers and Fiduciaries — This Is A Regression
Fiduciaries under Employee Retirement Income Security Act (ERISA) are supposed to act with the care of a “prudent expert.” But how can that duty be meaningfully discharged when holdings, fee structures, valuation, liquidity, and conflicts are hidden? You cannot prudently evaluate what you cannot see. The CommonSense 401k Project+1
For plan participants — especially those in nonprofit, education, public service 403(b) plans — the shift under INVEST could undermine retirement security. What looks like a “safer, institutional-grade” retirement fund might in practice be a high-fee, illiquid, high-risk private-market bet.
And legal recourse is likely to be limited. By layering private-market investments inside bank-trust CITs, the accountability framework that protects mutual-fund investors becomes fragmented and attenuated.
🎯 What Should Be Done Instead
If lawmakers genuinely care about “parity” and “modernizing” retirement, that shouldn’t mean sacrificing transparency and investor protections. Instead of opening the door to CITs in 403(b)s en masse, policymakers should insist on structural reforms:
Full disclosure — all CIT holdings, underlying investments, fees, and related-party flows must be publicly available and easily accessible to plan participants.
Ban or strictly limit alternative / illiquid / private-market investments in retirement-plan CITs — particularly for non–ERISA 403(b) plans — unless underlying vehicles meet public-fund standards (liquidity, valuation, reporting).
Independent fiduciary oversight — true independent boards or third-party fiduciaries (not affiliates of providers/recordkeepers) should manage CITs for retail retirement plans.
Restore mutual-fund (or equivalent) QDIA defaults — if a default is needed, default to transparent, low-cost SEC-regulated mutual funds, not opaque CIT-TDFs.
Until such reforms are guaranteed, letting 403(b) plans invest in CITs is not “modernization.” It’s a regression — a regulatory carve-out designed to benefit private-equity, insurance, and asset-management firms at the expense of everyday workers.
📢 Conclusion: INVEST Act = Privatizing Risk Under the Guise of “Retirement Reform”
The INVEST Act’s attempt to give 403(b)s access to CITs should not be celebrated — it should be stopped, or at least substantially amended. For most Americans, retirement savings are not a speculative venture; they are a guarantee of future stability. Opening the door to opaque, alternative-heavy, private-market trusts — without meaningful transparency or fiduciary protections — undermines the very purpose of retirement plans.
Congress should reject the “privatization of risk” in favor of real retirement security: transparent, liquid, low-cost investments — not hidden private-equity funnels.
Why Rep. Randy Fine’s ERISA Bill Looks Like a Gift to Private Equity, Annuities, Crypto.
In April 2025, the U.S. Supreme Court handed down one of the most consequential ERISA decisions in decades: Cunningham v. Cornell University. This was an unanimous decision. Fine filed a bill to be more pro-Wall Street than the most pro-business justices of the current court
For the first time, the Court clarified that plaintiffs do not need to plead an exemption under ERISA §408 to survive a motion to dismiss. It is enough to plausibly allege a prohibited transaction under §406(a)(1)(C)—a fiduciary causing the plan to transact with a party in interest.
This seemingly technical point is a tectonic shift.
Cunningham dramatically lowers the barrier for bringing prohibited-transaction suits involving:
Insurance annuities
Recordkeeping and administrative arrangements
Private equity and alternative assets
Collective investment trusts (CITs)
Crypto access and custodial arrangements
Any relationship with a service provider can now face discovery unless the fiduciary proves that an exemption applies—at the defendant’s burden.
Corporate counsel, insurance lobbyists, PE firms, and employer-side ERISA lawyers panicked. Plaintiffs’ firms rejoiced. And within months, Congress saw a new bill—one designed to effectively reverse Cunningham at the pleading stage.
That bill came from a surprising place: Rep. Randy Fine, a first-term Republican from Florida’s new 6th District, best known not for retirement policy but for fiery pro-Israel rhetoric “no genocide” “no starvation” “no problem” and a deeply intertwined relationship with the Republican Jewish Coalition’s donor base. He is also a staunch Trump loyalist and Trumps DOL EBSA appointee has reflected the strong industry opposition to Cunningham https://www.levernews.com/the-corporate-crusade-of-trumps-top-retirement-cop/
This is where the story gets interesting.
H.R. 6084: The ERISA Litigation Reform Act—A Cunningham Counterstrike
On November 18, 2025, Rep. Randy Fine introduced H.R. 6084, the ERISA Litigation Reform Act. Its twin goals are simple:
Raise the pleading standard for ERISA prohibited-transaction suits.
Stay discovery until plaintiffs prove additional factual detail.
In other words: make it harder to sue annuity providers, private-equity platforms, recordkeepers, and crypto custodians—the exact entities most exposed after Cunningham.
The official statement from Fine’s office frames this as protecting employers from “abusive litigation tactics.” Committee Chairman Rep. Tim Walberg immediately endorsed the bill, calling it an essential reform for America’s retirement system.
But here’s the question:
Why is a freshman Florida congressman—whose political identity revolves around pro-Israel activism and cultural fights—leading the charge to shield private equity, annuity issuers, and crypto-adjacent financial players from ERISA suits?
The answer appears to be found in the donor network behind his campaign.
Follow the Money: RJC → Finance Billionaires → Fine
According to publicly available OpenSecrets-linked reporting:
RJC-PAC sent over $60,000 to “Randy Fine for Congress”, making Fine one of its top beneficiaries in the 2024–2025 cycle.
RJC-PAC’s funding base is heavily weighted toward high-net-worth donors from the hedge-fund, private-equity, and financial-services world.
Major RJC donors include individuals associated with Elliott Management (Paul Singer), Cerberus Capital, Apollo-adjacent networks, real-estate investment conglomerates, and other alternative-asset firms.
Historically, pro-Israel Republican super-donors like Sheldon Adelson poured tens of millions into RJC infrastructure, much of it tied to Wall Street wealth.
Put simply:
Fine is a direct financial product of a political network funded by the same financial titans who benefit most from blocking ERISA litigation against alternative assets and insurance contracts.
This doesn’t mean quid pro quo. It means alignment. It means interests line up neatly.
The RJC’s donor base includes players in those industries. And now a top RJC-funded candidate is carrying a bill that would give them precisely what they want.
The Broader Pattern: Protecting Alts in 401(k)s While Weakening Prohibited-Transaction Enforcement
H.R. 6084 doesn’t exist in a vacuum. It fits into a larger mosaic:
1. The Retirement Investment Choice Act (H.R. 5748)
A bill that would codify the Trump-era Labor Department policy allowing private equity, private credit, and non-transparent alternatives inside 401(k) plans.
2. Industry push to allow crypto in DC plans
Fidelity and other players have lobbied heavily to protect crypto access in self-directed brokerage windows—and to shield themselves from fiduciary exposure.
3. The rise of CITs holding annuities and private-credit instruments
Cunningham threatens all of these. H.R. 6084 gives them breathing room.
Why Fine? Why Now?
If you were drafting the perfect congressional messenger for this mission, you’d want someone who:
Is brand-new to Congress (not yet publicly tied to legacy retirement-policy positions).
Has a baked-in donor base from high-net-worth finance circles.
Has strong ideological credentials that shield them from intra-party criticism.
Is ambitious and eager to prove usefulness to leadership and donors.
Is aligned with a donor ecosystem where Wall Street capital and pro-Israel politics overlap heavily.
That person is Randy Fine.
He may not fully grasp the ERISA implications of his own bill. But his donors do. His committee allies do. And the financial-services industry absolutely does.
The Real Stakes: Cunningham v. Cornell Opens the Door—Fine Tries to Shut It
By shifting the pleading burden in prohibited-transaction cases back onto defendants, the Supreme Court restored the design of ERISA §406: to presume such transactions are improper unless proven otherwise.
If Congress now steps in to create a heightened pleading standard or a discovery stay, the result is predictable:
Annuity issuers avoid discovery into spread-based compensation.
Private-equity platforms avoid discovery into opaque fee structures.
Recordkeepers avoid discovery into revenue-sharing and “soft-dollar” conflicts.
Crypto custodians and fintech platforms avoid discovery into payments for distribution or platform placement.
And plan participants lose the oversight mechanism that ERISA was designed to provide.
Conclusion: Cunningham Opened a Door—Randy Fine is Trying to Close It for the Donors Who Stand to Lose
Whether or not Randy Fine personally understands the depth of ERISA fiduciary duties is almost beside the point.
What matters is this:
Cunningham v. Cornell made it easier to sue financial institutions for conflicted 401(k)/403(b) arrangements.
The industries most threatened—annuities, private equity, crypto, recordkeepers—have deep donor overlap with the Republican Jewish Coalition’s finance-heavy donor network.
RJC-PAC is one of Fine’s largest political benefactors.
Fine is now carrying a bill that would protect those donors’ industries by weakening ERISA enforcement.
This is not a coincidence. It is the normal, predictable machinery of American political economy.
And it is a reminder: Follow the money, and ERISA policy suddenly makes perfect sense.
Update 12/19/25— Fine Bill appears to be Dead on Arrival, Encore Fiduciary Conflict, and What This Means for Fiduciary Risk & Litigation
Thankfully such a blatant sellout to Private Equity, Annuities and Crypto was too much for a narrow majority to kill such legislation.
Since the original post on Rep. Randy Fine’s bill to effectively roll back the Cunningham v. Cornell University Supreme Court decision, additional context has emerged that underscores both the conflict-of-interest dynamics at play and the likely litigation response from plaintiff fiduciary lawyers.
1) Encore Fiduciary & Aronowitz: A Clear Conflict of Interest
The firm Encore Fiduciary — whose leadership until recently included Daniel Aronowitz, now Presidentially nominated to lead the Employee Benefits Security Administration (EBSA) — has publicly positioned itself as an advocate against ERISA litigation, calling for an end to what it terms “regulation by litigation.” Aronowitz’s testimony before the Senate emphasized reducing fiduciary litigation and easing plan sponsor exposure, including in areas such as private equity and crypto investment lineups for 401(k) plans. planadviser.com
This background raises an obvious conflict of interest: Encore’s business model includes focusing on fiduciary liability insurance and underwriting against litigation risk. As the head of EBSA, Aronowitz has influence over the very enforcement regime that determines how prohibited transaction claims and fiduciary breaches are litigated or regulated. Advocating publicly against litigation — especially in cases like Cunningham/Cornell — aligns with Encore’s commercial interests as much as any public-policy rationale.
Indeed, Encore has published commentary suggesting that plaintiffs’ fiduciary lawsuits such as Cornell are “frivolous” and constitute “litigation abuse” — arguing for heightened pleading standards to block access to discovery in prohibited transaction claims. Encore Fiduciary
That stance dovetails neatly with Fine’s bill (H.R. 6084, the ERISA Litigation Reform Act), which similarly seeks to raise barriers to prohibited transaction claims — effectively insulating annuities, private equity, recordkeeping arrangements, and crypto custodial arrangements from early litigation exposure. The CommonSense 401k Project The alignment between Encore’s advocacy and a sitting EBSA nominee — pushed by Fine’s caucus office — underscores that this is not a neutral policy debate but one deeply entangled with provider economic interests.
2) The Cunningham v. Cornell University Decision: Why Industry Feared It
The April 2025 Cunningham decision was unanimous (9–0) and significantly shifted the legal landscape by lowering the pleading standard for ERISA §406 prohibited transaction claims. Under Cunningham, plaintiffs no longer need to plead that a plan’s transaction lacked a statutory exemption before discovery proceeds; instead, claiming a prohibited transaction — including with a party-in-interest — is sufficient to get past initial motions. Supreme Court
This matters enormously for annuities and other insurance products. Annuities are per se transactions with parties in interest. Before Cunningham, industry defendants could often get prohibited transaction claims dismissed before discovery by arguing that a §408 exemption applied. Cunningham now means fiduciaries and insurers must plead and prove exemptions after discovery, increasing litigation risk, cost, and settlement leverage for plaintiffs.
That risk is precisely why firms like Encore have framed prohibited transaction suits as “absurd” or “frivolous,” and why Fine’s bill would reverse that dynamic by raising pleading thresholds and limiting early lawsuits. But critics argue such proposals would effectively immunize product vendors and fiduciaries from meaningful fiduciary accountability — contrary to ERISA’s protective purposes.
3) Why Fine’s Bill Is Likely Dead on Arrival (and What It Signals)
On its face, H.R. 6084 is so egregious — a legislative attempt to insulate Wall Street product vendors from fiduciary scrutiny — that it is unlikely to pass outside of a narrow party majority. Fine’s sponsorship of this bill is telling precisely because he is not a retirement policy expert; his political profile is dominated by cultural and geopolitical issues, not ERISA law. That suggests his sponsorship is not driven by substantive policy consensus, but by donor and industry networks that benefit from limiting ERISA litigation exposure. The CommonSense 401k Project
This dynamic mirrors why some industry actors openly oppose Cunningham — not because it undermines retirement plan administration, but because it makes it easier for plaintiffs to challenge products like annuities under ERISA’s prohibited transaction framework.
4) Implications for Annuity & Prohibited-Transaction Litigation
If Cunningham stands and the Fine bill falters, the litigation environment for prohibited transaction and fiduciary breach suits around annuities looks increasingly active:
Plaintiffs can now more easily survive early dismissal — gaining discovery into annuity pricing, spread profits, conflicts, and exemption defenses. Supreme Court
Increased discovery and lower pleading thresholds make it cost-effective for fiduciary lawyers to pursue cases involving annuities in 401(k) plans, especially where exemptions are routinely claimed without justification.
The industry’s public push to weaken litigation standards inadvertently signals heightened litigation risk, as plan participants and fiduciary attorneys see Cunningham as a green light to pursue cases that previously stalled at the pleadings stage. Sidley Austin
In effect, the very sector that wants to discourage prohibited transaction lawsuits — including annuity issuers and fiduciary insurers — is under pressure from participants and courts to justify their exemptions and fiduciary processes on the merits rather than avoiding discovery.
5) Broader Policy Context: Alternatives and Risk Resistance
This legislative tussle also intersects with broader regulatory movements pushing alternative assets such as private equity and cryptocurrencies into DC plans. Recent executive orders and regulatory proposals have directed agencies to consider cryptocurrency and private equity as 401(k) investment options, framing them as “competitive” and “diversification enhancing” even though most participants express little interest once risks and fees are explained. LinkedIn
Senators from both parties have sounded alarms about exposing retirement plans to these risky assets, warning they lack transparency and traditional investor protections. Senate Banking Committee
The contrast could not be starker: while industry and some political actors push to broaden product menus to include high-risk assets, courts and participant advocates are pushing back via **fiduciary litigation — particularly prohibited transactions — to ensure products genuinely benefit participants rather than vendors.
Bottom Line
The controversy around Rep. Fine’s bill and the public positioning of Encore Fiduciary’s leadership reflect an industry backlash to the Supreme Court’s Cunningham decision — a backlash driven not by participants’ interests but provider risk mitigation. Rather than weakening ERISA enforcement, this episode is likely to spur more fiduciary litigation, especially around annuities and other non-transparent products that have long escaped rigorous prohibited transaction scrutiny.
**APPENDIX
Why a Pro-Business Supreme Court Ruled Unanimously in Cunningham —
And Why the Fine Bill May Be Doomed by ERISA’s Own Architecture**
There is an apparent contradiction that has puzzled many ERISA lawyers: Why would a Supreme Court that is widely described as “pro-business” issue a unanimous opinion in Cunningham v. Cornell that makes it easier for plaintiffs to sue plan fiduciaries and service providers?
A deeper look at the Court’s ERISA jurisprudence reveals the answer
Thole v. U.S. Bank (2020) shut down DB plan standing so aggressively that the Court had to preserve standing and enforcement power in defined-contribution (DC) plans.
And once you understand that logic, the Randy Fine bill looks not only dangerous — but possibly unconstitutional or structurally impossible under ERISA.
1. Thole v. U.S. Bank: The Court Closed the Door in DB Plans
In Thole v. U.S. Bank (2020), the Supreme Court held 5–4 that defined-benefit (DB) participants lack Article III standing to sue for fiduciary breaches unless they can show an immediate financial loss.
Because DB benefits are fixed and guaranteed (unless the plan collapses), the Court reasoned that mismanagement doesn’t necessarily injure individual participants.
It was a massive win for employers, private-equity-heavy pension portfolios, and corporate de-risking strategies.
But it created a structural problem.
Thole wiped out ERISA fiduciary enforcement in DB plans.
plan fiduciaries suing themselves (never happens), or
criminal cases (extremely rare).
The Court knew what it had done.
2. Cunningham v. Cornell: The Court Had to Leave the DC Door Open
Fast-forward to 2025.
Cunningham v. Cornell arrives — focusing on §406(a)(1)(C) prohibited-transaction claims in 403(b)/DC plans.
The question: Must plaintiffs plead and disprove an exemption (408) at the motion-to-dismiss stage?
The Second Circuit said yes. The Supreme Court unanimously said no.
Why?
Because if the Court had closed off §406 claims in DC plans the same way it closed DB standing in Thole, ERISA enforcement would be nearly dead.
Cunningham is the “counterweight” to Thole.
Once Thole gutted DB enforcement, the Court had to preserve DC standing and DC prohibited-transaction claims to keep ERISA’s structure constitutional and functional.
Some key doctrinal reasons:
ERISA §406 is designed to be strict-liability unless an exemption is proven. The burden is on fiduciaries — not participants.
Congress intended broad enforcement in DC plans because participant accounts rise or fall based on fiduciary conduct.
If both DB and DC plan enforcement vanished, ERISA’s protective purpose would be nullified, contradicting 29 U.S.C. §1001 and decades of precedent.
Thus, the Court ruled 9–0 to preserve basic DC enforcement.
This is the only position that keeps ERISA’s statutory scheme coherent.
3. Cunningham Wasn’t “Anti-Business” — It Was Doctrinal Maintenance
The Justices weren’t siding with plaintiffs. They were preserving:
statutory interpretation integrity,
the §406/§408 burden structure,
constitutional standing doctrine, and
the basic idea that DC participants must have a remedy.
Even the Court’s staunchest “pro-business” members (Alito, Gorsuch, Roberts) signed on because ERISA’s architecture left no other legal option.
To rule the other way would have:
broken ERISA’s strict-liability structure,
inverted burdens of proof contrary to the text,
expanded Thole into DC plans (unthinkable), and
left ERISA practically unenforceable.
Which brings us to the new bill.
4. Why the Randy Fine Bill May Be Impossible to Implement Under ERISA
Some ERISA attorneys are already saying quietly what you’re saying loudly:
H.R. 6084 may be unworkable or even unconstitutional because it would violate ERISA’s core structural principles — the very principles the Supreme Court just reaffirmed in Cunningham.
Problems with the Fine bill:
(1) It tries to reverse the burden of proof Congress placed on fiduciaries.
ERISA §406 presumes transactions with parties in interest are prohibited. The defendant must prove reasonableness under §408.
H.R. 6084 tries to force plaintiffs to disprove a §408 exemption before discovery — exactly what the Supreme Court rejected.
(2) It would undermine basic trust-law foundations.
ERISA’s fiduciary scheme is explicitly built on trust law, where fiduciaries carry the burden to justify conflicted transactions.
Congress cannot legislate away the trust-law core without rewriting ERISA from scratch.
(3) It could violate Article III by stripping remedies.
If both DB (Thole) and DC (under H.R. 6084) claims lack meaningful enforcement, courts could find the statute constitutionally deficient.
(4) It directly contradicts the unanimous statutory interpretation in Cunningham.
The Supreme Court’s reasoning is built on the text — not on policy:
Exemptions are affirmative defenses.
Plaintiffs do not need to plead them.
Burden is on fiduciaries.
H.R. 6084 would flip all of that, setting itself up for immediate judicial invalidation.
(5) It conflicts with ERISA’s remedial purpose in §1001.
Congress explicitly declared the purpose of ERISA is to provide “ready access to the Federal courts” and “adequate remedies.”
A law closing off both DB and DC enforcement could violate Congress’s own statutory preamble unless rewritten wholesale.
5. The Bottom Line: The Supreme Court Already Told Congress What It Can’t Do
Thole closed DB standing.
Cunningham kept DC standing alive because otherwise ERISA enforcement collapses.
The Fine bill aims to do indirectly what the Court explicitly said plaintiffs don’t need to do.
For that reason, the bill is likely dead on arrival in the courts, even if it passed legislatively.
Put bluntly:
If Congress passed H.R. 6084, it would almost certainly be struck down as violating ERISA’s structure, statutory text, and basic trust-law principles reaffirmed unanimously in Cunningham.
Some employer-side attorneys already know this. Some are quietly admitting it. Others are hoping no one notices.
Appendix: The Two-Step ERISA Rollback Strategy Behind “Democratizing Alternatives”
How the Wagner White Paper and Encore’s “Higher Pleading Standard” Campaign Work Together to Protect Private Equity, Annuities, and Crypto
Your main post explains why Rep. Randy Fine’s bill (H.R. 6084) is best understood as a Cunningham counterstrike—a legislative attempt to re-raise the barrier to prohibited-transaction cases by requiring more detail up front and restricting discovery. The CommonSense 401k Project This Appendix adds an important framing: the policy ecosystem is not just legislative. It is also being built through “thought leadership” legal memos that normalize alternatives in DC plans and describe ERISA’s prohibited-transaction design as a litigation “problem” to be fixed.
Two recent examples show the full architecture:
Wagner Law Group White Paper: normalize private equity/alternatives as prudent “portfolio modernization” and promise future “safe harbors” and reduced litigation uncertainty.
Read together, they are a two-step strategy to strip ERISA’s effective bite without openly repealing ERISA.
Step One: Wagner’s “Permission Structure” for Private Equity and Alternatives in 401(k)s
The Wagner white paper is framed as neutral “fiduciary considerations,” but its practical effect is to legitimize and operationalize the expansion of private equity, private debt, crypto-related vehicles, real estate, infrastructure, and annuity/lifetime-income structures inside DC plans.
A. It leans heavily on Executive Order policy signals—without grappling with ERISA’s statutory prohibitions
Wagner’s opening premise is that a White House action “signals” a more favorable environment and directs agencies to create safe harbors and reduce legal uncertainty.
WagnerWhitePaperAlternativeInve…
But executive orders and agency tone shifts don’t change ERISA §406. They can repackage the narrative, but they can’t repeal the statute.
B. It treats DOL “neutrality” as a green light
Wagner highlights the DOL’s rescission of the 2021 supplemental statement as a return to a “neutral, principled-based approach.”
WagnerWhitePaperAlternativeInve…
That’s exactly the rhetorical move product manufacturers need: “We’re not endorsing—just being neutral.” In practice, “neutrality” becomes a distribution strategy for opaque, high-fee structures.
C. It moves the debate into §404 “prudence process” and away from §406 “prohibited transaction”
Wagner repeatedly emphasizes that the “duty of prudence is assessed based on processes, not outcomes,” using Intel/Natixis to steer fiduciaries toward documenting committee steps.
WagnerWhitePaperAlternativeInve…
But process formalism is the wrong center of gravity for many alternative structures, because the core issue is often structural conflicts and compensation—i.e., §406 prohibited transactions—where “good process” does not legalize an inherently conflicted arrangement.
D. It acknowledges liquidity and valuation problems—then downplays them into “manageable considerations”
Wagner concedes the obvious: liquidity mismatch and valuation are central risks (stale marks, true-ups, lagged valuations, “hard to value” assets).
WagnerWhitePaperAlternativeInve…
It even explains that plan-level funds may rely on valuation reports with lags (e.g., quarterly with a 30-day lag) and face “true-up” risk later.
WagnerWhitePaperAlternativeInve…
But it frames these as technical process issues (“hire valuation agents”) rather than the core enforcement problem: once you embed products that cannot be independently priced daily, you are effectively asking participants to accept manager-controlled mark-to-model NAVs—the same mechanism that makes benchmarking and accountability collapse.
Bottom line of Step One: Wagner supplies a legal-professional narrative that tells plan fiduciaries: you can do this, just document it, hire experts, and watch for safe harbors.
WagnerWhitePaperAlternativeInve…
Step Two: Encore’s Campaign to Make ERISA Prohibited-Transaction Claims Harder to Bring (and Much Harder to Discover)
Encore’s December 18, 2025 post is explicit: it argues that Congress must “fix” the Cunningham pleading framework by raising the pleading standard and limiting access to discovery. Encore Fiduciary
A. Encore defines the problem correctly—then frames the solution as “litigation reform,” not ERISA compliance
Encore complains that after Cunningham, “the mere allegation that a plan hired a service provider…is enough to survive a motion to dismiss” if the complaint also says fees were too high. Encore Fiduciary But that is not a bug in ERISA. It is ERISA’s design:
§406 treats conflicted transactions as presumptively improper
§408 exemptions are affirmative defenses
discovery is often the only way participants can prove hidden compensation and conflicts
B. Encore ties its argument directly to Fine’s bill and the goal of overriding Cunningham
Encore explicitly says Fine’s bill would “override” Cornell/Cunningham and describes it as addressing a “must-fix” problem. Encore Fiduciary That aligns precisely with the mechanism you describe in the Fine post: raise barriers, stay discovery, and blunt §406 suits targeting annuities, PE platforms, recordkeepers, and crypto custody. The CommonSense 401k Project
C. Encore’s “unworkable law” claim is really a defense of hidden economics
Encore argues the law becomes “unworkable” if hiring a service provider triggers discovery pressure. Encore Fiduciary But the reason defendants fear discovery is not because ERISA is irrational. It’s because discovery is where you find:
spread-based compensation in annuities / stable value
revenue-sharing and platform payments
affiliate deals, cross-subsidies, and “free” services funded elsewhere
opaque valuation practices and fee layering
conflicts buried in non-core options, managed accounts, custom TDF unitization, and CIT wrappers
In short: Encore is attacking the enforcement pathway precisely because the enforcement pathway reveals the economics.
Why the Two Pieces Fit Together: “Expand First, Disarm Enforcement Second”
Seen as a system, Wagner + Encore map onto a predictable playbook:
1) Normalize and distribute opaque products into DC plans
That is how you “strip ERISA” without formally repealing it: keep the statute on paper, but remove the functional ability to enforce it.
The Key Contradiction You Should Highlight
Wagner admits alternatives bring:
fee opacity
liquidity mismatch
valuation subjectivity and stale marks
WagnerWhitePaperAlternativeInve…
Encore simultaneously argues courts should make it harder for plaintiffs to get discovery unless they plead more specific facts up front. Encore Fiduciary
But plaintiffs often cannot plead “specific facts” about valuation manipulation, revenue sharing, spread profits, and affiliate payments until they get discovery, because those facts are controlled by the defendants and hidden behind:
proprietary fee schedules and revenue-sharing arrangements
So the combined message becomes:
“We want to move more complex, harder-to-value, harder-to-disclose products into 401(k)s… and also make it harder for participants to use litigation to learn what those products really cost and how they really work.”
That is not “democratizing access.” It is democratizing exposure while privatizing information.
Appendix: The Two-Pronged Campaign to Mainstream Alternatives and Disable ERISA Enforcement
(Wagner “Alternatives in 401(k)s” white paper + Encore’s HR 6084 / pleading-standard push)
This appendix is designed to bolt onto your November 29, 2025 post on Rep. Randy Fine’s bill and Cunningham. It shows how two seemingly separate “thought leadership” streams are actually complementary parts of the same policy machine:
Wagner Law Group provides the “how-to” legal memo for injecting private equity / private credit / crypto / real estate / annuities into participant-directed plans—by reframing everything as a §404 “prudence/process” discussion and leaning heavily on Trump’s Executive Order 14330 and prospective “safe harbors.”
Encore Fiduciary provides the “litigation shield” narrative—arguing that Cunningham made ERISA “unworkable” and demanding Congress raise pleading standards and stay discovery so prohibited-transaction cases die before plaintiffs can obtain the very evidence (fees, side payments, spreads, valuation inputs, affiliate deals) that proves conflicts.
Put plainly: first normalize alternatives in 401(k)s, then neuter the enforcement mechanism that would expose how those alternatives actually pay.
A. Wagner’s Paper: “Process” as a Substitute for Legality
1) The core framing problem: “prudence theater” instead of §406 analysis
Wagner sets the stage by celebrating a “more favorable regulatory environment” for “Investment Solutions that incorporate alternative investments.”
WagnerWhitePaperAlternativeInve…
But notice what disappears in the paper’s architecture: ERISA §406’s per se prohibitions and the real-world implication of Cunningham (burden shifts; exemptions are affirmative defenses; discovery becomes the battleground). Instead, Wagner repeatedly presents alternatives as a matter of:
prudent selection
monitoring
documentation
“key considerations” (fees, valuation, liquidity)
…as if a “good process” can cure a structurally conflicted transaction.
That is the same conceptual error you’ve flagged repeatedly in your prohibited-transaction writing: §404 process cannot legalize a prohibited transaction under §406.
2) Executive Order 14330 as a rhetorical lever (not a legal change)
Wagner leans hard on Trump’s Executive Order 14330 and, critically, highlights the EO’s directive to develop “appropriately calibrated safe harbors” and to “curb ERISA litigation.”
WagnerWhitePaperAlternativeInve…
That’s not neutral fiduciary education—it is policy advocacy language that presumes litigation is the problem, not conflicted compensation.
And Wagner’s “watch for pending safe harbor guidance” framing nudges fiduciaries to behave as if future administrative safe harbors will sanitize what is, in many settings, a current statutory problem.
Wagner explicitly pitches alternatives via target-date suites, managed accounts, and custom TDFs, including the use of “Non-Core Options” that participants don’t directly select.
WagnerWhitePaperAlternativeInve…
This is the practical playbook for what you’ve been calling laundering:
bury fee layers
obscure benchmarks
disconnect participants from line-of-sight holdings
reduce accountability through “unitization” and valuation smoothing
Wagner treats this as operational sophistication. Your framework treats it as transparency regression by design—especially dangerous after Cunningham, because the entire point of §406 pleading is to open discovery into exactly these hidden arrangements.
B. Encore’s Argument: Rewrite Pleading Rules So §406 Can’t Function
That’s not an “ERISA crisis.” That is ERISA functioning as written: §406 presumes certain transactions are suspect; §408 exemptions are defenses to be proven by defendants.
1) Encore’s thesis (in their words): discovery is the enemy
Encore complains that Cunningham gives plaintiffs “a free pass to discovery every time that a plan hires a service provider,” creating pressure to settle. Encore Fiduciary
But for alternatives/annuities/crypto/CITs, discovery is not a nuisance—it is the only tool participants have to uncover:
indirect compensation
spread profits
revenue sharing / platform payments
affiliate self-dealing
valuation inputs and “true-up” practices
gate/redemption discretion and side letters
In other words, Encore is openly describing a world where plans can transact in opaque, conflicted markets without the risk of having to produce documents early.
2) The HR 6084 mechanism: shift the burden back to plaintiffs
Encore praises HR 6084 (Fine’s ELRA) because it would require plaintiffs to plead and prove that a transaction does not qualify for the §408(b)(2) “reasonable compensation” exemption—at the motion-to-dismiss stage.
Encore also notes the bill would “generally stay discovery until after a motion to dismiss is ruled on.”
That combination is the whole trick:
Plaintiffs must allege non-exemption facts
But plaintiffs can’t access the facts because discovery is stayed
Result: de facto immunity for opaque compensation models
This is especially potent for private equity, private credit, annuities, and crypto custody, because the most important economic evidence is not public and often not meaningfully disclosed to participants.
3) “Frivolous” is a marketing label, not a legal analysis
Encore repeatedly characterizes these cases as “baseless” or “frivolous,” including Cornell itself. Encore Fiduciary+1
But the Supreme Court was explicit that the statute’s structure compels the burden allocation—and Encore admits that, too, while blaming Congress for writing ERISA that way. Encore Fiduciary
So what Encore is really saying is: ERISA’s design is inconvenient for the plan sponsor / service provider market, therefore Congress should redesign it.
That is precisely why this belongs in your Randy Fine narrative.
C. How the Two Pieces Fit Together: “Open the Door to Alternatives, Close the Courthouse Door”
Here’s the combined logic chain you can state plainly in your post:
Wagner tells fiduciaries: the White House wants alternatives in 401(k)s; DOL is moving back to “neutrality”; safe harbors are coming; proceed with a prudent process.
WagnerWhitePaperAlternativeInve…
WagnerWhitePaperAlternativeInve…
Encore tells Congress: Cunningham makes it too easy to sue; discovery is the problem; raise pleading standards; stay discovery; force plaintiffs to plead away exemptions. Encore Fiduciary+1
Randy Fine’s HR 6084 operationalizes Encore’s wish list while the Trump EO provides the policy “wind at the back” for the Wagner “how-to memo” ecosystem. The CommonSense 401k Project+1
Net effect: alternatives get distributed more widely, while ERISA enforcement becomes harder precisely where opacity is greatest.
That is not “democratizing access.” It is democratizing fee extraction.
D. Closing
Wagner’s white paper is the polite, professionalized version of the sales pitch: “Don’t worry—just document the process, and the regulatory winds are shifting.”
WagnerWhitePaperAlternativeInve…
Encore’s blog is the hard-edged political version: “Don’t allow discovery—raise pleading standards—make plaintiffs plead away exemptions up front.” Encore Fiduciary+1 Together they reveal the real strategy behind the Fine bill: expand distribution channels for private equity, annuities, and crypto wrappers inside 401(k)s and then strip participants of the only practical enforcement tool that can expose hidden compensation and conflicts after Cunningham.
The Wagner paper functions less as neutral fiduciary analysis and more as a legal normalization memo for private equity and alternatives in DC plans. Its core flaws are:
Treating ERISA §404 prudence as the controlling standard while largely ignoring ERISA §406 prohibited transactions
Framing private equity risk as a disclosure and process problem rather than a structural illegality
Relying on executive orders and agency tone shifts as if they could override statute
Using litigation outcomes selectively while ignoring Cunningham v. Cornell’s burden-shifting implications
Normalizing conflicted compensation, valuation opacity, and liquidity mismatches as manageable “considerations”
Failing to analyze private equity managers, insurers, trustees, and consultants as parties in interest
They say “sunlight is the best disinfectant.” For decades, Californians have trusted their public pension system — CalPERS — to safeguard retirement savings. But what if a massive portion of those savings is being channeled into a shadowy financial machine, enriching a few powerful firms like Apollo, and potentially fueling dark-money political influence?
With roughly $50 billion flowing through private-equity and alternative-asset funds managed by a handful of giant firms, including Apollo, CalPERS is among the largest financiers of big private capital in America. Yet nearly none of that money is traceable once it enters no-bid contracts, asset-management fees, carried interest, and opaque side deals. The funds disappear into the pockets of firms like Apollo — firms with deep links to political influence, former executives in roles of power, and a history shadowed by scandal.
As one compelling recent exposé argues, state pension money may have indirectly funded operations tied to Jeffrey Epstein via Apollo — raising hard questions about oversight, ethics, and democracy.
That lack of transparency isn’t a bug — it’s a feature. And it directly threatens the integrity of public pensions, the independence of politics, and the trust Californians place in both. With Montana setting new laws that limit the effects of Dark Money post Citizens United, it is California’s turn.
🛑 Why a Ballot Initiative Is Needed — And Why Apollo Matters
1. Public pensions shouldn’t bankroll private-equity firms with checkered histories
CalPERS — and through it, public employees and taxpayers — effectively underwrites the profits of firms like Apollo. Once that money enters the private-equity ecosystem, the trail vanishes. Apollo fees, carried interest, and “co-investments” are seldom subject to public disclosure.
That matters when such firms have histories of controversy. Apollo’s senior executives and business dealings have intersected with scandals, including associations with high-profile figures, hedge-fund influence, and a web of global capital flows. If funds derived from pensions are then used for political contributions, media acquisitions, or lobbying — none of it needs to be public or traceable.
2. The “black box” of private equity + political money = systemic risk
Because private-equity firms like Apollo often operate behind limited-partner confidentiality, shell-company structures, and complex fee/carry arrangements, it becomes virtually impossible to trace how pension-derived income is redirected into political power. That’s not transparency — it’s a built-in mechanism for influence laundering: public pension money → private equity fees → dark-money spending.
A constitutional or statutory-level reform is needed to:
Force full disclosure of all private-market managers receiving pension-derived money (GP name, fund name, amount paid, fees, carry).
Require PJCE (political-justice contribution/expenditure) reporting by any firm or entity receiving significant pension money — within 30 days, not after months or years.
Prohibit or strictly cap contributions/independent expenditures from entities yet to disclose their pension-income provenance.
3. This reform can unite workers, retirees, taxpayers, and voters
CalPERS’ beneficiaries — public-sector workers, retirees, school-employees — are already squeezed by underfunded pensions, rising contributions, and opaque management fees. A transparency initiative with Apollo as a central example speaks to a broad coalition:
Public-sector employees demanding their pensions be protected, not gambled;
Taxpayers wary of hidden financial flows underwriting political campaigns;
Advocates for campaign-finance reform opposed to dark-money dominance;
Retirees who deserve clarity on how their retirement savings are invested and what returns (or risks) follow.
4. It aligns with recent calls for broader campaign-finance and pension reform
Many Californians already support tighter campaign-finance rules. A “Pension-to-Politics Transparency” initiative — especially with vivid examples like Apollo — gives voters a concrete, actionable reform that connects pensions, private equity, and democratic integrity.
👇 What the Initiative Should Demand — Starting With Apollo-Level Disclosure
Full public disclosure of all private-equity / alternative-asset managers receiving pension-derived funds — including GP name, fund name(s), vintage(s), committed capital, fees paid, carried interest structure, co-investments, side letters, and any other revenue streams tied to pension money.
Real-time political-contribution reporting by any firm or entity that receives more than a threshold (e.g., $5M/year) from public pension funds — including direct contributions and independent expenditures for or against candidates or ballot measures.
Bans or strict limits on political contributions by firms still holding large amounts of public-pension-derived capital — to prevent conflicts of interest and the appearance of quid pro quo.
Clawback provisions and oversight — beneficiaries (or a public-interest watchdog) can challenge and recover fees if performance is poor, governance standards are violated, or political-spending disclosure is incomplete or false.
Independent audits and transparency enforcement — including publicly accessible data sets, regular audits of private-equity allocations, returns, and political-spending links.
🎯 Why This Could Be a Winning Campaign Theme for a Reform-Oriented California Governor
Anchoring a campaign on corporate accountability, pension integrity, and anti-dark-money promises both moral clarity and political appeal.
With Apollo — and other PE giants — so widely disliked by ordinary voters (especially given recent scandals), a reform-minded candidate can position themselves as a champion of the public, not just big finance.
Besides Porter other progressive candidates could support this issue as well as populist libertarian type candidates.
For public-sector, retirees, and working Californians — the idea that their retirement savings shouldn’t be financing shadowy political campaigns is likely to resonate strongly.
The issue transcends traditional left–right divides: workers, taxpayers, good-government reformers, and even fiscally conservative voters have reason to support transparency as it appears they are doing in Montana
.
✊ Final Thought: Pension Money — Not Political Money
Pension funds were meant to guarantee retirement security and financial stability. Instead, increasingly they have become sources of opaque wealth for private-equity firms — firms like Apollo, which then channel profits into political influence lines no one votes for.
It’s time for California voters to demand accountability. It’s time for a ballot initiative to expose the private-equity black box. And it’s time for a Governor who stands for pensions, transparency, and democracy — not secret money and hidden power.
If you believe in public integrity, fairness for retirees, and a democracy free from shadowy financial influence — share this post, support the initiative, and help build momentum for real reform.
California Needs a “Pension-to-Politics Transparency” Initiative — Montana Model and Apollo Shows Why
They say “sunlight is the best disinfectant.” For decades, Californians have trusted their public pension system — CalPERS — to safeguard retirement savings. But what if a massive portion of those savings is being channeled into a shadowy financial machine, enriching a few powerful firms like Apollo, and potentially fueling dark-money political influence?
With roughly $50 billion flowing through private-equity and alternative-asset funds managed by a handful of giant firms, including Apollo, CalPERS is among the largest financiers of big private capital in America. Yet nearly none of that money is traceable once it enters no-bid contracts, asset-management fees, carried interest, and opaque side deals. The funds disappear into the pockets of firms like Apollo — firms with deep links to political influence, former executives in roles of power, and a history shadowed by scandal.
As one compelling recent exposé argues, state pension money may have indirectly funded operations tied to Jeffrey Epstein via Apollo — raising hard questions about oversight, ethics, and democracy.
That lack of transparency isn’t a bug — it’s a feature. And it directly threatens the integrity of public pensions, the independence of politics, and the trust Californians place in both. With Montana setting new laws that limit the effects of Dark Money post Citizens United, it is California’s turn.
🛑 Why a Ballot Initiative Is Needed — And Why Apollo Matters
1. Public pensions shouldn’t bankroll private-equity firms with checkered histories
CalPERS — and through it, public employees and taxpayers — effectively underwrites the profits of firms like Apollo. Once that money enters the private-equity ecosystem, the trail vanishes. Apollo fees, carried interest, and “co-investments” are seldom subject to public disclosure.
That matters when such firms have histories of controversy. Apollo’s senior executives and business dealings have intersected with scandals, including associations with high-profile figures, hedge-fund influence, and a web of global capital flows. If funds derived from pensions are then used for political contributions, media acquisitions, or lobbying — none of it needs to be public or traceable.
2. The “black box” of private equity + political money = systemic risk
Because private-equity firms like Apollo often operate behind limited-partner confidentiality, shell-company structures, and complex fee/carry arrangements, it becomes virtually impossible to trace how pension-derived income is redirected into political power. That’s not transparency — it’s a built-in mechanism for influence laundering: public pension money → private equity fees → dark-money spending.
A constitutional or statutory-level reform is needed to:
Force full disclosure of all private-market managers receiving pension-derived money (GP name, fund name, amount paid, fees, carry).
Require PJCE (political-justice contribution/expenditure) reporting by any firm or entity receiving significant pension money — within 30 days, not after months or years.
Prohibit or strictly cap contributions/independent expenditures from entities yet to disclose their pension-income provenance.
3. This reform can unite workers, retirees, taxpayers, and voters
CalPERS’ beneficiaries — public-sector workers, retirees, school-employees — are already squeezed by underfunded pensions, rising contributions, and opaque management fees. A transparency initiative with Apollo as a central example speaks to a broad coalition:
Public-sector employees demanding their pensions be protected, not gambled;
Taxpayers wary of hidden financial flows underwriting political campaigns;
Advocates for campaign-finance reform opposed to dark-money dominance;
Retirees who deserve clarity on how their retirement savings are invested and what returns (or risks) follow.
4. It aligns with recent calls for broader campaign-finance and pension reform
Many Californians already support tighter campaign-finance rules. A “Pension-to-Politics Transparency” initiative — especially with vivid examples like Apollo — gives voters a concrete, actionable reform that connects pensions, private equity, and democratic integrity.
👇 What the Initiative Should Demand — Starting With Apollo-Level Disclosure
Full public disclosure of all private-equity / alternative-asset managers receiving pension-derived funds — including GP name, fund name(s), vintage(s), committed capital, fees paid, carried interest structure, co-investments, side letters, and any other revenue streams tied to pension money.
Real-time political-contribution reporting by any firm or entity that receives more than a threshold (e.g., $5M/year) from public pension funds — including direct contributions and independent expenditures for or against candidates or ballot measures.
Bans or strict limits on political contributions by firms still holding large amounts of public-pension-derived capital — to prevent conflicts of interest and the appearance of quid pro quo.
Clawback provisions and oversight — beneficiaries (or a public-interest watchdog) can challenge and recover fees if performance is poor, governance standards are violated, or political-spending disclosure is incomplete or false.
Independent audits and transparency enforcement — including publicly accessible data sets, regular audits of private-equity allocations, returns, and political-spending links.
🎯 Why This Could Be a Winning Campaign Theme for a Reform-Oriented California Governor
Anchoring a campaign on corporate accountability, pension integrity, and anti-dark-money promises both moral clarity and political appeal.
With Apollo — and other PE giants — so widely disliked by ordinary voters (especially given recent scandals), a reform-minded candidate can position themselves as a champion of the public, not just big finance.
Besides Porter, other progressive candidates could support this issue as well as populist libertarian type candidates.
For public-sector, retirees, and working Californians — the idea that their retirement savings shouldn’t be financing shadowy political campaigns is likely to resonate strongly.
The issue transcends traditional left–right divides: workers, taxpayers, good-government reformers, and even fiscally conservative voters have reason to support transparency as it appears they are doing in Montana
.
✊ Final Thought: Pension Money — Not Political Money
Pension funds were meant to guarantee retirement security and financial stability. Instead, increasingly they have become sources of opaque wealth for private-equity firms — firms like Apollo, which then channel profits into political influence lines no one votes for.
It’s time for California voters to demand accountability. It’s time for a ballot initiative to expose the private-equity black box. And it’s time for a Governor who stands for pensions, transparency, and democracy — not secret money and hidden power.
If you believe in public integrity, fairness for retirees, and a democracy free from shadowy financial influence — share this post, support the initiative, and help build momentum for real reform.
Why DOL-EBSA Has No Investment Oversight Capacity, While SEC Has Hundreds of Investment Experts
More than half of all 401(k) assets—and virtually all 403(b) and governmental 457 assets—are held in products that are not SEC-regulated mutual funds. Tens of billions more sit in:
Insurance company general-account annuities,
Separate account annuities,
State-regulated Collective Investment Trusts (CITs) that bury insurance contracts and spread-based arrangements in their portfolios,
Pension Risk Transfer (PRT) annuities, which are essentially opaque, bank-like liabilities without bank-like oversight.
Yet the federal agency responsible for enforcing ERISA—the Department of Labor’s Employee Benefits Security Administration (EBSA)—has almost no staff with expertise in investments, securities analysis, annuities, credit, or risk modeling.
This is the regulatory hole that the insurance industry, and increasingly the private-equity-owned life insurance industry, has deliberately exploited for 40+ years.
1. Staffing Comparison: SEC vs. DOL–EBSA
A rough but conservative comparison shows the scale of the problem:
Securities and Exchange Commission (SEC)
~4,500 total staff, with
500–800 investment professionals across:
Division of Investment Management
Division of Trading & Markets
Office of Compliance Inspections and Examinations
Division of Economic and Risk Analysis
Dozens of PhD economists, quantitative modelers, structured-product experts, securities lawyers, and examiners.
Hundreds of staff devoted purely to mutual fund, ETF, investment adviser, and securities-market oversight.
Department of Labor – EBSA
~875 total staff nationwide
Of these, only 15–20 have any involvement in investment-related matters—and not one is an actual investment professional in the sense the SEC uses that term.
Almost all EBSA staff are:
lawyers,
field auditors focused on operational compliance (contributions, timeliness, eligibility),
health-plan specialists,
benefits advisors.
EBSA does not employ securities analysts, portfolio managers, credit analysts, actuaries specializing in insurer risk, or quantitative risk modelers.
In other words:
The agency responsible for policing over $12 trillion in ERISA plan investments has fewer investment experts than a single medium-sized mutual fund complex.
2. EBSA Has Never Actively Supervised Pension Investments—Not Once in 35 Years
This matches the lived experience of many practitioners—including mine:
“In 35 years I have never seen DOL-EBSA work on a pension investment issue.”
The reason is institutional:
EBSA is structurally designed to investigate plan operations, not investment products.
EBSA field offices have zero analytic tools equivalent to what the SEC or even FINRA examiners use.
EBSA has never built risk dashboards, market-surveillance tools, CDS-implied credit tools, or portfolio review capabilities.
Staff are not permitted to opine on suitability, credit risk, liquidity risk, or spread-based conflicts.
Instead, EBSA outsources investment expertise to:
vendors,
industry sources,
or the very firms under investigation.
This is why EBSA repeatedly misses massive structural issues—including state-regulated CITs hiding annuity contracts, PRT annuities structured to evade securities regulation, and spread-based insurance products siphoning revenue from plan assets.
3. 50 State Insurance Regulators: Zero Investment Oversight for Pension Products
State insurance departments have even less capacity:
They employ actuaries and solvency examiners—not investment professionals with ERISA expertise.
Retirement products are 1–3% of their workload; health and property/casualty consume the rest.
Most states have no staff who specialize in stable value, separate accounts, or complicated annuity structures used in DC plans.
When a regulator “investigates,” they refresh the NAIC template—the NAIC being a trade group that exists to protect insurers.
In 35 years, I have personally seen:
No state insurance commissioner ever take action regarding pension investment insurance products—not one article, not one investigation, not one expert report.
This is why insurers prefer to sell state-regulated products into federally regulated ERISA plans—the definition of a jurisdictional loophole.
4. State-Regulated CITs: The Newest Regulatory Escape Hatch
As I’ve documented extensively (linking to pieces below):
State-regulated CITs can embed annuity contracts, spread-based insurance instruments, and opaque fee-sharing arrangements without SEC registration.
The DOL provides no oversight,
State banking supervisors have no expertise,
And the documents are drafted by bank-trust firms and insurance companies who know exactly what they are doing.
See my latest analyses:
State-Regulated CITs as Vehicles for ERISA Prohibited Transactions
Target Date QDIA CIT Testimony & Analysis
DOL’s Flawed PRT Report
Collectively, they show that regulators don’t even know what is inside these vehicles, much less how to evaluate conflicts, spreads, liquidity guarantees, or insurer credit risk.
5. DOL Advisory Council Capture: The Lifetime Annuity Lobby Writes the Script
My testimony to the ERISA Advisory Council revealed:
Several council members were actively promoting lifetime annuities as the QDIA solution,
The hidden fee structures were not understood—or deliberately ignored,
The Council had no expertise on insurer credit risk, synthetic vs. general-account stable value, or spread-based compensation,
No one on the Council cited CDS spreads, rating downgrades, or insurer leverage risks.
My conclusion is the only reasonable one:
The Council is structurally captured by industry.
6. The Result: The Biggest Unregulated Sector in U.S. Finance
Because of this regulatory vacuum, we now have:
1. $1+ trillion in annuity products sold into ERISA plans with no securities oversight.
2. $1+ trillion in state-regulated CITs with no federal risk oversight.
3. $3+ trillion in PRT annuities with no federal credit-risk oversight.
4. Hidden spread-based compensation that no regulator evaluates.
Insurance companies know exactly what they’re doing:
Avoid the SEC.
Avoid EBSA.
Avoid state regulators who don’t understand annuity investment risk.
Avoid transparency.
Push annuities through QDIA rules, automatic enrollment, CITs, and PRTs where oversight is weakest.
The Hidden Conflicts, Kickbacks, and CIT Incentives That Make Consultants the Most Dangerous and Least-Litigated Actors in the 401(k) Ecosystem
I. Introduction: The Invisible Hand Behind Most 401(k) Abuses
Most 401(k) excessive-fee or prohibited-transaction cases focus on:
recordkeepers,
asset managers,
plan committees, or
corporate fiduciaries.
But one powerful player has remained largely untouched by litigation:
👉 The 401(k) consultant.
In theory, consultants exist to protect plan sponsors by:
providing objective advice,
benchmarking fees,
evaluating investments, and
negotiating recordkeeping arrangements.
In practice, many consultants:
hold insurance licenses,
operate through broker-dealers,
receive undisclosed indirect compensation,
design investment menus tilted toward proprietary or paying partners,
push state-regulated CITs loaded with hidden fees, and
embed themselves in the RFP process so they can “validate” their own recommendations.
My 2022 article (“Conflicted 401(k) Consultants—Should Plan Sponsors Fire Them, Sue Them, or Both?”) warned that consultants were the least transparent but most influential actors in the system.
Today, with the explosion of CITs, Target Date Funds, and revenue-sharing through trust structures, the case for including consultants as defendants has become overwhelming.
II. Consultants Are Parties-in-Interest Under ERISA — Making Their Compensation a Prohibited Transaction
Under ERISA §3(14), any service provider receiving compensation from the plan is a party-in-interest.
This includes:
consultants,
investment advisors,
broker-dealer reps,
insurance-licensed consultants,
dual registrants (RIA + broker).
Under ERISA §406(a):
A fiduciary cannot cause a plan to engage in a transaction with a party-in-interest.
Meaning:
If a consultant receives any form of compensation tied to the products they recommend,
and the plan buys the product based on their advice, 👉 it is automatically a prohibited transaction.
Under ERISA §406(b):
Fiduciaries cannot use their authority to gain additional compensation.
Fiduciaries cannot act on behalf of an adverse party.
Fiduciaries cannot receive compensation from any source related to the transaction.
When a consultant:
recommends a CIT,
a target-date fund,
a stable-value product,
a recordkeeper’s proprietary platform, or
a bundled investment “suite”
and receives compensation tied to that choice, 👉 it is per se illegal under §406(b).
III. The New Era of Consultant Conflicts: CITs, TDFs & Hidden Compensation
CITs (Collective Investment Trusts)—especially state-regulated CITs—are the perfect vehicle for consultant conflicts because:
✔ They avoid SEC reporting
(no prospectus, no N-PORT, no holdings report)
✔ They hide fee layers
(no public disclosure of sub-TA, trustee fees, wrap fees, admin fees, platform access payments)
✔ They allow revenue-sharing without detection
(no requirement to itemize payments)
✔ They can embed alternative assets
(private equity, private credit, crypto sleeves)
✔ They are often sold by consultant-affiliated broker-dealers
(which collect soft dollars and platform fees)
This creates the modern version of the old insurance kickback model.
🔥 In the 1990s–2010s:
Insurance-licensed consultants were caught receiving secret commissions for pushing group annuity products.
🔥 In the 2020s–present:
Consultants now receive indirect compensation for pushing CITs—the new opaque bucket where revenue-sharing is easiest to hide.
IV. Consultants Have Already Paid Millions in ERISA Settlements — and More Cases Are Coming
While most lawsuits do NOT name consultants, the few that have done so show how powerful those claims can be.
✔ Lockton Advisors (Norton Healthcare Case)
Case:Disselkamp v. Norton Healthcare Settlement: $5.75 million What happened: Lockton was sued as a co-fiduciary for steering the plan into high-fee arrangements and failing to monitor compensation. The settlement demonstrates that consultants are exposed when named.
✔ Northern Trust (AutoZone Case)
Case:Iannone v. AutoZone Settlement: $2.5 million (2025) Consultant role: Northern Trust is not only an asset manager but also an ERISA “consultant” and fiduciary to plan menus. Plan participants alleged that its advice steered assets into its own underperforming products.
Consultants structured many of the recordkeeping and investment lineups in these cases, but plaintiffs’ attorneys often fail to name them.
✅ 1. Consultants can receive compensation connected to CITs — but it rarely appears as a traditional “commission.”
Unlike annuities (which frequently paid overt sales commissions or “street level comp”), CITs do not typically pay direct sales commissions to advisors or consultants.
But CITs do allow a wide range of indirect, hidden, or platform-based fees, including:
✔ Sub-TA (sub-transfer agency) payments
✔ Recordkeeping rebates
✔ “Platform access” or “shelf-space” payments
✔ Revenue-sharing from the underlying funds held inside the CIT
✔ “Trustee administrative fees” paid to intermediaries
✔ Consulting/marketing support agreements
✔ Soft-dollar style “research arrangements”
✔ Product placement fees
✔ Wrap fees baked into the CIT operating expense
✔ Spread-based profits inside stable value CITs (a big one)
These are economically identical to commissions — they just aren’t called that.
✅ 2. Why consultants love CITs: they open more channels for hidden compensation than mutual funds.
Mutual funds have:
SEC Form N-1A disclosures
N-PORT/N-CEN transparency
Strict distribution rules
12b-1 fee disclosure
Anti-pay-to-play requirements
CITs have:
No SEC filings
No public prospectus
No disclosure of revenue-sharing
No public audit reports
No rules prohibiting embedded platform payments or deal arrangements
In other words:
CITs were designed to bypass the disclosures that would reveal conflicts of interest.
Consultants — especially large broker-dealer affiliated consulting firms — have migrated from mutual fund revenue-sharing to CIT revenue-sharing because it is harder for ERISA plaintiffs and DOL examiners to detect.
✅ 3. Consultants with insurance licenses ARE the ones most likely to engage in these conflicts
Many consultants operate “co-managed” or “model portfolio” platforms that integrate Fidelity CITs, and receive fees based on assets directed into the model.
If they influence fund selection, this is, per se, illegal.
✔ Co-fiduciaries in a self-dealing scheme (§405)
Sponsors failed to monitor hidden conflicts.
This is the same theory used in:
Yale 403(b)
Cornell
MIT
Hughes v. Northwestern (Supreme Court — fiduciary monitoring failure)
And increasingly in revenue-sharing / CIT fee cases.
✅7. Important: Fidelity is not the only CIT provider with these conflicts, but it is one of the largest.
And because Fidelity CITs are:
state-regulated (NH)
opaque
non-SEC reporting
deeply integrated with Fidelity recordkeeping
—They are exceptionally fertile ground for undisclosed consultant compensation.
Consultants influence:
menu architecture
QDIA selection
TDF default mapping
benchmarking studies
manager search RFPs
“fee analysis” reports
advice and rollover platforms
Every one of these can be monetized.
🔥 Summary (for litigation & investigation use)
Yes — consultants can receive disclosed OR undisclosed compensation tied to CITs, including Fidelity CITs.
CITs make this much easier because they operate outside SEC scrutiny and allow:
revenue-sharing
platform fees
shelf-space arrangements
sub-TA payments
soft-dollar equivalents
affiliate routing
hidden spreads
product-placement payments
These payments are:
• Almost never visible to plan fiduciaries
• Almost never disclosed in the consultant’s ADV
• Almost always prohibited transactions under ERISA
• Often tied directly to selecting or retaining the CIT QDIA
This is a major litigation opening and likely the next wave of ERISA enforcement.
Appendix: The “Missing Defendant” in PRT and 401(k) Annuity Cases — Conflicted Consultants Who Profit When Plans Buy Annuities
Your consultant-defendant article (focused on Private Equity conflicts) extends naturally to fixed annuities, lifetime income products in 401(k)s, and PRT annuities. In annuity cases, the consultant’s conflict can be even more direct: insurance-adjacent compensation (commissions, overrides, contingent compensation, referral economics, affiliate agency revenue, or insurer-paid incentives), coupled with systematic “risk omission” (no CDS analysis; no downgrade protection; no offshore/reinsurance scrutiny).
1) The core problem: consultants can be “fiduciaries in the room,” but behave like brokers in the shadows
A recurring pattern in annuity placements is that the consultant markets itself as a neutral “advisor,” while structurally sitting inside a revenue ecosystem tied to insurance distribution or insurance markets. One publicly documented example is Lockton’s own compensation disclosure describing compensation that can include insurer-paid commissions (percentage of premium) and/or client fees. Lockton
That structure creates a plausible theory that the consultant’s economic incentives align with closing annuity premium, not with minimizing counterparty risk for participants.
2) Disselkamp/Norton shows consultants can end up paying real money
The Norton Healthcare ERISA settlement reporting makes clear that Lockton and Norton each paid half of a $5.75 million settlement. PLANADVISER+1 Even though the published reports describe the case in share-class terms, the larger litigation lesson is the same one you’re highlighting: consultants are not untouchable “service providers.” They can be—and sometimes are—co-defendants and payors.
3) In PRT specifically, consultants are not “independent”—many are deeply embedded in the insurance industry
PRT is an insurance transaction. Consultants who operate as (or alongside) insurance brokers / reinsurance brokers / insurance-market specialists have obvious incentive and framing issues.
For example, WTW’s own PRT commentary describes the market as “stable” with “strong insurers ensuring retiree security” while also emphasizing that WTW is “immersed in the insurance industry” as a “primary and reinsurance broker…risk adviser…and technology provider.” WTW+1 That is not a neutral posture; it is an “inside-the-industry” posture—exactly the kind of structural positioning that can support co-fiduciary / knowing participation allegations when risk is glossed over.
4) “Risk omission” becomes circumstantial evidence of conflicted incentives
Your PRT/annuity framework focuses on two objective risk controls that are routinely missing:
When a consultant repeatedly fails to insist on these, especially while marketing PRT as “retiree security,” that failure is not just negligence—it can be pled as circumstantial evidence of conflict: the consultant’s business model rewards premium placement and market throughput, not demanding terms that would reduce insurer profitability or complicate execution.
5) The “PRT consultant ecosystem” is huge—plaintiffs should treat it like recordkeeping: follow the money and standardize the claims
The PRT market has a recognizable cast and productized infrastructure:
Milliman publishes a “Pension Buyout Index” tracking buyout cost vs accounting liability—essentially a market barometer that normalizes the transaction and drives timing. Milliman
October Three markets PRT as “risk transfer,” touts “comprehensive annuity searches & cost negotiations,” and explicitly lists “Department of Labor 95-1 financial analysis” among its PRT services. octoberthree.com This is important: marketing “DOL 95-1 analysis” can be used in pleadings to show the consultant held itself out as performing a prudence-critical function—supporting a fiduciary or functional fiduciary theory depending on facts and plan delegation.
6) The key pleading move: consultants should be added when they (a) shaped the decision, (b) controlled or dominated the search, or (c) profited directly/indirectly from the placement
In PRT and 401(k) annuity cases, consider naming the consultant when facts plausibly show:
Decision-shaping: consultant recommended annuitization, framed it as “safest,” discouraged alternatives, or managed the committee’s narrative.
Search control: consultant ran the insurer “beauty contest,” controlled what bids were shown, or structured evaluation criteria.
Compensation conflict: consultant (or an affiliate/agency/subsidiary) received commissions/fees tied to placement, or had “insurance-side” economics that scaled with premium. (Lockton’s public compensation disclosure supports the general plausibility of insurer-paid compensation models in the consulting/broker ecosystem.) Lockton
Omissions that matter: no CDS-type analysis; no downgrade clause negotiation; no offshore reinsurance mapping; no stress scenarios. These omissions are not “academic”—they go to the heart of prudence and loyalty.
7) Discovery targets that will make or break the consultant-defendant theory
If you want courts to stop “looking the other way,” you need targeted discovery that forces transparency. In any PRT/lifetime annuity case, demand:
All compensation streams tied to the transaction (commissions, overrides, insurer-paid incentives, “consulting fees,” vendor management fees, referral revenue, affiliate agency revenue).
All communications with insurers, reinsurers, broker-dealers, and any insurance agency affiliates.
Morningstar and industry analysts have noted structural problems with third-party 3(38) investment managers:
Third-party ERISA §3(38) investment managers are often selected from narrow restricted menus of investment options controlled or influenced by broker/dealers or affiliated providers, meaning the “independent manager” is not truly independent. Morningstar
In practice, the outsourcing of investment discretion does not eliminate a sponsor’s fiduciary obligation; sponsors still bear the duty to prudently select and monitor the 3(38) manager itself. PLANSPONSOR
Analysts point out that a 3(38) manager that assembles a lineup from a constrained set of products offered by a vendor it is affiliated with does not meaningfully reduce conflict or liability — it shifts liabilities in ways that can obscure accountability. Morningstar
This dynamic undermines claims that outsourcing fiduciary duties to third parties eliminates meaningful fiduciary accountability. In litigation, it highlights how decision-making can be structured to shield primary actors (consultants, outsourced fiduciaries) unless they are named defendants.
Why ADV Part 2 is the smoking gun
Form ADV Part 2 is where RIAs must disclose conflicts, compensation arrangements, and other business activities in plain English. The SEC’s Part 2 instructions explicitly frame the brochure as client-facing disclosure of business practices and conflicts. SEC
This matters because, in ERISA cases, defendants often argue: “no conflict,” “no comp,” “we were independent,” “we were only advising.” ADV2 language is where they frequently admit the opposite — they (or affiliates) sell insurance and may receive compensation when clients buy insurance products.
The core “insurance affiliate” conflict pattern
A. The structure
Plan sponsor hires “consultant” / RIA for retirement plan advice (3(21) advice, sometimes 3(38) discretion, or “non-fiduciary” consulting dressed up as process).
Same firm discloses in ADV2 that it (or an affiliate/subsidiary/related person) is an insurance agency/producer or offers insurance products.
Consultant recommends or steers the plan to a fixed annuity / GA stable value / group annuity / guaranteed product (or to a recordkeeper platform where these sit).
Insurance affiliate receives commissions / overrides / production credits / marketing allowances (sometimes described vaguely as “insurance compensation,” “standard commissions,” or “may receive compensation from the insurance company”).
This is the kind of self-interested “two-hat” conduct that can turn into (i) a duty of loyalty breach and (ii) prohibited-transaction exposure.
B. “They admit it” language (example: Prime Capital)
Prime Capital’s disclosure bundle literally includes a heading “Insurance Agent or Agency” (and explains insurance sales require a license, etc.), i.e., the firm is acknowledging insurance sales activity as part of the business model. Prime Capital Financial+1
You can generalize this: many firms tuck these admissions into:
Item 10 (Other Financial Industry Activities and Affiliations)
Item 11 (Code of Ethics, Participation, or Interest in Client Transactions)
Item 12 (Brokerage Practices)
Item 14 (Client Referrals and Other Compensation)
Item 4/5 (Services and Fees—where they casually disclose insurance comp is separate)
What to extract from ADV2 for pleading or an appendix
When you pull an ADV2, you want to capture exact phrases that establish:
1) They (or affiliates) are licensed to sell insurance
“insurance commissions are in addition to advisory fees”
3) They keep the advisory fee while also earning insurance comp
This is the “double dip” that reads terribly to a judge:
advisory fee plus commission
advisory fee reduced? (often not)
“we do not offset fees” type admissions
4) They use “referrals” and “revenue sharing” language to sanitize comp
Sometimes the insurance comp is described as:
“referral fee”
“solicitor arrangement”
“economic benefit”
“marketing support”
That’s still compensation tied to the recommendation.
Why fixed annuities are especially potent (ERISA framing)
Fixed annuities are a sweet spot because:
compensation is frequently front-end, opaque, and not plan-participant visible, and
insurers/recordkeepers often sit in “party in interest” roles already (service providers).
So if the consultant is effectively acting “for its own account” in steering the plan into an annuity that triggers comp to its insurance affiliate, you’re in ERISA 406(b) territory (self-dealing / conflicted advice), and potentially 406(a) depending on the party-in-interest relationships and flows.
Even if you ultimately frame it as a loyalty/prudence breach, ADV2 admissions are excellent for:
How Opaque, Non-SEC-Regulated Target-Date Products Create Structural Conflicts, Hide Fees, Inflate Risks, and Enable Party-in-Interest Self-Dealing
I. Introduction: The Quiet Rise of State-Regulated CITs in 401(k) Plans
Over the last decade, Collective Investment Trusts (CITs)—private pooled vehicles chartered under state banking law—have displaced SEC-registered mutual funds as the dominant structure inside 401(k) Target Date Funds (TDFs). Most participants and many fiduciaries do not know that their “Target Date Fund” is not a mutual fund, carries no SEC oversight, and exists inside the murky regulatory environment of a single state bank regulator.
As Natalya Shnitser of Boston College Law School documented in Overtaking Mutual Funds: The Hidden Rise and Risk of CITs, this migration was encouraged by asset managers because CITs allow:
These characteristics make CITs, especially state-regulated TDFs, natural vehicles for ERISA prohibited transactions—including both §406(a) party-in-interest transactions and §406(b) fiduciary self-dealing.
Since Cunningham v. Cornell if the CIT is a parties in interest the burden is on the defense to prove that it is not a Prohibited Transaction.
II. Regulatory Arbitrage: CITs Exist Outside the SEC Regime
A. What CITs avoid compared to mutual funds
Investor Protection
SEC Mutual Fund
State-Regulated CIT
Prospectus
✔ Required
✘ None
Statement of Additional Information
✔ Required
✘ None
N-PORT / N-CEN disclosures
✔ Required
✘ None
N-CSR semi-annual reports
✔ Required
✘ None
Limits on illiquid assets
✔ 15% cap
✘ No limit
Independent board
✔ Required
✘ No requirement
Public audit
✔ Mandatory
✘ Often not disclosed
Result: CITs provide no reliable public record of holdings, liquidity, risk exposures, valuation methods, counterparty risks, or fee layers.
B. State regulators were never designed for ERISA oversight
Most CITs are chartered under a small number of states—e.g., New Hampshire, Delaware, South Dakota—whose banking departments:
have minimal staff,
do not require public disclosure,
do not review investment risk,
do not monitor fees, and
do not enforce ERISA fiduciary duties.
Thus, a CIT Target Date Fund is an ERISA plan investment regulated by a state banking clerk rather than by the SEC.
This regulatory arbitrage is exactly what allows hidden compensation, opaque allocations, and conflicts of interest—all foundational elements of ERISA prohibited transactions.
III. How CITs Enable ERISA Prohibited Transactions
There are three major pathways through which CITs create structural prohibited transactions, even when fiduciaries believe they are saving fees.
A. Prohibited Transaction Pathway #1: CITs Allow Asset Managers to Sell Their Own Products to Plans (ERISA §406(a))
Under ERISA §406(a)(1)(A), (C), and (D), a plan fiduciary cannot cause the plan to purchase investments from a party-in-interest.
CITs make this violation easy and nearly invisible because:
The CIT trustee, sub-advisor, and platform provider are often affiliates of the recordkeeper.
The CIT holds proprietary underlying funds, managed by affiliates of the same institution.
The CIT agreement often discloses no underlying holdings, making it impossible for fiduciaries to detect self-dealing.
This creates a multi-layer prohibited transaction, where each dollar flowing into a CIT TDF automatically flows into affiliated funds—often through multiple revenue streams.
The Commonsense 401(k) “Revenue Sharing as Prohibited Transaction” article documents exactly how these arrangements have hidden indirect compensation for years.
B. Prohibited Transaction Pathway #2: CITs Enable Fiduciary Self-Dealing (ERISA §406(b))
Under §406(b), no fiduciary may:
deal with plan assets for its own account,
receive additional compensation, or
act on behalf of an adverse party.
CITs facilitate all three:
1. Menu construction conflicts
Recordkeepers or their affiliates design TDF CITs whose underlying components include:
Endanger retirement security for over 100 million workers
CITs are not merely a “cheaper version” of mutual funds. They are the central tool enabling modern 401(k) prohibited transactions.
Given the opacity, conflicts, and inability to monitor risk, CIT TDFs should be disallowed as QDIAs and prohibited for ERISA plans unless:
all holdings are publicly disclosed,
all fee layers are disclosed and unbundled,
no affiliated products are used,
no revenue-sharing exists, and
independent fiduciaries oversee the structure.
Until then, CITs remain the most dangerous, least transparent, and most conflict-ridden structure in the modern 401(k) system.
1. CIT Basic structure: who owns whom?
Great Gray Trust Company, LLC is the trustee and fiduciary for a large family of bank collective investment trusts (“Great Gray Funds”). These CITs are explicitly exempt from ʼ33/ʼ40 Act registration. Great Gray Trust Company+2Great Gray Trust Company+2
Great Gray Trust Company is a wholly-owned subsidiary of Great Gray Group, LLC. Great Gray Trust Company
Madison Dearborn Partners (“MDP”), a large private-equity firm, purchased Great Gray from Wilmington and now owns Great Gray Group. Lever+1
MDP is actively investing across financial services and wealth / retirement platforms (NFP, Wealthspire, Fiducient, etc.), with Great Gray specifically identified as an “investment trust service provider” in its portfolio. Wall Street Journal
Great Gray is the fiduciary trustee over state-regulated CITs that hold private markets, and Great Gray itself is owned by a private-equity sponsor whose business model is to grow fee flows into private markets and wealth platforms.
2. Great Gray’s specific role in pushing private markets via CITs
From their own marketing:
They describe themselves as a “center of the retirement ecosystem,” working with 200+ recordkeepers and a broad web of advisers and intermediaries. Great Gray Trust Company
They emphasize that CITs are exempt from ʼ33/ʼ40 registration, and that the trustee (Great Gray) “maintains ultimate fiduciary authority over the management of, and investments made in, the Funds.” Great Gray Trust Company+2Great Gray Trust Company+2
They are now explicitly building target-date CITs with private equity and private credit exposure—Panorix TDF series with BlackRock providing the glidepath and private markets sleeves; Wilshire as sub-advisor. PLANADVISER+3Great Gray Trust Company+3BlackRock+3
They publish advisor FAQs and “CIT 101” pieces explaining how to incorporate private markets into DC plans and “debunking misconceptions” about CITs, positioning themselves as the primary evangelist for the structure. Great Gray Trust Company+2Great Gray Trust Company+2
That directly supports my“state-regulated CITs as vehicles to hide private equity” thesis: the whole point of this product push is to embed PE/PC inside a bank CIT wrapper overseen by a trustee that is itself owned by a PE sponsor.
3. Additional vertical conflict: RPAG acquisition and distribution
PE sponsor (MDP) → Great Gray Group → • Great Gray Trust (CIT trustee / manufacturer) • RPAG (advisor platform pushing models & product selection)
So when an RPAG-aligned advisor recommends a Great Gray CIT or a TDF filled with private markets, the same private-equity sponsor ultimately profits at multiple levels: platform economics, trustee fees, potentially sub-advisor or related-party economics (and of course increased AUM in private markets, which tend to have higher fees and longer lock-ups).
For ERISA, that’s fertile ground for:
Party-in-interest status under ERISA §3(14) for the trust company, the parent, and potentially affiliated managers/platforms that receive compensation from the CIT or underlying investments.
Prohibited transactions under §406(a) (transfers to or use by/for a party in interest) and §406(b) (fiduciary self-dealing, acting for its own account in transactions involving plan assets).
4. Concrete conflict themes you can plead or put in a memo
Here are a few angles you can directly plug into the “State-Regulated CITs as Vehicles for ERISA Prohibited Transactions” piece:
Great Gray publicly promotes the fact that its CITs are exempt from the ’33 and ’40 Acts, and that the bank trustee (itself) holds “ultimate fiduciary authority.” Great Gray Trust Company+2Great Gray Trust Company+2
At the same time, Great Gray is owned by a private-equity firm whose investors benefit when flows leave low-margin, transparent mutual funds and enter higher-fee, opaque private-market products.
That creates a structural incentive to:
Prefer CITs over mutual funds, even where mutual funds are cheaper and more transparent.
Prefer CITs that allocate to private markets (and other alternative strategies) over low-cost index CITs.
Cross-platform steering and “ecosystem capture”
Because MDP also owns RPAG and other wealth/retirement platforms, the sponsor controls both the manufacturing (Great Gray CIT / TDF products) and a big piece of the distribution (advisors using RPAG tools). Wall Street Journal+3Great Gray Trust Company+3Ropes & Gray+3
That raises classic loyalty and prudence issues: plan-level fiduciaries may be relying on “independent” advisor tools and research that are, in fact, owned or influenced by the same private-equity sponsor that profits if CITs/PE win the mandate.
Party-in-interest + hidden fee streams
Great Gray Trust, Great Gray Group, and affiliates (including RPAG) all plausibly become parties in interest once they provide services to the plan or receive direct/indirect compensation from plan assets.
If a Great Gray CIT invests in private markets or uses sub-advisers, and:
any MDP fund owns an interest in those managers, or
the CIT pays revenue-sharing / platform fees back up the stack, then you have indirect compensation and equity interests that ERISA treats as prohibited self-dealing absent a very carefully tailored exemption.
You don’t even have to prove a specific MDP → underlying GP relationship in the complaint stage; you can plead it as information-and-belief given:
MDP’s long record of financial-services / wealth platform holdings, including “investment trust service provider Great Gray Trust Company.” Wall Street Journal+1
Industry-standard PE strategy of taking GP stakes or co-investments in asset managers.
Opacity of state-regulated CITs + private markets
Great Gray’s own materials emphasize that CITs are bank products with their own Declarations of Trust; many are governed under state banking/trust law (e.g., Nebraska, South Dakota, etc.), with much weaker disclosure regimes than SEC-registered funds. Great Gray Trust Company+2Great Gray Trust Company+2Once you layer private equity/private credit exposures inside that wrapper, you compound opacity:
Limited partnership agreements often restrict disclosure.Valuations and fees are not transparent to participants.Oversight shifts from SEC mutual-fund exam staff to thinly staffed state banking/insurance regulators.
That lines up perfectly with my “regulatory hole” narrative and gives you a neat bridge to the Thole “structural risk” angle you like: participants can’t monitor or exit an opaque, PE-stuffed CIT controlled by a PE-owned trustee.
How CIT wrappers, offshore PE structures, hidden fees, and academic evidence now make entire TDFs per se ERISA violations of Private Equity.
“Private Equity Is a Wrecking Ball Inside 401(k) Target Date Funds”
INTRODUCTION
This report expands and fully develops the legal, economic, regulatory, and fiduciary basis demonstrating that any allocation to Private Equity (PE) or Private Credit (PC) within a 401(k) Target Date Fund (TDF)—including allocations as small as 1–10%—renders the entire TDF a prohibited transaction under ERISA §§406(a) and 406(b). It incorporates a new November 25 paper: PRIVATE EQUITY & LITIGATION RISK by Ludo Phalippou of Oxford and William Magunson of Texas A&M cites misleading performance metrics, manipulable valuations, opaque fees, limited liquidity, and fiduciary duty waivers, becoming significant litigation risks when ordinary investors enter the picture. Phalippou/Magunson charts how private enforcement could reshape the industry and explores how the future of private equity will increasingly be shaped by judges, not regulators. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5748424
Across these sources, the conclusion is consistent and unambiguous: **Private Equity is incompatible with ERISA’s fiduciary duties of prudence and loyalty, and its compensation and conflict structure necessarily triggers prohibited transactions.**
I. PRIVATE EQUITY IS ALWAYS A PROHIBITED TRANSACTION UNDER ERISA
Private Equity is structurally incompatible with ERISA because:
1. The GP is a party-in-interest (ERISA §3(14))
2. PE fees are prohibited self-dealing (ERISA §406(b)(1))
3. Carried interest is additional compensation (ERISA §406(b)(3))
4. Valuations are unverifiable, violating prudence. Even stated returns do not justify risks
5. Monitoring is impossible
6. Benchmarking is impossible
7. PE uses offshore affiliates for undisclosed conflicts
Each is independently sufficient to trigger a prohibited transaction.
III. PRIVATE EQUITY GP STATUS AS PARTY-IN-INTEREST
• Charges fees directly to plan assets • Extracts carried interest
• Engages in related-party transactions with offshore affiliates
Under ERISA §3(14)(A),(B),(C),(E),(F), this qualifies as a **party-in-interest**. Under ERISA §3(21), a GP exercising discretionary authority over plan assets is a fiduciary—yet PE GPs refuse to acknowledge fiduciary status. This mismatch itself is disqualifying under ERISA’s loyalty standard.
The CFA Institute report THE ECONOMICS OF PRIVATE EQUITYALEXANDER LJUNGQVIST CEPR 2024 https://rpc.cfainstitute.org/research/foundation/2024/economics-of-private-equity states: “Private equity is characterized by extreme opacity… LPs cannot verify valuations and must rely on GP reporting.”¹ This is irreconcilable with ERISA.
IV. PE FEES VIOLATE ERISA §406(b)(1) AND §406(b)(3)
“Aggregate carried interest exceeds one trillion dollars… approximately 18–20% of investor profits.” The Trillion Dollar Bonus of Private Capital Fund Managers Ludovic Phalippou∗ https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4860083 April 2025
Every dollar of carry ie, performance fees is a direct transfer of plan assets to a party-in-interest.
V. PERFORMANCE VALUATIONS ARE UNVERIFIABLE — ACTUAL PERFORMANCE AFTER FEES DOES NOT COMPENSATE FOR RISK
• Ennis shows that even flawed reported performance does not justify investment
IRR is manipulated through subscription lines. Net IRR differs sharply from economic IRR
• GP-controlled valuations distort performance. Interim valuations are “noisy, biased, and unverifiable” But PE valuations are Level 3, unobservable, and controlled entirely by conflicted GPs. Thus, **prudence is mathematically impossible**.
VI. ERISA TREATS A TARGET DATE FUND AS A SINGLE PLAN-ASSET DECISION
A Target Date Fund is a “bundled” investment product. Fiduciaries do not select sleeves—they select the entire product. The Department of Labor (DOL) confirmed in SunAmerica Advisory Opinion 2003‑12A and again in Frost Bank Advisory Opinion 2011‑06A that an investment manager’s selection of a multi-asset product constitutes a **single fiduciary transaction**.
Therefore: **IF ANY COMPONENT OF A TDF ENGAGES IN A PROHIBITED TRANSACTION, THE ENTIRE TDF IS TAINTED.** ERISA contains no de minimis exception for prohibited transactions. A fiduciary cannot argue that “only 10%” of the TDF is exposed. The fiduciary decision is binary: the TDF is either prudent, loyal, and exempt—or it is not.
Once the fiduciary “touches” a prohibited transaction, **the entire investment is prohibited.**
VIII. TARGET DATE FUNDS WITH PE HAVE THE WORST POSSIBLE FIDUCIARY PROFILE
Target Date Funds amplify PE risks due to: • QDIA default capture • Participants lacking sophistication • Layers of subadvisers • Greater fee opacity • Inadequate benchmarking • Use of “aggregate glidepaths” that hide PE allocations.
Target Date funds put in poorly state regulated Collective Investment Trusts (CITs) enable them to hide Private Equity.
The mixture of QDIA status + PE opacity is toxic under ERISA.
The conclusion from all available research is unmistakable:
If even 1–10% of a Target Date Fund is invested in private equity or private credit, the entire TDF becomes a prohibited transaction
Fiduciaries cannot meet ERISA’s duties of prudence or loyalty when TDFs contain PE/PC, offshore affiliated transactions, unverifiable valuations, or CIT opacity.
📌
Appendix How We Got Here: TDFs as Private Equity’s New Backdoor
After the SEC rejected widespread public-fund PE access, and after the 2020 DOL letter failed to open the retail PE market, private equity firms pivoted:
**➡ away from retail investors
➡ into 401(k) default investments ➡ through opaque CIT-wrapped Target Date Funds**
BlackRock, Fidelity, State Street, and TIAA now promote TDFs that include:
private equity
private credit
CLO mezzanine debt
PE-sponsored reinsurance vehicles
illiquid alternative credit strategies
These are inserted at the CIT level, where no SEC disclosure is required.
Boston College law professor Natalya Shnitser shows:
CITs have overtaken mutual funds in 401(k)s
CITs lack SEC oversight, Form N-PORT transparency, independent auditor requirements, uniform fee schedules, or conflict disclosures
Fiduciaries cannot evaluate valuations, fees, counterparty risk, or affiliated transactions
On page 25:
“Regulators lack visibility into CIT investment strategies and conflicts. Plan fiduciaries are similarly limited.”
This alone makes CIT-wrapped PE TDFs per se imprudent.
The CommonSense 401k Project 