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Ohio Media’s Complicity: How a Fake Scandal Hid the Real Teacher Retirement System Corruption

/ ChrisTobe / 1 Comment

I. Introduction

Ohio educators and retirees have been betrayed not only by their pension system but also by much of their state’s press corps. While the State Teachers Retirement System (STRS) funnels hundreds of millions annually into secret no-bid private equity contracts, the Ohio media—with rare exceptions—has amplified a manufactured scandal around “QED,” a firm with no assets, no SEC registration, and no role in managing STRS money.

Instead of asking why billions in opaque contracts remain hidden, much of Ohio’s press corps acted as enablers for Attorney General Dave Yost and Governor Mike DeWine, echoing their narrative and distracting from the real corruption.

II. The QED Distraction

QED was a concept firm, never SEC-registered, with $0 in assets and $0 in fees from STRS. Yet Yost’s office pushed QED into headlines as if it represented a major scandal. Media outlets latched on, running story after story about a phantom firm while ignoring the forensic audit’s findings that STRS pays nearly $1 billion per year in opaque fees through secret contracts with private equity managers.

This strategy—spotlighting a harmless decoy while burying the billion-dollar issue—is straight out of the FirstEnergy HB 6 playbook: focus public attention on a side-show while dark money flows in the shadows.

III. The Toledo Blade: A Lone Voice for Transparency

Amid this landscape, the Toledo Blade stood out. Its editorials and reporting consistently called for:

  • Full transparency of STRS private equity contracts.
  • An end to excessive bonuses for staff tied to opaque performance benchmarks.
  • Alignment with teachers’ interests, not Wall Street’s.

The Blade connected STRS to Ohio’s broader pay-to-play culture, warning that without transparency, the system was vulnerable to the same type of scandal that exploded with FirstEnergy. Their editorials declared plainly: teachers want indexing, transparency, and no bonuses—and that is what the board should deliver.

IV. Columbus Dispatch & Cincinnati Enquirer: A Different Agenda

Contrast this with the Columbus Dispatch and Cincinnati Enquirer, both owned by Gannett, which itself is controlled by Apollo Global Management—one of the largest private equity managers in the world and a major STRS contractor.

Instead of scrutinizing the hidden fees or Apollo’s role, the Dispatch and Enquirer often:

  • Echoed Yost’s QED talking points, portraying the phantom firm as the scandal.
  • Downplayed or ignored the forensic audit, which documented real abuses.
  • Dismissed reform trustees and teacher groups as disruptive or politically motivated, rather than whistleblowers.

It is no coincidence: media outlets owned by private equity have a structural incentive to protect private equity’s reputation and suppress stories that could threaten their fee streams.

V. Have Ohio Media Learned Nothing from FirstEnergy?

The FirstEnergy HB 6 scandal should have been the media’s wake-up call. For years, Ohio outlets treated HB 6 as just another political fight, underestimating the depth of corruption. It took federal prosecutors to expose that dark-money entities had funneled tens of millions to secure favorable legislation.

Now history repeats itself:

  • Dark money + opaque contracts + complicit officials.
  • A press corps (outside Toledo) unwilling to follow the money.
  • Ownership structures that align major newspapers with the very private equity firms extracting fees from STRS.

The question is not whether STRS corruption is real—it is whether Ohio’s media will expose it, or repeat the mistakes of HB 6 by shielding political and financial power until federal indictments force their hand.

VI. Conclusion

Ohio teachers deserve better than a pension system riddled with conflicts and a press corps that enables misdirection. The Toledo Blade has set the example, insisting on transparency and reform. The rest of Ohio’s media must decide whether they stand with educators and retirees, or with politicians and private equity firms.

Until then, the “QED scandal” will be remembered not as a revelation, but as a cover-up—engineered by officials and amplified by a complicit press—to protect the real scandal hiding in plain sight.

Ohio Media Coverage of STRS: A Tale of Two Narratives

OutletOwnership / ControlCoverage of STRS Private EquityTreatment of QEDEditorial Stance on Bonuses & TransparencyConflict Context
Toledo BladeLocally owned (Block Communications, family-run)Consistently presses for transparency of all private equity contracts; cites forensic audit; highlights hidden fees & conflictsTreated QED as irrelevant side-show; focused on real issue of opaque contractsPublished multiple editorials demanding: (a) no bonuses, (b) indexing over alternatives, (c) full contract disclosureIndependent paper not owned by national PE-controlled conglomerates; fewer conflicts
Columbus DispatchGannett (controlled by Apollo Global Management, a PE giant with STRS contracts)Downplays or omits forensic audit findings; avoids deep reporting on opaque PE feesElevated QED into a “scandal,” often repeating Attorney General Yost’s narrativeEditorials and coverage have tended to portray reform trustees as disruptive; have not demanded transparencyApollo’s ownership of Gannett creates structural conflict: a PE firm managing STRS assets also controls the Dispatch
Cincinnati EnquirerGannett (Apollo Global Management)Similar to Dispatch: minimal investigative coverage of hidden PE feesReported heavily on QED, framing it as the “problem” at STRSTeacher reformers framed as political; bonuses and staff defended as “market practice”Same Apollo conflict; reinforces “protect private equity” editorial line
Cleveland Plain Dealer / Cleveland.comAdvance Publications (Condé Nast parent, not PE owned)Coverage sporadic; tends to echo state officials’ talking points; limited forensic investigationReported on QED, but not as aggressively as Gannett papersMixed coverage: sometimes sympathetic to teachers, but little editorial leadership on reformNo direct Apollo conflict, but resource-constrained newsroom often reprints wire and official narratives
Dayton Daily NewsCox Enterprises (privately held, diversified media)Limited investigative reporting; tends to cover STRS in political rather than financial termsMentioned QED scandal, not skeptical of itRare editorials; neutral to deferential toward STRS staff and officialsNot PE-owned, but relies heavily on statehouse reporting that echoes official narratives

Key Contrasts

  1. Toledo Blade – Only paper to frame STRS as a transparency and fiduciary crisis, consistently supporting teachers. Editorials directly linked STRS secrecy to potential corruption and called for reform.
  2. Gannett Papers (Dispatch & Enquirer) – Amplified the QED distraction while burying the story of $900m+ in hidden fees. Their ownership by Apollo Global Management (a major STRS contractor) creates an unavoidable structural conflict of interest.
  3. Other Ohio Papers – Often echo official statements and lack resources for deep financial investigations, leading to coverage that reinforces the AG/Governor narrative rather than challenging it.

Lessons from FirstEnergy HB 6

  • Just as most Ohio media failed to follow the money during the FirstEnergy scandal—until federal prosecutors forced the issue—so too with STRS.
  • The same dark-money channels and conflicted law firms are at play, but the press (outside Toledo) is not connecting the dots.
  • Ownership conflicts (Apollo → Gannett) raise questions about editorial independence when covering private equity’s role in STRS.

APPENDIX

Ohio TV STRS/QED framing in Private-Equity Shaped Media Ecosystem

Core points:

  1. Ownership & financing matter. Apollo’s majority stake in Cox Media Group puts Ohio broadcasting squarely within a private-equity ownership model. Scripps (public) is a large consolidator; Gannett’s statewide print/digital network runs on Apollo-financed debt—creating a broader sponsor-centric news economy. Axios+1
  2. Narrative selection favors scandal over substance. WEWS/News 5’s STRS/QED packages emphasize alleged steering/ethics, while complex fiduciary issues (fees, benchmarking, PE smoothing) get less oxygen—matching a broader national pattern in PE-adjacent media. News 5 Cleveland WEWS
  3. Result: Viewers receive a vivid story about “QED and bad actors,” but less on how STRS’s alternative-asset costs and benchmarks may drive funding gaps—information retirees need to evaluate stewardship.

1) Who owns the Ohio TV megaphones?

  • Cox Media Group (CMG) — majority-owned by Apollo Global Management affiliates since 2019; CMG historically held significant Ohio TV and newspaper assets (e.g., WHIO-TV Dayton and Dayton Daily News). Apollo’s 2019 buyout put local TV/newspapers under a PE umbrella; CMG later sold 12 stations to Imagicomm (2022), but Apollo’s CMG stake is a clear PE footprint in Ohio broadcasting. Axios
  • Gannett/GateHouse (newspapers, not TV) — relevant for statewide news agendas. The 2019 New Media/GateHouse merger that created today’s Gannett was financed by Apollo ($1.792B loan @ 11.5%, per NewsGuild; similar coverage in Forbes). While not TV, their statewide print/digital network sets a parallel tone that TV often follows. The NewsGuild – CWA+2Forbes+2
  • E.W. Scripps (NASDAQ: SSP) — publicly traded broadcaster headquartered in Cincinnati; owns WEWS Cleveland (News 5) and WCPO Cincinnati, among many others. Scripps is not PE-owned but relies on Blackstone for debt lines
  •  

Why it matters: Even when a broadcaster (Scripps) is not PE-owned, adjacent ownership ecosystems (Apollo-controlled CMG; Apollo-financed Gannett) can shape shared sourcing, editorial framing, and agenda-setting across markets.

2) The STRS/QED arc on Ohio TV (WEWS/News 5)

  • Reporter: WEWS’s Morgan Trau covers the Statehouse and authored multiple STRS/QED pieces; her station page and X profile confirm role/location. News 5 Cleveland WEWS+1
  • Coverage themes: News 5’s recent report (example: “whistleblower, investment firm at center of … testify…”) advances the alleged ‘QED steering’ narrative (AG Yost’s case), framing QED as central to impropriety and tying it to reform board members—echoed by Ohio Capital Journal and AP summaries of the litigation timeline. News 5 Cleveland WEWS+2Ohio Capital Journal+2

What’s notable for your critique:

  • The “QED as bogeyman” frame dominated airtime while long-running questions about STRS fees, benchmarks, and alternative-asset underperformance got less sustained, technical coverage—mirroring the concern in your essay about Ohio media focusing on scandal optics over the fiduciary substance. (Your linked analysis.)
  • That imbalance aligns with national patterns where PE-connected media ecosystems emphasize personality/process controversy while de-emphasizing fee/benchmark mechanics.

3) Private-equity touchpoints in Ohio TV

  • Apollo → CMG (majority owner): PE has a direct station-ownership footprint via CMG; Ohio viewers are within that distribution (e.g., WHIO-TV market). Even when not dictating day-to-day editorial, ownership incentives (leverage, cost-cutting, reliance on wire/centralized content) can narrow bandwidth for technical pension reporting. Axios
  • Scripps (public) interacts with debt/portfolio reshuffles (Gray swaps, sales) that similarly reward scalable, conflict-friendly narratives (short packages, political drama) over deep dives into private-market fees, benchmark engineering, and smoothing—the very topics reformers press. Scripps
  • Gannett (Apollo-financed) sets parallel print/digital agendas statewide. Even though it’s not TV, those newsrooms’ story selection cascades into broadcast rundowns, magnifying frames that are comfortable for financial sponsors and burdensome for reformers. The NewsGuild – CWA

4) Conclusion

  • Safe, supportable claims:
    • Apollo-affiliated funds control Cox Media Group (since 2019) and thus have direct ownership exposure to Ohio TV markets. Axios
    • Scripps is publicly traded and owns WEWS & WCPO; it actively swaps/sells stations to optimize portfolio scale depends on PE firms like Blackstone for credit. Scripps+1
    • WEWS’s Morgan Trau produced multiple STRS/QED stories; News 5 coverage foregrounds QED/board-misconduct allegations that AG Yost pursued. News 5 Cleveland WEWS
    • AP and Ohio Capital Journal pieces show the state’s litigation narrative advancing the “contract-steering/hostile takeover” frame, which TV then amplifies. AP News+1

How Insurers Are Making Their Own Annuities More Likely to Be Prohibited Transactions

/ ChrisTobe / Leave a comment

Introduction

For decades, insurers have promoted annuities as “safe” retirement products—whether offered inside 401(k) plans, 403(b) plans, or used in large pension risk transfer (PRT) deals. But recent developments suggest insurers themselves are eroding the transparency and prudence standards that fiduciaries must meet under ERISA. By lobbying for secrecy, suppressing solvency disclosures, and hiding their spread profits, insurers are virtually ensuring that plaintiffs’ attorneys will argue these contracts amount to prohibited transactions under ERISA §406.

This article builds on my earlier work:

1. Annuities as Prohibited Transactions via ChatGPT¹
2. Annuities Flunk Prohibited Transaction Exemptions²
3. Diversification Abandoned: Why Fiduciaries Must Rethink Fixed Annuities and PRTs³
4. Four Sets of Books: How Trump’s 401(k) Push Opens the Door to Accounting Chaos⁴
5. State Guarantee Associations Behind Annuities Are a Joke⁵
6. PRT Annuities Should Be Prohibited Unless Sponsors Prove Prudence⁶

I. Secrecy Around Prudential and New Jersey Insurers

A researcher recently noticed that quarterly statutory filings of Prudential (domiciled in New Jersey) are not available on S&P Capital IQ. Why? Because New Jersey Statute 17-23-1 makes quarterly statements confidential: “Quarterly statements shall be confidential and shall not be subject to public inspection…”⁷

This means one of the largest providers of PRT annuities in the country shields crucial solvency data from plan sponsors, fiduciaries, participants, and even researchers. Fiduciaries relying on Prudential annuities cannot access the same information they would demand of any mutual fund or bank counterparty.

II. NAIC’s Push to Hide Risk-Based Capital Scores

The National Association of Insurance Commissioners (NAIC) is now moving to extend this secrecy nationwide. In a 2025 proposal (p.56 of NAIC CADTF meeting packet⁸), regulators suggest prohibiting any public reporting or dissemination of an insurer’s Risk-Based Capital (RBC) ratio. The Society of Actuaries has opposed this move, warning that transparency is essential.

III. The Spread Profits Problem

As I detailed in ‘Four Sets of Books’⁴, insurers earn vast hidden profits by crediting plan participants only 2–3% while investing their general accounts at 6–8%. Unlike asset managers who must disclose fees, insurers keep their “spread” opaque. Cases like Cunningham v. Cornell University suggest courts will increasingly demand disclosure of how insurers make their money. Refusals to disclose will support claims of prohibited transactions.

IV. Why This Matters for 401(k) and PRT Litigation

Fixed annuities and guaranteed investment accounts offered inside 401(k)s are increasingly challenged as prohibited transactions, especially when recordkeepers steer participants into affiliated insurance products. The secrecy around solvency metrics compounds the fiduciary risk.

In Pension Risk Transfers, when a plan sponsor transfers billions in obligations to a single insurer, the current rule fiduciaries must prove the annuity provider is financially strong. (I believe that this rule could be challenged since even a strong annuity provider may not live up to Imprudent Conduct Standards) If solvency data is withheld, plaintiffs can argue that fiduciaries could not have satisfied their duty to monitor and therefore, engaged in a prohibited transaction.

V. The Coming Litigation Wave

With insurers lobbying to suppress information, fiduciaries are left in an impossible position. Courts will not accept “we couldn’t get the data” as a defense. Instead, lack of transparency will be framed as evidence that annuities:

1. Fail ERISA’s prudence standard.
2. Trigger prohibited transaction rules.

Conclusion

By suppressing solvency disclosures, hiding spread profits, and lobbying for even greater secrecy, insurers are accelerating their own downfall in the courts. What once passed as prudence will now be reframed as prohibited self-dealing. Fiduciaries who continue to use annuities—whether in 401(k)s or PRTs—without demanding full transparency may soon find themselves on the losing end of ERISA litigation.

Footnotes

¹ https://commonsense401kproject.com/2025/06/13/annuities-are-prohibited-transactions-via-chat-gpt/
² https://commonsense401kproject.com/2025/05/10/annuities-flunk-prohibited-transactions-exemption-scotus-ruling-will-open-floodgates-of-litigation/
³ https://commonsense401kproject.com/2025/07/27/diversification-abandoned-why-plan-fiduciaries-must-rethink-fixed-annuities-and-pension-risk-transfers/
⁴ https://commonsense401kproject.com/2025/08/12/4-sets-of-books-how-trumps-401k-push-opens-the-door-to-accounting-chaos/
⁵ https://commonsense401kproject.com/2025/06/24/state-guarantee-associations-behind-annuities-are-a-joke/
⁶ https://commonsense401kproject.com/2024/12/17/pension-risk-transfer-annuities-should-be-prohibited-the-burden-of-proof-is-on-plan-sponsors-to-justify-that-they-are-prudent/
⁷ N.J. Stat. §17-23-1.
⁸ NAIC, Capital Adequacy Task Force, Special National Meeting Packet (2025), p.56.

4 Sets of Books: How Trump’s 401(k) Push Opens the Door to Accounting Chaos

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For decades, 401(k) investment accounting lived in a relatively clean world. Most plans are used primarily:

  • One set of books – a portfolio of SEC-registered mutual funds, all marked to market daily; or, around 25% used mark to market for 90% of their options, with perhaps one or 2 stable value options using book value accounting a second set of books.

Now, under Trump’s crypto and private equity in 401(k) push, we are rapidly heading toward four incompatible accounting systems inside the same retirement plan. One accounting standard is essential for transparency and accountability—but the direction we’re heading guarantees neither.

1. Mutual Funds: The Gold Standard of Market Value Accounting

Accounting Standard:

  • GAAP / FASB rules for investment companies, enforced by the SEC.
  • Mark-to-market daily pricing based on observable market prices.
  • Independent custodians and pricing vendors.
  • Audited annual reports with standardized disclosures.

Why It Works:

  • Participants see a daily NAV (Net Asset Value).
  • Prices are transparent, comparable, and difficult to manipulate.
  • Fiduciaries can benchmark performance accurately.

This is the historic standard that most investors think applies to their 401(k) across the board. Unfortunately, it’s only true for the mutual fund portion of a plan.

2. Annuities: Book Value Accounting in the Shadows

Accounting Standard:

  • Statutory accounting under the NAIC Accounting Practices and Procedures Manual.
  • Regulated by a single “cherry-picked” state insurance commissioner—chosen by the insurer, not the plan sponsor.
  • Assets are held at amortized cost or “book value,” not market value.

Key Differences from Mutual Funds:

  • Gains/losses on investments are not reflected daily—only when sold or impaired.
  • Investment returns to participants are set by the insurer’s discretion, often far below what the general account earns.
  • Spread profits (difference between what the insurer earns and what it credits) are not disclosed in plan reports or participant statements.

Fiduciary Implications:

  • Because statutory accounting hides market swings, risk appears lower than it is.

The DOL has largely ignored this space, and litigation has been sparse, focusing mostly on small plans where it’s too costly to sue.  I believe that annuities are prohibited transactions   https://commonsense401kproject.com/2025/06/13/annuities-are-prohibited-transactions-via-chat-gpt/  but I think litigation could be increasing.  https://commonsense401kproject.com/2025/05/10/annuities-flunk-prohibited-transactions-exemption-scotus-ruling-will-open-floodgates-of-litigation/

As I’ve argued before, annuities were the gateway drug that allowed non-standard accounting to creep into 401(k)s【https://commonsense401kproject.com/2025/08/07/trumps-crypto-and-private-equity-in-401k-push-enabled-by-the-gateway-drug-annuities/

3. Private Equity & Alternatives: Mark-to-Make-Believe

Accounting Standard:

  • ASC 820 (Fair Value Measurement) applies, but with a catch—private assets are often valued using Level 3 inputs (unobservable data).
  • Valuations are performed by the managers themselves or by “independent” appraisers hand-picked by the managers.

Why It’s Problematic:

  • There is no daily pricing—valuations are often quarterly, lagged, and subjective.
  • Conflicts of interest are rampant; managers have incentives to overstate values to boost reported returns or maintain fee levels.
  • Cash flows, capital calls, and distributions make performance comparisons difficult.

I’ve called this mark to make believe because, unlike mutual funds, these valuations can be engineered to smooth returns and hide losses until a crisis forces a markdown.

ERISA Status:

I believe private equity in 401(k) plans is a prohibited transaction https://commonsense401kproject.com/2025/07/02/private-equity-is-a-prohibited-transaction-via-chat-gpt/

Hiding Private Equity in 401(k) Target Date Funds risks the entire TDF as a Prohibited Transaction- ChatGPT

4. Crypto: The Accounting Wild West

Accounting Standard:

  • None has fully settled on retirement plans.
  • Under GAAP, crypto is treated as an indefinite-lived intangible asset—which means it is written down for impairment but never marked up until sold.
  • Pricing comes from exchanges with varying reliability and susceptibility to manipulation.

Risk Profile:

  • Valuation swings of 50%+ in a year.
  • Custody and security risks beyond normal market investments.
  • Potential for outright fabricated valuations if held in poorly regulated vehicles.

I have argued that crypto is a prohibited transaction under ERISA https://commonsense401kproject.com/2025/07/03/crypto-is-erisa-prohibited-transaction-chatgpt-do-not-use-in-401k/

but the bigger danger is that, without strong accounting rules, you may never know what your crypto holdings are really worth.

Comparison Table: The Four Sets of Books in 401(k) Plans

Investment TypeAccounting BasisValuation FrequencyRegulatorTransparency LevelFiduciary Risks
Mutual FundsMarket value (GAAP/FASB, SEC rules)DailySECHigh – daily NAVs, auditedLow, unless fees are excessive
AnnuitiesBook value (NAIC statutory accounting)Infrequent, market values not shownState insurance commissioner (insurer-chosen)Low – returns set by insurer, spread hiddenHigh – opaque returns, single-entity credit risk
Private Equity / Alternatives“Fair value” with Level 3 inputs (ASC 820)Quarterly or longer, laggedSEC for registered funds; otherwise state banking/trust regulators for CITsLow to moderate – manager-controlled valuationsHigh – valuation bias, illiquidity, conflicts
CryptoIntangible asset model under GAAPContinuous in theory, but source-dependentSEC/CFTC (fragmented oversight)Very low – price feeds vary, no unified custody standardVery high – volatility, custody risk, fraud potential

The Bigger Danger: Mixing the Books in Target Date Funds

The most alarming development is blended accounting inside target date funds, especially those structured as state-regulated CITs instead of SEC-regulated mutual funds.

Why this matters:

  • A single target date fund could hold mutual funds (market value accounting), annuities (book value accounting), private equity (manager valuations), and even crypto—all in one NAV.
  • The net asset value the participant sees will be a cocktail of different accounting standards, some transparent, some opaque.
  • You could be looking at a “smooth” performance line without realizing risk is hidden under the hood.

How It Will Happen:

  • Poorly regulated CITs allow private equity or annuities to be layered inside other CITs.
  • I predict a 10%–15% private equity allocation will be buried inside a CIT that’s then wrapped into a target date fund.
  • Advisors will tell fiduciaries that a “trusted professional manager” can handle these complex allocations—removing the incentive to dig deeper.

Pru and Principal are already structuring toxic target dates like this https://commonsense401kproject.com/2022/06/07/toxic-target-date-case-study-of-the-worst-of-the-worst/

ERISA’s Prohibited Transactions: The Untapped Defense

ERISA’s prohibited transaction rules were designed to stop creative accounting and self-dealing before they harm participants. But:

  • The DOL has not enforced these rules aggressively in the annuity or CIT context.
  • Litigation is only starting to touch on these accounting mismatches.

I believe annuities, private equity, and crypto in 401(k) plans are all prohibited transactions unless they fall under narrow exemptions—which most don’t in practice.

Conclusion

We are moving from one uniform, transparent accounting system to four incompatible ones inside the same retirement plan. This is not just an accounting curiosity—it is a structural shift that enables opacity, hides risk, and erodes fiduciary accountability.

Mutual funds gave us a clean, daily-marked-to-market view of investments. Annuities broke that standard, private equity exploited it, and crypto may blow it wide open. Without one standard of accounting, ERISA fiduciaries will be flying blind—and so will participants.

Trump’s Crypto and Private Equity in 401k push – enabled by the Gateway Drug -Annuities

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Trump’s bill allowing non-securities-based investments like Crypto, Private Equity, and Real Estate, was enabled by the Gateway Drug – Annuities and the way they have decimated, especially smaller retirement plans.    Does this Executive Order overturn hundreds of years of fiduciary legal protections?   Probably not, but it erodes it and exposes millions of Americans to unnecessary risk and losses in their retirements.

The law protecting 401ks ERISA is based on fiduciary law, which in general, bans one-sided contracts.  The DOL has never enforced this law in the 800,000 401k plans with annuities.   The only check has been in litigation, which really only looks at the top 1%, the 8000 largest plans over $100 million in assets. 

The Annuity playbook is to minimize federal regulation, and cherry-pick weak state regulators who have little or no transparency so they can maximize hidden fees and profits.  I testified to the DOL Advisory Committee in July 2024, warning about the use of weak state-regulated Collective Investment Trusts (CITS). https://commonsense401kproject.com/2024/07/31/chris-tobe-dol-testimony/  

 SEC-registered Mutual funds have too much transparency, which is why Annuities, Crypto, and Private Equity will look to other vehicles. 

Products like Private Equity will probably be hidden in Target Date Funds, mixed with real securities.  https://commonsense401kproject.com/2025/07/05/860/

I have written why they should not be used at https://commonsense401kproject.com/2025/07/03/crypto-is-erisa-prohibited-transaction-chatgpt-do-not-use-in-401k/   and https://commonsense401kproject.com/2025/07/02/private-equity-is-a-prohibited-transaction-via-chat-gpt/

For risk, but they are also impossible to benchmark https://commonsense401kproject.com/2024/11/29/crypto-private-equity-annuity-contracts-are-impossible-to-benchmark/

Trump selling out retirees to enrich Wall Street and the Crypto industry is not a shock.  Hopefully, the majority of responsible plans will not fall for the sales pitch

With Annuity Rates in 401(k) Plans: You Get What You Negotiate

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Welcome Back to the Dealership—Without the Internet

There was a time not too long ago when buying a car meant walking into a dealership and bracing for a battle. You knew better than to pay the sticker price. There was no CarFax, no Kelly Blue Book at your fingertips—only your grit and your negotiating skills stood between you and a bad deal. Fast forward to today, and while consumers have gained power in most financial transactions thanks to transparency and competition, one part of the retirement world remains stubbornly stuck in that old sales model: fixed annuities in 401(k) plans.

When it comes to these insurance-based investments, especially general account fixed annuities, the rate you receive isn’t always about the market—it’s about your leverage. Your negotiating power. And for too many plans, that means quietly accepting returns well below what other, savvier plans are earning. The result? A two-tiered system where uninformed or unempowered fiduciaries leave millions on the table while others cash in.

Sticker-Price Rates for the Uninitiated

Let’s start with what most plan sponsors and fiduciaries are seeing: general account fixed annuity 2 to 3% rates with some less than 2%. In most cases, these rates have been locked in for years. Plan fiduciaries assume that’s the best available. They’ve never asked for better. They trust the insurance company’s glossy marketing and ratings and their consultants.

Prudential, for example, publicly posts general account rates of 3%–4% on consultant platforms like FI360/Broadridge. Some like TIAA and Mass Mutual post rates of 4%-5% for basically the same or less risky product.  But the rates with many insurers like Prudential can vary from 1.5% to nearly 7%, with little rhyme or reason.  In at least one case, a savvy union plan in New Jersey negotiated a general account fixed annuity rate of 6.8%—within the same 401(k) framework.

Yes, you read that right. Nearly five full percentage points higher than what other plans were receiving from the same insurer for the same product type. The only difference? They knew they could ask.

A Broken Marketplace

What we’re seeing is not an efficient marketplace. It’s a holdover from a time when product pricing was opaque and negotiation was king. But here’s the problem: this isn’t used car sales. These are retirement assets regulated by ERISA, with fiduciary standards that prohibit arbitrary pricing structures that benefit one plan over another without justification.

If an insurance company retains total discretion over annuity rates, then it also retains the ability to allocate higher yields to preferred clients—possibly to reward larger assets, political influence, or favored consultants—and lower yields to everyone else. This unequal treatment is not only unfair; it’s potentially unlawful under ERISA.

As I argued in this recent piece, annuities in 401(k) plans often constitute prohibited transactions when they are offered with non-transparent, discretionary pricing structures. If plan fiduciaries do not negotiate, they are not fulfilling their duty of loyalty or prudence under ERISA.

Consultants Are Not Always Your Friend

A deeper concern is that some consultants—the very advisors plan sponsors rely on to protect them—are complicit. Rather than push for higher negotiated rates or run competitive bids, some simply accept posted rates or worse, recommend insurers where they may have their own compensation arrangements or conflicts.  Some consultants have insurance licensees where they can receive hidden insurance commissions.  Sometimes rates are burned off to pay for recordkeeping fees, consultant fees etc. 

Some consultants may use databases like FI360/Broadridge, which show insurer-published general account rates many conflicted consultants do not even do that. But unless they go further—soliciting competitive proposals or uncovering the higher rates being granted to others—they are not doing their job. Worse, in some cases they actively steer plans toward underperforming fixed annuities while pocketing fees from the insurers themselves.

A Fiduciary Wake-Up Call

The key message for fiduciaries of 401(k) plans is this: you get what you negotiate.

If your plan holds a general account annuity yielding 2%-4%, and you’ve never asked for more, you may be in violation of your fiduciary duty. Your peers—especially in larger or union-affiliated plans—may be earning triple your rate simply because they demanded better terms.

That’s not just a bad deal. It’s a fiduciary breach.

The Solution: Demand Transparency and Competition

  1. Require Competitive Bids – Treat your annuity provider like any other investment manager. Get multiple quotes. Benchmark rates.
  2. Disclose the Spread – Insist on full transparency on how the insurer earns money. What’s the gross yield on their general account? What are they keeping?
  3. Use Independent Experts – Be cautious of consultants who may have undisclosed relationships with insurers. Get independent advice or a second opinion.
  4. Document the Negotiation – Keep records of the steps you took to secure the best rate. It’s your defense in any potential ERISA litigation.
  5. Over time get rid of your Conflicted Non-Transparent fixed annuities,  switch to a diversified Synthetic based stable value fund like the Vanguard RST, or Fidelity MIPS, this may take time because many fixed annuities are known as “Roach Motels” you easily get in but getting out may require a substantial penalty

Conclusion

Fixed annuities in 401(k) plans should not be sold like used cars. They should reflect a competitive, prudent process.

In the end, it’s simple: when it comes to annuity rates, you get what you negotiate—or what you fail to.

The Great Annuity Mirage: How ‘Separate Accounts’ Continue to Mislead

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Back in the early 1990s, after the fallout from several major insurance company failures, the industry scrambled for a new story to tell. Enter the ‘separate account’ — a clever rebranding of the same old insurance guarantee wrapped in a new package. Meant to reassure jittery retirement plan sponsors, these products were marketed as safer, more transparent, and more sophisticated than their general account predecessors. By 2000, most of the larger plans had moved on to synthetic diversified stable value as a prudent fiduciary choice. However, many mid-size to smaller plans, with a few large plans, have held on to this misleading product.

A Glossy Exterior, a Hollow Core

Separate accounts claim to offer a customized portfolio insulated from the insurer’s broader financial health. But the reality is far less reassuring. Plan sponsors hold nothing more than a contractual promise. They don’t own the assets, they can’t see inside the portfolio, and they have no control over the investment strategy. The insurer remains in full command — and the assets remain on its balance sheet. There are no strict investment guidelines, so if the annuity provider is downgraded, they can shift the high-quality assets supposedly in the Separate account ie, investment grade, and replace them with illiquid private credit.

Behind the Curtain: How the Spread Game Works

Here’s the secret sauce: insurers earn a ‘spread’ — the difference between what their investments yield and what they credit to plan participants. Sometimes that spread is over 2%, and that’s just what we can see. Insurers disclose yields on a selective basis, and often only once a year, making it impossible for fiduciaries to truly assess whether the rates offered are fair or competitive. One former Transamerica manager even described a ‘true-up’ day, where the safer, prettier assets are momentarily held just long enough to create a nice snapshot for clients. The rest of the month? Back to the riskier general account.

No Transparency, No Fiduciary Duty

Separate account contracts typically avoid any fiduciary obligations. There’s no obligation to disclose holdings, no responsibility to ensure investment prudence, and no transparency into fees, risks, or performance. The entire structure functions as a black box, with the insurer firmly in control. And if the insurer fails? Plan assets tied to a separate account are not guaranteed safe harbor — they could be frozen, impaired, or even lost in a liquidation.

Why Consultants Still Fall for It

Despite the red flags, many retirement plan consultants continue recommending these products. Why? Sometimes it’s a matter of inertia — separate accounts have been around so long that they’ve become familiar. Other times, it’s conflict: insurers often reward consultants through indirect compensation or other incentives. Whatever the reason, the end result is the same: plan participants are exposed to unnecessary risk while insurers quietly profit.

Better Alternatives Already Exist

Synthetic GICs — stable value products with transparent plan-owned bond portfolios and independent wrap providers — offer a far safer, more fiduciary-friendly alternative and are used by the majority of large plans. These products separate management, ownership, and strict transparent investment guidelines and crediting rate formulas.

The Illusion Persists

It’s time to call separate accounts what they are: a mirage. They simulate transparency. They simulate safety. But at their core, they rely on the same concentration of risk, lack of disclosure, and one-sided control that make general account annuities so problematic. Fiduciaries owe their participants better.

Accounting and Q&A NOTES

There are 3 tests to show that a Separate Account is a Fake

  1. Lack of strict investment guidelines in the contract. This allows the insurance company, when they get in a liquidity credit squeeze, to swap out the higher grade bonds in the suppossed separate reference portfolio with alternative private credit, perhaps worth 80 cents on the dollar.
  2. Lack of a strict crediting rate formula in the contract. While they will pretend to calculate a rate off of a reference portfolio of higher quality, that is mostly a game to justify the low yield. They control all the inputs to the formula with no transparency, so they can manipulate it to anything they want
  3. No Downgrade provision. If it were really separate, they would not mind giving out.

PWC did a good description of a Separate Account Fixed Annuity in some 401 (k) 5500 financials

The Plan is a party to a fully benefit-responsive investment contract with the John Hancock Trust
Company, LLC (“John Hancock”) for the years ended December 31, 2023, and 2022. John
Hancock maintains the contributions in a general account. The account is credited with earnings
on the underlying investments and charged for participant withdrawals and administrative
expenses. The contract earnings represent the income from specific assets owned by John
Hancock in a pooled separate account. The contract issuer is contractually obligated to repay the
principal.

Maersk does not own any assets or a portfolio,  just a contract.   JH bases the rate they pay in the contract on a lower-yielding subset of assets they own in a separate account portion of the general account.  The general account is filled with investments ranging from 2% to 12%.    They carve out in a pretend portfolio some of the lower-yielding and lower-risk and come up with a rate of 3% pay it out. So they make a general account return of 7% overall and keep a 4% spread as profit.  The plan takes nearly half of the alternatives, but only gets the returns of the lowest 1/4.

There are many more examples of Separate Account examples (MassMutual Great Grey). In Chapter 32 on Separate Accounts in the book on US tax reserves for Life Insurers, Separate Account revenues are rolled up with General Account revenue on tax reporting. The DOL in 20111-07A disclosure clearly distinguishes Separate Account from Synthetic Stable Value. Blue Prairie in a 2014 study, found that the Separate Account had a 60% higher duration than synthetic, 4.42 vs. 2.53. See also the Mercer Nevada Presentation.

S&P, in general, gives the same crediting rates to General Account and Separate Account annuities from the same issuers. S&P analysts, in a chapter in the Handbook of Stable Value Investments, show that states differ so much in their credit protection for separate accounts that identical contracts could result in different ratings in different states:

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“Diversification Abandoned: Why Plan Fiduciaries Must Rethink Fixed Annuities and Pension Risk Transfers”

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In an era where fiduciary prudence should be paramount, many plan sponsors have dangerously abandoned the foundational ERISA principle of diversification in favor of single-insurer annuity contracts. Billions of dollars in retirement savings are now concentrated in fixed annuities—both general and separate account types—as well as through pension risk transfer (PRT) annuities. These contracts rely entirely on the credit risk of a single private insurance company. In doing so, plan sponsors not only increase participant risk—they also take on an additional fiduciary burden: to evaluate the solvency of that insurer, going far beyond the superficial comfort of a credit rating.

The Mirage of Ratings

Credit ratings are not a shield against fiduciary liability. The 2008 financial crisis laid bare the failures of the rating agencies, with AIG maintaining top-tier ratings until days before its collapse. Even today, insurers like Prudential—formerly designated as a Systemically Important Financial Institution (SIFI)—have lobbied to remove that designation to escape heightened scrutiny. As the Stanford Graduate School of Business has documented, this de-designation eliminates oversight that might have prevented excessive risk-taking within the general account structure.

Despite this, insurers continue to receive high ratings from S&P, Moody’s, and Fitch, often with little transparency about underlying investment risks—particularly with respect to private debt. As discussed in “Private Debt Problematic in ERISA Plans”, these opaque, illiquid assets dominate many insurer portfolios and are used to inflate yield—benefiting the insurer through spread profits while increasing default exposure for plan participants.

S&P has itself acknowledged that state-level regulation of Separate Accounts differs so widely that an identical contract could receive different ratings depending on the state of issuance. In their own words:

“While there have been insolvencies involving separate accounts, the circumstances under which a separate account might be consolidated with the insurer’s general account remain substantially undefined.”

In other words, despite claims that Separate Accounts are “insulated,” policyholders—including ERISA plans—have no clear priority in an insolvency. The assumption that Separate Accounts are safer than General Accounts is unsubstantiated without state-specific legal protections and a higher, documented rating. Yet, no recent insurer appears to have sought such enhanced Separate Account ratings for fixed annuity products—despite billions flowing into them through 401(k) and PRT deals.

State Guarantee Associations: False Security

Plan fiduciaries also wrongly assume that State Guarantee Associations (SGAs) provide meaningful protection in the event of insurer failure. As explained in “State Guarantee Associations Behind Annuities Are a Joke”, these entities are riddled with limitations:

  • Coverage caps often top out at $250,000 per participant.
  • Coverage is limited to annuities considered insurance policies—a classification that remains unsettled in many states for group annuity contracts.
  • Plans that invest via Separate Accounts may not be covered at all.
  • SGAs are slow to pay and require insolvency proceedings to trigger.

This patchwork system of protection undermines the uniform national standards intended under ERISA, replacing them with the legal uncertainty of 50 different state frameworks.

Pension Risk Transfer: A Regulatory Shell Game

In the PRT context, the problem becomes even more acute. Plan sponsors offload pension liabilities to an insurer and call it a day. But as outlined in “Pension Risk Transfer Annuities Should Be Prohibited”, this shift removes ERISA protections from participants and exposes them to pure credit risk—often without even basic downgrade protection.

These annuities, once purchased, are irrevocable. There is no mark-to-market pricing, no participant choice, and no fiduciary oversight after transfer. Unlike defined contribution plan assets—where fiduciaries can replace a fund or manager—PRT annuities place participants in the hands of a single insurer, often for life.

Incentives Misaligned: Kickbacks and Structuring Fees

Plan sponsors frequently benefit from “structuring fees,” “rebalance profits,” or “rebates” paid by insurers to corporate treasury departments. These functionally operate as kickbacks that create a dangerous conflict of interest: the employer’s financial interest in closing the pension or reducing balance sheet liabilities directly conflicts with the participants’ need for long-term security. The insurer’s profit model—maximizing spread between illiquid, risky investments and low fixed crediting rates—comes at participant expense.

Going Beyond Ratings: The Fiduciary Obligation

ERISA fiduciaries are held to the highest duties of care and loyalty. In choosing a single-issuer annuity, they must:

  • Conduct independent credit analysis beyond agency ratings.
  • Evaluate the insurer’s asset allocation, exposure to private debt, and leverage.
  • Require downgrade protections, triggers, and collateralization where appropriate.
  • Consider alternative structures, including diversified stable value arrangements that maintain ERISA protections.
  • Avoid reliance on state-level guarantees or superficial representations of safety.

In the capital structure, plan participants in annuities without downgrade protections are subordinated to sophisticated Wall Street creditors, private equity owners, and even commercial reinsurers. They deserve better.

Conclusion

If an ERISA fiduciary would not invest 100% of a participant’s 401(k) balance into the high-yield bonds of a single insurer, they should not do so implicitly by placing it into an annuity backed by that insurer’s general or separate account. Ratings are not a fiduciary process. Participants cannot diversify away from default once locked into a single-issuer annuity.

The burden is on the fiduciary to prove prudence—not to presume it.

Many in Congress get donations from firms linked to Jeffrey Epstein – KY Congressman Andy Barr Example

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Many members of Congress have received $millions from financial firms linked to Jeffrey Epstein. Andy Barr of KY a member of the US House Financial Services Committee is a good example.

Here’s an in-depth article exploring the network linking Congressman Andy Barr to major financial contributors with ties to Jeffrey Epstein:

💸 Andy Barr’s Financial Industry Backers

🚀 Apollo Global Management

  • In the 2023–2024 election cycle, Apollo Global Management emerged as one of Barr’s top contributors, donating $55,800 via individuals and PACs Forbes+13OpenSecrets+13Business Insider+13.
  • Apollo’s connection to Jeffrey Epstein is well‑documented through its former CEO, Leon Black, who reportedly paid Epstein around $158 million between 2012 and 2017 for tax and estate planning—an arrangement that entangled significant public scrutiny and congressional investigation Vanity Fair+3Axios+3The Daily Beast+3.

🏦 JPMorgan Chase & Co.

  • In the first quarter of the 2025 election cycle, Barr’s campaign received the maximum $10,000 donation from the JPMorgan PAC OpenSecrets.
  • JPMorgan’s entanglement with Epstein included a prolonged relationship even after his 2008 criminal conviction, forcing internal compliance to raise red flags as late as 2013 Axios+9Business Insider+9TIME+9.
  • In 2022, the bank sued former executive Jes Staley, accusing him of deliberately shielding Epstein and neglecting red flags in order to keep Epstein as a client Axios+3AP News+3TIME+3.

Beyond Apollo and JPMorgan: Other Connections

Barr hasn’t only received funds from these two; he’s also tapped into other banks and private equity firms later scrutinized for Epstein links:

  • Wells Fargo: Contributed a total of $39,932 during the 2023–2024 cycle OpenSecrets. While Wells Fargo itself hasn’t been directly linked to Epstein, its high-ranking executives and financial dealings have come under broader oversight as part of financial industry safeguards post-Epstein revelations.
  • Blackstone Group: Donated $39,204 in the same cycle OpenSecrets. Co-founded by Stephen Schwarzman, Blackstone has not been tied to Epstein in the same way Apollo was; however, it remains part of the broader private‑equity ecosystem that’s been called to account by investigations like those spearheaded by Senator Ron Wyden Senate Finance Committee.

⚠️ The Epstein Backdrop

  • Leon Black’s controversy: The former Apollo CEO paid Epstein nearly $170 million for financial advice—and settled for $62.5 million with the U.S. Virgin Islands over his alleged enabling of Epstein’s illicit activities AP News+4The Daily Beast+4Forbes+4.
  • JPMorgan’s long delay: The bank kept Epstein as a client until 2013, despite internal concerns following his 2008 guilty plea The New Yorker.

Linking the Dots: Barr & Epstein-Linked Money

FunderAmount DonatedEpstein Link
Apollo Global Management$55,800Leon Black payments to Epstein; public controversy
JPMorgan Chase PAC$10,000Bank’s long relationship; executive lawsuit involvement
Wells Fargo$39,932Part of general financial ecosystem with Epstein oversight
Blackstone Group$39,204Ecosystem affiliation; under scrutiny in Epstein probe

Why 401(k) Plans Need a Strong Investment Policy Statement (IPS): A Fiduciary Firewall Against Risky and Conflicted Investments

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A well-crafted Investment Policy Statement (IPS) is not merely a procedural formality—it is the fiduciary firewall that protects 401(k) plan participants from the encroachment of conflicted, high-fee, and opaque investment products. In the absence of a strong IPS, plan sponsors expose themselves—and their participants—to a host of fiduciary landmines, including private equity, cryptocurrency, and insurance-based annuities that fail the Department of Labor’s Impartial Conduct Standards and risk classification as prohibited transactions under ERISA.

The IPS: Cornerstone of Fiduciary Oversight

“If an employee benefit plan does not have an investment policy statement, it does not have an investment policy.”
— IFEBP Investment Policy Handbook, Eugene Burroughs

A detailed IPS is essential to satisfying the fiduciary duties of prudence, loyalty, and diversification under ERISA. As the CFA Institute’s Pension Trustee Code of Conduct underscores, trustees must “draft written policies that include a discussion of risk tolerances, return objectives, liquidity requirements,” and review these policies at least annually to ensure they remain current.

The Department of Labor (DOL) reaffirmed this in its amicus brief in Pizarro v. Home Depot, stating that vendors have strong incentives to exploit plan design weaknesses, and that ultimate accountability for plan investments resides squarely with the plan sponsor.

From Mutual Funds to Murky Waters: The Rise of CITs and Alternatives

Historically, 401(k) plans were dominated by SEC-registered mutual funds, which provided relatively robust protections via daily pricing, audited disclosures, and strict regulation. Today, over 50% of 401(k) assets are housed in target date funds (TDFs)—and increasingly, these are delivered via poorly state-regulated Collective Investment Trusts (CITs) instead of mutual funds. While CITs promise lower fees, they often come with less transparency, fewer investor protections, and more hidden leverage or illiquid assets.

Without an IPS that explicitly defines allowable structures, asset classes, liquidity limits, and credit quality minimums, plan sponsors may unknowingly allow risky assets like:

  • Private credit or private equity vehicles priced internally
  • Insurance company annuities backed by opaque general accounts
  • Cryptocurrency products that fail liquidity, valuation, and prudence tests

Contract-Based Products and Annuities: Unacceptable Fiduciary Risks Without IPS Controls

The shift toward contract-based investment products—especially fixed annuities within DC plans—is perhaps the most troubling. These investments:

  • Fail diversification screens, often representing single-issuer credit exposure
  • Lack downgrade provisions (unlike traditional bond funds), leaving participants stuck in junk-rated or insolvent insurance contracts
  • Obscure fees and spread profits, particularly in general and separate account annuities
  • Violate GIPS performance transparency standards required for prudent monitoring

As noted in Fi360’s Fiduciary Handbook for Plan Stewards, these investments often cannot be valued reliably or marked to market and can present major conflicts of interest—especially when offered by a plan’s recordkeeper.

Each TDF Is a Bundle of Risk: Call for Sub-Policy Statements

According to Ron Surz, co-author of Fiduciary Handbook for Understanding and Selecting Target Date Funds, each target date fund should be governed by its own IPS. This is especially critical as modern TDFs increasingly embed exposure to non-transparent alternatives like:

  • Private equity stakes
  • Real estate limited partnerships
  • Derivatives and synthetic structures

A sound IPS must:

  • Disclose the asset-level guidelines within each TDF
  • Demand transparency on holdings, fees, and valuation methodology
  • Prohibit assets that are not SEC-registered or that lack daily pricing
  • Require performance benchmarking against risk-adjusted, diversified indices

Avoiding Prohibited Transactions and Conflicts of Interest

The presence of annuities or proprietary alternative products tied to the recordkeeper or affiliated parties raises red flags for prohibited transaction claims under ERISA §406. Fi360 stresses that fiduciaries must “avoid or manage conflicts of interest in favor of the investors and beneficiaries.” Disclosure alone is insufficient—conflicted investments must be affirmatively excluded or justified via documented due diligence.

As the CFA Institute and Fi360 both emphasize, fiduciaries must:

  • Adopt written investment guidelines specifying asset classes and due diligence protocols
  • Evaluate each option inside TDFs as if it were a stand-alone fund
  • Reject opaque products that cannot meet minimum fiduciary standards for liquidity, transparency, and valuation

Conclusion: A Weak IPS Is a Breach Waiting to Happen

There is growing consensus—from the CFA Institute, Fi360, and the DOL—that weak IPS documents enable fiduciary breaches. Without an IPS that explicitly bans or scrutinizes illiquid, high-risk, or non-transparent investments, sponsors may:

  • Breach fiduciary duties of prudence and loyalty
  • Invite litigation over prohibited transactions
  • Allow vendors to exploit structural loopholes for their own benefit

In short, a strong IPS is a fiduciary necessity, not a formality. It is the legal and ethical framework that separates prudent governance from reckless delegation. It must evolve with the changing landscape of target date funds, CITs, and alternative assets—before it’s too late for participants and plan fiduciaries alike.

Recommended Reading and References

Private Debt problematic in ERISA Plans

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Private Debt is in DB and DC pension plans.  In 401k plans it is limited so far mostly to Insurance Company Separate Accounts and other stable value products, but there are plans to increase its use dramatically by hiding it in Target Date Funds.   Private Debt is problematic for a number of reasons The following is from ChatGPT

VIOLATION OF ERISA’S DUTY OF PRUDENCE

Inclusion of Private Credit, Private Mortgages, and Other Illiquid, Self-Priced Assets

  1. Plans breached their fiduciary duties by offering and/or maintaining investments in private credit, private mortgages, and other illiquid private debt instruments within the Plan’s investment lineup, in violation of the prudent man standard of care and the Impartial Conduct Standards incorporated by regulation under ERISA.
  2. ERISA §404(a)(1)(B), 29 U.S.C. §1104(a)(1)(B), mandates that plan fiduciaries act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use.”
  3. Under ERISA’s Impartial Conduct Standards, fiduciaries must:
    • Act in the best interest of the plan and participants;
    • Charge no more than reasonable compensation;
    • Refrain from making misleading statements or omissions about risks or characteristics of investments.
  4. The growing use of Private Credit, Private Mortgages, and similar private debt instruments in ERISA retirement plans—either through direct investments, pooled vehicles such as collective investment trusts (CITs), or via allocations in target-date funds (TDFs)—fails to meet these obligations for the following reasons:

A. Self-Pricing and Lack of Transparency Violates Prudent Fiduciary Conduct

  1. Unlike publicly traded debt securities, private credit and mortgage loans are generally not marked to market and lack reliable, third-party price discovery. Many are valued using internal models by asset managers or by affiliated valuation agents—creating obvious conflicts of interest.
  2. Industry studies and academic research have documented how private debt assets are often “smoothly priced” or marked to model, which artificially suppresses volatility, misleading fiduciaries and participants about the true risk of these investments.
  3. As noted in the CFA Institute’s guidance on fair value pricing (Refresher Readings on GIPS and Risk Standards), reliance on self-pricing undermines comparability, transparency, and ultimately fiduciary prudence:

“Valuations derived from internal models, absent market validation, are inherently susceptible to bias and present conflicts when used to report performance or fees.”

B. Credit Risk Not Accurately Reflected: Ratings by Unregulated or Conflicted Firms

  1. Many private debt instruments are assigned credit ratings not by nationally recognized statistical rating organizations (NRSROs) but by smaller, conflicted firms such as Egan-Jones, which have been previously sanctioned by the SEC for rating conflicts and failing to properly manage issuer-pay conflicts.
  2. In SEC v. Egan-Jones Ratings Co., the SEC found repeated compliance failures, reinforcing that ratings used for fiduciary investment decisions must be independently verifiable and subject to rigorous controls. Use of such ratings in retirement plans undermines ERISA’s prudence standard and exposes plan participants to credit losses that are systematically under-disclosed.

C. Lack of Liquidity Creates Participant Harm in Defined Contribution Plans

  1. Many private credit and mortgage assets are held in vehicles with multi-year lockups or limited redemption terms, inappropriate for the liquidity needs of daily-valued, participant-directed ERISA plans.
  2. Target-date funds (TDFs) and pooled vehicles holding private credit often fail to disclose liquidity limitations or redemption restrictions clearly to participants, despite ERISA’s requirement that plan information not be misleading. This structure raises the same concerns that led the SEC to place limits on illiquid investments in mutual funds.

D. Valuation and Risk Mischaracterization Is a Fiduciary Breach

  1. In Whitley v. JPMorgan Chase & Co., No. 12 Civ. 2548 (S.D.N.Y.), plaintiffs alleged that synthetic stable value funds using smoothed or manipulated private credit valuations constituted imprudent investments. Similarly, the American Century arbitration with JPMorgan uncovered concealed private credit holdings in layers of CITs, affirming the systemic risk of hidden illiquidity and valuation opacity.
  2. These cases demonstrate that failure to properly vet, monitor, and disclose the true risks of private debt and mortgage exposures may constitute fiduciary imprudence and violate the statutory obligations imposed by ERISA §404.

E. Excessive Fees Hidden in Complex Structures

  1. Private credit and private real estate vehicles often layer management, servicing, origination, and performance fees, resulting in total compensation that exceeds reasonable bounds—in violation of ERISA’s requirement that only reasonable compensation be paid to service providers (§408(b)(2)).
  2. The lack of pricing transparency and comparables in private debt enables fee padding, where fiduciaries cannot accurately benchmark fees against public alternatives. This inability to assess the reasonableness of compensation itself constitutes a breach of fiduciary duty.

F. New Study Debunks Private Credit Craze

The Journal of Private Markets Investing (Fall 2025) just published a seminal study that debunks the private credit performance ‘pitch’:

  • Across all seasoned vintage years (2015–2020), a significant share of Total Value to Paid-In (TVPI) is composed of Residual Value (RVPI or unliquidated loans) rather than realized cash returns (DPI).
  • This underscores a potential major risk in the private credit asset class as this illiquid investment performance is largely dependent upon fund managers’ assessment of their values (“mark-to-myth”).
  • When compared to appropriate public market benchmarks, the study find that private credit funds – both senior (direct lending) and mezzanine – do not exhibit significant outperformance.

The three authors are affiliated with Johns Hopkins Carey Business School and UC Davis Graduate Management School, respectively.

The study is attached and the link. https://www.pm-research.com/content/iijpriveq/24/1/109