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:

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

5. 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.
6. 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.
7. 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.”

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

8. 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.
9. 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.

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

10. 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.
11. 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.

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D. Valuation and Risk Mischaracterization Is a Fiduciary Breach

12. 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.
13. 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.

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E. Excessive Fees Hidden in Complex Structures

14. 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)).
15. 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