By Oscar Valdés Viera, Senior Policy Analyst, Private Equity & Capital Markets
The new Trump proposal to deregulate the types of investments workers can make with their retirement accounts is a bad policy idea that looks almost engineered to bail out Wall Street at the expense of everyone else.
The Department of Labor (DOL) is massively rewriting the rules over what is allowed in people’s retirement accounts to include risky assets that would imperil people’s economic security. The proposal would create a safe harbor for retirement plan managers that include private equity, private credit, crypto, and other so-called alternative assets in defined contribution plans like 401(k)s. Meaning that the DOL would help employers and plan fiduciaries avoid lawsuits when they steered workers into investments with higher fees, weaker transparency, sketchy valuations, and less liquidity than ordinary retirement savers are equipped to evaluate. And they are doing this at the very moment those markets are flashing danger signs.
Even the business press thinks this is too risky
The emerging conventional wisdom across mainstream and financial press coverage of the DOL rule is striking. Across major outlets—including the New York Times, Washington Post, Bloomberg, Wall Street Journal, Financial Times, Politico, and others—coverage has repeatedly noted that exposing workers’ retirement savings to Wall Street’s most opaque and predatory actors is a dangerous proposition. The press also has had to acknowledge that this rule is moving “at an inopportune time for the industry” when private credit funds are under mounting stress, taking huge losses, facing a crisis of investor confidence, and with regulators investigating allegations of fraud.
Private markets circling the drain
For months now, private credit funds have faced a wave of redemption requests—meaning, people are asking for their money back. Now, fundraising appears to be evaporating, with a major private credit fund reportedly raising 95 percent less than a year earlier. Policymakers are now scrutinizing private credit practices. The Treasury Department has convened meetings with insurance regulators about private credit’s potentially dangerous interconnectedness with the regulated financial system. The SEC is reportedly watching “emerging pressures” in the sector and investigating allegations of fraud, suggesting that even the industry-friendly officials are being forced to acknowledge that private credit’s opacity, defaults, and liquidity risks are real.
In other words, the people in charge can see the private market’s mess but they are just choosing to route retirement money toward it anyway.
People know that this is dangerous — and a giveaway
A recent Washington Post piece by noted financial advice columnist Michelle Singleterry captured the absurdity well. She warns that the proposal is a Wall Street “greed grab” and noted that after talking with hundreds of people over many years about retirement, no one has ever told her what they really need is access to private equity-like alternative assets with long money lockup periods, higher fees, and less reliable prices.
And indeed, the responses to another Washington Post opinion piece shows the public is not fooled. The pro-private equity op-ed authored by a Goldman Sachs alumna argued that letting 401(k) savers access private markets “if done right” (tacitly acknowledging the risks) could help diversify people’s retirement savings. But the reader backlash in the more than 1,700 comments tells a different story. One commenter put it sharply: “It certainly could change things. Instead of having a scary retirement with not enough money, they could have a terrifying retirement with no money at all.” Another called the proposal a “new scam.” And another correctly identified that “this is merely an attempt to generate more fees for the companies that manage retirement plan assets.”
The push for this rule is not coming from workers. It is coming from an industry struggling with investors pulling their money, weak exits, stale valuations, and a difficulty fundraising. This is a regulatory bailout hiding in plain sight and it would be a transfer of wealth from workers’ retirement accounts to backstop funds and structures that are under pressure and hungry for new capital for their poorly performing assets.