Today, CEPR senior economist and co-director Eileen Appelbaum submitted a public comment letter to the Department of Labor outlining the weaknesses and inherit risks in the department’s proposed rule to expose worker’s retirement funds to private equity and private credit funds.

Appelbaum – co-author of the award-winning book Private Equity at Work: When Wall Street Manages Main Street – argues that the proposed rule will not protect employers from being sued over including high fee, risky and illiquid assets in retirement portfolios. Appelbaum argues that the Department of Labor’s proposal is focused on “reducing fiduciaries’ liability, not on protecting workers’ retirement savings. It does not propose raising fiduciary standards and improving decision-making for employers planning to include riskier, illiquid assets in 401(k) and similar plans.”

Further, the proposal invites a temptation for private equity funds to dump poor performing assets into alternative products that will be marketed to workers’ 401(k)s and similar retirement accounts.

Appelbaum shows that the current shaky status of private equity and private credit is well-covered in the financial press, a clear sign that workers and employers alike are aware of the risks of such investments. Indeed, many institutions and wealthy individuals are going to great lengths to reduce their exposure to such assets.

As the letter argues:

“These are not prudent investment choices for workers but a thinly disguised bailout for struggling Wall Street firms. The DOL does not have the authority to eliminate employees’ right to sue over poor investment choices and disappointing returns, as the Proposal implicitly acknowledges. Employers can expect to be sued if they imprudently choose to include these assets in workers’ retirement accounts. DOL’s Proposal will likely prove a weak defense in court against such suits.”

Read the full public comment here.

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