June 1, 2026

The Honorable Daniel Aronowitz

Assistant Secretary

Employee Benefits Security Administration

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

Re: Fiduciary Duties in Selecting Designated Investment Alternatives, RIN 1210-AC38

Dear Assistant Secretary Aronowitz:

I am Dr. Eileen Appelbaum, Senior Economist and Co-Director of the Center for Economic and Policy Research. I am co-author of the award winning book Private Equity at Work: When Wall Street Manages Main Street, and of the forthcoming book, Healthcare in the Age of Finance Capital: From Public Good to Private Gain. I have studied the workings of private equity and other financial actors for well over a decade, and I am certain that risky and lightly regulated so-called alternative investment assets do not belong in the retirement savings accounts of workers. 

The fiduciary requirements proposed by the Department of Labor are too vague and too weak to overcome the primary fiduciary responsibility that financial actors owe to their shareholders and investors, and the outsized rewards they must deliver in order to secure their own futures. The temptation will be to use 401(k) assets as a source of captive permanent capital and to dump high-fee and/or poor-performing assets into the alternative products available to these plans — especially as this is the fifth year in which private equity fundraising is far below normal levels and testing new lows. Private credit, a relatively new asset class, has never been through a business cycle and currently faces a tsunami of redemption requests. 

These points, which I will document in this letter, make private markets too risky to be included in workers’ retirement savings accounts. I write to urge the Department of Labor to withdraw its proposal, and instead support a strong fiduciary rule to protect worker’s retirement income security.

Weakness in Private Equity Makes It a Poor Investment for Workers Saving for Retirement

The changes proposed in Fiduciary Duties in Selecting Designated Investment Alternatives, RIN 1210-AC38, are intended to provide employers and others with fiduciary responsibilities with a guide to prudential behavior and a legal defense in case they are sued by employees for allowing high fee, risky and illiquid assets in retirement portfolios. It is unlikely the guidance will succeed on either count. A review of a multitude of respected, widely available financial news sources, including the Wall Street Journal and the Financial Times, makes it clear that promoting investments in private market assets is not prudent. Players in financial markets are well aware of this, and employers and advisors can be expected to know this too. A smattering of headlines from major financial outlets makes the case that private equity is not a prudent investment that employers and other fiduciaries should include in workers’ 401(k)s.

Financial Times: Private Equity Logjam Hits Record as Firms Struggle to Sell; Value of companies sitting in buyout funds reaches $3.8 trillion in 2025

Wall Street Journal: Private-Equity Fundraising Falls to Slowest Pace in a Decade

S&P: Private Equity Fundraising Totals Continue to Decline in 2025

PitchBook: US PE Firms Have to Rethink Their Approach as Fund Closes Hit a Decade Low

The Trump administration claims that including private equity and other alternative assets in workers’ retirement savings will democratize access to high-yield investments that are available to pension funds, endowments and other institutional investors. But this comes at a time when institutional investors are questioning the returns from these investments and cutting back on their exposure to them.

Private Equity International: A Quarter of Institutional LPs Cut Private Equity Allocations in 2025; Public pension funds were the most active in reducing their exposure, with almost a third scaling back their allocations 

Wall Street Journal: The Ivies Are Having Second Thoughts About Investing in Private Equity: A crowded field and subpar returns have frustrated America’s wealthiest universities, some of private capital firms’ most loyal clients

Financial Times: Limited Partners are Selling Their Stakes in Private Equity Funds as They Seek Ways to Unload These Investments 

It is clear that private equity firms need a new source of capital to rescue existing funds and provide the means to launch new ones and continue extracting wealth from Main Street companies. And they are not above using workers’ savings to acquire companies and lay off their workers. Workers’ retirement savings – currently $10.1 trillion in 401(k) plans and $14.2 trillion in all similar employer-sponsored retirement plans – are a tempting source of funds to bail out the industry.

Forbes: Why Private Equity is Suddenly Awash with Zombie Firms; Hundreds of private equity firms are now drowning in a sea of competition, searching for lifeboats of new capital as they cling to portfolios of nearly unsaleable investments 

Private Credit Funds’ Newly Emerging Challenges Make Them Unsuitable as Investments in Workers’ Retirement Accounts

Private credit funds, often owned by the same private firms that own private equity funds, are a relatively new asset class. They are even more opaque than private equity buyout funds, making it difficult for even the biggest banks to know the value of the loans they hold. Now a $1.8 trillion industry, private credit funds have only become major players in financial markets in the last 10 years. They have been through the pandemic but have not faced the challenges of a business cycle downturn. Nevertheless, cracks have recently begun to show in this alternative investment asset.

 Wall Street Journal: Inside a $42 Billion Private-Credit Black Box More Black Boxes: Many investors appear to believe that Cliffwater’s Corporate Lending Fund’s official net asset value is inflated, prompting them to sell their shares, or try to

Financial Times: Wall St Underestimates Private Capital Problems, Says Top Credit Hedge Fund

Forbes: Private Credit Under Pressure: Defaults, Redemptions And The AI Shock: A recent string of defaults by companies at least partially funded by private credit has raised investor concerns  

Wall Street Journal: Private Credit’s Hot Streak Is Over: Private-credit firms delivered eye-popping returns to investors in recent years; that hot streak is over.

Reuters: Private Credit Funds Slash Loan Values: Private credit funds have marked down more than a tenth of ​their loans by at least 50% as corporate borrowers struggle with debt burdens

Wall Street Journal: Big Banks Are Playing Both Sides of the Private-Credit Meltdown: JPMorgan has created strategies for hedge funds and other investor clients to bet against companies like Ares and Apollo with exposure to private credit 

The problems in private credit markets are spilling over into private equity as risky loans to companies acquired by PE funds endanger the financial stability of these companies. If the companies default on the loans and enter bankruptcy, the PE funds will lose all their equity in the company before the lenders suffer losses.

Financial Times: Private Equity’s Private Credit Problem: Private credit lenders won’t lose money before private equity firms do – equity is the first in line for losses 

Conclusion

The premise underlying the Department of Labor’s Proposal (Fiduciary Duties in Selecting Designated Investment Alternatives) is that fear of being sued by employees is the reason so few employers have included private equity and other alternative assets in the menu of options offered in workers’ retirement savings. Workers might view investments in alternative investments as reckless and imprudent, and employers could be held liable if returns net of fees prove disappointing. To address this, the Proposal focuses 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.

The Proposal was designed to create a safe harbor for employers and other fiduciaries and protect them from being sued by their employees. The proposal lays out 6 factors — performance, fees, liquidity, valuation, benchmarks, and complexity — to be considered for any investment. If these factors are taken into account as set out in the Proposal, the investment decisions would be presumed to be prudent. According to the Proposal, courts would defer to employers’ investment choices if they followed the prescribed steps.

The Proposal fails to consider that investments in private equity and private credit funds are, in fact, imprudent choices for workers’ 401(k) and similar accounts; this reality cannot be papered over by consideration of six ill-specified factors. As has been documented in this letter, participants in financial markets are well aware of the risks of private equity and private credit investments. Institutional investors are taking steps to reduce their exposure to these assets and large numbers of wealthy individuals are trying to cash out of them. 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.