As the White House seeks to expand private market investments in 401(k) plans, a senior lawmaker is asking officials to weigh the benefits, risks, and challenges for employers who plan to offer the funds.
Ranking Democrat of the House Ways and Means Committee Rep. Richard Neal (D-MA) submitted a letter to the Government Accountability Office (GAO) requesting the agency to consider the impacts of private market assets in retirement plans.
Rep. Neal delivered his concerns on “the known and unknown risks of investing in private credit,” including its exposure to retirement plans and the reliability of private credit companies offering the funds.
“This recent push to encourage 401(k) plans to invest in private credit coincides with very concerning reports of private credit funds blocking investors’ redemption requests and being downgraded by debt-ratings agencies,” Rep. Neal wrote. “Because private credit operates outside of the relatively strict and transparent regulation of public credit (e.g. government bonds) and banking regulations, we have concerns about the reliability of valuations for these assets and the exposure of plan participants’ retirement savings to an unknown level of risk.”
He also voiced concerns over the fund’s reach to retail investors. While private market funds are generally offered to professional investors, a process-based safe harbor regulation under the Department of Labor’s (DOL) proposed rule would expand the investments to retail investors.
Given his concerns, Rep. Neal asked the GAO to answer a series of questions on the impacts of alternative investments, including:
- To what extent do defined benefit plans invest in alternative investments, specifically private credit? What percentage of these plans’ alternative investments are made up of private credit? To what extent do any other investments in defined benefit plans invest in private credit?
- To what extent do the underlying investments options offered in 401(k) plans invest in private credit (e.g., is there exposure to private credit in mutual funds, exchange traded funds or collective investment trust options or other investment vehicles within the plans)? Similarly, how much of stable value fund assets are invested in private credit? With the recent guidance from the administration, are there trends towards increasing the exposure to private credit (either directly or indirectly) within defined contribution retirement plans? To the extent that there is such investment in private credit or that more is expected, would it be investment directly or substantially in private credit, or would it be investment in a broader fund with a small exposure to private credit? If it is the latter, what portion of the broader fund is invested in private credit?
- What are the benefits, risks, and challenges that retirement plans face in investing in private credit or offering it as an investment option (directly as a separate option or indirectly as part of a much larger fund)? How do defined benefit and 401(k) plans address the risks and challenges, such as valuing private credit, managing liquidity, and transparency issues, if any? What is the level of fees with respect to private credit within retirement plans?
- What are the potential conflicts of interest created by possible interrelatedness of private credit to parties-in-interest to retirement plans?
- What actions, if any, do regulators need to take to help plan participants, plan sponsors, and other fiduciaries to balance the risks and benefits of private credit in retirement plans?
Rep. Neal’s letter comes as the Department of Labor is in the midst of a 60-day comment period. The agency released its rule on March 30 following an executive order from President Donald Trump directing the department to address alternative investments in retirement plans.