When former President Donald Trump paved the way for his private equity donors to skim fees from Americans’ 401(k) retirement accounts, Joe Biden’s campaign denounced the executive branch’s stealthy action and promised to oppose such changes if he won the presidency. But less than two years later, the Biden administration has just quietly cemented that same policy, handing out a freebie to the Democrat’s own financial sector sponsors, even as federal law enforcement officials warn against rampant malfeasance in the private equity industry.
At issue is a 2020 Trump Labor Department ruling that allowed pension plan administrators to shift workers’ savings into high-risk, high-fee private equity investments, despite the longstanding interpretation regulators that federal law prohibited such moves.
Trump Labor Department officials touted the reinterpretation as a way “to help Americans save for retirement gain access to alternative investments that often offer strong returns.” The letter followed Blackstone Group CEO Stephen Schwarzman, adviser to Trump and top donor to his super PAC, saying access to the $7 trillion US 401(k) was one of his company’s main goals. .
At the time, the Biden campaign was critical of Trump’s decision, telling the American perspective that the Democratic nominee “strongly opposes regulatory changes that will lead to skyrocketing fees and diminished retirement security for savers.” This regulatory move is another example of President Trump putting the interests of Wall Street ahead of those of American workers and families. »
But rather than overturn Trump’s decision, Biden’s own Labor Department appears to have cemented the Trump directive in a new supplemental letter hailed by financial industry lawyers.
Although the new letter contains warnings about the risks of private equity, it avoids nullifying the Trump initiative. Rather, it explicitly states that pension administrators with “experience in evaluating private equity investments . . . can be adapted to analyze these investments for a (401k) plan, especially with the help of a qualified fiduciary investment advisor.
“Biden’s Department of Labor could and should have made a stronger statement about the inadequacy of private equity products for workers’ defined contribution retirement savings and the inability of nearly all brokers to assess the private equity products,” the Center for Economic and Policy Research said. Eileen Appelbaum, who co-wrote the book Private equity at work.
Last week, the conservative-dominated U.S. Supreme Court issued a ruling allowing 401(k) holders to sue financial executives who invest their life savings in unduly risky or predatory private equity investments.
However, Biden’s labor department has indeed blessed such investment strategies. Indeed, industry lawyers and investment executives are already celebrating the letter as a precedent-setting decision potentially opening up trillions of dollars of Americans’ retirement savings to higher-fee investments.
“We think that’s a done deal now,” said a finance executive at Partners Group, the Switzerland-based investment firm that led the lobbying for the letter, according to Bloomberg Law.
Appelbaum, however, said that especially with the recent court ruling, the threat of lawsuits from retirees could still deter pension plan administrators from moving quickly to higher-risk, higher-fee investments.
“While private equity firms wish it were different, they have mostly been unable to sneak into workers’ 401(k)s and run away with their retirement savings,” she said. declared. Jacobin.
Whatever happens next, the Labor Department’s precedent is a victory for the private equity industry, which has earned billions of dollars in fees on traditional public pensions and is eager to tap into the even larger pool of workers’ savings in 401(k) accounts and other so-called defined contribution retirement plans.
Trump’s original letter was a particularly sweet victory for Schwarzman, whose company, Blackstone, is the world’s largest private equity firm.
“In life, you have to have a dream,” Schwarzman said in 2017. “And one of our dreams is our desire and the market need for more retail access to alternative asset products. “
Blackstone also has its tentacles in the Biden administration.
Biden’s electoral candidacy was boosted by $350,000 in donations from senior Blackstone executives to a super PAC supporting his campaign. One of his top fundraisers of 2020 was Jon Gray, Schwarzman’s heir apparent.
In total, Biden’s campaign has raised more than $3.8 million from private equity and investment firm donors, according to OpenSecrets.
A Blackstone executive recently chaired and sits on the board of the Institute for Portfolio Alternatives, which lobbied Biden’s Labor Department on “401(k) defined contribution issues,” according to records. federal.
The Biden administration’s move to help private equity titans gain access to retirees’ 401(k) accounts coincides with its own law enforcement agency sounding the alarm over the practices of industry.
Last week, the Securities and Exchange Commission (SEC) issued a risk alert saying the agency’s examiners have uncovered widespread malfeasance and fraud across the private equity industry.
The report found that some companies failed to calculate management fees according to the terms of their fund disclosures, which ‘led investors to pay more management fees than they were required to pay’ .
He also found that fund managers employed schemes that “significantly deviate from fund information”, giving investors “inaccurate or misleading information about their track record” and presenting “inaccurate performance calculations to investors”.
Meanwhile, federal law enforcement officials are reportedly investigating allegations of predatory fees, misperformance and corruption at pension funds in Washington, DC and Pennsylvania.
The investigations followed a leaked FBI report warning that private equity and hedge fund investments were used to “support fraud, transnational organized crime, and sanctions evasion.”
“In my nearly 40 years of experience conducting forensic investigations of over $1 trillion in defined contribution and defined benefit plans, I have never met a plan fiduciary capable of to deepen private equity offerings or a private equity firm willing to be fully transparent,” said Ted Siedle, a former SEC attorney who represents whistleblowers in the financial industry.
“Any 401(k) trustee who thinks they can assess these high-risk, high-cost investments is naïve,” he said. “It’s incumbent on the Biden administration to set the record straight: Private equity investments are inherently inappropriate for 401(k)s because it’s impossible for plan trustees to oversee them.”