Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., are pressing Paul Atkins, the Securities and Exchange Commission chair, and Labor Secretary Lori Chavez-DeRemer to explain how they will protect retirement investors from President Donald Trump’s executive order "that pushes risky assets, such as private market funds and cryptocurrencies, into defined-contribution" plans.
In a letter sent Tuesday to Atkins and Chavez-DeRemer, Warren and Sanders expressed "serious concerns" about making private investments available in 401(k) plans. The senators noted an "extensive list of issues plaguing the private markets and cryptocurrencies," stating that "it is bewildering to see this Administration open the floodgates for these industries to gamble with almost $31 trillion in retirement savings for millions of Americans."
The move "exposes these hard-earned savings to volatile financial instruments, while attempting to rebrand them as 'alternative assets,' although they lack transparency and have exaggerated claims of high returns," Warren and Sanders wrote. "This is dangerous and could lead to financial harm for millions of Americans as the cost of groceries, health care, and housing continues to skyrocket."
'Hand and Glove'
Atkins said in late September that Labor and the SEC are in talks on how to move forward with the executive order, Democratizing Access to Alternative Assets for 401(k) Investors. The order directs Labor to examine existing guidance about investing in alternative investments, which includes private funds, and to consider writing new guidance. The SEC is tasked to work with Labor to consider revising existing agency regulations and guidance relating to accredited investor and qualified purchaser status.
The SEC and Labor have "to work hand and glove," Atkins said, stating that he met with Chavez-DeRemer. The SEC and Labor "need to get going" on the way forward, Atkins said, with town halls and roundtable discussions around the country a likely way forward.
The two agencies need to "articulate the guardrails, put down some rules and expectations, rely on the fiduciary duty of people who oversee these sorts of retirement funds and investments — they're going to be responsible," Atkins said then.
Pension Funds' Call for Stricter Guardrails
Sanders and Warren noted that "pension funds — which have historically been able to pour their retirement funds into the private markets and have seen firsthand the consequences of risking retiree’s savings in private markets — have long called for stricter guardrails regarding these investments."
In recent years, the SEC has issued risk alerts "identifying significant compliance failures among private funds, primarily regarding conflicts of interest, fees and expenses, and policies and procedures relating to material non-public information," the lawmakers state.
Further, "private funds are also notorious for charging high fees," the lawmakers state. "While mutual fund fees typically charge under one percent, private funds usually charge around a two percent fee, with the ability to take an even larger cut — around 20 percent — when gains exceed a certain amount."
During the Biden administration, Labor issued separate guidance "warning fiduciaries of risking retirees’ savings in private equity funds and cryptocurrencies, citing the volatile and underregulated nature of these markets," the two lawmakers state, adding that Labor under the Trump administration recently "rescinded both policies and is currently working to legitimize these financial products as safe investments to save for retirement."
This reversal "is troubling as American workers rely on their retirement savings to live in dignity and self-reliance as they age; thus, added protections are rightfully applied to retirement savings plans," Warren and Sanders wrote.
The two lawmakers asked Atkins and Chavez-DeRemer to answer questions by Nov. 17, including how Labor intends to write rules "that lower the required due diligence for fiduciaries and curtail investors ability to hold fiduciaries accountable," and which rule changes the agencies plan to make to ensure better investor protection standards regarding private investments and cryptocurrencies.
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