With the American public's attention consumed by the Covid-19 pandemic and mass protests against police brutality, the U.S. Labor Department earlier this month quietly gave corporate sponsors of retirement plans something they've been agitating over for years: a government green light to invest workers' savings into funds managed by notoriously predatory private equity firms.
The move, announced on June 3 by Labor Secretary Eugene Scalia, allows large managers of 401(k) plans and individual retirement accounts (IRAs) to put workers' retirement savings into private equity investments that offer the possibility of huge returns—and devastating losses.
"Now that Trump's Labor Department has opened the floodgates a lot more money could end up flowing into these opaque deals, enriching private equity executives and their friends—while leaving workers' meager retirement savings even further depleted."
Scalia released the guidance in response to a request for clarification of the Trump administration's policy by Partners Group and Pantheon Ventures, private equity firms that collectively manage more than $140 billion in assets. The labor secretary presented the guidance as an effort to "level the playing field for ordinary investors."
Eileen Appelbaum, co-director of the Center for Economic and Policy Research (CEPR), warned in an article published by Common Dreams on June 7 that "investing retirement savings in private equity exposes ordinary retirees to high risk."
Appelbaum noted that U.S. workers "have socked away $6.2 trillion in 401(k) accounts and another $2.5 trillion in IRA accounts."
"If just 5 percent of the money in these retirement funds were available to private equity," wrote Appelbaum, "it would be a windfall of $435 billion—real money even to private equity millionaires and billionaires."
PE already sitting on more than a trillion dollars waiting to buy up beaten down companies at fire sale prices. Don't need workers retirement savings, but hey - why let a crisis go to waste. PE has lobbied for this change for years. @ceprdc @DeanBaker13 https://t.co/mjijmSzOg0
— Eileen Appelbaum (@EileenAppelbaum) June 4, 2020
David Sirota, Jacobin editor-at-large and former speechwriter for Sen. Bernie Sanders' 2020 presidential campaign, pointed out in his Too Much Information newsletter Monday that Blackstone CEO Stephen Schwarzman—a major donor to President Donald Trump—has been lobbying for looser restrictions on retirement investments for years.
"In life you have to have a dream," Schwartzman said in a call with analysts days after Trump's inauguration in January 2017. "One of the dreams is our desire and the market's need to have more access at retail to alternative asset products... A lot of people are not allowed to put those into retirement vehicles and other types... If there's a change in that area that becomes a huge opportunity for the firm."
"Department of Labor watchdogs just opened the door for private equity wolves to sell the highest cost, highest risk, most secretive investments ever devised by Wall Street to 401(k) plan sponsors."
—Edward Siedle, Forbes
Sirota wrote that thanks to the Labor Department's guidance, "private equity firms will now be allowed to access—and skim fees off of—the $9 trillion in 100 million workers' 401k plans and IRAs."
"Now that Trump's Labor Department has opened the floodgates," Sirota added, "a lot more money could end up flowing into these opaque deals, enriching private equity executives and their friends—while leaving workers' meager retirement savings even further depleted."
The Financial Times reported that private equity shares jumped in the wake of Scalia's announcement and "outpaced the broader stock market rally."
"Carlyle climbed almost 4 percent while Blackstone and Apollo gained more than 2 percent each," FT reported.
In a column for Forbes on Saturday, Edward Siedle called the Labor Department's guidance "a huge win for the private equity industry" and "a monstrous setback to American workers who invest in 401ks for retirement security."
"Department of Labor watchdogs just opened the door for private equity wolves to sell the highest cost, highest risk, most secretive investments ever devised by Wall Street to 401(k) plan sponsors," wrote Siedle. "401(k) investors will be devoured like lambs to the slaughter."