Washington Opened the Door to Private Credit in Your 401(k).
The Trump administration's Labor Department has spent the past several months doing two things in sequence. First, it let the Biden-era fiduciary rule die in federal court without a fight. Then it proposed a new framework making it easier for 401(k) plan sponsors to add private equity, private credit, and cryptocurrency to retirement menus. The order of operations matters.
On March 31, 2026, the Department of Labor published its proposed "Fiduciary Duties in Selecting Designated Investment Alternatives" rule, filed under RIN 1210-AC38 and directly responsive to President Trump's August 2025 executive order on alternatives in defined contribution plans. The rule creates a six-factor process-based safe harbor. Follow the framework, document the work, and plan sponsors gain significant protection from the ERISA litigation that has long kept alternatives off 401(k) menus.
That same month, a federal judge in Texas issued the final order vacating the Biden administration's Retirement Security Rule, RIN 1210-AC02, which had sought to impose a fiduciary standard on financial advisers recommending rollovers and retirement products. The Trump DOL did not oppose the motion. The rule is gone.
Yesterday, Bloomberg reported that the U.S. Attorney's Office for the Southern District of New York has been questioning executives at BlackRock TCP Capital Corp., a publicly traded business development company, about how it values illiquid private credit investments. The same week the door opened wider, federal prosecutors started asking how the room is being measured.
"The product gets easier to add to the menu and easier to recommend. Accountability on neither end. And the largest manager in the space is now defending how it prices its own book."
The structural gap created by the two rules and the BlackRock probeA Safe Harbor for Sponsors, a Void for Participants
ERISA Section 404(a)(1)(B) has long required plan fiduciaries to act with the care and skill of a prudent expert. In practice, that standard invited hindsight litigation whenever a fund underperformed. Plan sponsors, particularly smaller employers, avoided alternatives entirely rather than risk personal liability. The proposed rule addresses that problem by shifting the prudence analysis from outcomes to process. If you follow the six-factor framework, you are protected.
The framework is not unreasonable in isolation. It requires fiduciaries to assess fees relative to expected benefits, consider liquidity constraints, evaluate how an investment fits participant demographics, and document the analysis. These are sensible criteria. The problem is what happens after the plan sponsor completes that checklist and adds a private credit sleeve to the menu.
At that point, a participant must decide whether to allocate to it. The adviser or broker helping them make that decision is no longer subject to the fiduciary standard that AC02 would have imposed. They can recommend a private credit product paying a 5% distribution to the fund manager while charging a 1.50% base management fee on gross assets. As long as that recommendation clears the suitability bar rather than a best-interest bar, it is legally defensible.
When the Manager Marks Its Own Book
The BlackRock investigation is not an isolated event. It is a window into the structural problem at the center of private credit as an asset class. Unlike publicly traded securities, which are repriced continuously by independent market participants, private credit assets are valued using internal models, manager estimates, and third-party assessments that themselves rely on inputs the manager provides. Discretion is not a bug. It is the architecture.
That discretion runs in a single direction when fee incentives are layered on top of it. Base management fees on most non-traded BDCs and interval funds are calculated as a percentage of gross assets, not net assets. A higher mark on a loan portfolio produces a higher fee. Incentive fees on income are tied to investment income above a hurdle rate, which means accruing payment-in-kind interest on a stressed borrower can generate fees on income the fund has not actually collected in cash. Capital gains incentive fees compound this. Marking a position up generates fees today. Writing it down generates nothing back tomorrow.
BlackRock TCP Capital reportedly wrote down a private loan to zero three months after carrying it at 100 cents on the dollar. That is not a modeling error. It is the predictable outcome of a system where the entity collecting the fee is also the entity assigning the value, where the inputs to that value are largely unobservable, and where the consequences of mismarking are absorbed by investors through delayed NAV adjustments rather than by the manager through clawbacks.
This is not a BlackRock-specific problem. It is the operating model of the asset class. The Manhattan U.S. Attorney's office is examining one fund because one fund is what landed on its desk. The methodology being scrutinized is industry standard.
"The entity collecting the fee is also the entity assigning the value. The inputs are largely unobservable. The consequences of mismarking are absorbed by investors through delayed NAV adjustments rather than by the manager through clawbacks."
How private credit valuation actually worksDiversification as Legal Cover
Proponents of the rule cite ERISA Section 404(a)(1)(C), which requires fiduciaries to diversify plan investments to minimize the risk of large losses. A curated pool of private credit assets, they argue, meets this requirement in ways that individual stock selection does not.
The argument is circular. Private credit portfolios are overwhelmingly concentrated in floating-rate, first-lien senior secured instruments issued by middle-market companies. That is not diversification. It is concentrated exposure to a single credit cycle dynamic. When credit conditions tighten, middle-market borrowers reprice under pressure simultaneously. Distress rates spike. Net asset value marks compress. And because private credit funds mark their books on a model basis rather than through continuous market pricing, participants will not see the deterioration until it has already occurred. The BlackRock case demonstrates the lag in real time.
The same logic that qualifies a pool of private credit loans as "diversified" under 404(a)(1)(C) once qualified collateralized debt obligation tranches as diversified structured products. The argument survived until the cycle turned.
The Liquidity Problem the Rule Does Not Solve
ERISA Section 404(c) provides fiduciary liability protection when participants have sufficient information and liquidity to make and change investment decisions. Private credit vehicles structured as interval funds or tender offer funds offer quarterly or semi-annual redemption windows at best. A 401(k) participant contributing monthly who needs to rebalance, change allocations, or exit a position cannot do so on the timeline that participant-directed plans assume.
The proposed rule acknowledges liquidity as one of its six factors. It does not resolve the tension. Acknowledging that an investment is illiquid and concluding that it nonetheless belongs in a participant-directed plan are two different analytical steps, and the safe harbor collapses both into a documentation exercise.
What the Sequence Tells Us
The deregulatory case for AC38 is that plan sponsors have been irrationally afraid of alternatives, that participants are missing out on returns available to defined benefit plans and high-net-worth investors, and that a process-based safe harbor lets the market work. There is a coherent version of that argument.
It does not survive the sequence of events. A rule that would have raised the standard for recommending these products to participants has been allowed to die. A rule that lowers the standard for offering them has been advanced. The largest manager in the asset class is now under federal investigation for how it values the assets the rule would direct retirement savings into. The structural protections that might have made the rule defensible, independent valuation, mandated liquidity, fiduciary-level recommendation standards, are absent or actively rolled back.
The comment period for RIN 1210-AC38 closes June 1, 2026. The case to be made in those comments is not that alternatives have no place in retirement portfolios. It is that the framework being proposed assumes a level of valuation integrity, liquidity discipline, and adviser accountability that the current regulatory environment does not deliver, and that the BlackRock investigation now publicly calls into question.