MW Private funds with high fees are coming for your 401(k) - and Trump's acting labor secretary is cheering them on

By Brett Arends

Keith Sonderling, acting secretary of labor, wants private-equity funds in your 401(k).

Donald Trump's new retirement-plan overseer is a Wall Street cheerleader who is eager to open up Americans' 401(k) plans and other retirement accounts to private-equity funds, hedge funds and other so-called alternatives, despite the high fees, questionable practices and recent scandals.

The new acting U.S. labor secretary, Keith Sonderling, even recently penned an op-ed complaining that 401(k) plan providers had been slow in opening up Americans' $14.2 trillion in retirement savings to these alternative investment funds.

Sonderling also played down any role government should play in protecting investors from abusive or exploitative Wall Street practices, arguing that the private sector had already shown it could do the job - something that might come as news to the millions of retirees who have taken part in class-action suits against their 401(k) plan providers over high fees and bad investment funds.

Sonderling became acting U.S. labor secretary this week after the resignation of his predecessor, Lori Chavez-DeRemer, who quit amid a widening ethics scandal that included accusations involving alcohol, sex and abuse of power at work. News of the scandal was broken by the New York Post, which like MarketWatch is owned by News Corp.

The labor secretary has ultimate responsibility for oversight and regulation of America's pension funds and retirement accounts and enforcement of retirement-plan laws. Whether Sonderling gets the job permanently remains to be seen. But as long as he is in place he will be able to push the Trump administration's agenda to open up 401(k) plans and their equivalents to "private" Wall Street funds.

The Labor Department recently unveiled new rules designed to speed up the push to get private funds into 401(k) plans.

Trump signed an executive order last year that would open up retirement accounts to these funds for the first time, calling it "democratizing access to alternative assets for 401(k) investors." These include funds that invest in untraded assets, such as private equity and private credit, as well as those that invest in "digital assets," meaning cryptocurrencies.

Critics have pointed out that Trump signed the order while his family aggressively expands its own investments in cryptocurrencies, including the launch of the $TRUMP and $MELANIA digital currencies, the launch of World Liberty Financial $WFLI digital-currency operation, and an investment in American Bitcoin Corp. (ABTC).

Diverting some portion of middle-class Americans' retirement savings into the field of so-called digital assets, meaning cryptocurrencies, would benefit those currently seeking to profit from creating such ventures, including the Trump family.

News that the new overseer of U.S. retirement-plan regulations wants an aggressive push for private-equity and private-credit funds in 401(k)s raises other questions.

Sonderling's appointment comes just as Wall Street is dealing with a wave of scandals involving such secretive and illiquid funds. Some have been found to have blown large amounts investing in outright fraud, in a scandal so bad that even JPMorgan Chase CEO Jamie Dimon has admitted embarrassment. And several such funds have outraged investors by refusing to let them have their money back in a timely manner, arguing that the investments are too illiquid and too hard to sell to meet unlimited redemptions quickly.

Private-equity funds have also been accused of unethical behavior in their aggressive pursuit of profits at all costs. A study a few years ago found that resident mortality jumped by 10% on average after a nursing home was taken over by private equity.

The idea of investing 401(k) plans in private investment funds such as private credit and private equity raises other concerns.

Those funds famously charge very high fees, typically 2% of assets per year plus 20% of any profits. That compares with regular mutual funds, which charge around 1% in total, and the modern wave of low-cost index funds, which sometimes charge 0.1% or less.

The Labor Department didn't immediately respond to a request for comment.

Any number of Wall Street thinkers and investors, from Burton Malkiel to Warren Buffett, point out that the math makes it almost impossible for any high-fee fund to work out as a good deal for investors. As U.S. stocks have historically earned about 10% a year, a fund charging 2% in fees and 20% of any profits must earn returns of 15% a year before fees just to keep up with the index. Or, to put it another way, it has to beat the stock-market indexes by 50% a year, every year, just to keep up.

Buffett in 2008 famously bet $1 million that the S&P 500 SPX would beat a basket of top hedge funds over the next 10 years. Buffett won the bet by a country mile.

Investors can see the numbers in more detail if they look through the public filings of the leading Wall Street firms that operate such private funds, such as Blackstone (BX) and KKR $(KKR)$. In their 10-Ks they reveal that fees often soak up a quarter of even a third of gross returns.

Funds that keeps back a quarter of your returns each year can easily end up costing you more than half of your entire investment returns over a 35-year investment lifetime. For any such fund even to keep up with a low-cost index fund it must produce heroic gross returns. Arguably many did generations ago, when the industry was new and niche. But that hasn't been the case for at least 20 years, financial research reveals.

Private equity was especially benefited between around 1982 and 2000 by rocketing stock-market values and collapsing interest rates. As private-equity funds typically buy stocks inn companies with large amounts of debt, they benefited on both sides of the trade.

Working Americans have about $14.2 trillion invested in private-sector "defined contribution" retirement accounts such as 401(k) plans, research shows. Getting just 5% of those assets into high-fee private investment funds would mean a pool of $700 billion, and charging 2% a year plus 20% of profits would, by basic math, raise nearly $30 billion a year in fees alone.

It's no mystery why Wall Street would want to put these funds in your retirement plans. The question is why investors would want them.

-Brett Arends

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April 24, 2026 10:04 ET (14:04 GMT)

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