Trump Administration Proposes Risky Private Credit Funds for 401(k) Retirement Accounts
As stock markets decline and oil prices surge, Americans are already confronting an uncertain outlook for their retirement savings. Now, a new proposal from the Trump administration threatens to expose millions of 401(k) accounts to a far riskier corner of Wall Street. The plan would open the door for so-called 'private credit' funds—a fast-growing but opaque industry often dubbed 'shadow banking'—to be included in everyday retirement portfolios.
Labor Department's New Rules for Retirement Investments
On Monday, the Labor Department, which regulates workplace retirement accounts, formally proposed new rules designed to make it easier for 401(k) plans to include private equity and private credit investments. This move represents a major victory for Wall Street firms that have long pushed to tap into the $14.2 trillion retirement market. Private credit is a little-understood but rapidly expanding part of the financial system, where investment firms lend to companies that struggle to obtain standard bank loans. According to Morgan Stanley, it grew to be worth $3 trillion last year.
However, unlike traditional stock and bond funds, these investments can be difficult to sell quickly, meaning retirement savers could be stuck if markets turn sour. Economist Michael Szanto told the Daily Mail, 'Private credit is a complex product that may expose individuals to risks they do not entirely understand. A lot of careful work needs to be undertaken for the suitability and safety for retail investors, particularly in retirement accounts.'
Executive Order and Legal Protections for Employers
The guidance published today builds on an executive order signed by President Donald Trump last August, which directed the Department of Labor to draw up rules allowing 'alternative investment assets' inside 401(k) plans. Today's proposal aims to protect employers from lawsuits if they offer these investments—a key barrier that has kept them out of most retirement plans until now. This comes as the private credit boom begins to show signs of strain.
Some of Wall Street's biggest firms, including Apollo, BlackRock, and Ares, have been flooded with requests from investors trying to pull their money out. In many cases, the funds have limited withdrawals, causing panic. Many of the loans underpinning the private credit boom have been tied to the AI data center frenzy, linking the sector to another part of the economy now facing growing doubts over long-term profits. As the ambitious goals of AI have collided with the realities of limited revenue from subscriptions, the shares of publicly traded private credit companies have tumbled.
Concerns and Opposition from Financial Experts
Private credit also helps fund Roark Capital's massive franchise empire, which includes Dunkin', Arby's, Buffalo Wild Wings, Sonic, Jimmy John's, and Cheesecake Factory. Senator Elizabeth Warren wrote on Bluesky, 'Private credit is limiting withdrawals to investors as cracks emerge and more and more financial experts ring the alarm. What are Trump's regulators doing?' Shares of private credit lender Blue Owl fell throughout 2025 as concerns began circulating about the company's exposure to risky AI lending. Failed deals and policies to limit investor withdrawals in January and February then began a wholesale market rout.
Traditional banks have retreated from riskier types of lending over the last 20 years, which created an opening for private credit. Szanto noted, 'Private Credit is going through a challenging moment. It took off after commercial banks stepped back from some lending after the global financial crisis.' But the industry is still young and lacks many of the institutions and safeguards found in other lending markets.
Fiona Greig, global head of Investor Research and Policy at Vanguard, said that private assets could help boost retirement savings, but they 'may not be appropriate for all types of investors.' Ironically, executives who manage retirement funds are not enthusiastic about private credit assets. In a survey of retirement administrators last year, research firm Callan found that 90 percent opposed allowing private credit assets in 401(k) plans.
