Democratic sweep could slow private credit's 401(k) push

The Democrats' sweep of Congress this week could slow private credit's push into 401(k) accounts, Alternative Credit Investor reported on Nov. 5. That push rests on a Labor Department safe harbor still in proposal form.

Democrats won control of both chambers, flipping historically Republican states such as Kansas and Texas. Over the past two years the Trump administration had pushed through changes with little resistance from a Republican-controlled Congress, including an effort to widen private credit's access to 401(k) accounts. Managers launched products and struck partnerships to tap a market Alternative Credit Investor puts at near $14 trillion.

Allocators underwriting a manager's defined-contribution growth story now have to ask which of two routes it takes, because only one runs through a rule the midterms can reshape. Evergreen, interval and non-traded BDC vehicles sold through advisers run under existing SEC rules, Robert Wolfe, a managing director at Apollon Wealth Management, said. He expects that wealth channel to stay largely insulated from Congress. The 401(k) door is the exposed one because it depends on the Labor Department's fiduciary safe harbor.

Wolfe said the results would mostly affect how fast retail access moves, by which route and under how much scrutiny, and were unlikely to decide whether it happens. "The simplest way I'd put it: the midterms changed the referees, not the rulebook," he said.

With a new Congress seated in January, Wolfe expects the Labor Department to push hard to finalize the rule before the end of the year. Congress could not easily undo a final rule, he said, because a Congressional Review Act disapproval would face a presidential veto.

"Plan sponsors don't adopt just because a new favorable rule exists," Wolfe said. They would most likely adopt because they believe a rule will still exist in 2029 and beyond. "A safe harbor that could be reversed after 2028 could look a lot less safe to a fiduciary committee, and those committees are the real gatekeepers."

In the Treasury market, the 10-year Treasury yield fell 4.7 bps, as Private Wealth Daily previously reported. The next marker for the retirement channel is whether the safe harbor is finalized before the end of the year, and how much of a manager's 401(k) pipeline rests on a rule Wolfe said could be reversed after 2028.