Letter to the Hon. Eugene Scalia, Secretary of the Department of Labor - Baldwin, Colleagues Demand Answers on Misguided Labor Department Decision Supporting Private Equity

Letter

We have serious concerns that your June 3 Information Letter regarding private equity
investments and defined contribution plans will further expose American workers to private
equity's predatory reach. We request additional information as to how the Department arrived at
its conclusion and ask that you immediately reconsider your Department's position for the sake
of American workers.

Your information letter affirms that plan fiduciaries would not, in the view of your
Department, violate their fiduciary duties by adding private equity investments as a component
of a designated investment alternative in a defined contribution plan. You further shared that the
letter supports President Trump's May 19 executive order related to economic recovery from
COVID-19: "This Information Letter will help Americans saving for retirement gain access to
alternative investments that often provide strong returns," you said. In truth, it is but one more
example of workers taking a back seat to Wall Street profits under the Trump Administration.
Private equity has a long-standing track record of profiting at the expense of workers.

When investors purchase a company, they actually have little incentive to ensure the company
improves its performance. The managers of the fund profit from the management fees they
impose, and they are free to use the companies they acquire to take out loans that are later paid as
dividends. They can sell off the assets of the companies they acquire and assume little risk for
the bets they make. These perverse incentives, investor-friendly rules, and gaps in private equity
transparency and governance ultimately put workers at risk of losing their pay, their benefits,
their jobs, and their livelihoods.

This path of destruction stretches into a variety of industries. We have raised concerns
about private equity's role in manufactured housing, in nursing homes, in local newspapers, and
-- not the least of which -- in the American retail sector. Just in the last few years, private equity
has left in its wake Toys "R" Us, Shopko, Payless ShoeSource, Charlotte Russe, Bon-Ton, Nine
West, David's Bridal, Claire's, and more. To consider one example, when Toys "R" Us filed for
bankruptcy in 2017, more than 30,000 workers lost their jobs with no severance or benefits. They
fought for months for a dignified severance, but the private equity firms that bought it pocketed
$200 million in fees they extracted from the company throughout their ownership.

Encouraging additional investment through private equity -- as your June 3 information
letter does -- fuels this model of destruction-for-profit. Target-date plans often serve as the
default investment option in defined contribution plans with more than $1.7 trillion invested in
target-date funds at the end of 2018. These defaults could soon comprise, in part, private equity
investments, and retirement plan participants may not even know that they are not only
benefiting from, but also participating in, the pillaging of American workers.We ask that you provide responses to the following questions:

Did your Department take into account the role of private equity in the bankruptcy of
American companies as it considered the June 3 information letter that will give rise to untold
new private equity investment? If so, please share any analysis or findings that played a role in
this consideration.

Did your Department take into account the role of private equity in the one million direct
or indirect job losses over the last decade 1? If so, please share any analysis or findings that
played a role in this consideration. If not, why not?

Did your Department consider the ability of ordinary investors in a defined contribution
fund to understand how private equity operates -- utilizing leveraging and complex arrangements
-- coupled with their higher fee structure and lack of transparency?

Did your Department make any attempt to project the extent to which private equity
investment would increase as a result of this information letter?

Finally, you stated this letter supports President Trump's May 19 executive order that
directed agencies "to remove barriers" to the "innovation, initiative, and drive of the American
people." There is no barrier to private equity investing in innovations and initiatives that can only
be overcome by granting them access to workers' retirement nest eggs. Given the predatory
history of this industry, please explain how promoting private equity, as this information letter
does, meets the objective of the May 19 executive order.

We appreciate your responses to these questions and urge you to immediately reconsider
this misguided decision. Opening up private equity investments in target-date funds used by
401(k) and other similar plans effectively provides another platform for private equity's
destruction. The cost to American workers is far too great.