Avoiding Or Embracing Benefit Plan Investors – That Is The Question

For decades, private funds have had to decide whether to accept "significant" investment by benefit plan investors (i.e., ERISA plans and IRAs) under the so-called plan asset regulation under ERISA. The new ERISA and Internal Revenue Code fiduciary definition scheduled to go into effect later this year may cause fund managers to ponder whether to permit any benefit plan investment at all, even if insignificant enough to avoid fiduciary responsibility in managing the fund's assets.

Plan Asset Regulation

If an ERISA pension plan or IRA invests in a fund or other entity, it will be deemed to own not just the equity interest itself but a proportionate share of any assets owned by the entity, unless an exception to the ERISA "look-through" rule applies. The exceptions most utilized by private funds are the "25% test" or operation as either a venture capital operating company ("VCOC") or a real estate operating company ("REOC"). Other exceptions for investment