Todd Solomon and Brian Tiemann presented on alternative investments for pension plans during the Association for Financial Professionals (AFP) Conference in Chicago. They discussed various rules benefit plan investors should consider, including the “look-through” rule and the “significant” investment rule. They also addressed common hedge fund structural and operational issues, and problems if a fund holds ERISA plan assets.
ERISA imposes numerous obligations on fiduciaries holding assets of employee benefit plans. In addition to discharging its duties prudently and for the exclusive purpose of providing benefits to benefit plan participants and their beneficiaries, ERISA establishes other fiduciary obligations, including prohibiting fiduciaries from engaging in a variety of transactions with plan assets known as ‘‘prohibited transactions.’’ Failure to follow fiduciary duties can result in lawsuits, Department of Labor (DOL) investigations and penalty taxes for which fiduciaries may be personally liable, as discussed below. This article discusses ERISA issues of relevance to private equity and hedge funds and their benefit plan investors. The first part discusses issues and problems resulting from being an ERISA fiduciary, while the second describes ways private equity and hedge funds can escape ERISA coverage and some pitfalls to avoid when attempting to do so.
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