There are a number of provisions in the new Pension Reform Bill (see our post from August 21 for a link to the summary of the new law) that make it easier for financial institutions and hedge funds to conduct business with pension funds. While many of these provisions may be justified, we are concerned about the long-term effects of at least one provision.
Under the old law, if a hedge fund or private equity group had more than 25% of its assets from public, private, foreign or church plans, they were considered fiduciaries under ERISA.
Under the new law, hedge funds and private equity groups will have a much easier time escaping the duties of an ERISA fiduciary. Now, for purposes of calculating the 25% threshold, public, foreign and church plans are excluded. In other words, in order to be deemed a fiduciary, a hedge fund or private equity group must have more than 25% of its assets solely from U.S. private employee benefit plans.
While this change in the law may encourage hedge funds and private equity groups to do more business with public pension funds -- a good thing -- we are troubled by the fact that the cost of this new business is the watering down of the fiduciary relationship.
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