ERISA Considerations
ERISA considerations are legal and fiduciary requirements that apply when U.S. retirement plan assets invest in a fund or vehicle.
Allocator relevance: Can restrict fund structure, marketing, reporting, and governance—affecting whether certain LPs can allocate at all.
Expanded Definition
ERISA (Employee Retirement Income Security Act) imposes fiduciary standards and prohibited transaction rules to protect retirement assets. Funds may structure to avoid becoming subject to ERISA fiduciary obligations, and certain investor types must evaluate whether a fund’s structure and policies meet their compliance needs.
For allocators, ERISA constraints can affect manager selection, side letter requirements, reporting expectations, and operational diligence.
How It Works in Practice
ERISA-sensitive LPs review fund documents for plan asset language, compliance policies, conflicts management, and service provider arrangements. Managers may cap ERISA plan participation or implement specific controls to remain compliant.
Decision Authority and Governance
ERISA-related decisions often involve legal/compliance alongside the investment team. Governance emphasizes conflict prevention, documentation, and adherence to fiduciary requirements.
Common Misconceptions
- ERISA is relevant only to pension funds.
- ERISA compliance is a simple checkbox.
- ERISA impacts only legal docs, not fund operations.
Key Takeaways
- ERISA can be a structural gating factor for allocations.
- It affects conflicts, reporting, and governance expectations.
- Early clarity avoids late-stage diligence failures.