Glossary · Legal, regulatory & tax
Plan Assets
Also called: plan asset regulation
Plan assets are assets treated as belonging to employee benefit plans under the Employee Retirement Income Security Act (ERISA); a fund's holdings become plan assets when benefit plan investors hold 25% or more of an equity class, absent an exception.
When a pension plan buys an interest in a fund, the interest is a plan asset. The question is whether the fund's own investments are plan assets too; if they are, the fund manager is managing plan money and becomes an ERISA fiduciary. The regulation answers no if the fund is an operating company, a registered fund or a publicly offered security, or if benefit plan investors hold less than 25% of every class of its equity.
Formula
Benefit plan investor participation (tested per class of equity)
- VBPI
- value of the class held by benefit plan investors; an investor whose own assets are plan assets counts only for the share of its equity held by benefit plan investors
- Vclass
- total value of the class of equity interests
- Vexcl
- value held by persons (other than benefit plan investors) with discretionary authority or control over the fund's assets or who give investment advice on them for a fee, and their affiliates, such as the general partner and manager
Tested separately for each class of equity, immediately after the most recent acquisition of any equity interest in the entity. Below 25% the fund's assets are not plan assets on this ground. Other exceptions (operating company, VCOC, REOC, registered investment company, publicly offered security) are tested independently.
Jurisdiction and status
US federal law. The Department of Labor's plan asset regulation, 29 CFR 2510.3-101, applies with ERISA section 3(42) (29 U.S.C. 1002(42)), which since 2006 fixes the 25% test and defines "benefit plan investor" by statute. Both are in force. The regulation's own definition of benefit plan investor (paragraph (f)(2)) predates section 3(42) and still covers employee benefit plans whether or not they are subject to Title I; section 3(42) supplies the narrower statutory definition used for the 25% test.
The look-through rule and its exceptions
When a plan acquires an equity interest in an entity, the plan's assets include that interest. They also include an undivided interest in each of the entity's underlying assets (the look-through) unless one of these applies:
- the interest is a publicly offered security;
- the interest is a security issued by an investment company registered under the Investment Company Act;
- the entity is an operating company, which includes a venture capital operating company (VCOC) and a real estate operating company (REOC); or
- equity participation by benefit plan investors is not significant, meaning less than 25% of the value of each class of equity.
Instruments treated as debt under local law with no substantial equity features are not equity interests, so lenders to a fund are outside the analysis.
Who is a benefit plan investor
Section 3(42) defines benefit plan investors as (1) employee benefit plans subject to ERISA's fiduciary rules, (2) plans subject to the Internal Revenue Code's prohibited-transaction rules, such as individual retirement accounts (IRAs) and Keogh plans, and (3) entities whose underlying assets include plan assets, counted pro rata. Governmental plans and church plans that have not made a section 410(d) election are not benefit plan investors (ERISA section 4(b); Internal Revenue Code section 4975(g)(2)-(3)), and plans maintained outside the US primarily for nonresident aliens generally are not, even though all of them are pension money.
Applying the test in practice
The test runs per class and after every acquisition of an equity interest, so it is rechecked at each subsequent close and on each transfer. Each vehicle in a structure, such as a main fund, parallel fund, feeder fund or alternative investment vehicle, is tested as its own entity. Funds collect benefit plan investor representations in the subscription agreement, restrict transfers that would breach the limit, and may scale back or redirect plan subscriptions. Fund documents often refer to an "ERISA cap" or an "ERISA-limited" class.
What happens if a fund holds plan assets
Anyone who exercises authority or control over the fund's assets, normally the manager, becomes an ERISA fiduciary of the investing plans (29 CFR 2510.3-101(a)(2)); the fund's dealings with parties in interest become subject to the prohibited-transaction rules of ERISA section 406 and Internal Revenue Code section 4975; and arrangements such as performance-based compensation and affiliate transactions can require an exemption or restructuring. Funds that accept plan-asset status do so deliberately and operate under ERISA from the start.
Worked example
Illustrative 25% test at a subsequent close ($ millions)
A fund's single class of LP interests totals $500m. Benefit plan investors hold: corporate pension plans $70m, IRAs $28m, and a feeder fund holding $50m whose own investors are 40% benefit plan investors (so $20m counts). Benefit plan investors therefore hold $118m. The general partner and its affiliates hold $20m.
Test: $118m ÷ ($500m − $20m) = 24.6%, below 25%. Including the general partner's interest in the denominator would show 23.6% and overstate the headroom. At the next close a corporate plan subscribes $4m: $122m ÷ ($504m − $20m) = 25.2%. Unless another exception applies, the fund's assets would become plan assets, so the manager would cut back the allocation, admit the plan to a separate vehicle or rely on an operating-company exception.
Examples are illustrative; figures are not market data.
Not the same as
- Venture Capital Operating Company: VCOC and REOC are operating-company exceptions; a fund that qualifies can exceed 25% benefit plan investor participation without holding plan assets.
- Employee Retirement Income Security Act of 1974 (ERISA): ERISA is the statute; plan assets is its rule for when a fund's holdings are treated as a plan's own assets.
Common mistakes
- Counting governmental pension plans as benefit plan investors.
- Leaving IRAs out of the count.
- Testing the fund as a whole instead of each class of equity.
- Including the general partner's and its affiliates' interests in the denominator.
- Testing only at final close rather than after every acquisition, including transfers.
Edge cases
- A feeder or fund of funds that is itself a plan-asset entity counts only for the benefit-plan share of its equity.
- A general partner affiliate that is itself a benefit plan investor (for example the sponsor's own corporate pension plan) is not excluded from the calculation.
Questions
Does the GP commitment count in the ERISA 25% test?
Interests held by the general partner, the manager and their affiliates are disregarded, unless the holder is itself a benefit plan investor. Excluding them shrinks the denominator and raises the benefit plan percentage.
Do IRAs count toward the 25% test?
Yes. IRAs are plans subject to the Internal Revenue Code's prohibited-transaction rules and are benefit plan investors under ERISA section 3(42).
Sources
- 29 CFR 2510.3-101 - Definition of "plan assets" - plan investments (plan asset regulation). U.S. Department of Labor, Employee Benefits Security Administration (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; no amendment since eCFR baseline. Status: in force (checked 2026-10-01). 29 CFR 2510.3-101(a)(2), (b), (d), (e), (f)(1)–(2) — supports: Look-through and exceptions; equity interest; VCOC and REOC; 25% significant participation; exclusion of controlling persons and affiliates
- 29 U.S.C. 1002 - Definitions (ERISA sec. 3, incl. 3(34), 3(35), 3(42)). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01); para. (42) added by Pub. L. 109-280, sec. 611(f) (2006). Status: in force (checked 2026-10-01). 29 U.S.C. 1002(42) (ERISA sec. 3(42)) — supports: Statutory 25% test measured after the most recent acquisition; benefit plan investor definition; pro-rata counting of plan-asset entities
- 29 U.S.C. 1003 - Coverage (ERISA sec. 4, incl. 4(b) exclusions for governmental and church plans). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). 29 U.S.C. 1003(b)(1), (2), (4) (ERISA sec. 4(b)) — supports: Governmental plans, non-electing church plans and plans maintained outside the US for nonresident aliens are outside Title I
- 26 U.S.C. 4975 - Tax on prohibited transactions. U.S. Congress (Internal Revenue Code; LII mirror, govinfo for subsection (g)), Current US Code text (LII; govinfo USCODE-2023 for (g)), accessed 2026-10-02. Status: in force (checked 2026-10-02). 26 U.S.C. 4975(e)(1), (g)(2)-(3) — supports: Plans subject to Code prohibited-transaction rules (IRAs, qualified plans); governmental and non-electing church plans excluded
- 29 U.S.C. 1106 - Prohibited transactions (ERISA sec. 406). U.S. Congress (US Code via LII), Current US Code text as published by LII (accessed 2026-10-02). Status: in force (checked 2026-10-02). 29 U.S.C. 1106(a)-(b) (ERISA sec. 406) — supports: Prohibited transactions and self-dealing