Benefit Plan Investors

Note: If you don't manage a fund that uses money from a retirement plan it is likely you are not a Benefit Plan Investor.

What is a Benefit Plan Investor?

Benefit Plan Investors are generally investment entities that invest on behalf of a person with money from his/her employment benefits or retirement investments. It is a legal classification used in the United States to designate investment entities that are subject to some additional legal requirements as found in the Employee Retirement Investment Security Act (ERISA) and the Internal Revenue Code Section 4975.

Who is a Benefit Plan Investor?

A Benefit Plan Investor is defined by the money that they manage, more specifically where the money comes from and on whose behalf is the money being managed. Below is legal text defining who is a Benefit plan investor but it can be summarized as anyone that manages money on behalf of a person and their money from a employment benefit package or certain types of retirement investment vehicles (Pension plans, 401Ks, IRAs, etc)

Benefits Plan Investors manage:

(i) an “employee benefit plan” (as defined in Section 3(3) of ERISA), that is subject to part 4 of Title I of ERISA,

(ii) a “plan” (as defined in Section 4975(e)(1) of the Code), including, without limitation, individual retirement accounts and Keogh plans or

(iii) an entity whose underlying assets include plan assets by reason of such an employee benefit plan’s or plan’s investment in such entity, including, without limitation, as applicable, an insurance company general account.

Read more on about ERISA  here.

What does this mean for investors?

In the Employee Retirement Investment Security Act (ERISA), Congress implemented standards for entities offering benefit plans to employees so that the beneficiaries of these plans are protected from mis-management. This means that investment entities that manage "plan assets" (assets from a one of these types of plans) have to obey the stipulations of this law. 

Section 4975 of the Internal Revenue Code also has implications for Benefits Plan Investors that implement fiduciary responsibilities that may apply to Benefit Plan Investors.

Applicable examples of requirements for Benefit Plan Investors:

  • Benefit Plan Investors may be required to diversify their investment positions to minimize risk of large losses if they are managing certain types of plan assets (401Ks have more stipulations than an IRA for example)
    • Therefore a Benefit Plan Investor may not be allowed to commit large percentages of their portfolio into an investment class, for instance Venture Capital.
  • Benefit Plan Investors must avoid conflicts of interest in how they invest the plan assets.
  • Funds that have Limited Partners that are Benefit Plan Investors may be subject to additional disclosure requirements.

This classification of a Limited Partner is useful information for a fund because it may dictate the amount of transparency required and how much of the fund can be comprised of entities that are classified as Benefit Plan Investors. Therefore checking with a Limited Partner before they commit capital to see if they are Benefit Plan Investor will help prepare for future stipulations of having such a partner.

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