With the first of the presidential debates over, I thought it would be a good time to refresh myself on the SEC’s limits on political campaign donations by investment advisers. SEC Rule 206(4)-5 was put in place to limit political influence on government pension plan investment choices.
Under the rule:
1. All political campaign contributions should be reported.
2. Employees can contribute up to $150 to any candidate.
3. Employees can contribute a larger amount to certain candidates after checking make sure it does not violate the SEC rule.
Number three is the tricky part.
SEC regulations limit the ability of certain employees at an investment adviser from donating to candidates who could influence the decision-making of a state or local government retirement plans if you want that plan as a fee paying client.
You need to figure out which employees are subject to the rule. That’s what led to Goldman Sachs banning all contributions by the firm’s partners. The rule is unclear on which employees of an adviser are subject to the limitation. It’s clear that the very top and fundraisers are included. It’s clear that administrative staff are excluded. Then there are a lot employees in the grey area.
Then you need to figure out which political offices actually influence the decision-making of state or local pension funds. In most states that is the political offices appoint officers or trustees to the state fund’s board. Generally, that sweeps up the governor and treasurer. Good luck figuring out how that works with local boards.
You get really tough ones like Pennsylvania State Employees’ Retirement System. Two members are appointed by the President Pro Tempore of the Pennsylvania Senate and two members are appointed by the Speaker of the Pennsylvania House of Representatives. Those positions are voted on by the Senators and Representatives, not the general public. So I think every state Senator and Representative in Pennsylvania is affected by this rule since any of them could end up in that position.
Back to the major party presidential candidates and the Rule’s impact:
Clinton – Kaine: Neither of them are in an office that would be limited by the SEC rule.
Trump-Pence: Because Mr. Pence is the governor of Indiana, contributions to this campaign are limited by the SEC.
For those of you looking further down the ballot:
Johnson-Weld (Libertarian Party): Neither is currently in an elected office so contributions are not limited. Both were governors and would have been limited in those offices.
Stein-Baraka (Green Party): Neither is currently in an elected office so contributions are not limited.
Castle-Bradley (Constitution Party): Neither is currently in an elected office so contributions are not limited.
The effect of SEC Rule 206(4)-5 is to limit donations to the Trump campaign. CCOs across the country are telling their employees they can contribute fully to the Clinton-Kaine ticket but are limited in donating to the Trump-Pence ticket.
Good article! The SEC staff has been aware of the vice presidential issue since before the conventions, However, they have not offered any guidance. The conclusion that a contribution to Trump results in a ban in Indiana probably is legally correct, but very technical. Cosmetically, guidance by the SEC confirming that conclusion would look horrible to Trump supporters who already think the system is “rigged”, The SEC also is under scrutiny from the Hill over its corporate political contribution disclosure, so it is not a good time for the SEC to take any action that could be viewed as partisan.
This issue was there in the 2012 election. You had Rick Perry, the sitting governor of Texas, as a likely winner until he imploded in a debate.
The rule is a mess and the minimums are too small.