Tag: ERISA

Private Investment Funds and Form 5500 Schedule C

If you have ERISA plan investors in your private investment fund you should know that they have new reporting requirements this year.

There is a new rule that requires greatly expanded disclosure of monetary and non-monetary compensation paid by the ERISA plan. On Schedule C to Form 5500, the plan will need to identify any service provider who received more than $5,000 in compensation. In prior years, ERISA plan administrators were only required to identify the plan’s 40 most highly compensated service providers who received at least $5,000.

Mutual funds, hedge funds, private equity funds and funds of funds are all considered service providers. If you have an ERISA plan invested in your fund, expect a request for information on fees.

In the case of registered mutual funds, compensation paid to persons who rendered services to the plans investing in the fund is reportable. These expenses include investment management fees and fees related to the purchase or sale of interests in the fund. Amounts charged against the fund for “other ordinary operating expenses,” such as brokerage commissions paid to a broker in connection with a securities transaction within the fund’s portfolio, would not be deemed indirect compensation to a service provider and would not be reportable.

Fees received by third parties from an operating company in which a plan invests, including a venture capital operating company (VCOC) or a real estate operating company (REOC), generally would not be reportable indirect compensation according to the DOL’s FAQ on Form 5500 Schedule C:

Q7: Is compensation received in connection with the management and operation of venture capital operating companies (VCOCs), real estate operating companies (REOCs), and other operating companies reportable indirect compensation?

No. Although the requirement to report indirect compensation is not limited to fees received by persons managing plan assets, unlike investment funds (e.g., mutual funds, collective investment funds), fees received by third parties from operating companies, including real estate operating companies (REOC) or venture capital operating companies (VCOC), in connection with managing or operating the operating company, generally would not be reportable indirect compensation. Fees or commissions received by an investment manager or investment adviser in connection with a plan investment in a VCOC, REOC, or other operating company would, however, be reportable indirect compensation. This answer would not be affected by whether the VCOC, REOC, or other operating company were wholly owned by a plan such that the assets of the entity would be deemed to be plan assets.

ERISA is a complicated law. Make sure you find someone to help you answer these questions.
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Compliance Bits and Pieces

Here are some interesting compliance stories that have not made their into their own posts:

Canada’s Commitment to Combating the Corruption of Foreign Public Officials: Watching Bill C-31 from the Wrageblog

Bill C-31, An Act to amend the Criminal Code, the Corruption of Foreign Public Officials Act and the Identification of Criminals Act, was introduced to Parliament on May 15, 2009. The timing of the bill’s first reading was clearly tied to the June 2009 release of Transparency International’s Progress Report on the Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The TI Report criticized Canada, calling Canada a laggard, and listing it as one of 21 countries making little or no effort to enforce its anti-corruption laws.

The FCPA’s Murky Knowledge Element by Mike Koehler for the FCPA Professor

In a superb new piece titled, “The ‘Knowledge’ Requirement of the FCPA Anti-Bribery Provisions: Effectuating Or Frustrating Congressional Intent?,” – Kenneth Winer and Gregory Husisian of Foley & Lardner (the “Authors”) conclude that “[t]he DOJ and SEC … now interpret the knowledge requirement so broadly that they have effectively eviscerated the 1988 statutory changes thereby raising an important question: Are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?” (see here).

Changes to Cayman AML Guidance Notes from Compliance Avenue

According to recent changes to the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the “Guidance Notes”), offshore funds registered in the Cayman Islands and regulated by the Cayman Islands Monetary Authority (“CIMA”) should designate and appoint a compliance officer (“Compliance Officer”) at the management level, who: . . .

How BAE Got Caught by Richard Cassin for the FCPA Blog

Investigative reporters may be disappearing from newsrooms everywhere, but they still have an important role to play in holding institutions and people accountable for overseas bribery. Rob Evans of the U.K. Guardian contributed an essay to TI’s Global Corruption Report 2009 here. It’s about how he and David Leigh broke the BAE story.

ERISA Bonding Requirements for Hedge Fund Managers by The Hedge Fund Lawyer

Hedge fund managers who manages hedge funds which exceed the 25% ERISA threshold will need to purchase a fidelity bond.  The questions and answers below on the ERISA fidelity bonding requirements were prepared by the Department of Labor which is the governmental agency which is in charge of enforcing the ERISA laws and regulations.

The Time I was Written Up for Blogging by New CommBiz

About a year and a half ago I was written up for blogging. It was kind of a weird moment and I’ve never really talked about it much. It wasn’t that big of a deal but I thought I’d share how it happened and what I learned from it.

Here’s what I did wrong:

  • Technically I responded to a “press inquiry” (nothing freaks out PR people more than employees talking to the press)
  • I talked about the layoffs and certain financial aspects of the company during the “quiet period”

Pension Security Act of 2009 and its Effect on Private Investment Funds

department-of-labor

I missed the introduction of the Pension Security Act. Rep Michael Castle introduced the bills in January and it was referred to the Committee on Education and Labor. It’s a short bill, but would have a big effect on the disclosure of investments in private investment funds.

The bill revises a section of the Employee Retirement Income Security Act (ERISA) and require of disclosure of which hedge funds the defined benefit pension plan has invested and the dollar amount of the investment.

The bill had a broad definition of “hedge fund”:

means an unregistered investment pool permitted under sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1), (7)) and section 4(2) of the Securities Act of 1933 (15 U.S.C. 77d(2)) and Rule 506 of Regulation D of the Securities and Exchange Commission (17 CFR 230.506).

The bill would require defined benefit pension plans on their annual financial statement to identify on a separate schedule, each “hedge fund in which amounts held for investment under the plan are invested as of the end of the plan year covered by the annual report and the amount so invested in such hedge fund.”

The Secretary of Labor,  in consultation with the Securities and Exchange Commission, would be charged with issuing initial regulations within one year.

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