On September 3, 2026, the SEC proposed rescinding Advisers Act Rule 206(4)-5 — the “pay-to-
play” rule — along with the corresponding recordkeeping provisions of Rule 204-2. If adopted, the
proposal would eliminate a rule that has shaped how private equity sponsors handle political
contributions since 2010. Nothing has changed yet. The rule remains in full effect, and the
comment period runs 60 days from publication in the Federal Register, with final adoption likely
months away.
Still, this is the most significant development in the political contributions space in over a decade,
and managers with public pension investors should start thinking about what their program looks
like on the other side of it.
What the Rule Does Today
Rule 206(4)-5 makes it unlawful for an adviser to receive compensation for advisory services to a
government entity for two years after the adviser or a “covered associate” makes a contribution to
an official who can influence the selection of the adviser. For a private fund manager, “advisory
services to a government entity” includes managing a fund in which a public pension plan is
invested — which is why the rule reaches nearly every mid-market sponsor with an institutional LP
base.
The rule’s reach is broad by design. It captures contributions by executives, fundraising personnel,
and anyone who supervises them, and it includes a “look-back” that attributes contributions made
before an individual joined the firm. It also bars advisers from paying third parties to solicit
government entities unless those parties are themselves regulated, and prohibits coordinating or
“bundling” contributions. Only two narrow de minimis exceptions apply — $350 per election for
candidates the contributor can vote for, and $150 otherwise — and the rule provides no intent or
materiality defense.
Why the SEC Is Walking It Back
The Commission’s stated rationale will be familiar to anyone who has administered the rule. In the
SEC’s words, it created a de facto strict liability standard under which small “foot fault” contributions
could trigger a two-year compensation ban and substantial penalties. Advisers responded
rationally: many prohibited state and local contributions altogether. Chairman Atkins’ statement
characterized that outcome as the suppression of political speech, and concluded that political
contributions are more properly governed by state, local, and federal election law than by the SEC.
Importantly, the proposal does not suggest that pay-to-play conduct is acceptable. The Commission
was explicit that the antifraud provisions of Sections 206(1) and (2), the fiduciary duty, the
compliance rule, and the code of ethics rule all continue to apply. The SEC brought pay-to-play
enforcement actions under the antifraud provisions before Rule 206(4)-5 existed, and
Commissioner Uyeda’s statement pointed out that it can do so again.
What This Means for Private Equity Managers
Do not change anything yet. The rule is proposed for rescission, not rescinded. Preclearance
requirements, covered associate tracking, look-back diligence on new hires, and the related books
and records remain mandatory. The SEC’s exam staff will continue to test them until the day a final
rule takes effect. Loosening a policy in anticipation of a rescission that has not occurred is precisely
the type of gap that produces a deficiency letter.
Rescission relocates the risk; it does not eliminate it. Three layers of obligation survive
regardless of what happens to Rule 206(4)-5:
- State and local law. Numerous states — including Illinois, New Jersey, Connecticut, and
California — and many public plans maintain their own pay-to-play statutes and policies,
several of which are stricter than the SEC rule. These have always applied independently
and will continue to. - Placement agent rules. FINRA Rule 2030 and MSRB Rule G-37 govern contributions by
regulated placement agents and municipal advisors and are unaffected by the SEC’s
proposal. - Contractual commitments. Side letters, investor questionnaires, and placement agent
disclosure certifications with public plan LPs routinely require representations about
contribution policies. Those representations do not expire because the underlying federal
rule does.
Start planning the post-rescission policy. For a sponsor with meaningful public plan exposure,
the practical answer will likely be a preclearance regime that continues to look much like today’s —
but driven by contractual and state-law obligations rather than the federal rule. A useful exercise
between now and adoption is to inventory every LP-side commitment that references political
contributions and map which state or plan-level restrictions apply to each. That inventory becomes
the foundation of the revised policy.
Watch the comment file. Commissioner Peirce openly asked whether advisers will continue to
prohibit contributions even after rescission and whether Commission guidance would change that.
Expect industry groups and public pension representatives to weigh in on opposite sides, and
expect the final release to address whether the SEC will offer any transition guidance.
Trillium’s View
The rule’s critics have a point about its mechanics — the strict-liability structure and the look-back
have produced real inequities. But the underlying conflict is unchanged. A sponsor raising capital
from public pensions still has every reason to demonstrate to those investors, and to the SEC’s
exam staff, that contribution decisions are made independently of fundraising. We will continue to
monitor the proposal and will provide an update when the comment period closes.
If you would like to discuss how the proposal may affect your firm’s political contributions policy or
your existing LP commitments, please contact us.