CaseMark Analyzing Erisa And Benefit Plan Compliance
Evaluates ERISA plan asset rules under DOL Regulation 29 C.F.R. § 2510.3-101 (as modified by ERISA § 3(42)), including the 25% benefit plan investor test, VCOC and REOC operating company exemptions, and ongoing investor-level tracking obligations for private fund sponsors.
When To Use
- Structuring a new fund and determining whether plan asset status will apply
- Evaluating whether an existing fund qualifies for the VCOC or REOC exemption
- Calculating the 25% benefit plan investor threshold at initial closing or subsequent closings
- Assessing whether a feeder fund, parallel fund, or co-invest vehicle triggers look-through treatment
- Responding to investor subscription data indicating benefit plan investor participation
- Preparing or reviewing the ERISA representations section of an LPA or side letter
Inputs To Gather
- Subscription agreements and investor questionnaires — identify each investor's ERISA status (employee benefit plan, IRA, plan asset entity, government plan, church plan, non-U.S. plan)
- Capital commitment schedule — total commitments and breakdown by investor, including GP/affiliate commitments
- Fund structure diagram — master-feeder, parallel vehicles, AIVs, co-invest SPVs
- LPA provisions — benefit plan investor cap, ERISA representations, transfer restrictions, GP management rights
- Operating company qualification data (if claiming VCOC/REOC) — investment activity, management rights obtained, real estate holdings, and revenue breakdowns
- Side letters — any ERISA-specific concessions (e.g., modified fiduciary carve-outs, QPAM reliance)
- Prior compliance memos or 25% test calculations — for existing funds with historical closings
Workflow
Classify each investor's ERISA status
- Distinguish between ERISA plans (Title I), IRAs (subject to Code § 4975), government plans (exempt from ERISA but may have analogous restrictions [VERIFY]), church plans (exempt unless election under ERISA § 410(d)), and non-U.S. plans
- Determine whether any investor is itself a "plan asset entity" triggering look-through aggregation
- Confirm whether GP/sponsor commitments qualify for exclusion from the 25% denominator
Perform the 25% benefit plan investor test
- Numerator: aggregate equity held by benefit plan investors (ERISA plans + IRAs + plan asset entities)
- Denominator: total equity in the fund, excluding GP/affiliate interests that qualify under the regulation [VERIFY — confirm GP interest exclusion meets regulatory conditions]
- Calculate the ratio at each relevant measuring point (initial closing, subsequent closings, capital calls, transfers)
- If the ratio exceeds 25%, the fund's assets are treated as plan assets unless an operating company exemption applies
Evaluate VCOC exemption (if applicable)
- Confirm the fund obtains management rights in at least one portfolio company within required timeframe (generally the later of 12 months after initial closing or acquisition of the first portfolio company) [VERIFY — timing requirements]
- Verify management rights are contractual and provide the right to substantially participate in or influence management (board seats, consent rights, consultation rights)
- Confirm the fund exercises management rights in the ordinary course with respect to at least one portfolio company
- Assess whether at least 50% of fund assets (at cost) are invested in operating companies in which the fund holds management rights
Evaluate REOC exemption (if applicable)
- Confirm at least 50% of fund assets (at fair market value) are invested in real estate that is managed or developed
- Verify the fund is directly engaged in real estate management or development activities (not passive holding)
- Distinguish between qualifying real estate assets and passive real estate debt or net-leased properties [VERIFY — classification of mortgage loans and triple-net leases under REOC test]
Assess structural look-through issues
- For fund-of-funds or feeder structures, determine whether underlying vehicles are themselves plan asset entities
- Evaluate whether co-invest vehicles and AIVs must be tested independently or aggregated
- Analyze the impact of investor transfers or withdrawals on the 25% calculation
Document compliance obligations if plan assets apply
- Identify fiduciary duty implications for fund managers (prohibited transaction rules under ERISA § 406 and Code § 4975)
- Flag reliance on prohibited transaction exemptions (QPAM, INHAM, PTE 84-14, PTE 96-23) [VERIFY — current exemption requirements and recent DOL guidance]
- Note bonding requirements, reporting obligations, and co-investment restrictions
Output
- ERISA Status Summary Table — each investor classified by ERISA category with commitment amounts
- 25% Test Calculation — numerator, denominator, ratio, and pass/fail determination at each measurement date
- Exemption Analysis — VCOC or REOC qualification assessment with supporting facts and deficiency identification
- Risk Items and Action Items — transfers or future closings that could push the ratio above 25%, management rights that need to be documented or exercised, structural issues requiring restructuring
- Recommended LPA/Side Letter Provisions — benefit plan investor cap language, transfer restriction mechanics, ERISA representation requirements
Quality Checks
- Verify that all investors in the capital commitment schedule have been classified — no unresolved ERISA statuses
- Confirm the 25% test arithmetic is correct and uses the proper exclusion for GP/affiliate interests
- Cross-check VCOC/REOC asset percentages against portfolio company or real estate schedules
- Ensure look-through treatment is applied consistently across feeder funds and parallel vehicles
- Flag any reliance on exemptions where the factual predicates have not been independently confirmed
- Mark all jurisdiction-dependent or regulation-dependent conclusions with [VERIFY]
- Confirm analysis reflects the current regulatory framework, including any recent DOL advisory opinions or enforcement guidance