The change would let advisers back into public pensions after political donations
The US Securities and Exchange Commission is moving to relax a rule that bars investment advisers from managing public pension assets after they donate to state and local politicians, reopening a debate over safeguards that sit on top of trillions of dollars in retirement money.
The regulator sent proposed changes to its so-called pay-to-play rule to the White House for review on Wednesday, according to a posting on the Office of Management and Budget website reported by Reuters.
The proposal is at an early stage, and the commission is seeking feedback on the change.
In an emailed statement to Reuters, an SEC spokesperson said the current rule "creates unnecessary compliance burdens and overly restricts" advisers, adding that the commission was responding to years of complaints from across the political spectrum and would consider reforms.
The Private Equity Law Report notes that the measure, adopted in 2010 as Rule 206(4)-5 under the Investment Advisers Act of 1940, imposes strict liability.
An adviser whose covered associate donates to an official able to sway a government entity's choice of manager is barred for two years from collecting advisory fees from that entity, regardless of intent.
According to Reuters reported, the SEC has modified the rule several times, but the two-year window has stayed intact.
Covered employees also cannot fundraise for candidates or for state and local parties where their firm is pursuing government advisory business.
The rule followed a kickback scheme at the New York State Common Retirement Fund, where former state comptroller Alan Hevesi admitted in 2010 to approving a US$250m pension investment in exchange for close to US$1m in illegal gifts, as reported by The Intercept.
When the commission adopted the rule that June, then-commissioner Elisse Walter noted that advisers managed more than US$2.6tn in pension assets held for public employees and retirees, the SEC's records show.
US public pension funds held approximately US$6.86tn as of the first quarter of 2026, the National Association of State Retirement Administrators reported, citing Federal Reserve data.
Research by a former SEC compliance examiner, writing in The Hill, found that the share of investment firms with significant public pension business donating to state candidates dropped by half after the rule took effect.
The commission added potential amendments to its regulatory agenda this summer, a signal it was moving toward action, according to Skadden, Arps, Slate, Meagher and Flom.
SEC chair Paul Atkins has driven the push, telling a Securities Industry and Financial Markets Association audience in March that the rule was "a trap for the unwary," according to Stinson LLP, and pledging changes this year.
Commissioner Hester Peirce has long objected to the measure, describing it in a 2022 statement issued at the commission as "an exceedingly blunt instrument" that discourages contributions unrelated to winning government business.
Defenders counter that a prophylactic standard is warranted given a documented history of corruption through campaign contributions, according to a compliance analysis published on Mondaq.
Loosening the restrictions could invite corruption and put billions of dollars in public pension funds at risk, and the move may draw sharp Democratic opposition, Reuters reported.
The proposal aligns with US President Donald Trump's deregulation agenda and comes ahead of the November 3 midterm elections that will decide control of Congress.
Canada offers no direct equivalent, and its rules choke off political money much further upstream.
According to law firm Fasken, corporate political contributions are prohibited federally and in most provinces, and only individuals may donate, subject to caps.
Blakes notes that lobbying is regulated federally and across the provinces, with cooling-off periods of up to 24 months for those who held senior political roles.
Rather than barring advisers who donate, Canadian pension managers lean on the Institutional Limited Partners Association's private equity principles, which call for reporting on such contributions, according to guidance published on Lexology.
Nothing has changed yet.
The current rule remains fully operative, and advisers should maintain compliance through the 2026 election cycle until the SEC issues a formal proposing release, Stinson LLP wrote.
