ERISA Clauses for Private Equity Fund
(Private Placement Memorandum)

Summary

Use these clauses in a private placement memorandum (PPM) for a private equity fund to address issues arising due to the regulation of retirement plan investments under the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and other laws. This template includes practical guidance, drafting notes, and optional clauses. The PPM (also called an offering memorandum) is the document that describes the offering and discloses its structure as well as the risks involved in investing. Many private equity funds that solicit subscriptions from so-called benefit plan investors (i.e., investments for the assets of a retirement plan governed by ERISA's and the Internal Revenue Code's prohibited transaction rules are structured to qualify for one or more of the exceptions to the look-through rule for plan assets under 29 C.F.R. § 2510.3-101. Under this rule, unless an exception applies, investments in the fund made by certain retirement plans will cause an allocable portion of the fund's assets to be deemed to be plan assets of the investing plan, which could result in prohibited transaction violations and subjecting the fund's management to ERISA fiduciary responsibility. The primary exceptions to the look-through rule are the venture capital operating company exception, the real estate operating company exception, and the 25% (significant participation) test exception. This template contains only the portions of a full PPM that deal with benefit plan investors. For an example of a full private placement memorandum containing ERISA-related discussions, click here. For information on ERISA's look-through rule, see Plan Asset Regulation and the Look-Through Rule under ERISA. For ERISA clauses in other fund-related documents, see ERISA Clauses for Private Equity Fund (Limited Partnership Agreement), ERISA Clauses for Private Equity Fund (Subscription Agreement), Benefit Plan Investor Side Letter Agreement (Fund Deemed to Hold Plan Assets) and Benefit Plan Investor Side Letter Agreement (Private Equity Fund Meeting 25% Test). For additional related materials, see the Private Equity Fund ERISA Assets Resource Kit. For a full listing of key content covering ERISA retirement plan investments, see ERISA Retirement Plan Investment Resource Kit.