SEC Proposes Scrapping the Adviser Pay-to-Play Rule: What GPs Raising From Pensions Should Do
On 3 September 2026, the US Securities and Exchange Commission proposed rescinding Rule 206(4)-5 under the Investment Advisers Act, the political contribution rule commonly called the pay-to-play rule. The proposal, Release IA-6994, File No. S7-2026-31, was formally published for public comment on 10 September 2026, and comments are due by 9 November 2026. It would also amend the adviser recordkeeping rule, Rule 204-2, to remove the related record requirements.
SEC Chairman Paul S. Atkins said that after more than 15 years the rule is overly prescriptive and has produced unintended consequences, including heavy penalties for small donations and for donations employees made before joining a firm.
What the rule does today
For GPs raising from US public pension funds, the rule has three parts that matter. First, it bars an adviser from receiving compensation for advisory services to a government entity for two years after the adviser or certain covered associates make a political contribution to an official of that entity. Second, it limits payments to third parties for soliciting government entities, so that only registered investment advisers, broker-dealers or municipal advisors subject to their own pay-to-play rules can be compensated for that solicitation. Third, through the covered investment pool provision, it treats an adviser to a private fund that has a government investor as if it advised that government entity directly. That third part is why the rule reaches almost every private fund manager with a public pension LP.
What would change
The proposal would remove all three. It would eliminate the two-year compensation ban, rescind the restrictions on paying unregistered third parties to solicit government entities and drop the covered investment pool provision. The SEC said pay-to-play risk would instead be addressed through existing anti-fraud rules, advisers' fiduciary duty, compliance policies and codes of ethics, and it noted that advisers may still face limits on who they use to solicit government entities where other rules apply. It also said political contributions are better governed by state law, local ordinances and federal election rules.
What does not change
This is a proposal, not a final rule. Rule 206(4)-5 remains in force until the SEC adopts a rescission, and the final outcome could differ from the proposal. State and local pay-to-play laws and the policies of individual public pension funds are separate and would still apply. Many pension plans have their own contribution disclosure and certification requirements, which often show up in subscription documents and side letters. None of those fall away if the federal rule does.
A second deadline has already moved. On 31 August 2026, the SEC and CFTC extended the compliance date for the 2024 Form PF amendments from 1 October 2026 to 1 July 2027, to give the agencies time to consider an April 2026 proposal that could amend or eliminate parts of those changes. Advisers that file Form PF should not treat 1 October as a live deadline, but should keep their reporting build on track for mid-2027.
What GPs raising from pensions should do now
Keep your pre-clearance process running. Until a final rule is adopted, every political contribution by a covered associate can still trigger a two-year time-out on compensation from a government LP. Do not relax the policy on the strength of a proposal.
Map the state and local rules for every government LP in your pipeline. For each public pension you are pitching or already manage money for, check whether its state or municipality has its own pay-to-play law, and whether the plan requires contribution disclosures or certifications. Put the answers in your LP tracker so the deal team sees them before a meeting.
Review your side letters and subscription documents. Many government LPs ask for representations on political contributions and third-party solicitors. Those contractual promises survive any change in the federal rule, so know what you have signed.
Check how you use introducers. If you use a third party to reach government LPs, confirm their registration status and the rules of the plan they are introducing you to. The federal restriction may go, but plan policies and state rules on solicitation can be stricter. Our guide to 506(b) and 506(c) for fund managers covers how marketing rules shape who you can approach and how.
Decide whether to comment. Firms with a view on how the rule affects smaller managers, or on how it has affected hiring, can file a comment before 9 November. For emerging managers with a public pension in the pipeline, the practical impact of a rescission would be less compliance cost, but not less diligence from the LP. For the wider context on marketing rules for first-time funds, see our AIFMD II and SEC marketing rules compliance guide.
Keep your records either way. Even if Rule 204-2 is amended, a clean record of contributions and pre-clearance decisions is what a pension's own compliance team will ask to see.
What to watch next
Watch the comment file after 9 November and any final rule the SEC adopts, and whether large pension plans update their own policies in response. FundLinx members can see which public pensions are in their pipeline and flag compliance steps for each.
This article is general information, not legal advice.
FundLinx Intelligence | FundLinx.ai