NJ proposes tougher ‘pay to play’ rules

New Jersey’s $76 billion pension system wants to widen the scope of its “pay to play” rules to any private equity employee who is responsible for marketing, investor relations or who wields significant influence at the firm. 

Currently the rules could be interpreted to mean that only staff specifically soliciting commitments from New Jersey’s public pension plan must refrain from making significant political commitments to New Jersey politicians or political parties. The proposals clarify that even members of the firm responsible for seeking business from other state pension plans must follow the same local rules, or face a two year ban on winning business from New Jersey public pension plans. 

Many private equity firms have adopted pay to play policies based on federal law, which may not take into consideration the stricter thresholds adopted in New Jersey, warned Kenneth Gross, a regulation-focused partner with Skadden, Arps, Slate, Meagher & Flom, in reaction to the proposals. 

“Contributions of up to $350 (made to candidates the contributor can vote for) would not trigger the ban under federal rules, but in New Jersey the threshold is $250. Likewise if the contributor cannot vote for the candidate the limit is $250 under federal rules, and $0 in New Jersey.”

To provide an example of what the proposals mean for GPs’ compliance efforts, a marketing team member responsible for client development on the West Coast, but who contributes $300 to a New Jersey politician – perhaps in line with the firm’s allowance of political donations under $350 – would trigger New Jersey pay to play rules. 

The proposals also clarify that pay to play rules cover all New Jersey public pension plans, and not just funds managed by the state’s investment council.