Oct. 15, 2026
-----Original Message----- From: Robert Rutkowski Sent: Thursday, October 15, 2026 1:07 PM To: Chairman <Chairman@SEC.GOV> Subject: S7-2026-31 — Preserve Pay-to-Play Safeguards for Public Pension Assets Dear Chairman Atkins: I am writing concerning the Securities and Exchange Commission's proposed rescission of Rule 206(4)-5 under the Investment Advisers Act of 1940 and the related political-contribution recordkeeping requirements under Rule 204-2. The proposal is identified as File No. S7-2026-31 and was published in the Federal Register on September 10, 2026. I respectfully urge the Commission not to adopt the proposal in its current form. I recognize the Commission's concerns that the existing rule can impose substantial compliance burdens, penalize relatively small or inadvertent political contributions, and discourage lawful political participation by investment adviser employees. These concerns warrant attention. They do not, however, establish that complete rescission is preferable to targeted reform. The fundamental public-interest concern is the integrity of government investment decisions. Public pension beneficiaries and taxpayers have a legitimate interest in ensuring that investment advisers receive public mandates because of their qualifications, performance, fees, and ability to serve their clients—not because of political contributions or relationships with officials who influence investment decisions. The Commission's own proposal acknowledges that pay-to-play practices can result in the selection of less-qualified advisers, higher fees, diminished investment returns, and reduced competition in the market for public investment mandates. It also recognizes that rescinding the rule could increase the risk of such practices. Research concerning private equity investments by public pension funds provides additional reason for caution. Jaejin Lee's working paper, Pay to Play: Political Connections and the Private Equity Investments of Public Pension Funds, examines close state elections and reports that private equity firms contributing to winning candidates who subsequently serve on relevant pension boards were approximately ten times more likely to receive investment commitments than firms contributing to losing candidates. The paper further reports lower net internal rates of return for investments made through these political connections and finds that the investment-selection effect disappeared following implementation of the SEC's pay-to-play rule. These findings do not establish that every political contribution is improper or that every politically connected investment represents a quid pro quo arrangement. They nevertheless raise a material policy question: whether eliminating a preventive safeguard is justified when available research suggests that the safeguard may help limit politically connected investment decisions. The Commission's economic analysis also deserves further examination. The proposal estimates approximately $416.3 million in annual monetized benefits from reduced compliance costs and approximately $51 million in one-time costs associated with changes to compliance policies and procedures. However, the analysis does not provide a corresponding quantified estimate of the potential financial consequences of an increase in pay-to-play practices, including possible effects on investment selection, advisory fees, and pension returns. The Commission also notes that no similar SEC enforcement actions have been brought since the existing rule's compliance date. That observation does not, by itself, establish that the rule has become unnecessary. The absence of enforcement actions is consistent with more than one explanation, including the possibility that the rule has deterred conduct that would otherwise have occurred. The Commission's own discussion recognizes this uncertainty. Moreover, general antifraud provisions, fiduciary duties, and internal compliance policies do not necessarily provide an equivalent substitute for a clearly defined preventive rule. A principles-based approach can be valuable, but its effectiveness depends on the adequacy of the controls adopted, the quality of available records, and the ability of regulators to identify and investigate potential misconduct. Accordingly, I respectfully request that the Commission take the following actions. First, withdraw the proposal to rescind Rule 206(4)-5 in its entirety and preserve an effective federal safeguard against pay-to-play practices involving public investment mandates. Second, consider targeted amendments to address the legitimate defects identified by the Commission. These could include clearer treatment of inadvertent contributions, appropriately calibrated de minimis exceptions, more predictable procedures for seeking exemptions, and greater clarity concerning covered persons and prohibited conduct. Third, retain effective recordkeeping requirements concerning political contributions, covered associates, government clients, and relevant solicitation arrangements. Removing the underlying rule and eliminating the records used to examine compliance together could make potential misconduct more difficult to identify and assess. Fourth, supplement the economic analysis with a more developed assessment of the potential consequences for state and local governments, pension beneficiaries, investment fees, and returns. That assessment should consider whether the remaining federal, state, and local safeguards provide comparable preventive protection and whether a narrower rule could achieve the Commission's objectives at a lower compliance cost. Public pension assets represent the retirement security of public employees and other beneficiaries. Protecting those assets requires attention not only to the direct costs of regulation but also to the risks created when political influence can affect the selection of investment advisers. The Commission should not have to choose between protecting lawful political participation and maintaining meaningful safeguards against pay-to-play practices. A carefully revised rule could address the legitimate concerns identified in the proposal while preserving an effective preventive framework for public pension investment decisions. For these reasons, I respectfully urge you to oppose complete rescission of Rule 206(4)-5 and support a more narrowly tailored approach that protects both lawful political participation and the integrity of public investment decisions. Thank you for your consideration. Respectfully, Robert E. Rutkowski