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The Securities and Exchange Commission has proposed rescinding a nearly two-decade-old regulation designed to curb influence peddling between investment advisers and the elected officials who oversee public pension funds. The move, published quietly earlier this month, would remove restrictions that currently bar asset managers from receiving compensation for handling government money for two years after making political contributions to relevant officials.

The rule, commonly known as the pay-to-play provision, emerged after a series of scandals in which firms directed large donations or undisclosed payments to state and local politicians in exchange for mandates to manage billions in public retirement assets. Several of those investments later declined sharply, imposing losses on pension systems serving teachers, police officers, firefighters and other public workers. The SEC framed the original measure as a direct response to arrangements where selection of advisers hinged on campaign support rather than performance or fees.

SEC Chairman Paul Atkins has indicated that the agency views the existing framework as outdated given shifts in how firms structure their political activity and compliance operations. The proposal does not replace the rule with an alternative mechanism, leaving open questions about what, if any, federal guardrails would remain in place for pension investments that total trillions of dollars nationwide.

Public pension funds represent one of the largest pools of capital available to private equity firms. Mandates to manage portions of those assets generate steady fee income, even when underlying returns vary. Removing the two-year cooling-off period would allow advisers to make contributions to the campaigns of governors, mayors, treasurers and other officials who appoint pension board members without triggering an automatic disqualification from future business.

Advocates for the current rule argue that it has reduced overt quid-pro-quo behavior by raising the cost of political spending for firms that rely on government clients. Critics, including some in the asset management industry, have long contended that the restrictions are overly broad and duplicate state-level ethics laws. The SEC’s proposal does not present new data quantifying how often violations occur or how effective enforcement has been in recent years.

If finalized, the change would take effect after a public comment period. Several large private equity firms with significant pension exposure have previously faced scrutiny under the rule, though none are named in the current proposal. The decision arrives amid broader administration efforts to ease regulatory burdens on financial institutions.

Observers note that pension governance already varies widely across states, with some boards insulated from direct political pressure and others closely tied to elected leadership. Without the federal backstop, differences in state oversight could become more consequential for how investment decisions are made and how potential conflicts are disclosed.