Pension funds are established to provide workers in the private and public sectors with tax-advantaged retirement benefits. Corporate and public pension funds today collectively hold portfolios worth trillions of dollars and pursue similar investment strategies designed to balance the requirement of diversification with the need to achieve sufficient investment returns to meet the demands of plan participants and their beneficiaries. While all pension funds are generally exempt from taxation under the Code, tax-qualified corporate pension funds are still subject to tax liability on the receipt of active business income under the Unrelated Business Income Tax (UBIT). This rule creates harsh consequences for corporate pension funds when combined with the Code’s particular definition of “business income” in the context of pension fund investment activity. These rules therefore exacerbate the underlying horizontal inequity issues for participants in private and public pension plans. A recent proposal in Congress attempts to resolve this issue by subjecting public pension funds to tax on UBIT income. This Article explores the rationales for taxing pension funds on UBIT income more generally and the extent of the horizontal inequity that exists due to the differing tax treatment of public and private pension funds. This Article concludes that rather than tax public pension funds on UBIT income, Congress should instead reform the UBIT rules to allow corporate pension funds to invest more freely without fearing tax consequences under the UBIT.