The DOL’s Employee Benefits Security Administration on July 26 announced a proposed amendment to Class Prohibited Transaction Exemption 84-14, also known as the Qualified Professional Asset Manager Exemption (QPAM).
The DOL developed and granted the QPAM exemption based on the premise that its broad exemptive relief from the prohibitions of ERISA Section 406(a)(1)(A) through (D) and Code Section 4975(c)(1)(A)-(D) could be afforded for transactions in which a plan engages with a party in interest only if: (1) the commitments and investments of plan assets; and (2) the negotiations leading to that are the sole responsibility of an independent investment manager.
The QPAM exemption permits various parties who are related to plans to engage in transactions involving plan and individual retirement account assets if the assets are managed by QPAMs that are independent of the parties in interest and that meet specified financial standards.
The DOL says that the proposed amendment would protect benefit plans, participants and beneficiaries, and would address changes that have taken place in the financial services industry in the past 38 years. The amendment would:
- address perceived ambiguity as to whether foreign convictions are included in the scope of the exemption’s ineligibility provision;
- expand the ineligibility provision to include additional types of serious misconduct;
- focus on mitigating potential costs and disruption to plans and IRAs when a QPAM becomes ineligible due to a conviction or participates in other serious misconduct;
- update asset management and equity thresholds in the definition of “Qualified Professional Asset Manager”;
- add a standard recordkeeping requirement that the exemption currently lacks; and
- clarify the requisite independence and control that a QPAM must have regarding investment decisions and transactions.
Why the Amendment?
Since the exemption was created in 1984, the DOL notes, substantial changes have occurred in the financial services industry. “These changes include industry consolidation and the increasing global reach of financial services institutions in their affiliations and investment strategies, including those for plan assets,” it explains.
“After nearly 40 years since the Department of Labor first granted the Qualified Professional Asset Manager Exemption, modernizing changes are overdue,” said Acting Assistant Secretary for Employee Benefits Security Ali Khawar in a press release. “The proposed amendment provides important protections for plans and individual retirement account owners by expanding the types of serious misconduct that disqualify plan asset managers from using the exemption, and by eliminating any doubt that foreign criminal convictions are disqualifying.”
The DOL will accept written comments and requests for a public hearing on the proposed amendment within 60 days of its publication in the Federal Register, which is scheduled on July 27, 2022.
