avril 09 2024

US Department of Labor Publishes Final Amendment to QPAM Exemption

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On April 3, 2024, the US Department of Labor (“DOL”) published the final amendment (“Amendment”) to Prohibited Transaction Class Exemption 84-14, otherwise known as the “QPAM Exemption” (“Exemption”).1 The Exemption is commonly relied on by “qualified professional asset managers” (“QPAMs” or “managers”) who meet certain requirements and manage US employee benefit and retirement account assets to avoid violations of the prohibited transaction rules under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the parallel provisions under the Internal Revenue Code of 1986, as amended.

Significant Changes

The Amendment is effective June 17, 2024, and includes the following material changes:

  • New Registration Requirement. Any manager relying on the Exemption must notify the DOL via email at QPAM@dol.gov and provide the name of each business entity relying on the exemption within 90 days of its reliance and renotify the DOL if there is a change to the QPAM’s name within 90 days of the change. Managers currently relying on the Exemption will have until September 15, 2024, to notify the DOL. The DOL will maintain a list of these entities on its publicly available website.
  • Increases to Assets Under Management and Equity Ownership Thresholds. The minimum assets under management (“AUM”) and owners’ equity thresholds to qualify as a QPAM have been increased and for fiscal years ending after December 31, 2030, will be adjusted annually to account for inflation by way of publication in the Federal Register no later than January 31 of each year.2 The DOL continues to believe that larger asset managers are more likely to be independent decision-makers and free from the influence of other plan fiduciaries.
  • Recordkeeping Requirement. A QPAM must maintain records for six years from the date of a transaction that allow the DOL, IRS, contributing employers, fiduciaries, and plan participants to determine if the Exemption’s conditions have been satisfied with respect to that transaction. A QPAM’s failure to maintain the necessary records will result in a loss of relief only for transactions for which the records are missing.
  • Exclusive Authority Requirement. A QPAM may not act as a rubber stamp or mere independent approver of a transaction that has already been fully negotiated. A QPAM may delegate certain responsibilities to a sub-adviser so long as the QPAM retains sole authority with respect to planning, negotiating, and initiating the transaction.

Disqualifying Conduct

Since the Exemption’s issuance in 1984, several financial institutions have lost the ability to rely on the Exemption due to a disqualifying crime. These institutions have applied for, and often received, an individual exemption to permit them to continue relying on the Exemption despite the disqualification. Over the past decade, the DOL has imposed additional conditions and restrictions on individual exemptions, and in certain circumstances has denied, relief. While the earlier individual exemptions granted relief for the full 10-year disqualification period, more recent exemptions have granted relief for five years, or even just one year, requiring the financial institutions to apply for additional relief to cover the full 10-year disqualification period. The Amendment broadens the scope of conduct that could disqualify a QPAM from relying on the QPAM Exemption and includes additional procedures:

  • Foreign Crimes. The Amendment clarifies that foreign convictions that are “substantially equivalent to the listed disqualifying US federal and state crimes” are disqualifying crimes.
  • Prohibited Misconduct. The Amendment adds a new category of disqualifying conduct including (a) a non-prosecution (“NPA”) or deferred prosecution agreement (“DPA”) with a US federal or state prosecutor’s office or regulatory agency where the factual allegations would have constituted a disqualifying event if they were successfully prosecuted, (b) a final judgment or court-ordered settlement in a proceeding brought by a US federal or state regulatory agency or state attorney general based on a systemic or intentional violation of the conditions of the Exemption, or (c) providing materially misleading information to a regulatory agency or state attorney general.
  • Notice to the DOL. The manager must submit a notice to the DOL by email at QPAM@dol.gov if the QPAM, any affiliate; or any owner, direct, or indirect, of a 5% or more interest in the QPAM participates in prohibited misconduct, as described above, or enters into an agreement with a foreign government that is substantially equivalent to an NPA or DPA. The notice must be sent within 30 days after the date the QPAM becomes ineligible to rely on the Exemption.
  • One-Year Transition Period. If a QPAM becomes ineligible to rely on the Exemption due to a disqualifying crime or misconduct, the disqualification would not come into effect immediately for existing clients but would be subject to a one-year winding down period. During the winding down period, the QPAM may only rely on the Exemption for transactions on behalf of plan clients with a pre-existing written management agreement. The period is intended to permit time for plan clients to decide whether to terminate the manager and transition to a new manager. Within 30 days of its ineligibility date, the manager is required to provide a detailed notice of its disqualification to its plan clients and to the DOL. Among other items, the notice should describe the required management agreement provisions allowing the plan to terminate the manager without penalties or charges and note that the manager will indemnify, hold harmless, and restore any actual losses to plan clients due to the misconduct notwithstanding anything to the contrary in the agreement. After the one-year period, the QPAM may not rely on the Exemption unless it obtains an individual exemption from the DOL. 
  • Application for Individual Exemptive Relief. The application for exemptive relief should begin as soon as possible after the ineligibility date as the Amendment makes it clear that an ineligible QPAM cannot rely on the Exemption after the transition period. The DOL indicated that it may be willing to grant exemptions more quickly if there are few deviations from the most recently granted individual exemptions; if a change is necessary, the applicant should explain why it is in the interest of, and protective of, the affected plans, plan participants, beneficiaries, and/or IRA owners. 

 

1 This redline shows the changes made with the Amendment.

2 For SEC-registered investment advisers, the AUM and equity ownership thresholds are as follows: for the fiscal year ending no later than December 31, 2024, the AUM threshold is $101,956,000, and the equity threshold is $1,346,000; for the fiscal year ending no later than December 31, 2027, the AUM threshold is $118,912,000, and the equity threshold is $1,694,000; for the fiscal year ending no later than December 31, 2030, the AUM threshold is $135,868,000, and the equity threshold is $2,040,000. 

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