DOL Proposes Amendment to the Qualified Professional Asset Manager Exemption
August 02, 2022
On July 26, 2022, the DOL proposed an amendment to the Class Prohibited Transaction Exemption 84-14, also known as the Qualified Professional Asset Manager (QPAM) Exemption. According to the DOL, the amendments are designed to ensure the exemption continues to protect investment funds holding ERISA retirement plan assets and individual retirement accounts.
A registered investment advisor or a bank, savings and loan or insurance company meeting certain financial criteria can qualify as a QPAM. An ERISA plan investment manager that qualifies as a QPAM and satisfies the requirements of the QPAM Exemption can engage in transactions with parties related to the plan, such as sales, exchanges, leases and extensions of credit. Absent the exemption, these transactions would be prohibited by ERISA and the Code. Accordingly, the QPAM Exemption is widely relied upon by ERISA plan investment managers.
A primary purpose of the proposed amendment is to prevent QPAMs that have engaged in certain bad acts from being able to continue relying upon the exemption. To achieve this objective, the amendment expands the types of serious misconduct that could disqualify plan asset managers from using the exemption. For example, disqualifying conduct could include conduct forming the basis for a deferred or non-prosecution agreement that, if prosecuted, would have been a crime under the QPAM Exemption. In recognition of the globalization of the financial services industry, the amendment also clarifies that equivalent foreign misconduct (e.g., by a foreign affiliate) could also be disqualifying.
Additionally, the proposed changes include new document requirements. Under the amendment, a QPAM must provide a one-time email notification to the DOL with the operating names of the QPAM and the legal name of each business entity relying upon the QPAM exemption. More significantly, a QPAM planning to rely upon the exemption would be required to update its written management agreements with client plans to include specific protections in the event the QPAM is disqualified due to misconduct. Specifically, the agreements must provide each plan with unrestricted ability to terminate or withdraw from the arrangement free of any fees, penalties or charges. The agreements must provide indemnification to the plan against losses and costs due to the QPAM’s loss of eligibility to rely upon the exemption. The amendment also proposes a one-year period for a disqualified financial institution to conduct an orderly wind-down of its activities as a QPAM, so that a plan can terminate the relationship with an ineligible asset manager without undue disruption.
Furthermore, the amendment updates the asset management and equity thresholds for QPAM eligibility and clarifies the independence and control that a QPAM must maintain regarding investment decisions. Additionally, under a proposed new recordkeeping requirement, QPAMs would be required to keep records for at least six years to demonstrate compliance with the QPAM Exemption and be prepared to make these records available to regulators and plan participants.
Employers that sponsor retirement plans with investment funds that rely upon the QPAM exemption should be aware of the proposed amendments and consult with their counsel for further information. Comments to the DOL on the proposed amendment can be submitted through September 26, 2022.
Proposed Amendment to the QPAM Exemption »