The amendments to the QPAM Exemption include a September 15, 2024 notification deadline that will apply to many asset managers. This blog post includes a brief summary of the US Department of Labor’s (DOL’s) recent technical amendments to the exemption.
Prohibited Transaction Exemption 84-14 (the so-called QPAM Exemption) plays an important role in the management of assets of employee benefit plans and trusts subject to the Employee Retirement Income Security Act (ERISA), individual retirement accounts and other qualified accounts (IRAs) subject to Section 4975 of the Internal Revenue Code (Code), and entities (such as certain private funds) with assets that are deemed to be plan assets. Asset managers commonly rely on the QPAM Exemption to avoid violations of ERISA’s and the Code’s prohibited transaction rules when managing ERISA plan and IRA assets.
As described in our earlier post, the DOL’s recent amendments to the QPAM Exemption will impact financial institutions that currently rely on the QPAM Exemption and that seek to do so in the future.
DOL Notice Due September 15, 2024
Under Section 1(k) of the exemption, QPAMs are newly required to notify the DOL via email to QPAM@dol.gov if they rely on the exemption. The initial deadline for this notification is Sunday, September 15, 2024. (Given that the deadline falls on a Sunday, it is reasonable to assume QPAMs may have until Monday, September 16th; however, as the DOL has not yet confirmed this, it is safer to provide the notice on or before September 15th.)
The notice must include the legal name of each business entity relying upon the exemption and any other name under which the QPAM may be operating. Below is a sample notice for consideration.
Sample Section 1(k) Notice
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To: QPAM@dol.gov Date: [INSERT DATE] Re: PTE 84-14/QPAM Initial Notification In accordance with Section I(k) of PTE 84-14, we hereby notify you that [XYZ Inc.] (the “Manager”) expects that it may rely on PTE 84-14 in managing assets subject to the prohibited transaction rules of ERISA and/or Section 4975 of the Internal Revenue Code. The manager reserves the right to determine whether and to what extent it may rely on the exemption. Manager’s Legal Name: [XYZ Inc.] Manager’s Operating Name: [PDQ] |
What happens if a QPAM misses the September 15th deadline?
Section 1(k) provides an additional 90 days if the QPAM inadvertently misses the initial 90-day deadline. To rely on this relief, the QPAM must include an explanation for the QPAM’s failure to provide timely notice. Additionally, firms should consider whether another exemption may be able to provide relief, such as ERISA Section 408(b)(17)/Code Section 4975(d)(20).
What will the DOL do with this information?
We understand the DOL intends to use the information from these notifications to maintain a list of entities relying on the QPAM Exemption that is available to the public on its website. This website does not appear to be live as of the date of this blog post. The DOL also indicated that it will use the information to better understand who is relying on the exemption and to aid it in enforcing compliance with the exemption’s conditions. After the September 15 notification date, we will continue to monitor for these efforts.
What else should QPAMs consider doing to support compliance with the amended exemption?
As discussed in our prior blog post, the amended exemption includes new recordkeeping requirements, changes to the ineligibility provisions related to certain crimes and other prohibited conduct, and increased asset management and equity thresholds. QPAMs will want to ensure they can meet these new requirements and consider adopting policies and procedures to support ongoing compliance with the exemption.
Are there alternatives to the QPAM exemption for asset managers to consider?
ERISA Section 408(b)(17)/Code Section 4975(d)(20) provides a statutory exemption from certain prohibited transactions under ERISA Section 406(a) (and parallel prohibitions under Code Section 4975). This exemption is available to cover transactions between a plan/IRA and a service provider to the plan/IRA (other than a fiduciary) if the plan receives no less, nor pays no more than “adequate consideration.”
While narrower than the QPAM exemption as (among other things) it covers only transactions with non-fiduciary service providers, firms may want to consider reliance on 408(b)(17) where available (either in addition to or instead of the QPAM exemption). We understand that certain firms are considering relying on 408(b)(17) as their primary exemption for covered transactions, particularly given that it is a statutory exemption and not subject to the recordkeeping and record disclosure requirements of QPAM.
Technical Correction to the One Year “Transition Period” Due to Ineligibility
On August 13, 2024, the DOL published a technical correction to the “final” QPAM amendments in the Federal Register. This technical correction amends Part I(i) (the rules governing the one-year transition period that applies to a QPAM that becomes ineligible to rely on the exemption due to criminal convictions and prohibited misconduct under Section I(g)).
During the transition period, among other requirements, the QPAM must agree not to restrict the ability of a client plan to terminate or withdraw from its arrangement with the QPAM. To avoid inadvertent harm to other investors in a pooled investment vehicle, the technical correction adds language that the DOL has included in individual exemptions for firms that previously violated Section I(g).
Specifically, the technical amendment clarifies the permissibility of “reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment for all investors in a pooled fund,” in the event of liquidity, valuation or regulatory issues that may prevent the fund from promptly redeeming an investment, where the restrictions are applicable to all fund investors on equal terms and are effective no longer than reasonably necessary to avoid adverse consequences for the non-withdrawing fund investors. Entities that need to rely on that transition window may wish to consult legal counsel on how best to navigate that window.
How We Can Help
If you need assistance with the QPAM notification to the DOL by the September 15, 2024 deadline or have other questions about other topics related to the recent amendments to the QPAM Exemption, please contact the authors, other members of our Fiduciary Task Force, or your Morgan Lewis contact(s).