US Department of Labor proposes amendment to Qualified Professional Asset Manager Exemption to protect benefits plans, participants, beneficiaries
WASHINGTON – The U.S. Department of Labor’s Employee Benefits Security Administration today announced a proposed amendment to the Class Prohibited Transaction Exemption 84-14, also known as the Qualified Professional Asset Manager Exemption, to ensure the exemption continues to protect plans, participants and beneficiaries, individual retirement account owners and their interests.
The QPAM Exemption permits various parties who are related to plans to engage in transactions involving plan and individual retirement account assets if, among other conditions, the assets are managed by QPAMs that are independent of the parties in interest and that meet specified financial standards.
Since the exemption’s 1984 creation, 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.
“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. “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 exemption also provides a one-year period for a disqualified financial institution to conduct an orderly wind-down of its activities as a QPAM, so plans and IRA owners can terminate their relationship with an ineligible asset manager without undue disruption,” Khawar added.
The amendment would protect plans and their participants and beneficiaries by:
- Addressing perceived ambiguity as to whether foreign convictions are included in the scope of the exemption’s ineligibility provision.
- Expanding the ineligibility provision to include additional types of serious misconduct.
- Focusing 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.
- Updating asset management and equity thresholds in the definition of “Qualified Professional Asset Manager.”
- Adding a standard recordkeeping requirement that the exemption currently lacks.
- Clarifying the requisite independence and control that a QPAM must have with respect to investment decisions and transactions.
The department urges plan representatives and other interested parties to provide input on the proposal.