The Department of Labor is under increasing pressure to get tough on money managers with U.S. retirement plan clients when their firm, or an affiliate, gets into legal trouble.
That pressure — on display recently in an unprecedented public hearing on a proposed exemption for Credit Suisse Asset Management — could change what used to be a relatively straightforward matter of approving the firms as qualified professional asset managers. Its ripples could affect BNP Paribas' bid for a similar exemption, as well as any future requests by other managers.
Most financial firms rely on a general QPAM class exemption, allowing them to engage in thousands of financial transactions daily on behalf of pension plan clients that would otherwise trigger DOL rules against prohibited transactions. But money management firms whose affiliates or parents are convicted on criminal charges are required to seek a separate QPAM exemption.
Department of Labor officials have granted exemptions to all 23 firms seeking them since 1997, imposing conditions tailored to each firm.
Now, getting that approval from the DOL “will be much more painful,” said Ivan Strasfeld, who served as director of the Employee Benefits Security Administration's Office of Exemption Determinations until February 2012 and wrote the initial QPAM exemption in 1984. “The requirements are much more extensive than in the past.”
Just ask Credit Suisse Asset Management.
Its parent, Credit Suisse AG, pleaded guilty in May to helping U.S. citizens avoid paying taxes, and the Department of Labor granted CSAM a temporary one-year exemption in November. That allowed the money management firm to keep its qualified professional asset manager status, and prevented disrupting clients' retirement plan investments as agency officials decide on a permanent exemption while the parent's 10-year criminal plea agreement is in effect.
The money management division managed $17.8 billion for U.S. institutional tax-exempt clients as of Dec. 31, 2013, according to Pensions & Investments data; more than $2 billion of that could be affected by the decision. CSAM is seeking exemptions for three strategies: credit investments, which account for $1 billion from qualified plans; commodities, which represents another $1 billion; and a small liquid alternative beta strategy.