The Department of Labor on April 2 finalized an amendment to modify its qualified professional asset manager exemption by expanding the types of misconduct that disqualify financial institutions from overseeing ERISA-covered retirement accounts.
The qualified professional asset manager exemption, or QPAM exemption, was created in 1984 and allows institutions to engage in transactions involving U.S. retirement assets from 401(k) plans, individual retirement accounts and corporate pension plans that are otherwise prohibited under the Employee Retirement Income Security Act. The amendment finalized April 2 aims to modernize the exemption to reflect the changes in the financial services industry over the past 40 years, according to the Labor Department.
Under the amendment, which was initially proposed in July 2022, if a QPAM or affiliate is convicted of a crime in a foreign country, they would lose their QPAM eligibility. In November 2020 under the Trump administration, the Labor Department issued an opinion letter that said foreign convictions weren't disqualifying to obtain a QPAM exemption. But in March 2021 under the Biden administration, the Labor Department revoked that opinion letter.
Moreover, the department expanded the exemption’s ineligibility provision to include additional types of serious misconduct. Specifically, if a QPAM, an affiliate, or any owner with at least a 5% stake in the QPAM, enters into a non-prosecution agreement or deferred prosecution agreement with federal or local officials concerning conduct that, if successfully prosecuted, would have resulted in a criminal conviction, they would be excluded from using the exemption.
The amendment also adds a one-year transition period that focuses on mitigating potential costs and disruption to plans and IRA owners when a QPAM becomes ineligible due to a conviction or participates in other serious misconduct.
“The qualified professional asset manager exemption is an important tool for plans and asset managers that must be viewed in the context of what is protective of the rights of plans, participants, beneficiaries and individual retirement account owners,” said Lisa M. Gomez, assistant secretary for employee benefits security, in a statement. “The final amendment reflects changes to modernize the QPAM exemption, input received from public comments, and the Department of Labor’s experience administering the exemption.”
George Gerstein, senior counsel in Simpson Thacher & Bartlett’s executive compensation and employee benefits practice, said in an email that while the final amendment features changes from the 2022 proposal on which it was based, “the macro effect of these changes may result in asset management firms and fund sponsors reassessing whether an alternative exemption is the way to go when managing plan assets.”
The amendment will go into effect 75 days after publication in the Federal Register.
DOL broadens ways to prohibit use of QPAM exemption after wrongdoing
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