DOL Updates and Finalizes QPAM Rule

In July 2022, the DOL proposed certain changes to Prohibited Transaction Exemption 84-14, the Qualified Professional Asset Manager Exemption or QPAM Exemption.   Generally, the QPAM Exemption allows employee benefit plans and IRAs to engage in certain transactions involving plan assets that would otherwise be prohibited under ERISA and the Internal Revenue Code as long as a “qualified professional asset manager” is involved with the transactions. 

The final amendment to the QPAM Exemption is meant to address the “substantial changes in the financial services industry since the exemption’s 1984 establishment,” such as industry consolidation and increasing globalization for financial services institutions.  Under PTE 84-14, Section I (g) provides that a QPAM is ineligible to rely on the exemption for 10 years if the QPAM, various affiliates, or owners of a five (5) percent or more interest in the QPAM are convicted of certain crimes.  The DOL notes that in the past 10 years, it has seen an increasing number of individual exemption requests related to Section I (g) ineligibility due to criminal convictions within the corporate family of large financial institutions.  Drawing on this experience, the DOL proposed changes to PTE 84-14 that would update the rule while maintaining the high standards of integrity required of QPAMS and the importance of protecting plans and their participants and beneficiaries.

The final rule now settles any doubt whether a foreign conviction would render a QPAM ineligible under Section I (g) and adds additional types of serious misconduct that might trigger ineligibility under Section I (g), such as a domestic non-prosecution agreement.  If a QPAM is disqualified, there is a one-year transition period that is meant to mitigate the potential costs and disruption to the plans when changing QPAMS based on ineligibility.  The ineligible QPAM may not restrict the plan’s ability to terminate or withdraw from its arrangement with the QPAM and the ineligible QPAM will provide indemnification and restore losses incurred by the plan resulting from a violation of applicable laws, breach of contract or any claim arising out of the failure of the QPAM to remain eligible for relied under PTE 84-14.