Overview and Action Items

On April 3, 2024, the Department of Labor (the “DOL”) issued its final amendment (“Amendment”) to Prohibited Transaction Class Exemption 84-14, commonly referred to as the “QPAM Exemption”.

Required Reporting to the DOL:

September 14 is an important date with respect to the Amendment as it is the initial deadline for managers currently relying on the QPAM Exemption to notify the DOL of their reliance.

• Managers currently relying on the QPAM Exemption (or expected to be relying on the QPAM Exemption) and wishing to continue to do so in respect of managing assets subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or the prohibited transaction rules of Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) must provide notice to the DOL via email (QPAM@dol.gov) by September 14, 2024.
• The notice required is brief and needs to only provide the legal name of each business entity relying on the QPAM Exemption and any other name(s) under which the entity may be operating along with an indication that the listed entity or entities intend to utilize the QPAM Exemption.
• The notice must be provided on an entity-by-entity basis (or QPAM by QPAM basis): a blanket franchise-wide notice without such entity-by-entity identification will not be sufficient.
  • Those who provide notice after September 14, 2024, will not be able to rely on the QPAM Exemption unless and until they provide such notice to the DOL (although there is also a 90-day correction period for inadvertent failures).

New Assets Under Management and Capitalization Requirements:

A “qualified professional asset manager” (“QPAM”) that is a registered investment adviser under the Investment Advisers Act of 1940 should also take note of the fact that the current client assets under management requirement of $85,000,000 will be increased to $101,956,000 and the current shareholder capital requirement of $1,000,000 will be increased to $1,346,000 as of the last day of the fiscal year ending no later than December 31, 2024 (with additional increases of each of these requirements in 2027 and 2030).

Background

Generally, the QPAM Exemption offers relief from the prohibitions of Section 406(a) of ERISA and the corresponding provisions of Section 4975 of the Code (“Prohibited Transactions”) for transactions involving retirement plans and other entities that are subject to the prohibited transaction provisions of ERISA or the Code (collectively “Plans”) with “parties in interest” (or “disqualified persons” within the meaning of the Code), where the Plan is managed by an entity that meets the definition of a QPAM and the other requirements of the QPAM Exemption are met.

Given its breadth and relative regulatory certainty, the QPAM Exemption is considered the “industry standard” prohibited transaction exemption and, thus, widely utilized by discretionary investment managers of Plan separate accounts and ERISA governed “plan asset” investment funds. It is also accepted by financial firm counterparties and service providers to such accounts and funds.

The Amendment imposes a variety of new requirements with potential impacts on both investment managers currently relying on (or those considering relying on) the QPAM Exemption and financial firms.