DOL’s Transaction Waiver Proposal Raises Issues

The U.S. Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) issued a proposal in July 2022 to tighten the rules allowing asset managers to oversee retirement plans. More specifically, the proposal would make changes to the Qualified Professional Asset Manager (QPAM) exemption to prohibited transactions under the Employee Retirement Income Security Act (ERISA). The QPAM exemption allows banks, savings and loan institutions, and insurance companies to handle a wide range of other business while remaining eligible to handle retirement plans governed by ERISA. 

Exemptions for Ineligibility Based on Criminal Convictions

One of the major changes would be a crackdown on the use of the exemption by firms with criminal convictions or affiliated with those with criminal convictions. The DOL states that it has seen a significant increase in requests from large financial institutions seeking waivers from QPAM’s ineligibility provisions concerning criminal convictions. 

EBSA grants individual exemptions from criminal ineligibility provisions when firms can demonstrate additional protection measures. For example, such safeguards might include independent compliance audits, or ensuring plans can withdraw from asset management arrangements without penalty if future misconduct occurs. 

The proposed amendments would confirm that EBSA would treat foreign criminal convictions like domestic ones. The proposal also would broaden the type of misconduct that would trigger a prohibition on the use of the exemption, such as lack of prosecution, deferred prosecution agreements, or providing materially misleading information to EBSA related to conditions with the exemption. 

Changes to Administrative Requirements

EBSA’s proposal also would make substantive changes to existing recordkeeping, reporting, and indemnification requirements for the QPAM exemption. If EBSA finalizes these changes, some fear that some businesses may choose to no longer administer retirement plans subject to ERISA. Meanwhile, DOL official Ali Khawar questioned whether the changes would be burdensome for large and sophisticated financial institutions. 

QPAM as the “Gold Standard” Exemption to ERISA’s Prohibited Transactions

While there are other ways for companies to get around ERISA’s prohibited transaction exemptions, the QPAM exemption has been the most commonly used method over the past several decades. As a result, the DOL justifies the placement of conditions on the QPAM exemption because it is the so-called “gold standard.” 

However, others in the industry opine that if the DOL cracks down on using the QPAM exemption, other methods of avoiding ERISA’s prohibited transaction rules may become increasingly popular. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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