DOL Releases Final Amendment to QPAM Exemption

The Department of Labor’s Employee Benefits Security Administration (EBSA) has released a final amendment to Prohibited Transaction Class Exemption 84-14—also known as the Qualified Professional Asset Manager (QPAM) Exemption.

The QPAM exemption permits various parties related to employee benefit plans and individual retirement accounts to engage in transactions involving plan and IRA assets. Use of the exemption depends on certain conditions, including a requirement for plan and IRA assets to be managed by independent QPAMs that meet specified financial standards.

“The final QPAM changes are meant to respond to changes in the financial services industry,” explained American Retirement Association (ARA) General Counsel Allison Wielobob. “QPAM was initially effective in 1984 and the Department has wanted to make changes to it, which they characterize as updates, for a very long time now.”

Wielobob adds that the industry changes they regularly cite include integration of concentration of service providers and the increasing global reach of financial services institutions. “The Department has said that more and more of these institutions are concentrated in how they interact or are affiliated—including companies managing plan and IRA assets.”

According to EBSA’s release, the final amendment ensures that the exemption “continues to protect plans and their participants and beneficiaries and IRA owners” by doing the following:

• Addressing perceived ambiguity by clarifying that foreign convictions are included in the scope of the exemption’s ineligibility provision.
• Expanding the ineligibility provision to include additional types of serious misconduct.
• Adding 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.
• Updating asset management and equity thresholds in the QPAM definition.
• Clarifying the requisite independence and control a QPAM must have with respect to investment decisions and transactions.
• Adding a standard recordkeeping requirement.

EBSA further notes that, in response to public comments and testimony at a Nov. 17, 2022, online public hearing, it made important changes to the proposed amendment, including additional clarifications of exemption text and adjustments to the scope of foreign judgments and agreements subject to the rule’s ineligibility provisions. For example, the exemption expressly excludes convictions from foreign countries listed as foreign adversaries by the Department of Commerce.

When the changes were first proposed in 2022, the ARA had raised concerns with the proposed QPAM amendments, arguing that they would “needlessly” disrupt plan relationships and increase costs for plan sponsors and participants—with no obvious corresponding benefit.

The Federal Register will publish the final rule on April 3, which will take effect 75 days later.

In the meantime, an advanced copy of the final rule is available here. 

A DOL Fact Sheet about the guidance can be found here.