QPAM Amendment Finalized: Prompt Action Required for Continued Reliance
On April 3, 2024, the Department of Labor (the "DOL") published its final amendment (the "Amendment") to Prohibited Transaction Class Exemption 84-14 (the "QPAM Exemption"), which permits certain otherwise-prohibited transactions negotiated by a qualified professional asset manager ("QPAM") for "plan asset" clients (including certain pooled funds).
The Amendment, effective on June 17, 2024, requires affirmative action by QPAMs for continued reliance.
Key elements of the Amendment include:
- Required Notice. Every QPAM must send a one-time email notice to the DOL of reliance on the exemption (with updates for name changes). The DOL intends to maintain a list of QPAMs on its website.
- Increased Financial Thresholds. Minimum financial thresholds for QPAM status will increase in 2024, 2027, and 2030 with subsequent annual inflation adjustments. In 2024, the AUM requirement for registered advisers will jump from the current $85,000,000 to $101,956,000 and the Shareholders'/Partners' Equity from the current $1,000,000 to $1,346,000. Banks, savings and loan associations, and insurance companies will see similar increases to required Equity Capital/Net Worth.
- New Recordkeeping Requirements. A QPAM will be required to maintain records necessary to enable certain stakeholders (including regulators, plan fiduciaries, and participants) to determine whether exemptive conditions are satisfied. Access by such persons to certain privileged materials may be denied.
- Expansion of Ineligibility Triggers; Required Notice and Transition Period. Events (including by affiliates) triggering loss of (or "ineligibility" for) QPAM status will expand and must be reported to the DOL. A one-year "transition period" will kick in thereafter.
Ineligibility events include, among other things: (i) conviction of certain non-U.S. and U.S. crimes; (ii) entering into certain non-prosecution or deferred prosecution agreements with a U.S. federal or state prosecutor's office or regulatory agency; and (iii) determination by federal or state criminal or civil courts in a final judgment (or court-approved settlement) of "Participation In" specified "Prohibited Misconduct," including systematic noncompliance or intentional violation of the QPAM Exemption and provision of materially misleading information to certain regulators. "Participation In" conduct includes knowing approval or knowledge of such conduct, absent active steps to prohibit such conduct.
- QPAM Independence. The Amendment contains modifications designed to clarify that relief requires fully independent judgment and that a QPAM can't "rubber stamp" a transaction.
In a welcome change, the Amendment omits a provision of the originally proposed amendment that would have required revisions to existing client agreements.
QPAMs should work toward ensuring compliance with the Amendment by its June 17, 2024, effective date.
