Amendments to QPAM Exemption Come Into Effect

June 17, 2024

What happened? 

On April 3, 2024, the Department of Labor (“DOL”) finalized amendments to the Prohibited Transaction Class Exemption 84-14 (“QPAM Exemption”) for Qualified Professional Asset Managers (“QPAM”). This exemption is often relied on by managers of plan assets under ERISA whose transactions with other parties in interest to the underlying plans and accounts would be prohibited transactions. The effective date of the amended QPAM Exemption is June 17, 2024, and the initial 90 deadline for new requirements is September 15, 2024. Prior to the amendments, managers of plan assets did not have to notify the DOL to rely on the QPAM Exemption, nor were there as many conditions. Now managers of plan assets that rely on the exemption will need to adapt to the changes for eligibility and monitor for compliance when claiming the QPAM Exemption.

The amendments to the QPAM Exemption include the following changes:

Financial Thresholds – The final amendment includes financial thresholds that must be met to qualify as a QPAM.

• AUM thresholds for registered investment advisers must be $85m with year-end increases to $101,956,000 in 2024, $118,912,000 in 2027, and $135,868,000 in 2030.
• Owner’s equity for registered investment advisers must be in excess of $1m with increases to $1,346,000 in 2024, $1,694,000 in 2027, and $2,040,000 in 2030.

DOL Notification –  Managers relying on the QPAM Exemption must notify the DOL by email to QPAM@dol.gov stating the QPAMs legal and operating names.

• QPAMs must provide this notice within 90 days of relying on the exemption. QPAMs that are currently relying on the exemption have until September 15, 2024, to provide this notice.
• An additional 90 days is available to cure any failures to report to the DOL. Likewise, for a change to a legal or operating name and any QPAM that ceases to rely on the exemption have 90 days to provide an updated notice.
• The DOL will maintain a public website of entities relying on the QPAM Exemption.

Sole Authority Requirement – QPAMs must be solely responsible for investment decisions and the planning, negotiating and initiating of transactions covered by the QPAM Exemption. QPAMs should make sure ultimate responsibility and authority are identified in any agreement delegating responsibilities to sub-advisers and that such authority is retained by the QPAM.

Expanded Disqualifications – The final amendment expands the list of disqualifying crimes and misconduct making a QPAM ineligible for the exemption:

• Criminal convictions include foreign crimes that are equivalent to the listed domestic crimes that would cause ineligibility.
• Prohibited misconduct was added to cover conduct that did not result in a conviction. This includes (1) non-prosecution agreements or deferred prosecution agreements that would have constituted a covered crime if prosecuted, (2) final court findings or settlements in proceedings brought by a regulator that indicate violation of the exemption’s conditions, and (3) providing misleading information to the DOL or other regulatory bodies in connection to the exemption.

If a QPAM is disqualified, notice must be sent to plan clients and the DOL of the disqualification.  Disqualified QPAMs are ineligible to rely on the exemption for 10 years.

One-Year Transition Period Post-Disqualification – The amendment creates a one-year transition period for disqualified QPAMs to rely on the exemption and to help the plan avoid negative impacts of any termination or adjustment to management arrangements caused by the disqualification.

Indemnification –  If a QPAM is disqualified, it must indemnify plan clients for any losses due to the disqualification and may not restrict terminations or withdrawals by plan clients during the transition period.

Recordkeeping Requirement – A firm must maintain the necessary records to demonstrate compliance with the conditions of the QPAM Exemption in a reasonably accessible manner with a six-year look-back period. Requests for such records must be produced within 30 days.      

What does this mean for me?

If your firm has agreements that rely on the QPAM Exemption, the next steps are clear.

• Confirm that you meet the financial thresholds.
• Email the DOL notification of the legal and operating name of the entity relying on the exemption. Monitor those entities for any name changes which would trigger an update with the DOL.
• Review your agreements to make sure the QPAM retains sole responsibility for investment decisions and the planning, negotiating and initiating of transactions covered by the QPAM Exemption.
• Confirm the expanded disqualifications do not touch your firm.
• Maintain records of the QPAM meeting these conditions.

If your firm no longer meets all of the conditions, work with counsel to transition the management arrangement within the amended exemption’s one-year transition period.

If your firm may rely on the QPAM Exemption in the future, be sure to include these new conditions in your due diligence.

If you have any questions about the amendments, or would like to speak with a regulatory expert, please let us know.