[Federal Register Volume 88, Number 59 (Tuesday, March 28, 2023)]
[Notices]
[Pages 18333-18347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06346]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-12075]


Proposed Exemption for Certain Prohibited Transaction 
Restrictions Pacific Investment Management Company LLC, Newport Beach, 
California

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document provides notice of the pendency before the 
Department of Labor (the Department) of a proposed individual exemption 
from certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). If the proposed exemption is 
granted, certain asset managers with specified relationships to the 
Pacific Investment Management Company LLC (PIMCO or the Applicant) will 
not be precluded from relying on the exemptive relief provided by 
Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM 
Exemption), notwithstanding the upcoming judgment of conviction against 
Allianz Global Investors US LLC (AGI US) for one count of securities 
fraud.

DATES: 
    Comments due: Written comments and requests for a public hearing on 
the proposed exemption should be submitted to the Department by May 12, 
2023.
    Exemption dates: If granted, this proposed exemption will be in 
effect for a period of five years beginning on May 17, 2023, and ending 
on May 16, 2028.

ADDRESSES: All written comments and requests for a hearing should be 
submitted to the Employee Benefits Security Administration (EBSA), 
Office of Exemption Determinations, Attention: Application No. D-12075 
via email to [email protected] or online through http://www.regulations.gov. Any such comments or requests should be sent by 
the end of the scheduled comment period. The application for exemption 
and the comments received will be available for public inspection in 
the Public Disclosure Room of the Employee Benefits Security 
Administration, U.S. Department of Labor, Room N-1515, 200 Constitution 
Avenue NW, Washington, DC 20210. See SUPPLEMENTARY INFORMATION below 
for additional information regarding comments.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department 
at (202) 693-8456. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: 
    Comments: Persons are encouraged to submit all comments 
electronically and not to follow with paper copies. Comments should 
state the nature of the person's interest in the proposed exemption and 
how the person would be adversely affected by the exemption, if 
granted. Any person who may be adversely affected by an exemption can 
request a hearing on the exemption. A request for a hearing must state: 
(1) The name, address, telephone number, and email address of the 
person making the request; (2) the nature of the person's interest in 
the exemption and the manner in which the person would be adversely 
affected by the exemption;

[[Page 18334]]

and (3) a statement of the issues to be addressed and a general 
description of the evidence to be presented at the hearing. The 
Department will grant a request for a hearing made in accordance with 
the requirements above where a hearing is necessary to fully explore 
material factual issues identified by the person requesting the 
hearing. A notice of such hearing shall be published by the Department 
in the Federal Register. The Department may decline to hold a hearing 
if: (1) the request for the hearing does not meet the requirements 
above; (2) the only issues identified for exploration at the hearing 
are matters of law; or (3) the factual issues identified can be fully 
explored through the submission of evidence in written (including 
electronic) form.
    Warning: All comments received will be included in the public 
record without change and may be made available online at http://www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be confidential or 
other information whose disclosure is restricted by statute. If you 
submit a comment, EBSA recommends that you include your name and other 
contact information in the body of your comment, but DO NOT submit 
information that you consider to be confidential, or otherwise 
protected (such as a Social Security number or an unlisted phone 
number) or confidential business information that you do not want 
publicly disclosed. However, if EBSA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EBSA 
might not be able to consider your comment.
    Additionally, the http://www.regulations.gov website is an 
``anonymous access'' system, which means EBSA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an email directly to EBSA without going 
through http://www.regulations.gov, your email address will be 
automatically captured and included as part of the comment that is 
placed in the public record and made available on the internet.

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of Section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA), and Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (75 FR 66637, 
66644, October 27, 2011).\1\ If the proposed exemption is granted, 
certain asset managers with specified relationships to PIMCO (the PIMCO 
Affiliated QPAMs and the PIMCO Related QPAMs) will not be precluded 
from relying on the exemptive relief provided by Prohibited Transaction 
Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\2\ 
notwithstanding the upcoming judgment of conviction against Allianz 
Global Investors US LLC (AGI US) for one count of securities fraud.\3\
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    \1\ For purposes of this proposed exemption: (1) references to 
specific provisions of ERISA Title I, unless otherwise specified, 
should be read to refer as well to the corresponding provisions of 
Code Section 4975; and (2) if granted, this proposed exemption does 
not provide relief from the requirements of any law not noted above. 
Accordingly, the Applicant is responsible for ensuring compliance 
with any other laws applicable to the transactions described herein.
    \2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as 
amended at 75 FR 38837 (July 6, 2010).
    \3\ Section I(g) of PTE 84-14 generally provides that 
``[n]either the QPAM nor any affiliate thereof . . . nor any owner . 
. . of a 5 percent or more interest in the QPAM is a person who 
within the 10 years immediately preceding the transaction has been 
either convicted or released from imprisonment, whichever is later, 
as a result of'' certain felonies including securities fraud.
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    If granted, this proposed exemption will be effective for a five-
year period beginning on the date a judgment of conviction against AGI 
US (the AGI US Conviction) is entered in the United States District 
Court for the Southern District of New York (the District Court) in 
case number 1:22-cr-00279-CM. Relief under this proposed exemption, if 
granted, will remain effective provided that the conditions set out 
below in Section III are met.
    This proposed exemption would provide relief from certain of the 
restrictions set forth in ERISA Sections 406 and 407. It would not, 
however, provide relief from any other violation of law. Furthermore, 
the Department cautions that the relief under this proposed exemption 
would terminate immediately if, among other things, an affiliate of 
PIMCO's (as defined in Section VI(d) of PTE 84-14) is convicted of a 
crime described in Section I(g) of PTE 84-14 (other than the AGI US 
Conviction) during the Exemption Period, as defined in Section I(c). 
Although PIMCO could apply for a new exemption in that circumstance, 
the Department would not be obligated to grant the exemption.
    The terms of this proposed exemption have been specifically 
designed to permit plans to terminate their relationships in an orderly 
and cost-effective fashion in the event of an additional conviction or 
a determination that it is otherwise prudent for a plan to terminate 
its relationship with an entity covered by the exemption.

Summary of Facts and Representations 4
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    \4\ The Summary of Facts and Representations is based on the 
Applicant's representations provided in its exemption application 
and does not reflect factual findings or opinions of the Department 
unless indicated otherwise. The Department notes that availability 
of this exemption, is subject to the express condition that the 
material facts and representations contained in application D-12075 
are true and complete at all times, and accurately describe all 
material terms of the transactions covered by the exemption. If 
there is any material change in a transaction covered by the 
exemption, or in a material fact or representation described in the 
application, the exemption will cease to apply as of the date of the 
change.
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Relevant ERISA Provisions and PTE 84-14

    1. The rules set forth in ERISA Section 406 and Code Section 
4975(c)(1) proscribe certain ``prohibited transactions'' between plans 
and certain parties in interest with respect to those plans.\5\ ERISA 
Section 3(14) defines parties in interest with respect to a plan to 
include, among others, the plan fiduciary, a sponsoring employer of the 
plan, a union whose members are covered by the plan, service providers 
with respect to the plan, and certain of their affiliates.\6\ The 
prohibited transaction provisions under ERISA Section 406(a) and Code 
Section 4975(c)(1) prohibit, in relevant part, (1) sales, leases, 
loans, or the provision of services between a party in interest and a 
plan (or an entity whose assets are deemed to constitute the assets of 
a plan), (2) the use of plan assets by or for the benefit of a party in 
interest, or (3) a transfer of plan assets to a party in interest.\7\
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    \5\ For purposes of the Summary of Facts and Representations, 
references to specific provisions of Title I of ERISA, unless 
otherwise specified, refer also to the corresponding provisions of 
the Code.
    \6\ Under the Code, such parties, or similar parties, are 
referred to as ``disqualified persons.''
    \7\ The prohibited transaction provisions also include certain 
fiduciary prohibited transactions under ERISA Section 406(b). These 
include transactions involving fiduciary self-dealing, fiduciary 
conflicts of interest, and kickbacks to fiduciaries.
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    2. Under the authority of ERISA Section 408(a) and Code Section 
4975(c)(2), the Department has the authority to grant exemptions from 
such ``prohibited transactions'' in accordance with the procedures set 
forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 
2011) if the Department finds an exemption is: (a) administratively 
feasible, (b) in the interests of the plan and of its participants and 
beneficiaries, and (c)

[[Page 18335]]

protective of the rights of participants and beneficiaries of the plan.
    4. The QPAM Exemption exempts certain prohibited transactions 
between a party in interest and an ``investment fund'' (as defined in 
Section VI(b) of PTE 84-14) in which a plan has an interest if the 
investment manager satisfies the definition of ``qualified professional 
asset manager'' (QPAM) and satisfies additional conditions of the 
exemption. The Department developed and granted the QPAM Exemption 
based on the essential premise that broad relief could be afforded for 
all types of transactions in which a plan engages only if the 
commitments and investments of plan assets, and the negotiations 
leading thereto, are the sole responsibility of an independent, 
discretionary manager.\8\
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    \8\ See 75 FR 38837, 38839 (July 6, 2010).
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    5. Section I(g) of PTE 84-14 prevents an entity that may otherwise 
meet the definition of QPAM from utilizing the exemptive relief 
provided by the QPAM exemption, for itself and its client plans, if 
that entity, an ``affiliate'' thereof,\9\ or any direct or indirect 
five percent or more owner in the QPAM has been either convicted or 
released from imprisonment, whichever is later, as a result of criminal 
activity described in section I(g) within the 10 years immediately 
preceding the transaction. Section I(g) was included in PTE 84-14, in 
part, based on the Department's expectation that a QPAM, and those who 
may be in a position to influence a QPAM's policies, must maintain a 
high standard of integrity.
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    \9\ Section VI(d) of PTE 84-14 defines the term ``affiliate'' 
for purposes of Section I(g) as ``(1) Any person directly or 
indirectly through one or more intermediaries, controlling, 
controlled by, or under common control with the person, (2) Any 
director of, relative of, or partner in, any such person, (3) Any 
corporation, partnership, trust or unincorporated enterprise of 
which such person is an officer, director, or a 5 percent or more 
partner or owner, and (4) Any employee or officer of the person 
who--(A) Is a highly compensated employee (as defined in Section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of 
the yearly wages of such person), or (B) Has direct or indirect 
authority, responsibility or control regarding the custody, 
management or disposition of plan assets.''
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Criminal Charge Against AGI US

    6. On May 17, 2022, the Department of Justice filed a criminal 
information in the District Court for the Southern District of New York 
charging AGI US with one count of securities fraud (the 
Information).\10\ AGI US resolved the charges through a plea agreement 
(the Plea Agreement) under which it agreed to enter a guilty plea to 
the charge set out in the Information. The judgment of the Conviction 
against AGI US is scheduled to be entered in District Court on May 17, 
2023, in Case Number 1:22-cr-00279-CM.\11\
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    \10\ In violation of Title 15, United States Code, Sections 
78j(b) and 78ff, Title 17, Code of Federal Regulations, Section 
240.10b-5, and Title 18, United States Code, Section 2.
    \11\ The date the Conviction will be entered may change, subject 
to judicial approval.
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The Misconduct Underlying the AGI US Conviction

    7. According to the Statement of Facts that served as the basis for 
the Plea Agreement (the Statement of Facts), beginning in at least 2014 
and continuing through March 2020, AGI US engaged in a scheme to 
defraud investors in a series of private investment funds (the 
Structured Alpha Funds) that at their height had over $11 billion in 
assets under management (the Misconduct). The investors that were 
victims of the Misconduct included ERISA-covered Plans. The fraudulent 
scheme was carried out by the three managers in AGI US's Structured 
Products Group who were primarily responsible for managing the 
Structured Alpha Funds (collectively, the Fund Managers).\12\
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    \12\ The three managers were Gregoire Tournant, Trevor Taylor, 
and Stephen Bond-Nelson.
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    8. According to the Statement of Facts, AGI US made false and 
misleading statements to investors that substantially understated the 
risks being taken by the Structured Alpha Funds and failed to disclose, 
and sought to affirmatively withhold, relevant risk information. AGI US 
repeatedly represented to investors that their investments were low-
risk and designed to minimize the risk of large losses. Despite these 
assurances, AGI US deployed an investment strategy that prioritized 
returns over effective risk management by, among other things, taking 
aggressive options bets and devoting insufficient resources to hedge 
positions. When investors sought to obtain documentation to assess 
investment risk, AGI responded with manually altered data.
    9. Beginning as early as 2015, AGI US represented to investors that 
the Structured Alpha Funds were purchasing hedges 10 to 25% out-of-the-
money when, in fact, the hedges purchased were as much as 70% out-of-
the-money. These further out-of-the-money hedges were cheaper and less 
protective in the event of a market downturn.
    10. According to the Statement of Facts, AGI US altered over 75 
risk reports and Greeks \13\ that it sent to investors by manually 
changing ``stress test'' results to make it appear that, in market 
downturns, the Structured Alpha Funds would lose less money. AGI US 
also altered: (a) daily performance data that it sent to investors by 
smoothing the Structured Alpha Funds' day-to-day response to market 
downturns; (b) attribution data to make it appear that more significant 
hedging was in place; and (c) open position data to bring hedge strike 
distances closer to the money.
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    \13\ Greeks are a group of standard metrics for evaluating a 
portfolio's market exposure.
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    11. While the Misconduct was perpetrated by the three Fund Managers 
within AGI US's Structured Products Group, these individuals were able 
to carry out the fraud, in part, because AGI US lacked sufficient 
internal controls and oversight for the Structured Alpha Funds. AGI US 
failed to impose sufficient internal controls even though the 
Structured Products Group contributed approximately one-quarter of AGI 
US's revenue from at least 2016 through 2019.
    12. In communications with Investors, AGI US described its internal 
controls based on the following ``three lines of defense:'' (a) the 
business, including portfolio management and sales; (b) Enterprise Risk 
Management (ERM), Compliance, and Legal departments; and (c) an 
Internal Audit function. AGI US's control functions however were not 
designed and did not function to ensure that risk for the Structured 
Alpha Funds was being monitored in line with the disclosures AGI US 
made to investors. Specifically, no one in AGI US's control function 
sought to verify that Tournant and the other Fund Managers were 
adhering to the hedging strategies communicated to investors. This lack 
of oversight occurred despite the fact that the materials containing 
these representations to investors were reviewed and approved by AGI 
US's Legal and Compliance departments.
    13. Further, AGU US's Compliance, ERM, and Legal departments were 
unaware that many of the reports described above were being sent to 
investors at all, with or without alterations. The Fund Managers thus 
were able to employ more aggressive investment strategies than they had 
told investors they would employ, thereby exposing investors to 
undisclosed risk. Additionally, neither ERM nor any other independent 
function within AGI US was tasked with monitoring whether AGI US was 
adhering to the representations it had made to investors regarding the 
funds' management.
    14. As to audits, the third line of defense, AGI US's Internal 
Audit department conducted an audit of the Structured Products Group in 
2017 that identified certain red flags that, if pursued, may have led 
to the discovery

[[Page 18336]]

of at least certain aspects of the fraudulent scheme. AGI US however 
did not perform any meaningful follow-up. And although the 2017 audit 
report ``highlighted the need to thoroughly review marketing materials 
to ensure that the disclosure language accurately reflects the ongoing 
investment processes,'' the audit did not trigger a review by anyone 
outside the Structured Products Group. Instead, Internal Audit assigned 
that review to product specialists within the Structured Products Group 
whose compensation was directly tied to the quarterly performance of 
the Structured Alpha Funds. Had an independent review occurred, AGI 
US's control function could potentially have uncovered at least the 
misrepresentations regarding the hedging positions.
    15. AGI US's failure to address data quality issues in back-office 
functions allowed the Fund Managers' fraudulent scheme to continue 
undetected. In this regard, multiple AGI US employees within the 
Structured Products Group who were not directly involved in the 
fraudulent scheme were nonetheless aware that Tournant and Bond-Nelson 
were altering numbers on certain reports before sending them to 
investors. To cover up their wrongdoing, Tournant and Bond-Nelson 
explained to their Structured Products colleagues that they were simply 
correcting ``errors'' in reporting generated by back-office functions. 
Because there were, in fact, ongoing issues with the back office's data 
reporting, multiple members of the Structured Products Group who might 
otherwise have reported the fraudulent scheme instead accepted this 
explanation and carried on with their work without reporting the 
Misconduct.
Misconduct Was Isolated Within the Structured Products Group
    16. In its Statement of Facts, the DOJ states that ``[t]he 
misconduct occurred only within the small Structured Products Group at 
AGI US. The Government's investigation has not revealed evidence that 
anyone at AGI US outside of the Structured Products Group was aware of 
the misconduct before March 2020. The investigation also has not 
revealed that anyone at any other organizations that fell within the 
broader umbrella of the parent company Allianz SE was aware of or 
participated in the misconduct.''

PIMCO and the PIMCO Affiliated QPAMs

    17. PIMCO is a global investment management firm with $2.2 trillion 
in total assets under management as of December 31, 2021. PIMCO manages 
approximately $156 billion in assets for ERISA plans, approximately 
$1.89 billion in pooled funds, and approximately $9.58 billion in 
collective investment trusts maintained for ERISA and public pension 
plan investors. PIMCO manages the assets of ERISA-covered plans on a 
discretionary basis and advises or subadvises pooled funds.
    18. PIMCO owns affiliated asset managers that routinely rely upon 
the QPAM Exemption to provide relief for party-in-interest investment 
transactions (the PIMCO Affiliated QPAMs). In addition, PIMCO currently 
owns, directly or indirectly, a 5% or greater interest in certain 
investment managers that are not affiliated with PIMCO in the actual 
control sense (the PIMCO Related QPAMs). The clients of the PIMCO 
Affiliated and Related QPAMs include plans subject to Part IV of Title 
I of ERISA and plans subject to Code Section 4975, with respect to 
which the PIMCO QPAMs rely on the QPAM Exemption or have expressly 
represented that PIMCO managers qualify as a QPAM or rely on the QPAM 
Exemption. These plans are hereinafter referred to as Covered Plans.
    19. PIMCO represents that most of its ERISA plan clients pursue 
fixed income investment strategies that are composed of long-term 
investment grade credit fixed income securities. PIMCO states that it 
uses derivatives as a means of managing investment risk, capitalizing 
on market inefficiencies, and executing alpha-seeking strategies. Where 
PIMCO has the authority to transact in derivatives, its plan clients 
expect PIMCO to deploy such instruments. In this regard, PIMCO states 
that the overwhelming majority of plan clients--82.3%--have directed 
PIMCO to use derivatives to manage their assets. According to PIMCO, 
derivatives are an essential component of PIMCO's investment toolkit, 
as they play a number of important roles in managing plan portfolios, 
including (i) serving as a liquid means to manage credit risk through 
the use of cleared credit default index swaps (CDX) or credit default 
swaps (CDS), (ii) managing duration with potentially lower transaction 
costs than alternative approaches, (iii) managing currency exposure 
when purchasing foreign denominated securities, and (iv) sometimes 
serving as a more attractive substitute for the underlying security.
    20. PIMCO represents that while cash bonds can be traded using 
several different exemptions, including PTE 75-1, Part II and ERISA 
Section 408(b)(17), CDS and CDX can only be traded using the QPAM 
Exemption or the INHAM Class Exemption.\14\ Additionally, all futures 
contracts traded under PIMCO's clearing contracts require a QPAM 
representation.
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    \14\ PTE 96-23 is a class exemption that permits various 
transactions involving employee benefit plans whose assets are 
managed by in-house asset managers (INHAMs). See 61 FR 15975 (April 
10, 1996).
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PIMCO's Affiliation With AGI US

    21. PIMCO is a direct subsidiary of the following three entities 
that are indirectly wholly owned by Allianz SE (Allianz): (1) Allianz 
Asset Management of America L.P. (AAM) (77.9 percent ownership of 
PIMCO); (2) Allianz Asset Management of America LLC (11.4 percent 
ownership of PIMCO), and (3) Allianz Asset Management Holding II LLC 
(2.4 percent of PIMCO). PIMCO's parent and managing member is AAM, 
which is generally responsible for oversight of PIMCO on behalf of 
Allianz. Allianz is PIMCO's ultimate parent company. Allianz also 
indirectly owns 100 percent of AGI US, the entity that engaged in the 
fraudulent scheme. Thus, PIMCO and AGI US are affiliates for the 
purposes of Section I(g) of the QPAM Exemption.

PIMCO's QPAM Exemption Ineligibility and Exemption Request

    22. As affiliates of AGI US, the PIMCO Affiliated QPAMs will no 
longer be able to rely on the relief provided by the QPAM Exemption 
once AGI US is sentenced in connection with its Conviction.
    23. On May 17, 2022, PIMCO filed an application with the Department 
requesting an exemption that would permit the PIMCO Affiliated QPAMs 
and PIMCO Related QPAMs to continue to rely on the QPAM Exemption, 
notwithstanding the AGI US Conviction. As noted above, Section I(g) of 
the QPAM Exemption prevents an entity that otherwise meets the 
definition of a QPAM from utilizing the exemptive relief provided by 
PTE 84-14 if that entity or an affiliate thereof or any direct or 
indirect owner of a 5 percent or more interest in the QPAM has been 
either convicted or released from imprisonment, whichever is later, as 
a result of criminal activity described in that section within 10 years 
immediately preceding the transaction. In support of its exemption 
request, PIMCO emphasizes that it operates completely independently 
from AGI US and that a denial of the exemption would result in certain 
hardships to Covered Plans.

[[Page 18337]]

Separation of PIMCO From AGI US

    The Applicant made the following representations regarding how 
PIMCO acts independently from AGI US. These representations are set 
forth below in paragraphs 24 through 38.
    24. PIMCO and the PIMCO Affiliated QPAMs operate autonomously and 
independently from both Allianz and AGI US, and PIMCO has no directors, 
officers, or employees in common with Allianz, AAM, or any other 
Allianz subsidiary. Allianz employees do not have access to PIMCO's 
systems and are not involved in any way in the PIMCO Affiliated QPAMs' 
investment processes. Since Allianz acquired PIMCO in 2000, PIMCO's 
investment management processes have remained separate from those of 
Allianz to avoid restrictions that would result if PIMCO and Allianz 
were operated as a single coordinated entity. PIMCO and Allianz in fact 
entered into agreements at the time of the acquisition that provided 
PIMCO with substantial autonomy and independence in its management.
    25. The PIMCO Affiliated QPAMs operate as separate businesses from 
AGI US. The PIMCO Affiliated QPAM's management of plan assets is 
conducted separately from (a) the investment management activities of 
AGI US; (b) the non-investment management business activities of 
Allianz, and (c) the conduct underlying the AGI US Conviction. Further, 
Allianz employees are not involved in the portfolio management of PIMCO 
accounts, nor do they supervise or oversee the PIMCO Affiliated QPAMs' 
portfolio management activities. Investment decisions for PIMCO 
accounts, including decisions regarding investment strategy, are made 
by PIMCO Affiliated QPAM personnel pursuant to PIMCO policies, 
procedures, and guidelines, without consultation with Allianz or AGI 
US.
    26. Allianz has delegated to the PIMCO Management Board the 
authority to manage all of PIMCO's business affairs, except for certain 
extraordinary matters where Allianz retains approval rights. The PIMCO 
Management Board, which is comprised solely of PIMCO's Managing 
Directors, relies upon the PIMCO Executive Committee as the primary 
governance body for review and approval of significant matters. There 
are no representatives of Allianz (or other non-PIMCO personnel) on the 
Management Board. As described below, the Management Board has 
delegated substantially all of its operating authority to the PIMCO 
Executive Committee and, with respect to compensation matters, the 
PIMCO Performance and Compensation Committee (PCC). Certain key 
decisions however are retained by the Management Board, including the 
power to: (a) elect existing employees to Managing Director, (b) 
nominate and elect PIMCO's CEO and Group Chief Investment Officer, and 
(c) determine the composition of the Executive Committee and the PCC.
    27. The PIMCO Executive Committee has authority for most 
significant matters and is currently composed of nine voting members 
and two non-voting members, all of whom are PIMCO Managing Directors. 
The Charter of the Executive Committee provides additional background 
regarding ``matters of significance to the business or operations'' of 
PIMCO that are required to be ``escalated to the [Executive] Committee 
for consideration and (as applicable) approval.'' \15\
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    \15\ Matters include, among others, the annual budget and 
business plan for PIMCO and its subsidiaries; material deviations 
from the approved budget or business plan; corporate transactions 
involving PIMCO, including acquisitions of or mergers with another 
business or company; disposition of all or any significant portion 
of assets of a PIMCO company and/or the exiting from a material 
business area; significant reductions in staff or layoffs; material 
out of the ordinary course transactions or contracts; establishment 
or closure of a PIMCO office, branch or subsidiary; initiation of a 
new business area and development of new products; determination of 
PIMCO's risk appetite, and material deviations from the same; 
material changes to human resources, risk or compliance policies; 
and approach to and resolution of significant audit issues. Except 
for those key decisions where AAM's consultation or consent is 
required, none of the foregoing matters are escalated for approval 
or consent to AAM.
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    The Executive Committee has established certain principal 
committees to oversee key areas of PIMCO. These committees are 
complemented by formal departmental and organizational lines of 
reporting and are typically comprised of senior officers from a cross-
section of internal disciplines. Further, the committees are designed 
to serve as an additional control over specific functional areas and 
are generally separate and apart from the first-line controls that are 
in place in the form of clearly delineated departmental 
responsibilities. They include, for example, PIMCO's Global Risk 
Committee.
    28. PIMCO's Senior Executive Officers are elected by the PIMCO 
Management Board and may be removed by the PIMCO Executive Committee 
and PCC. The PIMCO CEO and the Group CIO are the senior-most officers 
of PIMCO and are responsible for day-to-day leadership of PIMCO 
operations. They are each elected by the Management Board (\2/3\ 
majority) and remain in office until they retire, resign, or are 
terminated. While AAM has the right to approve any person proposed to 
fill such roles, neither AAM nor Allianz has disapproved of any person 
selected for a Senior Executive Officer role by the PIMCO Management 
Board. In addition, neither AAM nor Allianz has the authority to remove 
any such person, having delegated that authority to the PIMCO 
Management Board.
    29. AAM has reserved for itself certain consent rights, including 
the authority to approve PIMCO's annual budget, approval of the hiring 
of certain senior officers, including the CEO and Group Chief 
Investment Officer, approval of changes to compensation plans and 
arrangements, fundamental changes to PIMCO's business, and significant 
financial transactions. However, in practice, AAM has not exercised 
these consent rights to disapprove of any of PIMCO's changes, 
transactions, or proposed senior officers.
    While AAM has retained the authority to require PIMCO to meet 
certain minimum corporate standards relating to audit, accounting and 
reporting, legal and compliance, and risk management, PIMCO confirms 
its compliance with those standards through an annual statement of 
accountability and quarterly statements of accountability limited to 
financial controls. Importantly, none of the AAM standards covers 
investment-related decisions. Moreover, decisions on how to allocate 
resources to meet AAM's minimum standards and whether to implement 
controls that go beyond such minimum standards are left to the 
discretion of PIMCO's management.
    30. Allianz and the other Allianz subsidiaries do not have a role 
in the governance of PIMCO's global subsidiaries. PIMCO's global 
offices are primarily organized as direct or indirect subsidiaries of 
PIMCO, and each has its own defined governance structure. Nonetheless, 
PIMCO's global affiliates are subject to PIMCO's oversight as the 
direct or indirect parent entity. Except as otherwise required by 
applicable local law, PIMCO conducts oversight of its global affiliates 
through the application of PIMCO's global policies.
    31. Allianz employees are not involved in the portfolio management 
of PIMCO accounts, nor do they supervise or oversee PIMCO's portfolio 
management activities. Investment decisions for PIMCO accounts, 
including decisions regarding investment strategy, are made by PIMCO 
personnel pursuant to PIMCO policies, procedures, and guidelines, 
without consulting with Allianz or AGI US's employees, and all 
investment

[[Page 18338]]

management functions report to PIMCO's Group CIO. PIMCO's Investment 
Committee, which is composed of PIMCO's CIOs and most senior investment 
professionals, translates the firm's macroeconomic views into specific 
investment risk targets which serve as parameters for every PIMCO 
investment portfolio.
    32. Portfolio Risk Management at PIMCO is managed independently of 
risk management functions at Allianz as well as other Allianz asset 
management subsidiaries. PIMCO's Portfolio Risk Management team is 
fully integrated into PIMCO's investment process and sits alongside the 
Portfolio Management team on the trading floor. Portfolio Risk 
Management is headed by a Managing Director (the most senior executive 
level at PIMCO) who reports directly to both PIMCO's Group CIO and CEO 
and is a permanent member of the firm's Investment Committee. Further, 
the Portfolio Risk Management team maintains close contact with the 
firm's leadership through regular updates to the Investment Committee, 
weekly reviews with the CIO, and monthly reviews with the CEO.
    33. PIMCO does not share information or coordinate investment 
management decisions with Allianz or other Allianz asset management 
subsidiaries, including AGI US. Among other things, PIMCO does not 
share investment research, portfolio holdings, client information, or 
trade information, and all trading decisions are made independently. 
Further, PIMCO does not coordinate proxy voting and makes all 
decisions, including decisions with respect to the valuation of 
securities, independently and pursuant to its own valuation policies 
and procedures. Further, PIMCO's products, including funds for which 
PIMCO Investments is the principal underwriter, are distributed 
independently; and PIMCO's technology and proprietary trading systems 
are not shared.
    34. PIMCO does contract with Allianz insurance subsidiaries for the 
management of insurance portfolios, and therefore PIMCO shares 
information and holdings with respect to those activities as they would 
with their other clients. Regarding Allianz as a parent, information 
flows are limited to those necessary for appropriate prudent oversight, 
supervision of controls, and groupwide financial reporting and 
regulatory requirements.
    35. Allianz, as PIMCO's parent, sets certain minimum group-level 
standards for control functions, including compliance and risk 
management. However, PIMCO's compliance and risk management programs 
are developed and administered independently of AAM or Allianz. In this 
regard, these programs do not use Allianz personnel or resources, and 
their leaders report directly to other senior executives at PIMCO, not 
to AAM or Allianz.
    36. PIMCO's Global Head of Compliance and Chief Compliance Officer 
(Global Head of Compliance and CCO) leads the firm's global compliance 
program and oversees the Compliance staff responsible for formulating 
and administering the firm's policies and procedures and reviewing the 
adequacy of their effectiveness and implementation. The Global Head of 
Compliance and CCO reports to PIMCO's General Counsel for Global 
Regulatory and Litigation, who leads the firm's integrated regulatory 
strategies. That person in turn reports to PIMCO's Global General 
Counsel, who heads PIMCO's Legal and Compliance Department.
    37. PIMCO utilizes internal auditors, employed by AAM, as an 
outsourced internal function. Global audits of PIMCO are managed by an 
individual at AAM who is different from the person who manages global 
audits for AGI US. PIMCO believes that this arrangement provides a 
useful layer of independence and objectivity to audits of PIMCO. The 
Internal Audit team begins its audits with a launch discussion with the 
business area being audited, together with Compliance and Enterprise 
Risk Management, followed by a kickoff meeting with the head of that 
business area, together with Compliance. At the end of its fieldwork, 
Internal Audit shares its draft report with the business area and 
Compliance to ensure factual accuracy. Thus, at the beginning and end 
of an audit, PIMCO Compliance--in addition to the relevant business 
area--is aware of the purpose, scope, and results of any audit. 
Further, audit findings are escalated to PIMCO's Audit Committee, which 
is chaired by PIMCO's Global General Counsel, if the audited business 
area does not complete the required corrective actions by the original 
target date.
    38. Finally, hiring, termination, and compensation decisions for 
the PIMCO Affiliated QPAMs' personnel and executives are determined 
entirely pursuant to the PIMCO Affiliated QPAMs' processes, independent 
of any influence by Allianz and Allianz asset management subsidiaries. 
Allianz (but no other Allianz affiliate) retains the right to approve 
the hiring of PIMCO's CEO, Group CIO, CFO, General Counsel, and head of 
Compliance.

Hardship to Covered Plans

    The Applicant represents that Covered Plans would suffer the 
following hardships if PIMCO loses its eligibility to rely on the QPAM 
Exemption. The Applicant's representations are set forth below in 
paragraphs 39 through 46.
    39. Without the ability to rely upon the QPAM exemption, PIMCO will 
be unable to effectively implement the investment strategies that 
Covered Plans engaged PIMCO to pursue. As a consequence, PIMCO assumes 
that Covered Plans will terminate their relationship with PIMCO and 
seek out alternative asset managers. The transaction costs to Covered 
Plans of changing managers are significant, especially in many of the 
strategies employed by the PIMCO Affiliated QPAMs. These costs, which 
include the cost of liquidating assets, identifying and selecting new 
managers, and then reinvesting those assets, would be borne by the 
Covered Plans and their participants. Further, the process for 
transitioning to a new manager is typically lengthy and likely would 
involve numerous steps, each of which could last several months. These 
steps could include retaining a consultant, engaging in a request for 
proposals, negotiating contracts, and ultimately transitioning assets.
    40. PIMCO currently manages 451 ERISA plan institutional separate 
accounts, representing $170.35 billion in assets under management. 
82.3% of these 451 plan accounts, representing $155.15 billion in 
assets, invest in cash bonds and derivatives, whereas 17.7% of the 
accounts, representing $15.2 billion in assets, invest only in cash 
bonds. Because of the critical role played by derivatives, PIMCO 
believes that a Covered Plan that selects PIMCO to actively manage its 
fixed income portfolio pursuant to a broad set of guidelines, including 
derivatives, would be unlikely to retain PIMCO to run a cash bond 
strategy in the absence of the QPAM Exemption. Based on its 
understanding of the experience of other asset managers who did not 
receive a QPAM exemption, and who lost at least some plan business, 
PIMCO believes that it is likely that many of its plan clients whose 
guidelines permit derivatives would terminate their relationship if 
PIMCO could no longer trade in derivatives for those plans because 
PIMCO would be limited in its ability to manage a portfolio consistent 
with such clients' objectives. The Department notes that PIMCO is 
unable to give a precise estimate of the size or significance of the 
plan assets affected

[[Page 18339]]

and invites public comment on the likely impacts.
    41. Below is an assessment by PIMCO of the potential harm to 
Covered Plans if this exemption is not granted, both in the aggregate 
and with respect to a representative Covered Plan account, under 
orderly, stressed, and expedited scenarios in which all the Plans 
decide to terminate their relationships with PIMCO: (1) under an 
``orderly'' scenario, PIMCO would have one year to liquidate client 
portfolios; (2) the ``stressed'' scenario is based on input from 
PIMCO's trading desks and designed to be an estimate of stressed market 
conditions based on the previous six months of trading; (3) the 
``expedited'' scenario applies a 4x factor to the stressed scenario and 
contemplates clients directing PIMCO to liquidate under a very short 
time frame (i.e., 30 days); \16\ PIMCO views each of these scenarios as 
plausible. While these charts assume for estimation purposes that all 
PIMCO's Plan customers would terminate their existing relationships 
with PIMCO, the applicant does not assert that it is likely that all 
PIMCO's plan customers, in fact, would terminate their existing 
relationships. Accordingly, the public and PIMCO are invited to comment 
on the reasonableness of the assumptions and the estimates below, and 
on the likely magnitude of termination decisions.
---------------------------------------------------------------------------

    \16\ Covered Plan clients could direct PIMCO to promptly 
liquidate their portfolio(s) for a variety of reasons, including to 
avoid selling into a distressed market, separating from PIMCO in 
anticipation of mass departure of talent, or termination due to 
breach of QPAM representation. In this circumstance, brokers also 
may have some awareness of PIMCO's liquidation requirements and 
engage in predatory trading, knowing PIMCO is required to sell, 
which could result in wider bid-ask spreads.
---------------------------------------------------------------------------

    42. In the absence of an exemption, PIMCO represents that Covered 
Plans that choose to remain with PIMCO would have a circumscribed set 
of transactions available to them and could be prohibited from engaging 
in certain transactions that would be beneficial, such as hedging 
transactions using over-the-counter options or derivatives. 
Counterparties to such transactions are far more comfortable with the 
QPAM Exemption than any other existing exemption, and the 
unavailability of the QPAM Exemption could trigger a default or early 
termination. Even if other exemptions were acceptable to such 
counterparties, the cost of the transaction might well increase to 
reflect any lack of comfort.
    43. The PIMCO Affiliated QPAMs also have entered, and could in the 
future enter, into contracts for other transactions such as swaps, 
forwards, real estate financing and leasing on behalf of their ERISA 
clients. The Applicant represents that: (a) these and other strategies 
and investments require the PIMCO Affiliated QPAMs to meet the 
conditions of the QPAM Exemption; (b) the loss of the QPAM Exemption 
could disrupt the plans using each of these strategies, as 
counterparties to those transactions could seek to terminate their 
contracts, resulting in significant losses to their Covered Plan 
clients; and (c) certain derivatives transactions and other contractual 
agreements automatically and immediately could be terminated, without 
notice or action, or could become subject to termination upon notice 
from a counterparty in the event the Applicant no longer qualifies for 
relief under the QPAM Exemption.
    44. The question of which applicable exemption can be used is 
entirely in the discretion of the counterparty; if the counterparty is 
uncomfortable with the risks presented by other exemptions, it will 
simply terminate the ongoing transaction based on the plan's default 
(considered to occur if its investment manager is no longer able to use 
the QPAM Exemption). While PIMCO could argue that other exemptions 
apply, whether to accept that exemption is the decision of the 
counterparty, and the strongest counterparties generally will take the 
smallest legal risk on exemptive relief. Because the Department has 
never issued any guidance on the applicability of other exemptions to 
cleared and over-the-counter swaps, PIMCO's Covered Plan clients could 
be at a disadvantage with respect to those transactions.
    45. PIMCO represents that the cost of terminating an investment is 
the difference between the bid and ask on the instrument since, 
generally, these investments are terminated earlier than contemplated 
and on the counterparty's side of the market. Some investments, 
however, are more liquid than others (e.g., Treasury bonds generally 
are more liquid than foreign sovereign bonds, and equities generally 
are more liquid than swaps). Some of the strategies followed by the 
PIMCO Affiliated QPAMs tend to be less liquid than certain other 
strategies and, thus, the cost of a transition would be significantly 
higher than, for example, liquidating a large cap equity portfolio. The 
Applicant believes that, depending on the strategy, the cost of 
liquidating assets in connection with transitioning clients to another 
manager could be significant.
    The Applicant estimates that Covered Plan clients following a core 
bond strategy would be materially impacted if the PIMCO Affiliated 
QPAMs were required to liquidate assets on an expedited basis. In this 
scenario, the Applicant estimates that a core bond strategy could incur 
liquidation costs of approximately 15 to 45 basis points, assuming 
normal market conditions, and approximately 90 to 215 basis points in 
stressed market conditions.
    46. The Applicant represents that substantial transaction costs 
would be incurred if plan investors decided to withdraw from funds that 
are not deemed to hold plan assets. Regarding private funds that do not 
hold ERISA plan assets, but which may decide to redeem if the PIMCO 
Affiliated QPAMs are no longer able to rely on the QPAM Exemption, 
those redemptions would be harmful for the redeeming plans and could 
adversely affect others in the private fund as well.

Overall

----------------------------------------------------------------------------------------------------------------
                                                                               BPS loss            BPS loss
           Instrument                 Total AUM         Loss  (orderly)       (stressed)          (expedited)
----------------------------------------------------------------------------------------------------------------
Cash Bonds.....................  $170.35B...........  16.21 bps.........  41.70 bps.........  166.80 bps.
(451 Plans)....................                       $276.14 mm........  $710.36 mm........  $2.84B.
Cleared Swaps..................  $133.31B...........  0.41 bps..........  0.90 bps..........  3.61 bps.
(318 Plans)....................                       $5.50 mm..........  $12.04 mm.........  $48.06 mm.
Other Derivatives (365 Plans)..  $151.74B...........  0.38 bps..........  1.07 bps..........  4.27 bps.
                                                      $5.71 mm..........  $16.20 mm.........  $64.8 mm.
----------------------------------------------------------------------------------------------------------------


[[Page 18340]]

Representative Plan Account With AUM of $3.33B:

----------------------------------------------------------------------------------------------------------------
             Instrument                    Loss  (orderly)        BPS loss  (stressed)    BPS loss  (expedited)
----------------------------------------------------------------------------------------------------------------
Cash Bonds..........................  22.5 bps................  58.2 bps...............  232.84 bps.
                                      $7.514 mm...............  $19.435 mm.............  $77.743 mm.
Cleared Swaps.......................  0.6 bps.................  1.4 bps................  5.47 bps.
                                      $204,793................  $456,722...............  $1.826 mm.
Other Derivatives...................  0.2 bps.................  1.07 bps...............  1.89 bps.
                                      $63,513.................  $157,570...............  $630,279.
----------------------------------------------------------------------------------------------------------------

    Partial Liquidation: PIMCO states that it is also possible that 
certain Covered Plan accounts would merely direct PIMCO to cease using 
derivatives, in which case PIMCO represents that their portfolios would 
need to be repositioned to align the portfolio with the plan's 
objectives. While PIMCO acknowledges that it does not have the ability 
to make a more precise estimate of the probability that their clients 
would seek to use other managers, it represents that the inability to 
rely on the QPAM exemption in connection with certain derivatives 
would, among other things, inhibit PIMCO's ability to manage a 
portfolio consistent with a Plan client's objectives and therefore it 
is possible and, in many cases, likely that such clients would seek to 
use other managers. There would be certain transaction costs associated 
with liquidating the derivative positions and separately reinvesting 
the cash into bonds to reposition the portfolio. Using the 
representative portfolio above, the chart below reflects PIMCO's best 
estimates for liquidating the derivative positions and reinvesting the 
portfolio in cash bonds. For purposes of this estimate, PIMCO assumed 
that the repositioning must occur on an expedited timeline. 
Additionally, although not reflected below there would likely be 
heightened transaction costs in order to maintain and adjust the 
positioning of the portfolio over time due to PIMCO's inability to use 
derivatives.

------------------------------------------------------------------------
                                       Bps loss             $ loss
           Instrument                (expedited)          (expedited)
------------------------------------------------------------------------
Cash bond reinvestment.........  50 bps.............  $16.7 mm.
Cleared Swaps..................  5.47 bps...........  $1.826 mm.
Other Derivatives..............  1.89 bps...........  $630,279.
------------------------------------------------------------------------

Proposed Exemption's Protective Conditions

    47. The Department may grant administrative exemptions under ERISA 
Section 408(a) only if it finds that such exemptions are 
administratively feasible, and protective of, and in the interest of, 
affected Covered Plans. This proposed exemption contains several 
protective conditions that would allow Covered Plans to continue to 
utilize the services of the PIMCO Affiliated and Related QPAMs.
    48. If this proposed exemption is granted as proposed, it would 
allow Covered Plans to avoid costs and disruption to investment 
strategies the Applicant represents could arise if such Covered Plans 
are forced, on short notice, to hire a different QPAM or asset manager 
because the PIMCO Affiliated and Related QPAMs are no longer able to 
rely on the relief provided by PTE 84-14. Covered Plan fiduciaries 
however are cautioned that the Department's decision to propose this 
exemption should not be taken, in any way, as an indication that PIMCO 
asset managers will be granted exemptive relief in connection with this 
proposal or receive additional exemptive relief in the future.
    49. The Department notes that PIMCO's high level of independence 
from AGI US is critically important to this exemption, and the relief 
hereunder is premised on the Applicant's representations that PIMCO was 
completely isolated from, and unaware of, the Misconduct perpetrated 
within AGI US and the Structured Products Group. It is a material 
condition of this exemption that the PIMCO Affiliated and Related QPAMs 
(including their officers, directors, agents, and employees of such 
QPAMs), other than Gregoire Tournant, Trevor Taylor, and Stephen Bond-
Nelson, did not know or have reason to know of, and did not participate 
in the Misconduct that is the subject of the AGI US Conviction.
    Further, no other party engaged on behalf of the PIMCO Affiliated 
QPAMs or the PIMCO Related QPAMs who was responsible for or exercised 
authority in connection with the management of plan assets knew or had 
reason to know of the Misconduct that is the subject of the AGI US 
Conviction nor participated in such Misconduct.
    50. The protective conditions in this proposed exemption include a 
requirement that the PIMCO Affiliated QPAMs do not currently and may 
not in the future employ or knowingly engage any of the individuals who 
participated in the Misconduct that is the subject of the AGI US 
Conviction.
    51. This proposed exemption prohibits a PIMCO Affiliated QPAM from 
using its authority or influence to direct an ``investment fund'' (as 
defined in Section VI(b) of PTE 84-14) that is subject to ERISA or the 
Code to enter into any transaction with AGI US, or to engage AGI US to 
provide any service to such investment fund, regardless of whether such 
transaction or service may otherwise be within the scope of relief 
provided by an administrative or statutory exemption. Further, other 
than with respect to employee benefit plans maintained or sponsored for 
its own employees or the employees of an affiliate, AGI US may not act 
as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or 
(iii), or Code Section 4975(e)(3)(A) and (C), with respect to Covered 
Plan assets.
    52. This proposed exemption requires each PIMCO Affiliated QPAM to 
develop, maintain, and adjust, to the extent necessary, implement, and 
follow written policies and procedures (the Policies) that are 
reasonably designed to ensure that: (a) the asset management decisions 
of the PIMCO Affiliated QPAMs are conducted independently of AGI US's 
corporate management and business activities; (b) the PIMCO Affiliated 
QPAMs fully comply with ERISA's fiduciary duties and with ERISA's and 
the Code's prohibited transaction provisions; (c) the PIMCO Affiliated 
QPAMs do not knowingly participate in any other person's violation of 
ERISA or the Code with respect to Covered Plans; (d) any filings or 
statements made by the PIMCO Affiliated QPAMs to regulators on behalf 
of, or in relation to, Covered Plans are materially accurate and 
complete; (e) the PIMCO Affiliated QPAMs do not make material 
misrepresentations or omit material

[[Page 18341]]

information in their communications with such regulators, or in their 
communications with Covered Plans; and (f) that the PIMCO Affiliated 
QPAMs comply with the terms of this proposed exemption, if granted.
    53. This proposed exemption requires each PIMCO Affiliated QPAM to 
develop, implement and maintain a training program (the Training) that 
is conducted at least annually for all relevant asset/portfolio 
management, trading, legal, compliance, and internal audit personnel. 
This required Training must, at a minimum, cover the Policies, ERISA 
and Code compliance, ethical conduct, the consequences for not 
complying with the conditions described in this proposed exemption, and 
the requirement for prompt reporting of wrongdoing.
    54. This proposed exemption requires that each PIMCO Affiliated 
QPAM submit to biennial audits conducted by an independent auditor to 
evaluate the adequacy of and the PIMCO Affiliated QPAM's compliance 
with the Policies and Training required by the exemption. The 
independent auditor must be prudently selected and have appropriate 
technical training and proficiency with ERISA and the Code to perform 
the tasks required by the exemption. Further, the PIMCO Affiliated 
QPAMs must grant the auditor unconditional access to their business, 
and the auditor's engagement must specifically require the auditor to 
test each PIMCO Affiliated QPAM's operational compliance with the 
Policies and Training.
    55. The independent auditor must issue a written audit report (the 
Audit Report) to PIMCO and the PIMCO Affiliated QPAM to which the audit 
applies describing the procedures performed by the auditor in 
connection with its examination. Further, the PIMCO Affiliated QPAMs 
must promptly address any identified instance of noncompliance and must 
promptly address, or prepare a written plan of action to address, any 
determination as to the adequacy of the Policies and Training and the 
auditor's recommendations, if any, with respect to strengthening the 
Policies and Training of the respective PIMCO Affiliated QPAM.
    56. This proposed exemption further requires the general counsel or 
one of the three most senior executive officers of the PIMCO Affiliated 
QPAM to which the Audit Report applies to certify in writing and under 
penalty of perjury that the officer has reviewed the Audit Report and 
the exemption, if granted, and that the PIMCO Affiliated QPAM has 
addressed, corrected, and remedied (or has an appropriate written plan 
to address) any identified instance of noncompliance or inadequacy 
regarding the Policies and Training identified in the Audit Report.
    57. With respect to any arrangement, agreement, or contract between 
a PIMCO Affiliated QPAM and a Covered Plan, this proposed exemption 
requires the PIMCO Affiliated QPAMs to agree and warrant to: (a) comply 
with ERISA and the Code, including the standards of prudence and 
loyalty set forth in ERISA Section 404; (b) refrain from engaging in 
prohibited transactions that are not otherwise exempt; (c) indemnify 
and hold harmless the Covered Plan for any actual losses resulting 
directly from, among other things, the PIMCO Affiliated QPAM's 
violation of ERISA's fiduciary duties; (d) with narrow exceptions, not 
restrict the ability of the Covered Plan to terminate or withdraw from 
its arrangement with the PIMCO Affiliated QPAM with respect to any 
investment in a separately managed account or pooled fund subject to 
ERISA and managed by such QPAM; (e) with narrow exceptions, not impose 
any fees, penalties, or charges for such termination or withdrawal; and 
(f) not include exculpatory provisions disclaiming or otherwise 
limiting the liability of the PIMCO Affiliated QPAM for a violation of 
such agreement's terms.
    58. Each PIMCO Affiliated QPAM must further provide a notice of its 
obligations under this proposed exemption to each Covered Plan and each 
PIMCO Affiliated QPAM also must provide a Federal Register copy of the 
notice of the exemption, a separate summary describing the facts that 
led to the AGI US Conviction (the Summary), and a prominently displayed 
statement (the Statement) that the AGI US Conviction results in a 
failure to meet a condition in PTE 84-14 to each sponsor and beneficial 
owner of a Covered Plan.
    59. Finally, this proposed exemption requires PIMCO to designate a 
senior compliance officer (the Compliance Officer) who will be 
responsible for the PIMCO Affiliated QPAMs' compliance with the 
Policies and Training requirements described in this exemption. The 
Compliance Officer must conduct five separate reviews covering each of 
the five consecutive twelve-month periods that comprise the Exemption 
Period (the Exemption Review). With respect to each Exemption Review, 
the Compliance Officer must determine the adequacy and effectiveness of 
the implementation of the Policies and Training and must issue a 
written report (the Exemption Report) summarizing their findings.

Statutory Findings

    60. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant would satisfy the statutory requirements for an 
exemption under ERISA Section 408(a).
    61. The Proposed Exemption is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible since, among other things, a qualified 
independent auditor will be required to perform an in-depth audit 
covering each PIMCO Affiliated QPAM's compliance with the terms of the 
exemption, and a corresponding written audit report will be provided to 
the Department and be made available to the public. The Department 
notes that the independent audit will provide an incentive for 
compliance while reducing the immediate need for review and oversight 
by the Department.
    62. The Proposed Exemption is ``In the Interest of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interests of the participants and beneficiaries of affected Covered 
Plans. It is the Department's understanding, based on representations 
from the Applicant, that if the requested exemption is denied, Covered 
Plans may be forced to find other managers at a potentially significant 
cost. According to the Applicant, ineligibility under Section I(g) of 
the QPAM Exemption would deprive the Covered Plans of the investment 
management services that these plans expected to receive when they 
appointed the PIMCO Affiliated QPAMs and could result in the 
termination of relationships that the fiduciaries of the Covered Plans 
have determined to be in the best interests of those plans.
    63. The Proposed Exemption is ``Protective of the Plan.'' The 
Department has tentatively determined that the proposed exemption is 
protective of the interests of the participants and beneficiaries of 
affected Covered Plans. As described above, the proposed exemption is 
subject to a suite of conditions that include, but are not limited to: 
(a) the development and maintenance of the Policies; (b) the 
development and implementation of the Training; (c) a robust audit 
conducted by a qualified independent auditor; (d) the provision of 
certain agreements and warranties to Covered Plans by the PIMCO 
Affiliated QPAMs; (e) specific notices and disclosures to Covered Plans 
concerning the circumstances

[[Page 18342]]

necessitating the need for exemptive relief and the PIMCO Affiliated 
QPAMs' obligations under this exemption; and (f) the designation of a 
Compliance Officer who must ensure that the PIMCO Affiliated QPAMs 
continue to comply with the Policies and Training requirements of this 
exemption.
Summary
    64. This exemption, if granted, will provide relief from certain of 
the restrictions set forth in ERISA Section 406 and Code Section 
4975(c)(1). No relief or waiver of a violation of any other law is 
provided by the exemption. The relief in this proposed exemption would 
terminate immediately if, among other things, an affiliate of PIMCO's 
(as defined in Section VI(d) of PTE 84-14) is convicted of a crime 
described in Section I(g) of PTE 84-14 (other than the AGI US 
Conviction) during the Exemption Period. While PIMCO could request a 
new exemption in that event, the Department would not be obligated to 
grant the request. Consistent with this proposed exemption, the 
Department's consideration of additional exemptive relief is subject to 
the findings required under ERISA Section 408(a) and Code Section 
4975(c)(2).67.
    65. When interpreting and implementing this exemption, the 
Applicant and the PIMCO Affiliated QPAMs should resolve any ambiguities 
by considering the exemption's protective purposes. To the extent 
additional clarification is necessary, these persons or entities should 
contact EBSA's Office of Exemption Determinations, at 202-693-8540.
    66. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant would satisfy the statutory requirements for an 
individual exemption under ERISA Section 408(a) and Code Section 
4975(c)(2).

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons within fifteen (15) days of the publication of the notice of 
proposed five-year exemption in the Federal Register. The notice will 
be provided to all interested persons in the manner approved by the 
Department and will contain the documents described therein and a 
supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2). 
The supplemental statement will inform interested persons of their 
right to comment on and to request a hearing with respect to the 
pending exemption. All written comments and/or requests for a hearing 
must be received by the Department within forty-five (45) days of the 
date of publication of this proposed five-year exemption in the Federal 
Register. All comments will be made available to the public.
    Warning: If you submit a comment, EBSA recommends that you include 
your name and other contact information in the body of your comment, 
but DO NOT submit information that you consider to be confidential, or 
otherwise protected (such as Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under ERISA Section 408(a) and/or Code Section 4975(c)(2) does not 
relieve a fiduciary or other party in interest or disqualified person 
from certain other provisions of ERISA and/or the Code, including any 
prohibited transaction provisions to which the exemption does not apply 
and the general fiduciary responsibility provisions of ERISA Section 
404, which, among other things, require a fiduciary to discharge their 
duties respecting the plan solely in the interest of the participants 
and beneficiaries of the plan and in a prudent fashion in accordance 
with ERISA Section 404(a)(1)(B); nor does it affect the requirement of 
Code Section 401(a) that the plan must operate for the exclusive 
benefit of the employees of the employer maintaining the plan and their 
beneficiaries;
    (2) Before an exemption may be granted under ERISA Section 408(a) 
and/or Code Section 4975(c)(2), the Department must find that the 
exemption is administratively feasible, in the interests of the plan 
and of its participants and beneficiaries, and protective of the rights 
of participants and beneficiaries of the plan;
    (3) The proposed exemption would be supplemental to, and not in 
derogation of, any other provisions of ERISA and/or the Code, including 
statutory or administrative exemptions and transitional rules. 
Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is, in fact, a prohibited transaction; and
    (4) The proposed exemption would be subject to the express 
condition that the material facts and representations contained in the 
application are true and complete at all times and that the application 
accurately describes all material terms of the transactions which are 
the subject of the exemption.
    (5) The Department notes that all of the material facts and 
representations set forth in the Summary of Facts and Representations 
must be true and accurate at all times, and that the relief provided 
herein is conditioned upon the veracity of all material representations 
made by the Applicant.

Proposed Exemption

    The Department is considering granting a five-year exemption under 
the authority of ERISA Section 408(a) and Internal Revenue Code (or 
Code) section 4975(c)(2), and in accordance with the exemption 
procedures regulation.\17\ Effective December 31, 1978, section 102 of 
Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred 
the authority of the Secretary of the Treasury to issue exemptions of 
the type requested by the Applicant to the Secretary of Labor. 
Therefore, this notice of proposed exemption is issued solely by the 
Department.
---------------------------------------------------------------------------

    \17\ 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 
27, 2011). For purposes of this proposed five-year exemption, 
references to ERISA section 406, unless otherwise specified, should 
be read to refer as well to the corresponding provisions of Code 
section 4975.
---------------------------------------------------------------------------

Section I. Definitions

    (a) The term ``AGI US'' means Allianz Global Investors U.S. LLC.
    (b) The term ``AGI US Conviction'' means the judgment of conviction 
against AGI US for one count of securities fraud in violation of Title 
15, United States Code, Sections 78j(b) and 78ff, Title 17, Code of 
Federal Regulations, Section 240.10b-5, and Title 18, United States 
Code, Section 2, entered in the District Court for the US District 
Court Southern District of New York (the District Court) case number 
1:22-cr-00279-CM.
    (c) The term ``Covered Plan'' means a plan subject to Part IV of 
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to Code 
section 4975 (an ``IRA''), in each case, with respect to which a PIMCO 
Affiliated QPAM or a PIMCO Related QPAM relies on PTE 84-14, or with 
respect to which a PIMCO Affiliated QPAM (or any PIMCO affiliate) has 
expressly represented that the manager qualifies as a QPAM or relies on 
the QPAM class exemption (PTE 84-14 or the QPAM Exemption).\18\

[[Page 18343]]

A Covered Plan does not include an ERISA-covered plan or IRA to the 
extent the PIMCO Affiliated QPAM or the PIMCO Related QPAM has 
expressly disclaimed reliance on QPAM status or PTE 84-14 in entering 
into a contract, arrangement, or agreement with the ERISA-covered plan 
or IRA.
---------------------------------------------------------------------------

    \18\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430, 
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as 
amended at 75 FR 38837 (July 6, 2010).
---------------------------------------------------------------------------

    (d) The term ``Exemption Period'' means May 17, 2023, through May 
16, 2028.
    (e) The term ``Misconduct'' means the conduct described in the 
Statement of Facts in case number 1:22-cr-00279-CM which indicated that 
beginning in at least 2014 and continuing through March 2020, AGI US 
engaged in a scheme to defraud investors in a series of private 
investment funds (the Structured Alpha Funds) that at their height had 
over $11 billion in assets under management.
    (f) The term ``PIMCO'' means Pacific Investment Management Company 
LLC.
    (g) The term ``PIMCO Affiliated QPAM'' means a ``qualified 
professional asset manager,'' as defined in Section VI(a) of PTE 84-14, 
that relies on the relief provided by PTE 84-14 or represents to ERISA-
covered plans and/or IRAs that it qualifies as a QPAM, and with respect 
to which PIMCO is a current or future ``affiliate'' (as defined in 
Section VI(d)(1) of PTE 84-14). For the purposes of this exemption, the 
term ``PIMCO Affiliated QPAMs'' does not include AGI US, or entities 
that are under the control of AGI US. The term only includes entities 
that are 100 percent owned, directly or indirectly, by PIMCO.
    (h) The term ``PIMCO Related QPAM'' means any current or future 
``qualified professional asset manager'' (as defined in section VI(a) 
of PTE 84-14) that relies on the relief provided by PTE 84-14, and with 
respect to which PIMCO owns a direct or indirect five percent or more 
interest, but with respect to which PIMCO is not an ``affiliate'' (as 
defined in Section VI(d)(1) of PTE 84-14).

Section II. Covered Transactions

    The PIMCO Affiliated QPAMs, as defined in Section I(g), and the 
PIMCO Related QPAMs, as defined in Section I(h), will not be precluded 
from relying on the exemptive relief provided by the QPAM Exemption 
during the Exemption Period, notwithstanding the AGI US Convictions (as 
defined in Section I(a)) if the conditions in Section III are 
satisfied.

Section III. Conditions

    (a) The PIMCO Affiliated QPAMs and the PIMCO Related QPAMs 
(including their officers, directors, agents other than AGI US, and 
employees of such QPAMs) did not know or have reason to know of and did 
not participate in the Misconduct that is the subject of the AGI US 
Conviction. Further, any other party engaged on behalf of the PIMCO 
Affiliated QPAMs and PIMCO Related QPAMs who had responsibility for, or 
exercised authority in connection with the management of plan assets 
did not know nor have reason to know of and did not participate in the 
Misconduct that is the subject of the AGI Conviction. For purposes of 
this proposed exemption, ``participate in'' refers not only to active 
participation in the Misconduct of AGI US that is the subject of the 
AGI US Conviction, but also to knowing approval of the Misconduct, or 
knowledge of such Misconduct without taking active steps to stop it, 
including reporting the Misconduct to the individual's supervisors and 
to the Board of Directors.
    (b) The PIMCO Affiliated QPAMs and the PIMCO Related QPAMs 
(including their officers, directors, and agents other than AGI US, and 
employees of such PIMCO QPAMs who had responsibility for, or exercised 
authority in connection with the management of plan assets) did not 
receive direct compensation or knowingly receive indirect compensation 
in connection with the Misconduct that is the subject of the AGI US 
Conviction. Further, any other party engaged on behalf of the PIMCO 
Affiliated QPAMs and the PIMCO Related QPAMs who had responsibility for 
or exercised authority in connection with the management of plan assets 
did not receive direct compensation nor knowingly receive indirect 
compensation in connection with the Misconduct that is the subject of 
the AGI US Conviction;
    (c) The PIMCO Affiliated QPAMs do not currently and will not in the 
future employ or knowingly engage any of the individuals who 
participated in any of the Misconduct, or any individual who was 
employed in AGI US's Structured Products Group from January 1, 2014, 
through March 31, 2020;
    (d) At all times during the Exemption Period, no PIMCO Affiliated 
QPAM will use its authority or influence to direct an ``investment 
fund'' (as defined in Section VI(b) of PTE 84-14) that is subject to 
ERISA or the Code and managed by such PIMCO Affiliated QPAM in reliance 
on PTE 84-14 or with respect to which a PIMCO Affiliated QPAM has 
expressly represented to an ERISA-covered plan or IRA with assets 
invested in such ``investment fund'' that it qualifies as a QPAM or 
relies on the QPAM class exemption, to enter into any transaction with 
AGI US or to engage AGI US to provide any service to such investment 
fund for a direct or indirect fee borne by such investment fund 
regardless of whether such transaction or service may otherwise be 
within the scope of relief provided by an administrative or statutory 
exemption;
    (e) Any failure of a PIMCO Affiliated QPAM or a PIMCO Related QPAM 
to satisfy Section I(g) of PTE 84-14 arose solely from the AGI US 
Conviction;
    (f) A PIMCO Affiliated QPAM or a PIMCO Related QPAM did not 
exercise authority over the assets of any plan subject to Part 4 of 
Title I of ERISA (an ERISA-covered plan) or Code Section 4975 (an IRA) 
in a manner that it knew or should have known would: (i) further the 
Misconduct that is the subject of the AGI US Conviction; or (ii) cause 
the PIMCO Affiliated QPAM, the PIMCO Related QPAM, or their affiliates 
to directly or indirectly profit from the Misconduct that is the 
subject of the AGI US Conviction;
    (g) Other than with respect to employee benefit plans maintained or 
sponsored for its own employees or the employees of an affiliate, AGI 
US will not act as a fiduciary within the meaning of ERISA Section 
3(21)(A)(i) or (iii) or Code Section 4975(e)(3)(A) and (C) with respect 
to ERISA-covered plan and IRA assets; provided, however, that PIMCO 
will not be treated as violating the conditions of this exemption 
solely because AGI US acted as an investment advice fiduciary within 
the meaning of ERISA Section 3(21)(A)(ii) or Code Section 
4975(e)(3)(B);
    (h)(1) Within 180 calendar days of the effective date of this five-
year exemption, each PIMCO Affiliated QPAM must immediately develop, 
maintain, implement, and follow written policies and procedures (the 
Policies) that must require, and be reasonably designed to ensure that:
    (i) The asset management decisions of the PIMCO Affiliated QPAM are 
conducted independently of the corporate management and business 
activities of AGI US;
    (ii) The PIMCO Affiliated QPAM fully complies with ERISA's 
fiduciary duties and with ERISA and the Code's prohibited transaction 
provisions as applicable with respect to each Covered Plan, and does 
not knowingly participate in any violation of these duties and 
provisions with respect to Covered Plans;
    (iii) The PIMCO Affiliated QPAM does not knowingly participate in 
any other person's violation of ERISA or the Code with respect to 
Covered Plans;
    (iv) Any filings or statements made by the PIMCO Affiliated QPAM to

[[Page 18344]]

regulators, including, but not limited to, the Department, the 
Department of the Treasury, the Department of Justice, and the Pension 
Benefit Guaranty Corporation on behalf of or in relation to Covered 
Plans are materially accurate and complete to the best of such QPAM's 
knowledge at that time;
    (v) To the best of the PIMCO Affiliated QPAM's knowledge at the 
time, the PIMCO Affiliated QPAM does not make material 
misrepresentations or omit material information in its communications 
with such regulators with respect to Covered Plans or make material 
misrepresentations or omit material information in its communications 
with Covered Plans;
    (vi) The PIMCO Affiliated QPAM complies with the terms of this 
exemption; and
    (vii) Any violation of or failure to comply with an item in 
subparagraphs (ii) through (vi), is corrected as soon as reasonably 
possible upon discovery, or as soon after the QPAM reasonably should 
have known of the noncompliance (whichever is earlier), and any such 
violation or compliance failure not so corrected is reported, upon the 
discovery of such failure to so correct, in writing, to the head of 
compliance and the General Counsel (or their functional equivalent) of 
the relevant line of business that engaged in the violation or failure, 
and the independent auditor responsible for reviewing compliance with 
the Policies. A PIMCO Affiliated QPAM will not be treated as having 
failed to develop, implement, maintain, or follow the Policies if it 
corrects any instance of noncompliance as soon as reasonably possible 
upon discovery, or as soon as reasonably possible after the QPAM 
reasonably should have known of the noncompliance (whichever is 
earlier), and if it adheres to the reporting requirements set forth in 
this subparagraph (vii);
    (2) Within 180 calendar days after the effective date of the 
exemption, each PIMCO Affiliated QPAM must develop, maintain, adjust 
(to the extent necessary), and implement a training program during the 
Exemption Period that will be conducted at least annually for all 
relevant PIMCO Affiliated QPAM asset/portfolio management, trading, 
legal, compliance, and internal audit personnel (the Training). The 
Training required under this exemption may be conducted electronically 
and must:
    (i) At a minimum, cover the Policies, ERISA and Code compliance 
(including applicable fiduciary duties and the prohibited transaction 
provisions), ethical conduct, the consequences for not complying with 
the conditions of this exemption (including any loss of exemptive 
relief provided herein), and prompt reporting of wrongdoing; and
    (ii) Be conducted by a professional who has been prudently selected 
and has appropriate technical training and proficiency with ERISA and 
the Code to perform the tasks required by this exemption;
    (iii) Be verified through in-training knowledge checks, 
``graduation'' tests, and/or other technological tools designed to 
confirm that personnel fully and in good faith participate in the 
Training;
    (i)(1) Each PIMCO Affiliated QPAM must submit to an audit conducted 
every two years by an independent auditor who has been prudently 
selected and has appropriate technical training and proficiency with 
ERISA and the Code to evaluate the adequacy of the Policies and 
Training conditions described herein and each PIMCO Affiliated QPAM's 
compliance with them. The audit requirement must be incorporated into 
the Policies. Each audit must cover the preceding consecutive twelve 
(12) month period. The first audit under this exemption must cover the 
period from May 17, 2023, through May 16, 2024, and must be completed 
by November 16, 2024. The second audit must cover the period from May 
17, 2025, through May 16, 2026, and must be completed by November 16, 
2026. The third audit must cover the period from May 17, 2027, through 
May 16, 2028, and must be completed by November 16, 2028.
    (2) Within the scope of the audit and to the extent necessary for 
the auditor, in its sole opinion, to complete its audit and comply with 
the conditions for relief described herein, The PIMCO Affiliated QPAMs 
will grant the auditor unconditional access to their businesses, 
including, but not limited to: its computer systems; business records; 
transactional data; workplace locations; training materials; and 
personnel. Such access will be provided only to the extent that it is 
not prevented by state or federal statute, or involves communications 
subject to attorney client privilege and may be limited to information 
relevant to the auditor's objectives as specified by the terms of this 
exemption;
    (3) The auditor's engagement must specifically require the auditor 
to determine whether each PIMCO Affiliated QPAM has developed, 
implemented, maintained, and followed the Policies in accordance with 
the conditions of this exemption, and has developed and implemented the 
Training as required herein;
    (4) The auditor's engagement must specifically require the auditor 
to test each PIMCO Affiliated QPAM's operational compliance with the 
Policies and Training conditions. In this regard, the auditor must 
test, for each QPAM, a sample of the QPAM's transactions involving 
Covered Plans sufficient in size and nature to afford the auditor a 
reasonable basis to determine the QPAM's operational compliance with 
the Policies and Training conditions;
    (5) For each audit, on or before the end of the relevant period 
described in Section III(i)(1) for completing the audit, the auditor 
must issue a written report (the Audit Report) to PIMCO and the PIMCO 
Affiliated QPAM to which the audit applies that describes the 
procedures performed by the auditor during its examination. The 
auditor, at its discretion, may issue a single consolidated Audit 
Report that covers all the PIMCO Affiliated QPAMs. The Audit Report 
must include the auditor's specific determinations regarding:
    (i) The adequacy of each PIMCO Affiliated QPAM's Policies and 
Training and compliance with the Policies and Training conditions; the 
need, if any, to strengthen such Policies and Training; and any 
instance of the respective PIMCO Affiliated QPAM's noncompliance with 
the written Policies and Training conditions described in Section 
III(h) above. The PIMCO Affiliated QPAM must promptly address any 
identified noncompliance. The PIMCO Affiliated QPAM must also promptly 
address or prepare a written plan of action to address any 
determination by the auditor regarding the adequacy of the Policies and 
Training and the auditor's recommendations (if any) with respect to 
strengthening the PIMCO Affiliated QPAM Policies and Training. Any 
action taken, or the plan of action to be taken, by the respective 
PIMCO Affiliated QPAM must be included in an addendum to the Audit 
Report (and such addendum must be completed prior to the certification 
described in Section III(i)(7) below). In the event such a plan of 
action to address the auditor's recommendation regarding the adequacy 
of the Policies and Training is not completed by the time of submission 
of the Audit Report, the following period's Audit Report must state 
whether the plan was satisfactorily completed. Any determination by the 
auditor that the respective PIMCO Affiliated QPAM has implemented, 
maintained, and followed sufficient Policies and a Training must not be 
based solely or in substantial part on an absence of evidence 
indicating

[[Page 18345]]

noncompliance. In this last regard, any finding that a PIMCO Affiliated 
QPAM has complied with the requirements under this subparagraph must be 
based on evidence that such PIMCO Affiliated QPAM has implemented, 
maintained, and followed the Policies and Training conditions required 
by this exemption. Furthermore, the auditor must not solely rely on the 
Annual Report created by the compliance officer (the Compliance 
Officer), as described in Section III(m) below, as the basis for the 
auditor's conclusions in lieu of independent determinations and testing 
performed by the auditor, as required by Section III(i)(3) and (4) 
above; and
    (ii) The adequacy of the most recent Annual Review described in 
Section III(m);
    (6) The auditor must notify the respective PIMCO Affiliated QPAM of 
any instance of noncompliance identified by the auditor within five (5) 
business days after such noncompliance is identified by the auditor 
regardless of whether the audit has been completed as of that date;
    (7) With respect to each Audit Report, the general counsel or one 
of the three most senior executive officers of PIMCO or the Affiliated 
QPAM with respect to which the Audit Report applies must certify in 
writing and under penalty of perjury that (a) the officer has reviewed 
the Audit Report and this exemption; and (b) the PIMCO Affiliated QPAM 
has addressed, corrected or remedied any instance of noncompliance or 
inadequacy or has an appropriate written plan in place to address any 
instance of noncompliance or inadequacy regarding the Policies and 
Training identified in the Audit Report. The certification must also 
include the signatory's determination that the Policies and Training in 
effect at the time of the certification are adequate to ensure 
compliance with the exemption conditions and with the applicable 
provisions of ERISA and the Code;
    (8) The PIMCO Board of Directors is provided with a copy of each 
Audit Report, and a senior executive officer with a direct reporting 
line to the highest-ranking legal compliance officer of PIMCO must 
review the Audit Report for each PIMCO Affiliated QPAM and certify in 
writing under penalty of perjury that such officer has reviewed the 
Audit Report;
    (9) Each PIMCO Affiliated QPAM provides its certified Audit Report 
by electronic mail to e-oed.gov. This delivery must take place no later 
than thirty (30) days following completion of the Audit Report. This 
delivery must take place no later than thirty (30) calendar days 
following completion of the Audit Report. The Audit Report will be made 
part of the public record regarding this exemption. Furthermore, each 
PIMCO Affiliated QPAM must make its Audit Report unconditionally 
available, electronically or otherwise, for examination upon request by 
any duly authorized employee or representative of the Department, other 
relevant regulators, and any fiduciary of a Covered Plan;
    (10) Each PIMCO Affiliated QPAM and the auditor must submit to OED 
any engagement agreement(s) entered into pursuant to the engagement by 
the auditor under this exemption no later than sixty (60) calendar days 
after the execution of any such engagement agreement;
    (11) The auditor must provide the Department, upon request, for 
inspection and review, access to all the workpapers created and 
utilized during the audit, provided such access and inspection is 
otherwise permitted by law; and
    (12) PIMCO must notify the Department of a change in the 
independent auditor no later than sixty (60) calendar days after the 
engagement of a substitute or subsequent auditor and must provide an 
explanation for the substitution or change including a description of 
any material disputes between the terminated auditor and PIMCO;
    (j) Throughout the Exemption Period, with respect to any 
arrangement, agreement, or contract between a PIMCO Affiliated QPAM and 
a Covered Plan, the PIMCO Affiliated QPAM agrees and warrants:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such Covered Plan; to refrain from engaging in prohibited 
transactions that are not otherwise exempt (and to promptly correct any 
inadvertent prohibited transactions); and to comply with the standards 
of prudence and loyalty set forth in ERISA Section 404, with respect to 
each such ERISA-covered plan and IRA (to the extent that ERISA Section 
404 is applicable);
    (2) To indemnify and hold harmless the Covered Plan for any actual 
losses resulting directly from the PIMCO Affiliated QPAM's violation of 
ERISA's fiduciary duties, as applicable, and of the prohibited 
transaction provisions of ERISA and the Code, as applicable; a breach 
of contract by the QPAM; or any claim arising out of the failure of 
such PIMCO Affiliated QPAM to qualify for the exemptive relief provided 
by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14, 
other than the Conviction. This condition applies only to actual losses 
caused by the PIMCO Affiliated QPAM's violations. Actual losses include 
losses and related costs arising from unwinding transactions with third 
parties and from transitioning Plan assets to an alternative asset 
manager as well as costs associated with any exposure to excise taxes 
under Code Section 4975 because of TTI's inability to rely upon the 
relief in the QPAM Exemption;
    (3) Not to require (or otherwise cause) the Covered Plan to waive, 
limit, or qualify the liability of the PIMCO Affiliated QPAM for 
violating ERISA or the Code or engaging in prohibited transactions;
    (4) Not to restrict the ability of the Covered Plan to terminate or 
withdraw from its arrangement with the PIMCO Affiliated QPAM with 
respect to any investment in a separately managed account or pooled 
fund subject to ERISA and managed by the QPAM, with the exception of 
reasonable restrictions, appropriately disclosed in advance, that are 
specifically designed to ensure equitable treatment of all investors in 
a pooled fund in the event such withdrawal or termination may have 
adverse consequences for all other investors. In connection with any of 
these arrangements involving investments in pooled funds subject to 
ERISA entered into after the initial effective date of this exemption, 
the adverse consequences must relate to a lack of liquidity of the 
underlying assets, valuation issues, or regulatory reasons that prevent 
the fund from promptly redeeming an ERISA-covered plan's or IRA's 
investment, and the restrictions must be applicable to all such 
investors and effective no longer than reasonably necessary to avoid 
the adverse consequences;
    (5) Not to impose any fees, penalties, or charges for such 
termination or withdrawal with the exception of reasonable fees, 
appropriately disclosed in advance, that are specifically designed to 
prevent generally recognized abusive investment practices or 
specifically designed to ensure the equitable treatment of all 
investors in a pooled fund in the event the withdrawal or termination 
may have adverse consequences for all other investors, provided that 
such fees are applied consistently and in like manner to all such 
investors;
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting the liability of the PIMCO Affiliated QPAM for a violation of 
such agreement's terms. To the extent consistent with ERISA Section 
410, however, this provision does not prohibit disclaimers for 
liability caused by an error, misrepresentation, or

[[Page 18346]]

misconduct of a plan fiduciary or other party hired by the plan 
fiduciary who is independent of PIMCO and its affiliates, or damages 
arising from acts outside the control of the PIMCO Affiliated QPAM; and
    (7) (a) Each PIMCO Affiliated QPAM must provide a notice of its 
obligations under this Section III(j) to each sponsor or beneficial 
owner of a Covered Plan which is a client as of the Effective Date by a 
date that is 90 days after the Effective Date. For all other Covered 
Plans that become clients between the Effective Date and a date that is 
120 days after the Effective Date, each sponsor or beneficial owner of 
such Covered Plans must be provided with a notice of the obligations 
under this section by a date that is 180 days after the Effective Date. 
All prospective sponsors and beneficial owners of Covered Plans that 
enter into a written investment management agreement with a PIMCO 
Affiliated QPAM after a date that is 120 days after the Effective Date 
must receive a copy of the notice of the obligations under this Section 
III(j) before, or contemporaneously with, the Covered Plan's receipt of 
a written investment management or comparable agreement from the PIMCO 
Affiliated QPAM. The notices may be delivered electronically (including 
by an email that has a link to a website that contains the documents 
required by this section). Notwithstanding the above, a PIMCO 
Affiliated QPAM will not violate this condition solely because a 
Covered Plan refuses to sign an updated investment management 
agreement.
    (k) Within 90 days after the effective date of this exemption, each 
PIMCO Affiliated QPAM provides notice of the exemption as published in 
the Federal Register, along with a separate summary describing the 
facts that led to the Conviction (the Summary), which has been 
submitted to the Department, and a prominently displayed statement (the 
Statement) that the AGI US Conviction results in a failure to meet a 
condition in the QPAM Exemption to each sponsor or beneficial owner of 
a Covered Plan that has entered into a written investment management 
agreement with a PIMCO Affiliated QPAM, or the sponsor of an investment 
fund in any case where a PIMCO Affiliated QPAM acts as a sub-adviser to 
the investment fund in which such Covered Plan invests. For all other 
Covered Plans that become clients between the Effective Date and a date 
that is 120 days after the Effective Date, each sponsor or beneficial 
owner of such Covered Plans is provided the documents described in this 
Section III(k) by a date that is 180 days after the Effective Date. All 
sponsors or beneficial owners of prospective Covered Plans that enter 
into a written investment management or comparable agreement with a 
PIMCO Affiliated QPAM after a date that is 120 days after the Effective 
Date must receive a copy of the notice of the exemption, the Summary, 
and the Statement before, or contemporaneously with, the Covered Plan's 
receipt of a written investment management agreement from the PIMCO 
Affiliated QPAM. The notices may be delivered electronically (including 
by an email that has a link to a website that contains the documents 
required by this section). Notwithstanding the above, a PIMCO 
Affiliated QPAM will not violate the condition solely because a Covered 
Plan refuses to sign an updated investment management agreement.
    (l) The PIMCO Affiliated QPAM must comply with each condition of 
PTE 84-14, as amended, with the sole exception of the violation of 
Section I(g) of PTE 84-14 that is attributable to the AGI US 
Conviction. If an affiliate of PIMCO's (as defined in Section VI(d) of 
PTE 84-14) is convicted of a crime described in Section I(g) of PTE 84-
14 (other than the Conviction) during the Exemption Period, relief in 
this exemption would terminate immediately;
    (m)(1) Within 60 calendar days after the effective date of this 
exemption, each PIMCO Affiliated QPAM must designate a senior 
compliance officer (the Compliance Officer) who will be responsible for 
compliance with the Policies and Training requirements described 
herein. Notwithstanding the above, no person, including any person 
referenced in the Statement of Facts underlying the AGI US Conviction, 
who knew of, or should have known of, or participated in, any of the 
Misconduct, by any party, may be involved with the designation or 
responsibilities required by this condition, unless the person took 
active documented steps to stop the Misconduct. The Compliance Officer 
must conduct a review of each twelve-month period of the Exemption 
Period (the Exemption Review), to determine the adequacy and 
effectiveness of the implementation of the Policies and Training. The 
following conditions must be met with respect to the Compliance 
Officer:
    (i) The Compliance Officer must be a professional who has extensive 
experience with, and knowledge of, the regulation of financial services 
and products, including under ERISA and the Code; and
    (ii) The Compliance Officer must have a direct reporting line to 
the highest-ranking corporate officer in charge of compliance for the 
applicable PIMCO Affiliated QPAM.
    (2) With respect to the Exemption Review, the following conditions 
must be met:
    (i) The annual Exemption Review includes a review by the Compliance 
Officer of: (A) the PIMCO Affiliated QPAM's compliance with and 
effectiveness of the Policies and Training; (B) any compliance matter 
related to the Policies or Training that was identified by, or reported 
to, the Compliance Officer or others within the compliance and risk 
control function (or its equivalent) during the previous year; (C) the 
most recent Audit Report issued pursuant to this exemption; (D) any 
material change in the relevant business activities of the PIMCO 
Affiliated QPAMs; and (E) any change to ERISA, the Code, or regulations 
related to fiduciary duties and the prohibited transaction provisions 
that may be applicable to the activities of the PIMCO Affiliated QPAMs;
    (ii) The Compliance Officer must prepare a written report for the 
Exemption Review (an Exemption Report) that: (A) summarizes the 
Compliance Officer's material activities during the prior year; (B) 
sets forth any instance of noncompliance discovered during the prior 
year, and any related corrective action; (C) details any change to the 
Policies or Training to guard against any similar instance of 
noncompliance occurring again; and (D) makes recommendations, as 
necessary, for additional training, procedures, monitoring, or 
additional and/or changed processes or systems, and management's 
actions on such recommendations;
    (iii) In the Exemption Report, the Compliance Officer must certify 
in writing that to the best of their knowledge at the time: (A) the 
report is accurate; (B) the Policies and Training are working in a 
manner that is reasonably designed to ensure that the Policies and 
Training requirements described herein are met; (C) any known instance 
of noncompliance during the prior year and any related corrections 
taken to date have been identified in the Exemption Report; and (D) the 
PIMCO Affiliated QPAMs have complied with the Policies and Training, 
and/or corrected (or are correcting) any known instances of 
noncompliance in accordance with Section III(h) above;
    (iv) The Exemption Report must be provided to appropriate corporate 
officers of PIMCO and each PIMCO Affiliated QPAM to which such report 
relates, the head of compliance and the general counsel (or their 
functional equivalent) of the relevant PIMCO

[[Page 18347]]

Affiliated QPAM. The Exemption Report also must be made unconditionally 
available to the independent auditor described in Section III(i) above;
    (v) The annual Exemption Review, including the Compliance Officer's 
written Report, must be completed within 90 calendar days following the 
end of the period to which it relates. The annual Exemption Reviews 
under this exemption must cover the following periods: May 17, 2023, 
through May 16, 2024; May 17, 2024, through May 16, 2025; May 17, 2025, 
through May 16, 2026; May 17, 2026, through May 16, 2027; May 17, 2027, 
through May 16, 2028.
    (n) AGI US complies in all material respects with the requirements 
imposed by a U.S. regulatory authority in connection with the AGI US 
Conviction;
    (o) Each PIMCO Affiliated QPAM will maintain records necessary to 
demonstrate that the conditions of this exemption have been met for six 
(6) years following the date of any transaction for which the PIMCO 
Affiliated QPAM relies upon the relief in this exemption;
    (p) During the Exemption Period, PIMCO must: (1) immediately 
disclose to the Department any Deferred Prosecution Agreement (a DPA) 
or Non-Prosecution Agreement (an NPA) with the U.S. Department of 
Justice, entered into by PIMCO or any of its affiliates (as defined in 
Section VI(d) of PTE 84-14) in connection with the conduct described in 
Section I(g) of PTE 84-14 or ERISA Section 411; and (2) immediately 
provide any information requested by the Department, as permitted by 
law, regarding the agreement and/or conduct and allegations that led to 
the agreement;
    (q) Within 60 calendar days after the effective date of this 
exemption, each PIMCO Affiliated QPAM, in its agreements with, or in 
other written disclosures provided to Covered Plans, will clearly and 
prominently inform Covered Plan clients of their right to obtain a copy 
of the Policies or a description (Summary Policies) which accurately 
summarizes key components of the PIMCO Affiliated QPAM's written 
Policies developed in connection with this exemption. If the Policies 
are thereafter changed, each Covered Plan client must receive a new 
disclosure within 180 calendar days following the end of the calendar 
year during which the Policies were changed.\19\ With respect to this 
requirement, the description may be continuously maintained on a 
website, provided that such website link to the Policies or Summary 
Policies is clearly and prominently disclosed to each Covered Plan;
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    \19\ If the Applicant meets this disclosure requirement through 
Summary Policies, changes to the Policies shall not result in the 
requirement for a new disclosure unless, as a result of changes to 
the Policies, the Summary Policies are no longer accurate.
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    (r) A PIMCO Affiliated QPAM will not fail to meet the conditions of 
this exemption solely because a different PIMCO Affiliated QPAM fails 
to satisfy a condition for relief described in Sections III(c), (d), 
(h), (i), (j), (k), (l), (o) or (q); or if the independent auditor 
described in Section III(i) fails to comply with a provision of the 
exemption other than the requirement described in Section III(i)(11), 
provided that such failure did not result from any actions or inactions 
of PIMCO or its affiliates; and
    (s) All the material facts and representations set forth in the 
Summary of Facts and Representations are true and accurate at all 
times.
    (t) With respect to an asset manager that becomes a PIMCO 
Affiliated QPAM after the effective date of this exemption by virtue of 
being acquired (in whole or in part) by PIMCO or a subsidiary of PIMCO 
(a ``newly-acquired PIMCO Affiliated QPAM''), the newly-acquired PIMCO 
Affiliated QPAM would not be precluded from relying on the exemptive 
relief provided by PTE 84-14 notwithstanding the Conviction as of the 
closing date for the acquisition; however, the operative terms of the 
exemption shall not apply to the newly-acquired PIMCO Affiliated QPAM 
until a date that is six (6) months after the closing date for the 
acquisition. To that end, the newly-acquired PIMCO Affiliated QPAM will 
initially submit to an audit pursuant to Section III(i) of this 
exemption as of the first audit period that begins following the 
closing date for the acquisition. However, the first audit to which a 
newly-acquired QPAM submits may require the auditor to look back into 
the previous year for that particular QPAM. This will be the case where 
the interval between the acquisition date and the beginning of the next 
audit period is greater than 6 months.
    Exemption dates: If granted, the exemption will be in effect for a 
period of five years beginning on May 17, 2023, and ending on May 16, 
2028.

    Signed at Washington, DC, this 22nd day of March, 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-06346 Filed 3-24-23; 4:15 pm]
BILLING CODE 4510-29-P