[Federal Register Volume 89, Number 65 (Wednesday, April 3, 2024)]
[Rules and Regulations]
[Pages 23090-23144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06059]



[[Page 23089]]

Vol. 89

Wednesday,

No. 65

April 3, 2024

Part II





Department of Labor





-----------------------------------------------------------------------





Employee Benefits Security Administration





-----------------------------------------------------------------------





29 CFR Part 2550





Amendment to Prohibited Transaction Class Exemption 84-14 for 
Transactions Determined by Independent Qualified Professional Asset 
Managers (the QPAM Exemption); Final Rule

  Federal Register / Vol. 89, No. 65 / Wednesday, April 3, 2024 / Rules 
and Regulations  

[[Page 23090]]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application No. D-12022]
Z-RIN 1210 ZA07


Amendment to Prohibited Transaction Class Exemption 84-14 for 
Transactions Determined by Independent Qualified Professional Asset 
Managers (the QPAM Exemption)

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Final amendment to class exemption.

-----------------------------------------------------------------------

SUMMARY: This document gives notice of a granted amendment to 
prohibited transaction class exemption 84-14 (the QPAM Exemption). The 
QPAM Exemption provides relief from certain prohibited transaction 
restrictions of Title I of the Employee Retirement Income Security Act 
of 1974, as amended (ERISA) and Title II of ERISA, as codified in the 
Internal Revenue Code of 1986, as amended (the Code).

DATES: The amendment is effective June 17, 2024.

FOR FURTHER INFORMATION CONTACT: Brian Mica, telephone (202) 693-8540, 
Office of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor (this is not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

Background

    Title I of ERISA broadly prohibits transactions between plans and 
any ``party in interest''--who, in general, are people or entities 
closely connected to ERISA-covered employee benefit plans as defined in 
ERISA section 3(3). Title II of ERISA, codified in the Code, includes 
parallel prohibitions applicable to ``disqualified persons'' \1\ who, 
in general, are persons or entities closely connected to plans \2\ as 
defined in Code section 4975(e)(1).
---------------------------------------------------------------------------

    \1\ The term ``disqualified person'' is defined in Code Section 
4975(e)(2) and is similar to definition of the term ``party in 
interest'' codified in ERISA section 3(14). All references to 
``party in interest'' in this Preamble and the QPAM exemption 
include ``disqualified person.''
    \2\ For purposes of the exemption that term ``Plans'' includes 
plans and Individual Retirement Accounts (IRAs) described in Code 
section 4975(e)(1) and ERISA-covered employee benefit plans 
described in ERISA section 3(3) (referred to as ``Plans,'' and 
``IRAs'' herein). Although the Department is using the same 
definition of ``plan'' in the final amendment that previously 
existed in the QPAM Exemption, the Department is finalizing a 
ministerial change which will capitalize this term when referring to 
plans impacted by the amendment.
---------------------------------------------------------------------------

    Absent an exemption, ERISA section 406(a)(1)(A) through (D) and 
Code section 4975(c)(1)(A) through (D) prohibit, among other things, 
sales, leases, loans, and the provision of services between these 
parties. Congress enacted these prohibitions to protect plans, their 
participants and beneficiaries, and IRA owners \3\ from the potential 
for abuse that arises when plans and IRAs engage in transactions with 
closely connected parties.
---------------------------------------------------------------------------

    \3\ For purposes of this Final Amendment, the term ``IRA owner'' 
refers to the individual for whom an IRA (as defined in the Final 
Amendment) is established.
---------------------------------------------------------------------------

    The Department grants this exemption, which was proposed on its own 
motion, pursuant to its authority under ERISA section 408(a) and Code 
section 4975(c)(2).\4\ As required by ERISA section 408(a) and Code 
section 4975(c)(2), the Department finds that the exemption is 
administratively feasible, in the interests of Plans and their 
participants and beneficiaries and protective of the rights of 
participants and beneficiaries of Plans and IRA owners.
---------------------------------------------------------------------------

    \4\ The exemption also is granted in accordance with procedures 
set forth in 29 CFR part 2570, subpart B (76 FR 66637 (October 27, 
2011)). Please note that effective December 31, 1978, section 102 of 
Reorganization Plan No. 4 of 1978, 5 U.S.C. App. (2018), transferred 
the authority of the Secretary of the Treasury to issue exemptions 
to the Secretary of Labor. Therefore, this notice of amendment to 
the QPAM Exemption is issued solely by the Department.
---------------------------------------------------------------------------

    The QPAM Exemption permits an investment fund \5\ holding assets of 
Plans and IRAs that is managed by a ``qualified professional asset 
manager'' (QPAM) to engage in transactions with a ``party in interest'' 
or ``disqualified person'' to Plans or an IRAs, subject to protective 
conditions.\6\ This amendment modifies Section I(g) of the exemption, a 
provision under which a QPAM may become ineligible to rely on the QPAM 
Exemption for a period of 10 years if the QPAM, various affiliates, or 
certain owners of the QPAM are convicted of certain crimes. As 
discussed in detail below, this amendment: (1) requires a QPAM to 
provide a one-time notice to the Department that the QPAM is relying 
upon the exemption; (2) updates the list of crimes enumerated in the 
prior version of Section I(g) to explicitly include foreign crimes that 
are substantially equivalent to the listed crimes; (3) expands the 
circumstances that may lead to ineligibility; and (4) provides a one-
year winding down (transition) period to help Plans and IRAs avoid or 
minimize possible negative impacts of terminating or switching QPAMs or 
adjusting asset management arrangements when a QPAM becomes ineligible 
pursuant to Section I(g), and gives QPAMs a reasonable period to seek 
an individual exemption, if appropriate.\7\
---------------------------------------------------------------------------

    \5\ For purposes of the QPAM Exemption, an investment fund 
includes single customer and pooled separate accounts maintained by 
an insurance company, individual trusts, and common, collective, or 
group trusts maintained by a bank, and any other account or fund 
subject to the discretionary authority of the QPAM. See Section 
VI(b) of the QPAM Exemption.
    \6\ Class Exemption for Plan Asset Transactions Determined by 
Independent Qualified Professional Asset Managers, 49 FR 9494 (Mar. 
13, 1984) as corrected at 50 FR 41430 (Oct. 10, 1985), as amended at 
66 FR 54541 (Oct. 29, 2001), 70 FR 49305 (Aug. 23, 2005), and 75 FR 
38837 (July 6, 2010).
    \7\ As further discussed below, the Department has substituted 
the term ``transition period'' for the term ``winding-down period'' 
that it used in the proposed amendment. The terms have the same 
meaning.
---------------------------------------------------------------------------

    This amendment also: (1) provides clarifying updates to Section 
I(c) regarding a QPAM's authority over investment decisions; (2) 
adjusts the asset management and equity thresholds in the QPAM 
definition in Section VI(a); and (3) adds a new recordkeeping provision 
in Section VI(u). The amendment will affect participants and 
beneficiaries of Plans, IRA owners, the sponsoring employers of such 
Plans or IRAs (if applicable) and other plan sponsors, QPAMs, and 
counterparties engaging in transactions covered under the QPAM 
Exemption.

Background of the QPAM Exemption

    In 1984, the Department published the QPAM Exemption, which permits 
an investment fund managed by a QPAM to engage in a broad range of 
transactions with parties in interest with respect to a Plan, subject 
to protective conditions. The Department developed and granted the QPAM 
Exemption based on the premise that it could provide broad exemptive 
relief from the prohibitions of ERISA section 406(a)(1)(A) through (D) 
and Code section 4975(c)(1)(A) through (D) for transactions in which a 
Plan engages with a Party in Interest only if the commitments and 
investments of Plan assets and the negotiations leading thereto are the 
sole responsibility of an independent investment manager.
    Section I of the QPAM Exemption (the General Exemption) \8\ 
provides broad

[[Page 23091]]

prohibited transaction relief for a QPAM-managed Investment Fund to 
engage in transactions with a Party in Interest, but it does not 
include relief for the QPAM to engage in any transactions involving its 
own self-dealing or conflicts of interest or kickbacks, which are 
prohibited under ERISA section 406(b)(1) through (3) and 4975(c)(1)(E) 
and (F). This important limitation on the relief in the QPAM Exemption 
serves as a key protection for Plans that are affected by the 
exemption. The QPAM Exemption also includes conditions designed to 
ensure that the QPAM does not engage in transactions with a Party in 
Interest that has the power to influence the QPAM's decision-making 
processes. Additionally, QPAMs remain subject to the fiduciary duties 
of prudence and undivided loyalty set forth in ERISA section 404 with 
respect to their client Plans.
---------------------------------------------------------------------------

    \8\ The Department proposed a ministerial change to replace 
``Part'' with ``Section'' in the QPAM Exemption. For consistency, 
the Department is using only the term ``Section'' throughout this 
preamble. The Department also proposed a ministerial change to 
capitalize defined terms in the QPAM Exemption and is using those 
capitalized terms throughout this preamble as they are being 
finalized in this amendment.
---------------------------------------------------------------------------

    The General Exemption covers many different types of transactions. 
For example, the exemption provides relief for a QPAM to use fund 
assets to purchase an asset from certain Parties in Interest \9\ to a 
Plan that is invested in the fund. The General Exemption also 
facilitates much more complex transactions, such as when a QPAM designs 
a fund to replicate the return of certain commodities indices by 
investing in futures, structured notes, total return swaps, and other 
derivatives where a Party in Interest to a Plan that invested in the 
fund is involved in the transaction.\10\ In addition to the General 
Exemption, the QPAM Exemption also contains ``Specific Exemptions'' in 
Sections II, III, and IV, which the Department is not modifying in this 
amendment.
---------------------------------------------------------------------------

    \9\ The plural form has the same meaning as the singular defined 
term ``Party in Interest.''
    \10\ See e.g., Notice of Proposed Exemption involving Credit 
Suisse AG, 79 FR 52365, 52367 (Sept. 3, 2014).
---------------------------------------------------------------------------

    When it proposed the QPAM Exemption in 1982, the Department 
expressly indicated that any entity acting as a QPAM, and those who are 
in a position to influence the QPAM's policies, are expected to 
maintain a high standard of integrity.\11\ Accordingly, the exemption 
includes Section I(g), which provides that a QPAM is ineligible to rely 
on the exemption for a period of 10 years if the QPAM, various 
affiliates, or owners of a five (5) percent or more interest in the 
QPAM are convicted of certain crimes. Ineligibility begins as of the 
date of the judgment of the trial court, regardless of whether the 
judgment remains under appeal.
---------------------------------------------------------------------------

    \11\ Proposed Class Exemption for Plan Asset Transactions 
Determined by Independent Qualified Professional Asset Managers, 47 
FR 56945, 56947 (Dec. 21, 1982).
---------------------------------------------------------------------------

The Qualified Professional Asset Manager

    A QPAM is defined as a bank, savings and loan association, 
insurance company, or registered investment adviser that meets 
specified asset and equity thresholds set forth in the exemption and 
acknowledges in a Written Management Agreement that it is a fiduciary 
with respect to each of its client Plans. The Department noted in the 
1982 proposed exemption that these categories of asset managers are 
subject to regulation by federal or state agencies and expressed the 
view that large financial services institutions would be able to 
withstand improper influence from Parties in Interest (i.e., maintain 
independence).\12\ As a general matter, the Department's position 
continues to be that transactions entered into on behalf of Plans with 
a Party in Interest are most likely to conform to ERISA's general 
fiduciary standards when the decision to enter into the transaction is 
made by an independent fiduciary.
---------------------------------------------------------------------------

    \12\ Id. at 56947.
---------------------------------------------------------------------------

    The QPAM's independence and discretionary control over asset 
management decisions protect Plans from the danger that a Party in 
Interest will exercise improper influence over decision-making 
regarding Plan assets. The QPAM acts as a fundamental protection 
against the possibility that Parties in Interest could otherwise favor 
their own competing financial interests at the expense of Plans, their 
participants and beneficiaries, and IRA owners. Because the Department 
relies upon the QPAM as a key protection against such improper conduct 
and the threat posed by conflicts of interest, it is critically 
important that the QPAM, and those who are in a position to influence 
its policies, maintain a high standard of integrity. QPAMs must have 
the authority to make decisions on a discretionary basis without direct 
oversight for each transaction by other Plan fiduciaries. Given the 
scope of their discretion, it is imperative that the QPAM, its 
Affiliates, and certain owners avoid engaging in criminal conduct and 
other serious misconduct that would jeopardize Plan assets or call into 
question the Department's reliance on the QPAM's oversight as a key 
safeguard for Plan participants and beneficiaries and IRA owners.

Purpose and Approach for the Final Amendment

    Substantial changes have occurred in the financial services 
industry since the Department granted the QPAM Exemption in 1984. These 
changes include industry consolidation and an increasingly global reach 
for financial services institutions, both in their affiliations and 
their investment strategies, including those for Plan assets. In the 
years since 1984, the Department has repeatedly considered applications 
for individual exemptions in connection with convictions for crimes 
causing ineligibility under Section I(g). Through processing these 
applications, the Department has gained extensive experience analyzing 
QPAMs' failures to comply with Section I(g) of the QPAM Exemption as a 
result of corporate convictions in domestic and foreign jurisdictions. 
This experience has affirmed the Department's position that an 
ineligibility condition tied to criminal convictions provides necessary 
protection to Plans, their participants and beneficiaries, and IRA 
owners.
    In practice, Section I(g) has effectively required QPAMs that 
become ineligible to seek an individual exemption to continue their 
reliance on the QPAM Exemption. Since 2013, the Department has received 
an increasing number of individual exemption requests involving Section 
I(g) ineligibility due to criminal convictions occurring within the 
corporate family of large financial institutions. To ensure that these 
exemptions are protective of Plans and participants and beneficiaries 
and in their interests as required by ERISA section 408(a) and Code 
section 4975(c)(2), the Department has required applicants to fully and 
accurately disclose: (1) the criminal conduct that led to their 
ineligibility, including whether the QPAM was involved; (2) the 
specific reasons they should be permitted to continue acting as a QPAM 
notwithstanding the criminal conduct; (3) the efforts they have 
undertaken to promote a culture of compliance in their corporate 
family; and (4) the steps they will take in the future to ensure Plans, 
their participants and beneficiaries, and IRA owners are protected. In 
these individual QPAM exemptions, the Department included additional 
protections, such as a comprehensive independent compliance audit and 
allowing client Plans to withdraw from their asset management 
arrangements with the ineligible QPAM without penalty. These exemptions 
have also required the QPAM to indemnify or hold their client Plans 
harmless in the event that the QPAM, or an Affiliate, or

[[Page 23092]]

owner of a five (5) percent or more interest engages in future 
misconduct.
    Exemption applicants have consistently represented to the 
Department that Plan investors would be harmed if a QPAM abruptly loses 
exemptive relief as of the conviction date, as dictated by Section 
I(g). Although Section I(g) ineligibility does not bar a QPAM from 
acting as a discretionary asset manager for Plan assets after a 
conviction, applicants have informed the Department that the loss of 
exemptive relief under the QPAM Exemption has the potential to disrupt 
Plan investments and investment strategies, especially for transactions 
involving Plan counterparties that also are relying upon the relief 
provided in the QPAM Exemption.\13\ According to these applicants, 
Plans may also experience transition costs if a Plan fiduciary needs to 
find an alternative asset manager on short notice after a QPAM becomes 
ineligible.
---------------------------------------------------------------------------

    \13\ See e.g., Notice of Proposed Exemption involving JP Morgan 
Chase & Co., 81 FR 83372, 83363 (Nov. 21, 2016).
---------------------------------------------------------------------------

    To protect Plans against the immediate disruption and costs caused 
by their QPAMs losing eligibility immediately upon conviction, the 
Department has granted several one-year temporary individual exemptions 
to QPAMs facing ineligibility. These individual exemptions provided the 
Department with sufficient time to engage in a more intensive review of 
information submitted by the applicants to determine whether a longer-
term individual exemption was warranted to provide extended relief at 
the end of the one-year period.\14\ Moreover, since 2013, both the one-
year and longer-term exemptions have provided Plans with the important 
opportunity to exit from their asset management arrangements with a 
QPAM without the imposition of certain fees, penalties, or charges.
---------------------------------------------------------------------------

    \14\ In such cases, the Department requires prominent notice be 
provided to client Plans along with additional protective conditions 
to ensure Plan assets are protected while longer-term prohibited 
transaction relief is considered.
---------------------------------------------------------------------------

Regulatory Administrative Record for the Proposed Amendment

    The developments discussed above prompted the Department to propose 
the amendment to the QPAM Exemption on July 27, 2022, with an initial 
60-day comment period that was set to expire on September 26, 2022 (the 
Proposed Amendment).\15\ After the Department published the Proposed 
Amendment, it received two letters requesting an extension of the 
comment period.\16\ The Department responded to the requests by 
extending the initial comment period for an additional 15 days until 
October 11, 2022, in a Federal Register Notice published on September 
7, 2022,\17\ and received 31 comment letters during this initial 
extended comment period.
---------------------------------------------------------------------------

    \15\ 87 FR 45204.
    \16\ See Public Comment #1 from American Bankers Association et 
al. and Public Comment #2 from American Retirement Association. The 
extension requests can be accessed here: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07/.
    \17\ 87 FR 54715.
---------------------------------------------------------------------------

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA), 
the Acting Assistant Secretary of the Employee Benefits Security 
Administration (EBSA) certified that the Proposed Amendment would not 
have a significant economic impact on a substantial number of small 
entities. After consulting with the Small Business Administration's 
Office of Advocacy (SBA), however, the Department decided to publish a 
Supplementary Initial Regulatory Flexibility Analysis (IRFA) that 
explained the Proposed Amendment's potential impact on small 
entities.\18\ The Department requested comments on the IRFA by October 
11, 2022, the same deadline as the extended comment period for the 
Proposed Amendment.
---------------------------------------------------------------------------

    \18\ 87 FR 56912 (Sep. 16, 2022).
---------------------------------------------------------------------------

    In the September 7, 2022, Federal Register notice, the Department 
announced that it would hold a virtual public hearing on its own motion 
on November 17, 2022 (and if necessary, on November 18, 2022), to 
provide an opportunity for all interested parties to testify on 
material information and issues regarding the Proposed Amendment.\19\ 
The Department received 13 requests to testify at the hearing. The 
notice also indicated the Department would: (1) reopen the public 
comment period from the hearing date until approximately 14 days after 
the Department publishes the hearing transcript on EBSA's website; and 
(2) publish a Federal Register notice announcing that the Department 
posted the hearing transcript to EBSA's website and providing the 
closing date for the reopened comment period.
---------------------------------------------------------------------------

    \19\ 87 FR 54715.
---------------------------------------------------------------------------

    The Department held the virtual public hearing on November 17, 
2022, and reopened the comment period on the hearing date.\20\ The 
reopened comment period closed on January 6, 2023, and the Department 
received 150 additional comments.\21\
---------------------------------------------------------------------------

    \20\ The hearing did not continue on November 18, 2022, because 
the Department was able to schedule all witnesses that requested to 
testify on one day.
    \21\ See https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07.
---------------------------------------------------------------------------

    On March 23, 2023, the Department reopened the Proposed Amendment's 
comment period again because it understood that at least one interested 
party may have had additional information to provide the Department 
that was not submitted by the January 6, 2023 comment period 
deadline.\22\ The reopened comment period provided an opportunity for 
all interested parties to submit additional information until April 6, 
2023, and the Department received seven comments during this reopened 
comment period.\23\
---------------------------------------------------------------------------

    \22\ 88 FR 17466.
    \23\ See https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07.
---------------------------------------------------------------------------

    The rulemaking process has provided the Department with a robust 
administrative record. After careful consideration of the approximately 
200 comments received during the public comment periods and testimony 
presented at the public hearing, the Department is finalizing the 
Proposed Amendment (the Final Amendment), with the revisions discussed 
below.

Section I(g)--Reporting to the Department, Written Management 
Agreement, and Ineligibility

    Reporting to the Department--Note: This Requirement has been moved 
from Subsection I(g)(1) of the Proposed Amendment to Section I(k) of 
this Final Amendment.
    The Proposed Amendment would have required each QPAM that relies 
upon the exemption to report its legal name (and any name the QPAM may 
be operating under) by email to the Department at [email protected].\24\ The 
Department proposed that the QPAM would need to provide this 
notification to the Department only once unless the legal or operating 
name(s) of the QPAM relying upon the exemption was changed. The 
Department also indicated its intent to maintain a current list of 
entities relying upon the QPAM Exemption on its publicly available 
website.
---------------------------------------------------------------------------

    \24\ For instance, assume a corporate family is comprised of 
legal entities named: Corporate Parent A, Investment Manager B, 
Broker-Dealer C, Retail Bank D, and Institutional Bank E (doing 
business as InstiBank). Investment Manager B and Institutional Bank 
E are the only entities acting as QPAMs. Investment Manager B would 
notify the Department that it is acting as a QPAM and its legal name 
is Investment Manager B. Institutional Bank E would notify the 
Department that it is acting as a QPAM and its legal name is 
Institutional Bank E, but it is doing business as InstiBank.

---------------------------------------------------------------------------

[[Page 23093]]

    The Department received a variety of comments on this proposed 
reporting requirement. Some commenters opposed the requirement in part 
because no other prohibited transaction exemption requires 
``registration'' or a listing on a publicly available website. 
Commenters also indicated that the publication of a list of QPAMs on 
the Department's website has the potential to mislead Plan participants 
and beneficiaries and IRA owners into thinking that a manager's 
inclusion or exclusion signifies whether the Department has endorsed 
its eligibility to rely on the exemption.
    After considering these comments, the Department is finalizing the 
notice provision with the modifications discussed below. The notice 
requirement provides the Department with knowledge of the investment 
managers that are relying on the exemption and will serve as an 
important reminder to investment managers relying on the QPAM Exemption 
that the ``QPAM'' title and status are tied to an administrative 
prohibited transaction exemption that requires compliance with the 
exemption's conditions.
    With respect to publishing the list on its website, the Department 
has significant experience publicly posting information in a manner 
that is not misleading. Additionally, the Department notes that a wide 
variety of information regarding investment advisers, including 
disciplinary violations, currently is publicly available through 
BrokerCheck.\25\ The importance of having this information publicly 
available to provide Plan fiduciaries and participants and 
beneficiaries, and IRA owners with the ability to know whether their 
investment managers (or potential managers) are relying on the QPAM 
Exemption outweighs any harm that could occur if the information were 
misleading.
---------------------------------------------------------------------------

    \25\ BrokerCheck is an online tool provided by FINRA that 
provides information regarding brokers and investment advisers such 
as employment history, certifications, licenses, and any violations. 
https://brokercheck.finra.org/.
---------------------------------------------------------------------------

    Commenters also noted that it is important for the Department to 
ensure that it has appropriate resources to maintain the list of QPAMs 
and keep it current. The Department appreciates this concern. Although 
there will likely be an initial wave of QPAMs reporting to the 
Department, the Department anticipates that minimal resources will be 
necessary to keep an updated list over the long-term.
    Commenters also expressed concern that a QPAM could easily overlook 
the requirement to update the Department when it changes its legal or 
trade name, which could lead it to commit a series of inadvertent 
prohibited transactions that would only end when the QPAM reports its 
updated name to the Department. Related to this concern, commenters 
also requested the Department clarify that an inadvertent failure to 
report would not be considered Prohibited Misconduct \26\ or otherwise 
jeopardize a manager's ability to rely on the QPAM Exemption.
---------------------------------------------------------------------------

    \26\ Prohibited Misconduct was defined in proposed Section 
VI(s). See below for additional discussion of comments regarding the 
Proposed and Final Amendment definition.
---------------------------------------------------------------------------

    The Department did not intend for the reporting requirement to 
create compliance issues for QPAMs that could jeopardize the 
availability of the prohibited transaction relief in the QPAM 
Exemption. Therefore, to avoid inadvertent failures during the period 
immediately after an entity begins relying on the QPAM Exemption or 
changes its name, the Department has revised the proposed provision to 
provide QPAMs with an initial 90-day period to report to the Department 
and an additional 90-day period to cure inadvertent failures to report. 
If the QPAM fails to report within the initial 90-day period, it must 
submit an explanation during the 90-day cure period for why it failed 
to provide timely notice. If, at the end of the 180 days, a QPAM still 
has failed to report, or has not provided the required explanation, the 
exemption will not be available for transactions that occur until the 
failure is fully cured. Furthermore, the Department confirms that an 
isolated instance of failing to report generally would not be 
considered Prohibited Misconduct that would result in ineligibility 
under Section I(g)(1)(B).
    Several commenters also indicated that the Proposed Amendment did 
not appear to provide any mechanism for an entity to ``de-register'' 
after it initially reports to the Department. In response to this 
comment, the Department added new language to the end of Section I(k) 
(Subsection I(g)(1) of the Proposed Amendment) to allow an entity that 
reported to the Department to notify the Department that it no longer 
is relying on the exemption. After the Department receives this notice, 
it will remove the entity from its list of QPAMs that are relying on 
the QPAM Exemption.
    Another commenter recommended that if the Department is seeking a 
list of entities operating as QPAMs, the Department could assign a new 
separate identifying code to QPAMs that would be used to report the 
QPAMs' services to a Plan on Schedule C of the Form 5500. While the 
Department appreciates this comment and suggestion, modifying the Form 
5500 is not part of this amendment, and the Department's objective 
would not be met using the current Form 5500 for this purpose.
    Finally, a proponent of the requirement noted that the Department 
cannot effectively monitor QPAM compliance if it cannot even identify 
QPAMs or estimate the number and amount of assets managed by QPAMs. The 
Department notes that in addition to assisting the Department in 
monitoring compliance, the reporting requirement will ensure the 
Department has better information regarding the number of QPAMs that 
are relying on the exemption, which will provide important data the 
Department can use to estimate impacts if it considers future 
amendments to the exemption. Therefore, the Department has retained 
this requirement in the Final Amendment because it is important for 
firms that are relying on the exemption to provide identifying 
information to the Department and for such firms to establish a 
compliance framework that is sufficient to ensure that they can always 
satisfy the exemption's conditions.

Written Management Agreement (WMA)--Proposed Subsection I(g)(2) 
27
---------------------------------------------------------------------------

    \27\ Subsection I(g) of the Proposed Amendment has been 
renumbered and the requirements in Proposed Section I(g)(2) are now 
contained in Section I(i) in this Final Amendment.
---------------------------------------------------------------------------

    As previously stated in this preamble, the fundamental premise of 
Section I(g) has always been for a QPAM and those in a position to 
control or influence its policies to act with integrity. The Proposed 
Amendment included a new requirement for all QPAMs to update their WMAs 
to include a provision that in the event the QPAM, its Affiliate, or 
five percent or more owners engage in conduct resulting in a Criminal 
Conviction or Participation In Prohibited Misconduct, the QPAM would 
not restrict its client Plans' ability to terminate or withdraw from 
their arrangement with the QPAM.\28\ The proposed requirement also 
would have prevented QPAMs from imposing certain fees, penalties, or 
charges on client Plans in connection with terminating or withdrawing 
from a QPAM-managed Investment Fund.\29\

[[Page 23094]]

Finally, the Proposed Amendment would have required QPAMs to include a 
provision in their WMAs that they would indemnify, hold harmless, and 
promptly restore actual losses to each client Plan for any damages 
directly resulting from a violation of applicable laws, a breach of 
contract, or any claim arising out of the failure of such QPAM to 
remain eligible for relief under the QPAM Exemption as a result of 
conduct that leads to a Criminal Conviction or Participation in 
Prohibited Misconduct.
---------------------------------------------------------------------------

    \28\ The terms ``Criminal Conviction'' and ``Prohibited 
Misconduct'' are discussed in more detail below.
    \29\ This would not apply to reasonable fees, appropriately 
disclosed in advance, that are specifically designed to prevent 
generally recognized abusive investment practices or 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 would be excepted. If such 
fees, penalties, or charges occur, they must be applied consistently 
and in a like manner to all such investors.
---------------------------------------------------------------------------

    Many commenters expressed concerns with these proposed WMA 
provisions. They were particularly opposed to the WMA condition being 
imposed on all QPAMs immediately upon the effective date of the 
provision, and not only those QPAMs who become ineligible under Section 
I(g).\30\ Other commenters indicated that these WMA provisions should 
simply be imposed as conditions that are not required to be included in 
contracts or as contractual guarantees.
---------------------------------------------------------------------------

    \30\ Many commenters used terms such as ``disqualified'' or 
``disqualification'' in their comment letters to describe 
ineligibility under Section I(g). The Department has used the terms 
``ineligibility'' and ``ineligible'' throughout this preamble for 
consistency with the heading for Section I(g) in this Final 
Amendment and to avoid confusion that the term ``disqualified'' 
indicates that the definition of ``qualified professional asset 
manager'' is not satisfied.
---------------------------------------------------------------------------

    Many commenters indicated that the process to update WMAs is 
difficult and complicated and would take much longer to comply with 
than the Department's proposed 60-day effective date. Some commenters 
indicated that at least 18 months would be required to come into 
compliance, and that the amendment process would be very costly. These 
commenters noted that even if a manager made only the required 
amendments to its WMA, such amendments typically would require investor 
consent, including consent by non-Plan investors who might be adversely 
affected by the changes. Additionally, if QPAMs were required to 
include a new indemnification clause in their WMA, commenters indicated 
that QPAMs would likely also need to update and revise their agreements 
with many other parties to address the same contingencies that 
necessitate the new indemnifications and other required changes for 
their client Plans. Finally, some commenters suggested that if the 
Department requires QPAMs to include these provisions in their WMAs, 
the requirement should apply only to contracts that are executed or 
materially modified after the effective date of the Final Amendment.
    After carefully considering these comments, the Department has 
decided to remove the requirement for all QPAMs to revise their WMAs. 
Instead, the Department has moved the condition into the Transition 
Period provision of this Final Amendment. This modification means that 
after the effective date of the Final Amendment, only QPAMs that become 
ineligible to rely on the exemption will have to comply with the 
indemnification and penalty-free withdrawal provisions. As a result, 
the Final Amendment's Transition Period provision will operate in a 
similar manner to recent Section I(g) individual exemptions granted by 
the Department, which have imposed indemnification and penalty-free 
withdrawal requirements on QPAMs only after they become ineligible 
under Section I(g).
    The Final Amendment indicates that any QPAM that experiences a 
Section I(g) triggering event must provide client Plans with a One-Year 
Transition Period and comply with the associated conditions that are 
discussed below. In this Final Amendment, the Department made some 
minor non-substantive adjustments to the language in the Proposed 
Amendment regarding the prohibited transaction relief available and 
obligations of the QPAM during the Transition Period. The Final 
Amendment indicates that relief under the exemption during the 
Transition Period is available for a maximum period of one year after 
the Ineligibility Date if the QPAM complies with each condition of the 
exemption throughout the one-year period. No relief will be available 
for any transactions (including past transactions) effected during the 
One-Year Transition Period unless the QPAM complies with each condition 
of the exemption during such one-year period.
    A few commenters opined that the requirement that the QPAM agree 
not to restrict a Plan's ability to withdraw from an Investment Fund 
that invests in illiquid assets such as a private equity or real estate 
fund, may present additional challenges and harm Plans' investment 
returns. The Department understands the additional challenges 
associated with funds that are less liquid. However, as noted in the 
Proposed Amendment, a QPAM that faces ineligibility may seek 
supplemental individual exemption relief from the Department. As also 
noted in the Proposed Amendment, an applicant may request a more 
limited scope of relief for a supplemental individual exemption that 
captures only those transactions that present liquidity problems. The 
individual exemption process is best suited for addressing those 
concerns and the Department stresses the importance of submitting an 
individual exemption application as soon as possible after a QPAM 
learns that a Section I(g) triggering event is expected to occur. 
Applying promptly is not only consistent with the QPAM's fiduciary 
obligations, but also helps ensure that the Department has sufficient 
time to review the exemption application before the end of the One-Year 
Transition Period.
    Some commenters maintained that QPAMs should not have to indemnify 
and restore losses beyond what is already required under ERISA because 
ERISA already provides sufficient protections for Plans to recover 
losses. The Department disagrees. Until now, the exemption lacked 
additional safeguards to ensure Plans and IRA owners are not exposed to 
substantial collateral costs that result from criminal or other 
misconduct that is beyond their control. When QPAMs breached their 
obligations and faced the loss of QPAM status, they commonly argued 
that the Department should grant relief, notwithstanding their 
misconduct, lest the Plans and IRA owners sustained the collateral 
costs and injury associated with the loss of QPAM status. The express 
obligation to indemnify and restore losses caused by the QPAM's own 
misconduct mitigates this danger and prevents Plans from being locked 
into disadvantageous relationships with firms that have proved unable 
or unwilling to meet the exemption's conditions.
    Commenters also indicated that client Plans and QPAMs should be 
allowed to negotiate indemnification because liability and 
indemnification provisions are often already in place, which are 
intended to protect Plans if a non-exempt prohibited transaction or 
breach of fiduciary duty occurs. The Department is concerned that all 
client Plans do not have the same bargaining leverage to negotiate the 
type of indemnification provisions included in the Final Amendment. 
Moreover, such commenters did not provide any specific examples of the 
types of indemnification provisions that may

[[Page 23095]]

already be included in their agreements with Plan customers. 
Nevertheless, the Department's modification in the Final Amendment to 
limit the WMA requirements to the Transition Period should mitigate 
this concern because the requirement will only be imposed upon entities 
experiencing an event that triggers Section I(g).
    Some commenters focused on the term ``actual losses'' and argued 
that this standard should not include the costs for Plans to transition 
to an alternative asset manager because such costs are not normally 
paid for by a terminated manager. The Department believes that this 
argument is misplaced. Whether a cost is normally paid for by a 
terminated manager is not determinative of whether the Department 
should include a provision in the Final Amendment to protect Plans as 
mandated by ERISA section 408(a) and Code section 4975(c)(2). When an 
asset manager becomes ineligible to rely upon the relief provided in 
the QPAM Exemption due to a violation of Section I(g), which is outside 
the control of the client Plan, it is appropriate for the wrongdoer to 
bear the associated costs.
    Commenters also noted the ambiguity regarding the full range of 
costs that are required to be indemnified. Relatedly, commenters 
indicated that asset managers will be unable to insure against such 
losses. They argued that it is very difficult, if not impossible, to 
quantify ``investment losses resulting from foregone investment 
opportunities'' for a variety of reasons, including the type of 
investment manager, the ebbs and flows of investment needs and 
opportunities, and the costs or needs of a replacement manager.
    The Department acknowledges that there is uncertainty regarding the 
full range of such costs, but notes that it has consistently imposed 
these indemnification and loss restoration obligations in recent 
individual exemptions following violations of Section I(g), and that 
the affected firms have nevertheless chosen to continue acting as QPAMs 
after receiving relief from the Department. Commenters have provided no 
evidence that the condition has resulted in the imposition of 
unwarranted costs upon Plans or QPAMs, or that there had been any 
significant adverse impacts stemming from imposition of the condition 
in the context of individual exemptions. Nor have they provided any 
compelling evidence suggesting that the costs caused by further 
breaches after felony convictions, or the associated uncertainties, are 
better borne by the affected Plans than by the QPAMs. In the 
Department's view, it is wholly appropriate that the QPAM, rather than 
the Plan, sustain the costs stemming from the QPAM's failure to meet 
the exemption's conditions or violations of the law. Moreover, by 
limiting the WMA requirements to the Transition Period provisions in 
the Final Amendment, the Department sharply reduces the scope of the 
QPAM's potential liability and the need to determine possible costs up 
front. As noted above, this Final Amendment simply adopts the same 
overall approach to Section I(g) ineligibility that has been a core 
component of the Department's recently granted Section I(g) individual 
exemptions.\31\
---------------------------------------------------------------------------

    \31\ See e.g., Exemption From Certain Prohibited Transaction 
Restrictions Involving Pacific Investment Management Company LLC, 88 
FR 42953 (July, 5, 2023); Exemption for Certain Prohibited 
Transaction Restrictions Involving Citigroup, Inc., 88 FR 4023 (Jan. 
23, 2023); Exemption for Certain Prohibited Transaction Restrictions 
Involving DWS Investment Management Americas, Inc. (DIMA or the 
Applicant) and Certain Current and Future Asset Management 
Affiliates of Deutsche Bank AG, 86 FR 20410 (April 18, 2021).
---------------------------------------------------------------------------

    One commenter also noted that the WMA requirement in subsection 
I(g)(2)(C) of the Proposed Amendment referenced Code section 4975 
excise taxes. The commenter indicated that since the indemnification 
runs to the Plan and a Plan is not liable for excise taxes, this 
provision does not make sense. After considering this comment, the 
Department has retained the reference to the excise taxes. This 
provision is intended to ensure that a QPAM does not impose costs or 
fees on a Plan in connection with excise taxes incurred by the QPAM.
    Finally, a commenter argued that the provision should not cover 
non-prosecution agreements (NPAs), deferred prosecution agreements 
(DPAs), or any other ineligibility trigger captured within the 
definition of Prohibited Misconduct. As discussed below, the Department 
has modified the scope of NPAs and DPAs captured within the definition 
of Prohibited Misconduct. The Department believes that conduct severe 
enough to warrant an NPA or DPA should trigger the same conditions as 
Criminal Convictions. Therefore, while the Final Amendment reflects the 
modified scope of the NPAs and DPAs that are affected, the Department 
declines to remove this protection as it applies to NPAs and DPAs 
covered under the Final Amendment.

Types of Misconduct and Entities That Cause Ineligibility--Proposed 
Subsection I(g)(3) 32 and Sections VI(r) and VI(s)
---------------------------------------------------------------------------

    \32\ Subsection I(g)(3) of the Proposed Amendment has been 
renumbered as Subsection I(g)(1) of the Final Amendment.
---------------------------------------------------------------------------

Criminal Convictions

    Since 1984 when the QPAM Exemption was initially granted, Section 
I(g) ineligibility has captured convictions of QPAMs, their Affiliates, 
and five percent or more owners of the QPAM. As noted above, because 
the Department relies upon the QPAM as a key protection in the 
exemption, it is critically important that the QPAM, and those who are 
positioned to influence its policies, maintain a high standard of 
integrity. QPAMs, affiliates, and related parties that engage in 
serious criminal misconduct do not display the requisite standard of 
integrity expected of such entities under the exemption.
    While the Department did not propose any changes to the scope of 
entities captured by Section I(g),\33\ some comments focused on the 
breadth of Section I(g), including the proposed expansion of Section 
I(g) to capture the Participation In Prohibited Misconduct by a QPAM, 
its Affiliates, or its owners of a five (5) percent or more interest. 
Some commenters noted that the financial services industry has 
experienced significant consolidation in the decades since the QPAM 
Exemption was granted, with the result that a QPAM may be a small part 
of a very large organization. One commenter also suggested that the 
Department's proposed expansion of the ineligibility provision to 
include Prohibited Misconduct would impose an unjustified penalty based 
on the size and complexity of firms relying on the exemption.
---------------------------------------------------------------------------

    \33\ The Department recognizes that the proposed inclusion of 
Prohibited Misconduct may seem to broaden the scope of entities 
captured, but the Department characterizes that as broadening the 
scope of misconduct. The Proposed Amendment did not change the five 
percent ownership threshold or definition of Affiliate that is 
applicable to Section I(g).
---------------------------------------------------------------------------

    Some commenters contended that existing Section I(g) of the QPAM 
Exemption results in unjust application of automatic ineligibility. 
Commenters suggested that Section I(g) should focus on crimes committed 
by affiliates that are positioned to influence the QPAM's policies or 
have power or influence to compromise the QPAM's ERISA compliance, or 
crimes that involve the QPAM itself. According to one commenter, there 
should be a direct relationship between the crime and the services 
provided by the QPAM. A

[[Page 23096]]

variety of commenters expressed disagreement with what they perceived 
to be the Department's position, i.e., that remote convictions call a 
QPAM's integrity into question. These commenters asserted that Section 
I(g) imposes ineligibility in circumstances where the entities or 
individuals engaging in criminal conduct are not, in fact, in a 
position to influence the QPAM's policies. One commenter also opined 
that remote convictions resulting in ineligibility run counter to the 
purposes of ERISA section 408(a). Another commenter suggested that the 
Department should reserve ineligibility only for the most egregious 
convictions of the QPAM involving ERISA assets. Others preferred the 
Department's narrow approach in PTE 2020-02 because it limits 
ineligibility to the entity providing investment advice or other 
affiliates engaged in the business of providing investment advice to 
Plans.
    At the same time, some of these commenters indicated that inclusion 
of criminal convictions as an ineligibility trigger at the QPAM entity 
level could be appropriate. Similarly, some commenters agreed that 
crimes committed by a parent entity that can exercise management and 
control over the QPAM's day-to-day business and decision-making could 
be relevant for an ineligibility provision based on criminal 
convictions. A few commenters suggested that the Department rely on the 
``controlled group of corporations'' or ``under common control'' 
standards as defined in Code section 414(b) and (c) if it decides to 
retain the current breadth of Section I(g).
    The Department disagrees with the suggestion that disqualification 
is appropriate only when the QPAM itself was directly involved in the 
crime or only when the crime specifically involves plan assets or 
services to ERISA-covered plans. Serious crimes of the sort enumerated 
in Section I(g) are directly relevant to a corporate family's culture 
of compliance. When a company with multiple affiliated entities has 
engaged in such conduct or ignored criminal misconduct when it is 
occurring (or possibly even endorsed the misconduct), the likelihood 
that the same or similar conduct will be ignored when engaged in at the 
QPAM entity increases. This is particularly true where the bad actor is 
the corporate parent of the QPAM, but also rings true when it is an 
affiliated company that is controlled by the same corporate parent as 
the QPAM.
    Affiliated and related companies commonly hold themselves out as an 
integrated entity, have common or overlapping supervisory and control 
structures, and share a common corporate culture. Accordingly, serious 
criminal misconduct is a red flag indicating potential compliance 
problems that extend beyond the specific actors that directly engaged 
in the misconduct. Similarly, the commission of any of the enumerated 
criminal offenses is relevant to the assessment of likely future 
misconduct beyond the narrow confines of the particular customers and 
service providers directly affected by the conduct that resulted in a 
conviction. If, for example, a company engaged in embezzlement or 
price-fixing with respect to non-plan customers, there is little basis 
for plan customers to be sanguine about the improbability of such 
conduct with respect to plan customers and plan assets.
    Moreover, the practical impact of the exemption's disqualification 
provisions is not that QPAMs are precluded from making their case to 
the Department that the criminal conviction should not result in a 
lengthy bar from reliance on the exemption. Rather, the consequence is 
that the disqualified QPAM would have to apply for an individual 
exemption if it wishes to rely on the class exemption for a period that 
extends beyond the Transition Period. In the context of such an 
individual exemption application, the QPAM would be in a better 
position to present evidence on the scope of its involvement in the 
criminal conduct, its independence from any bad actors, current 
corporate culture and compliance structures, and other information 
relevant to assessing whether it should be permitted to continue 
relying on this exemption, notwithstanding the conviction. Similarly, 
the Department would have the time and ability to consider such issues 
on a case-specific and context-sensitive basis that takes into account 
the evidence submitted as part of a formal record. Also, based on the 
Department's experience processing individual exemption applications, 
many of the convictions and criminal misconduct the Department has 
dealt with over the past decade have not involved conduct that is 
isolated to remotely related affiliates within the QPAM's corporate 
ownership structure.\34\
---------------------------------------------------------------------------

    \34\ Even in situations where the convicted entity appeared 
remote, the Department has seen pervasive compliance failures at 
various other entities within the corporate family, including at 
parent entities.
---------------------------------------------------------------------------

Financial Industry Consolidation

    The Department recognizes that the legal landscape for the 
financial services industry has changed since 1984. When the QPAM 
Exemption was originally granted, there were established legal and 
regulatory barriers in the U.S. that prevented banking, securities, and 
insurance companies from consolidating. However, the passage of the 
Graham-Leach-Bliley Act in 1999 \35\ removed these barriers, which led 
many commercial banks, investment banks, securities firms, and 
insurance companies to consolidate. The Department understands that 
significant consolidation has occurred since 1999 and that the scope of 
entities captured by Section I(g) has not been revisited since those 
and other changes occurred in the financial services industry. The 
Department continues to stand by the original premise for Section I(g), 
which largely is focused on entities who are in control-based 
relationships with a QPAM, can influence the activities of a QPAM or 
are likely to share a common corporate culture.
---------------------------------------------------------------------------

    \35\ Public Law 106-102; 113 Stat. 1338.
---------------------------------------------------------------------------

    The Department reminds QPAMs, as it did in the Proposed Amendment, 
that control-based relationships remain directly relevant for 
triggering ineligibility under Section I(g) because of the Affiliate 
definition.\36\ Meaningful control can exist even when entities that 
have small ownership interests in a QPAM are positioned to influence 
the QPAM's decision to engage or refrain from engaging in conduct that 
can form the basis for a Criminal Conviction or Participation In 
Prohibited Misconduct. The Department continues to believe that 
corporate malfeasance at entities that control, are under common 
control with, or are controlled by the QPAM indicates the possibility 
of increased risk of harm to client Plans and IRA owners . The 
Department notes that a controlling relationship exists when one entity 
directly or indirectly has or exercises a significant influence over 
the management or policies of another entity. Control in this context 
does not require that the first entity has the ability to exercise 
complete domination or absolute authority over all aspects of the 
management or policies of the second entity.
---------------------------------------------------------------------------

    \36\ The Affiliate definition continues to include ``[a]ny 
person directly or indirectly through one or more intermediaries, 
controlling, controlled by, or under common control with'' the QPAM. 
See Section VI(d) for a complete definition.
---------------------------------------------------------------------------

Foreign Criminal Convictions

    The Department has a longstanding practice of considering 
individual exemption applications from QPAMs in connection with foreign 
convictions.\37\

[[Page 23097]]

The Proposed Amendment would have added a definition of Criminal 
Conviction that was intended to remove any doubt that Section I(g) 
applies to foreign convictions that are substantially equivalent to the 
listed U.S. federal or state crimes. In the Proposed Amendment, the 
Department specifically requested comments on this section, including 
whether there are certain types or aspects of criminal behavior that 
deserve additional focus. The Department also indicated that QPAMs 
should interpret the scope of this provision broadly with respect to 
foreign convictions and consistent with the Department's statutorily 
mandated focus on the protection of Plans in ERISA section 408(a) and 
Code section 4975(c)(2).
---------------------------------------------------------------------------

    \37\ See, e.g., Prohibited Transaction Exemption (PTE) 2020-01, 
85 FR 8020 (Feb. 12, 2020); PTE 2019-01, 84 FR 6163 (Feb. 26, 2019); 
PTE 2016-11, 81 FR 75150 (Oct. 28, 2016); PTE 2016-10, 81 FR 75147 
(Oct. 28, 2016); PTE 2012-08, 77 FR 19344 (March 30, 2012); PTE 
2004-13, 69 FR 54812 (Sept. 10, 2004); and PTE 96-62 (``EXPRO'') 
Final Authorization Numbers 2003-10E, 2001-02E, and 2000-30E, 
available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/expro-exemptions-under-pte-96-62.
---------------------------------------------------------------------------

    The Department stated that in situations where a crime raises 
particularly unique issues related to the substantial equivalence of 
the foreign Criminal Conviction, the QPAM may seek the Department's 
views regarding whether the foreign crime, conviction, or misconduct is 
substantially equivalent to a U.S. federal or state crime. However, the 
Department cautioned that any QPAM submitting a request for review 
should do so promptly, and whenever possible, before a judgment is 
entered in a foreign conviction so the QPAM has sufficient time to 
complete the notice obligations under the One-Year Transition Period.
    The Department also requested comment on whether there should be an 
additional process for requesting the Department's determination 
regarding whether a foreign conviction is substantially equivalent to a 
domestic conviction. The Department asked whether particular factors, 
such as the elements of the crime and the nature of the tribunal or 
investigating entity, should be considered in making such a 
determination.
    Many commenters provided input regarding the explicit inclusion of 
foreign crimes in the Proposed Amendment. At least one commenter 
indicated that it did not agree that the status of foreign convictions 
under Section I(g) (as it has existed since 1984) has been a settled 
matter. As amended, Section I(g) will remove all doubt regarding the 
coverage of foreign criminal convictions, which are now specifically 
referenced in the exemption's text.
    Some commenters indicated that the Proposed Amendment did not 
provide the intended certainty regarding foreign convictions because 
there could be difficulty determining whether any given foreign crime 
is a felony, or whether it is substantially equivalent to a felony 
under U.S. law.\38\ Some commenters also expressed skepticism that the 
Department has the competence and jurisdiction to interpret foreign law 
fairly and accurately for these purposes. A variety of commenters also 
raised questions regarding the proposed ``substantially equivalent'' 
standard, and expressed concern that foreign jurisdictions may not 
adhere to basic due process protections. Multiple commenters suggested 
that the Department should establish a formal process by which a QPAM 
may request a determination from the Department regarding whether a 
foreign conviction is substantially equivalent to a domestic conviction 
before it results in ineligibility. One commenter recommended that this 
should include an opportunity for the QPAM to present its position as 
to why a foreign conviction may not be substantially equivalent to a 
domestic conviction. Another commenter suggested the ``substantially 
equivalent'' standard for foreign criminal convictions should apply 
only where the factual record of such conviction, when applied to 
United States federal criminal law, would likely lead to a criminal 
conviction in the United States. Other commenters expressed further 
concerns that the Proposed Amendment would inappropriately equate 
criminal convictions levied in countries that have less robust or 
reliable legal systems with those convictions handed down by U.S. 
courts. One commenter suggested that the Proposed Amendment has the 
potential to play into the hands of foreign nations that intend to harm 
investment managers having substantial operations in the United States 
or its allies. The Department notes that although the crimes listed 
explicitly in Section I(g) use the term ``felony,'' the crimes adopted 
by reference from ERISA section 411 are not, nor have they ever been, 
limited to felonies.
---------------------------------------------------------------------------

    \38\ One commenter also noted that several jurisdictions such as 
the United Kingdom, Canada, Ireland, Australia, and New Zealand do 
not rely on a legal category of ``felony'' which could compound 
issues for making a substantially equivalent determination in such 
cases.
---------------------------------------------------------------------------

    To add clarity and ensure consistency between Section (r)(1) and 
(r)(2), the Department added the phrase ``or released from 
imprisonment, whichever is later'' to the sentence, ``(r) `Criminal 
Conviction' means the person or entity that: (2) is convicted by a 
foreign court of competent jurisdiction or released from imprisonment, 
whichever is later, as a result of a crime, however denominated by the 
laws of the relevant foreign government, that is substantially 
equivalent to an offense described in (r)(1), above. . . .''
    With respect to the ``substantially equivalent'' standard for 
foreign crimes, the Department did not add a formal process to the 
Final Amendment to make such determinations. The Department does not 
expect that questions of this nature will arise frequently, but when 
they do, impacted entities may contact the Office of Exemption 
Determinations for guidance, as they have done for many years. In 
general, the Department has not had difficulty determining whether the 
foreign crimes were substantially equivalent to domestic crimes and 
does not expect to have any difficulty with these determinations in the 
future. Additionally, the One-Year Transition Period, and the ability 
to apply for an individual exemption, provide parties with the time and 
the opportunity to address any issues about the import of any specific 
foreign conviction and its relevance to ongoing relief from full 
application of the prohibited transaction provisions. The Department is 
not aware that any convictions have occurred in foreign nations with 
the intent to harm U.S.-based investment managers and believes there is 
a low likelihood that this has occurred. Further, the types of foreign 
crimes that the Department has seen in recent QPAM individual exemption 
requests have consistently related to the subject financial 
institution's management of financial transactions and/or culture of 
compliance. These underlying foreign crimes have included the 
following:
     attempting to peg, fix, or stabilize the price of an 
equity in anticipation of a block offering in Japan (PTE 2023-13, 88 FR 
26336 (April 28, 2023));
     illicit solicitation and money laundering for the purposes 
aiding tax evasion in France (PTE 2019-01, 84 FR 6163 (February 26, 
2019)); and
     spot/futures-linked market price manipulation in South 
Korea (PTE 2015-15, 80 FR 53574 (September 4, 2015)).
    Nevertheless, to address the concern expressed in the public 
comments that convictions have occurred in foreign nations with the 
intent to harm U.S.-based investment managers, the Department has 
revised the definition Criminal Conviction in Section VI(r)(2) of this 
Final Amendment to exclude

[[Page 23098]]

foreign convictions and imprisonments that occur within foreign 
jurisdictions that are included on the Department of Commerce's list of 
``foreign adversaries.'' \39\
---------------------------------------------------------------------------

    \39\ 15 CFR 7.4. The list of foreign adversaries currently 
includes the following foreign governments and non-government 
persons: The People's Republic of China, including the Hong Kong 
Special Administrative Region (China); the Republic of Cuba (Cuba); 
the Islamic Republic of Iran (Iran); the Democratic People's 
Republic of Korea (North Korea); the Russian Federation (Russia); 
and Venezuelan politician Nicol[aacute]s Maduro (Maduro Regime). The 
Secretary of Commerce's determination is based on multiple sources, 
including the National Security Strategy of the United States, the 
Office of the Director of National Intelligence's 2016-2019 
Worldwide Threat Assessments of the U.S. Intelligence Community, and 
the 2018 National Cyber Strategy of the United States of America, as 
well as other reports and assessments from the U.S. Intelligence 
Community, the U.S. Departments of Justice, State and Homeland 
Security, and other relevant sources. The Secretary of Commerce 
periodically reviews this list in consultation with appropriate 
agency heads and may add to, subtract from, supplement, or otherwise 
amend the list. Section VI(r)(2) of the Final Amendment will 
automatically adjust to reflect amendments the Secretary of Commerce 
makes to the list.
---------------------------------------------------------------------------

    A few commenters also indicated that the proposed changes to 
Section I(g) are unnecessarily broad in application and will impose 
unnecessary costs and burdens on Plans. The Department's experience, 
however, is that the overall number of QPAMs and client Plans that have 
been impacted by Section I(g) violations has been small compared to the 
total number of QPAMs and client Plans,\40\ and the Department believes 
that this will continue to be the case. Thus, there should not be a 
significant change to the costs or burdens imposed on Plans as a result 
of explicitly including foreign convictions in Section I(g). In any 
event, when misconduct rises to the level that it results in 
ineligibility under Section I(g), the resultant costs and burdens are 
appropriate to ensure that a QPAM's client Plans are adequately 
protected when a QPAM becomes ineligible.
---------------------------------------------------------------------------

    \40\ This belief is based on the number of QPAMs suggested by 
commenters and represented in an updated estimate in this Final 
Amendment versus the number of QPAMs and client Plans identified in 
individual exemption applications.
---------------------------------------------------------------------------

    Some commenters recognized that when the foreign affiliate itself 
is providing investment management services to a Plan, the integrity of 
the foreign affiliate may be relevant. Commenters indicated that if the 
Department includes foreign convictions, ineligibility should be 
limited at least to entities that fall into the tax code definition of 
``Controlled Group'' with respect to a QPAM. The Department appreciates 
the recognition by these commenters that at least some misconduct in 
foreign jurisdictions is relevant to the QPAM's integrity. However, the 
Department disagrees that the correct standard for determining when 
misconduct could be relevant should be limited to the ``Controlled 
Group'' definition. The Department believes that the approach taken in 
the exemption with regards to the scope of entities captured by Section 
I(g) in the ownership test and definition of Affiliate provides 
significant protections for Plans and participants and the commenter 
has not provided a reasoned basis why altering this scope would provide 
additional protections. Therefore, the Department has not altered the 
scope of entities captured by Section I(g) with respect to Criminal 
Convictions.
    Proponents of the Proposed Amendment's addition of foreign crimes 
to Section I(g) indicated that large financial institutions that engage 
in financial crimes usually do so across multiple jurisdictions, 
arbitraging regulatory loopholes and pressuring weaker jurisdictions to 
curtail regulation. They urged the Department not to ignore foreign 
activity due to the modern realities of multinational financial 
institutions.
    The Department agrees that criminal convictions for the types of 
crimes identified in the QPAM Exemption are relevant to a QPAM's 
willingness and ability to manage Plan assets with integrity, care, and 
undivided loyalty, regardless of whether the crime occurs in a domestic 
or foreign jurisdiction. Foreign crimes of the sort described in the 
Final Amendment call into question a firm's culture of compliance just 
as much as domestic crimes. Fraud, embezzlement, tax evasion, and the 
other listed crimes are signs of potential serious compliance and 
integrity failures, whether prosecuted domestically or in foreign 
jurisdictions. In the modern era of increased globalization and 
multinational companies, corporate parents and affiliates may reside in 
jurisdictions other than the United States. Their criminal misconduct 
in other jurisdictions is no less concerning to the Department than 
when such misconduct occurs in the United States. In fact, if foreign 
convictions were not included in Section I(g), the exemption would 
potentially impose more lenient conditions on foreign-based 
conglomerates than it does on U.S.-based entities, which is not the 
Department's intention, because it is not sufficiently protective of 
Plans.
    A few commenters suggested alternatives to the Department's 
approach to foreign convictions in the Proposed Amendment. One 
commenter suggested that the Department should adopt an approach 
modeled after the Security and Exchange Commission's (SEC's) 
consideration of foreign crimes when determining whether to disqualify 
persons from serving in various capacities at an Investment Company 
under the Investment Company Act of 1940. It is the Department's 
understanding that, under the Investment Company Act of 1940, 
disqualification is automatic for specified domestic crimes, but that 
the SEC provides notice and a hearing before disqualification for 
foreign crimes.\41\
---------------------------------------------------------------------------

    \41\ See Investment Company Act of 1940, 15 U.S.C. 80a-9.
---------------------------------------------------------------------------

    After consideration of the comment and the differences in statutory 
text and purposes at issue under ERISA, the Code, and the Investment 
Company Act of 1940, the Department has decided not to adopt the 
commenter's suggestion. The QPAM Exemption permits entities to enter 
into transactions that ERISA and the Code otherwise prohibit because of 
the danger they pose to Plans, their plan participants and 
beneficiaries, and IRA Owners. Before the Department grants an 
exemption from the law's strict prohibitions, it has an obligation to 
find that the exemption is in the interest of participants and 
protective of their rights. Under the QPAM Exemption, these findings 
crucially turn on the financial institution's culture of compliance. 
Misconduct that results in a criminal conviction of an entity under 
Section I(g) of the QPAM Exemption, whether domestic or foreign, calls 
into serious question whether the QPAM has the integrity and culture of 
compliance on which the exemption is premised. Accordingly, after 
conviction of a serious crime, a financial institution, its affiliates, 
and related parties should not expect to have the automatic right to 
continue to engage in transactions that are otherwise illegal, but for 
the exemption. Nevertheless, the firm may always apply to the 
Department for an individual exemption based on a full and fair 
consideration of the firm's criminal conduct and the relevant facts, 
circumstances, and context, if the firm believes that it should still 
receive a dispensation from application of the otherwise generally 
applicable prohibited transaction provisions, as companies have done 
over the years.
    Relatedly, a commenter suggested the QPAM could be required to 
certify that its failure to meet the requirements of the QPAM Exemption 
arose solely from the foreign affiliate's criminal conduct and that no 
entities holding Plan assets

[[Page 23099]]

actively Participated In the criminal conduct that is the subject of 
the conviction. Based on the certification, the Department could 
inquire further and make its decision based on the facts of the 
specific situation. Another alternative offered by a commenter was 
simply to require a QPAM to notify a Plan of the conviction, and then 
allow the Plan sponsor to decide whether to continue its arrangement 
with the QPAM.
    The Department's focus is on the protection of Plans and their 
participants and beneficiaries, as it decides whether to give QPAMs 
relief from the requirements of otherwise applicable law (i.e., the 
categorical prohibitions of ERISA Section 406(a) and Code section 
4975(c)(1)). The Department declines to take the other recommended 
approaches because as explained in other parts of this preamble, the 
Department is not merely concerned about crimes that have already 
impacted Plan assets, but compliance frameworks that have an increased 
potential to place Plan assets at risk. Criminal Convictions, even in 
foreign jurisdictions, for the types of crimes and by the entities 
captured by Section I(g) raise significant concerns. The Department 
disagrees with the suggestion that it would be sufficiently protective 
of Plans, their participants, and beneficiaries simply to require 
notice of the QPAM's criminal conviction and leave it to the 
fiduciaries to decide whether to engage in otherwise prohibited 
transactions with the QPAM. When Congress enacted ERISA, it chose not 
to broadly empower plan fiduciaries to opt out of the prohibited 
transaction provisions on a voluntary basis, but rather charged the 
Department with the responsibility to craft protective conditions that 
meet the statutory standards set forth in ERISA section 408(a).
    The crimes enumerated in Section I(g) are serious violations that 
call into question the willingness and ability of the QPAM to adhere 
consistently to the fiduciary norms and standards that are critical to 
entrusting them with license to engage in otherwise illegal 
transactions. To the extent a QPAM believes that it should be permitted 
to engage in such transactions after the expiration of the Transition 
Period, notwithstanding its conviction, the Department has concluded 
that the interests of Plan participants and beneficiaries and IRA 
Owners are best protected by the procedural protections, public record, 
and notice and comment process associated with individual exemption 
applications. In the context of an individual exemption application, 
the Department has unique authority to efficiently gather evidence, 
consider the issues, and craft protective conditions that meet the 
statutory standard. If the Department concludes, consistent with the 
statutory standards set forth in ERISA 408(a) and Code section 
4975(c)(2), that an individual exemption is appropriate, Plan 
fiduciaries remain free to make their own independent determinations 
whether to engage in transactions with the QPAM. In the first instance, 
however, the Department must consider the unique facts and 
circumstances surrounding the conviction based on its statutory role 
and obligations, and craft appropriate conditions if it appears that an 
exemption is proper. The Department has a critical role in providing 
appropriate regulatory protections, even in situations where a Plan 
fiduciary has some authority, discretion, and obligations of its own.

Prohibited Misconduct

    The Department proposed to add a new category of misconduct that 
could lead to ineligibility under Section I(g), described as 
``participating in Prohibited Misconduct.'' \42\ Proposed Section VI(s) 
defined Prohibited Misconduct as:
---------------------------------------------------------------------------

    \42\ As proposed, this definition applied to Participation In 
Prohibited Misconduct by the QPAM or its five percent or more owners 
and Affiliates.

    (1) any conduct that forms the basis for a non-prosecution or 
deferred prosecution agreement that, if successfully prosecuted, 
would have constituted a crime described in Section VI(r);
    (2) any conduct that forms the basis for an agreement, however 
denominated by the laws of the relevant foreign government, that is 
substantially equivalent to a non-prosecution agreement or deferred 
prosecution agreement described in subsection VI(s)(1);
    (3) engaging in a systematic pattern or practice of violating 
the conditions of this exemption in connection with otherwise non-
exempt prohibited transactions;
    (4) intentionally violating the conditions of this exemption in 
connection with otherwise non-exempt prohibited transactions; or
    (5) providing materially misleading information to the 
Department in connection with the conditions of the exemption.

    The Department explained in the preamble of the Proposed Amendment 
that the term ``participating in'' referred not only to actively 
participating in the Prohibited Misconduct but also to knowingly 
approving of the conduct or having knowledge of such conduct without 
taking appropriate and proactive steps to prevent such conduct from 
occurring, including reporting the conduct to appropriate compliance 
personnel. The Department proposed that, where a QPAM's ineligibility 
is linked to Prohibited Misconduct under any portion of Section VI(s), 
the Department would provide affected entities with a written warning 
and an opportunity to be heard.
    The Department requested comments on the extent to which Proposed 
Section VI(s) was appropriately tailored to target non-criminal 
activity by the QPAM (or its owners of a five (5) percent or more 
interest, or Affiliates) that raised integrity issues that had the 
potential to harm Plans and whether additional or alternative elements 
were warranted. The Department also requested comments regarding 
whether to add any conduct as Prohibited Misconduct, and if so, to 
include an explanation for how such actions would implicate a QPAM's 
integrity. The Department also requested comments as to whether any of 
the proposed Prohibited Misconduct should be removed and an explanation 
of why such conduct does not affect the QPAM's integrity.
    With respect to these provisions, the Department explained in the 
Proposed Amendment that it intended to rely on its enforcement 
authority and program to detect a QPAM's Participation In the types of 
Prohibited Misconduct included in proposed subsections VI(s)(3) through 
(5).\43\ In the Proposed Amendment, the Department built in due process 
components so that ineligibility would occur only in limited 
circumstances, and even in those circumstances, the process to make the 
QPAM ineligible would have begun only after two initial steps: (1) an 
investigation by the appropriate field office, and (2) receipt by the 
QPAM thereafter of a written warning that the Department was 
contemplating issuing a Written Ineligibility Notice. The Proposed 
Amendment's Written Ineligibility Notice process would have allowed the 
QPAM the opportunity to be heard before the Department were to issue an 
actual notice, which would have made the QPAM ineligible to use the 
exemption from the date the Department issued the notice, except that 
the mandatory One-Year Transition Period would have been applicable in 
the same manner as with ineligibility caused by a Criminal Conviction.
---------------------------------------------------------------------------

    \43\ Section VI(s) has been renumbered in the Final Amendment as 
section VI(s)(1), (2)(A), (B), and (C).
---------------------------------------------------------------------------

General Comments on Proposed Prohibited Misconduct Provision

    One supporter of the Proposed Amendment indicated that inclusion of 
additional categories of misconduct was appropriate because the 
commenter

[[Page 23100]]

believed that Section I(g)'s limited focus on crimes that resulted in a 
conviction had contributed to serial misconduct by corporate 
wrongdoers. The commenter expressed concern that some corporate 
wrongdoers could take advantage of loopholes to avoid a conviction when 
the conduct was ultimately serious enough to warrant a conviction.
    Many opponents of the amendment recommended that the ``Prohibited 
Misconduct'' standard and provisions be deleted entirely. They stated 
that the expansion of Section I(g) to include Prohibited Misconduct 
erodes certainty that the QPAM Exemption provides regarding 
eligibility.

Specific Comments Regarding Including Non-Prosecution Agreements (NPAs) 
and Deferred Prosecution Agreements (DPAs) as Prohibited Misconduct

    Some commenters recommended that the Department consult with the 
Department of Justice (DOJ) and the SEC to get a better sense of how 
the proposed inclusion of NPAs and DPAs as Prohibited Misconduct would 
impact their enforcement abilities. Some commenters also noted that 
financial institutions may agree to a NPA or DPA for reasons that are 
unrelated to ERISA. These commenters opined that the Department seemed 
to be mischaracterizing the nature and use of NPAs and DPAs, as well as 
their objectives (such as avoiding the collateral consequences of 
penalizing innocent parties). According to some commenters, prosecutors 
do not enter into these agreements lightly or with the intention of 
allowing financial institutions to ``sidestep'' the consequences of 
their actions. Some commenters also asserted that even where an 
institution believes it has not engaged in wrongdoing and would prevail 
on the merits in a court of law, they may prefer to enter into a NPA or 
DPA for a variety of reasons. For example, one commenter indicated that 
even where an institution believes it has not engaged in wrongdoing and 
would prevail on the merits in a court of law, it may prefer to enter 
into a NPA or DPA if it is concerned with its reputation on unrelated 
matters (that do not rise to the level of covered convictions) that 
could be introduced during a protracted trial.
    Some commenters also offered alternatives to ineligibility in 
connection with NPAs or DPAs. For instance, one commenter suggested 
that the Department could require a QPAM that enters into one of these 
agreements to notify each Plan it manages that: (1) the QPAM has 
entered such an agreement; and (2) the Plan can terminate its 
relationship with the QPAM if it chooses to do so, without penalty.
    Some commenters expressed additional concern that financial 
institutions will be less willing to enter into NPAs or DPAs if doing 
so would result in ineligibility under the QPAM Exemption. These 
commenters indicated that they believed this outcome may not be in the 
public interest. For instance, one commenter suggested that if entering 
into a DPA or NPA would effectively end a firm's ERISA investment 
management business, the firm may not be able to enter into the 
agreement, even when doing so is the best resolution for the government 
prosecutor involved.
    A proponent of the Department's Proposed Amendment to include NPAs 
and DPAs as ineligibility triggers noted that since the exemption was 
proposed in 1982, the use of NPAs and DPAs has skyrocketed, with many 
companies avoiding prosecution for serious misconduct due to factors 
unrelated to their culpability. The commenter opined that to fully 
protect Plans from unscrupulous behavior by asset managers, the 
Department must, as proposed, include NPAs and DPAs within the 
definition of Prohibited Misconduct that triggers QPAM ineligibility 
when the conduct at issue involves a listed crime.
    Another commenter identified a lack of clarity as to whether an NPA 
or DPA would have to involve the manager's parent or whether it could 
involve the manager's most remote affiliate or an entity with only a 
five percent ownership interest in the manager.
    Several commenters also expressed specific concerns over expanding 
QPAM ineligibility to agreements with foreign governments that are 
substantially equivalent to domestic NPAs and DPA. These commenters 
expressed concern that the proposal provided the Department with 
unfettered discretion to determine whether a foreign NPA or DPA entered 
into by the QPAM or an Affiliate was substantially equivalent to a 
domestic NPA or DPA, and they questioned whether the Department has the 
necessary proficiency in criminal justice and international law, or 
jurisdictional authority to make such determinations.
    Other commenters also suggested that it would be difficult for the 
Department to apply the substantially equivalent standard in the 
context of foreign NPAs and DPAs due to the claimed vagaries of foreign 
laws and prosecutorial practices and the effect of expanding the reach 
of Section I(g) in this manner on law enforcement efforts by other U.S. 
agencies and the possible extraterritorial impact on non-U.S. law 
enforcement and U.S. relations with foreign governments.
    One commenter stated that Department should not treat the conduct 
of an affiliate which has no or little nexus or relationship to the 
QPAM as disqualifying and pointed out the practical considerations that 
are necessary to identifying foreign equivalents of these agreements as 
well as the significant risk that these agreements may be imposed in 
foreign jurisdictions that do not provide due process protections. 
Another commenter asserted that the connection of foreign agreements to 
a QPAM's compliance culture is speculative and tenuous and does not 
provide any meaningful protection to participants and beneficiaries.
    One commenter claimed that including foreign equivalents of NPAs 
and DPAs has the potential to play into the hands of foreign nations 
that wish to harm the operations of U.S.-based investment managers. For 
example, the commenter suggested that rogue foreign nations could bring 
dubious claims against a U.S.-based investment manager and force them 
to execute a DPA or NPA with that government in order to continue 
operations in that foreign country.
    Another commenter questioned how the Department would know if 
something would be ``successfully'' prosecuted for purposes of the 
requirement in Section VI(s) that the NPA or DPA be based on 
allegations that, if successfully prosecuted, would have constituted a 
crime described in Section VI(r) of the exemption.

The Department's Response to Comments and Treatment of DPAs and NPAs 
Under the Final Amendment

    In response to these comments, the Department consulted with the 
DOJ and the SEC to affirm its understanding of NPAs and DPAs, 
particularly the level of culpability on the part of the QPAM that 
would accompany such an agreement. Based on these consultations, the 
Department understands that, as a matter of course, these domestic NPAs 
and DPAs are accompanied by Statements of Fact that establish the basis 
for criminal liability. In most cases, the offending party avoids 
prosecution for the crime on the basis of the party's agreement to 
enter into, and comply with, the terms of the agreement.
    After considering comments on the Proposed Amendment's inclusion of 
NPAs and DPAs as Prohibited Misconduct in the Proposed Amendment, the 
Department has

[[Page 23101]]

determined to include this provision in the Final Amendment with a 
modification discussed below.
    In cases where the QPAM, any Affiliate thereof (as defined in 
Section VI(d)), or any owner, direct or indirect, of a five (5) percent 
or more interest in the QPAM has executed an NPA or DPA, the Department 
has precisely the same concerns about the QPAM's compliance culture, 
and its ability and willingness to adhere to its fiduciary obligations 
and the exemption conditions, as it does when any of these parties have 
been formally convicted of the crime. The cause for concern about the 
QPAM is not the conviction per se, but rather the serious misconduct 
that underlies the conviction. In these cases, responsible federal or 
state officials have resolved serious claims of misconduct against 
parties through the execution of a formal agreement voluntarily entered 
into with the parties. In these circumstances, if the alleged 
misconduct is sufficient to form the basis for an NPA or DPA that is 
entered into by the QPAM, any Affiliate thereof (as defined in Section 
VI(d)), or any owner, direct or indirect, of a five (5) percent or more 
interest in the QPAM, it is appropriate to treat the agreement as cause 
for ineligibility under Section I(g), subject to the parties' ability 
to apply for an individual exemption before, during, or after the One-
Year Transition Period provided for in this exemption.
    Moreover, any due process concerns with including NPAs and DPAs as 
Prohibited Misconduct are addressed by the change to the Prohibited 
Misconduct provision in the Final Amendment providing that 
ineligibility does not occur until after a QPAM, any Affiliate thereof 
(as defined in Section VI(d)), or any owner, direct or indirect, of a 
five (5) percent or more interest in the QPAM has executed an NPA or 
DPA. Those agreements result from criminal investigations and are 
voluntarily entered into by the parties. QPAMs and other affected 
entities that enter into an NPA or DPA generally will be afforded the 
numerous due process protections that are associated with criminal 
investigations and negotiating these agreements.
    Under the revised provision in the Final Amendment, QPAMs, their 
Affiliates, or five (5) percent or more owners that enter into an NPA 
or DPA should have sufficient time to prepare for the implications of 
becoming ineligible under this Final Amendment as a result of the 
process surrounding the negotiation and execution of the agreement. In 
either case, the QPAM must commence the One-Year Transition Period and 
submit an individual exemption application for extended relief a soon 
as possible if it wants to continue using the QPAM exemption after the 
One-Year Transition Period expires.
    After considering comments on the Proposed Amendment's inclusion of 
foreign-equivalent NPAs and DPAs in the Proposed Prohibited Misconduct 
definition, the Department has decided to remove foreign equivalent 
agreements from the definition of Prohibited Misconduct in Section 
VI(s) of the Final Amendment. While the Department is confident in its 
ability to apply the foreign equivalence standard to NPAs and DPAs 
entered into by the QPAM or its Affiliates, and although the Department 
has concerns about conduct that might give rise to a foreign equivalent 
NPA or DPA, it has concluded that it has insufficient information on 
those agreements to treat them as a cause for ineligibility under 
Section I(g). In this context, the Department notes that it has not 
received individual exemption requests from QPAMs or their Affiliates 
in which a foreign equivalent agreement was implicated.
    The Department also is not aware of any instances where foreign 
governments have used agreements that are substantially equivalent to 
domestic NPAs and DPAs to harm U.S.-based investment managers and, as 
with foreign criminal convictions, we believe there is a low likelihood 
that this activity has occurred. However, in light of the comments, the 
Department has concluded that it does not have sufficient certainty 
about the use of these agreements outside the U.S., and about the 
procedural protections associated with the agreements in foreign 
jurisdictions, to justify finalizing this particular part of the 
proposed Prohibited Misconduct provision at this time. Therefore, the 
Department's position is that the uncertainties surrounding foreign 
agreements raised by some commenters outweigh the protective benefits 
that would accrue to Plans and their participants and beneficiaries by 
including foreign agreements in the Prohibited Misconduct provision.
    Although the Department is removing the foreign equivalent of NPAs 
or DPAs as an ineligibility trigger, the Final Amendment to Section 
I(g)(2) requires the QPAM to notify the Department when the QPAM, any 
Affiliate thereof (as defined in Section VI(d)), or any owner, direct 
or indirect, of a five (5) percent or more interest in the QPAM 
executes a domestic or foreign equivalent NPA or DPA. This notice will 
give the Department the ability to take appropriate additional action 
in specific cases and will provide the Department with broader 
information about these practices as the QPAM exemption continues to be 
relied upon by parties in the future. The Department notes that QPAMs 
should err on the side of caution when determining whether an agreement 
with a foreign government entity is the substantial equivalent of a 
domestic NPA or DPA that must be reported to the Department pursuant to 
amended Section I(g)(2).
    After reviewing and considering the comments offering alternatives 
to ineligibility in connection with NPAs or DPAs, in particular only 
requiring QPAMs to provide a notice to Plans, the Department's position 
is that mere notice to the Plans is not sufficiently protective to 
address circumstances where a NPA or DPA with a U.S. federal or state 
prosecutor's office or regulatory agency reflects serious misconduct by 
the QPAM. Further, solely relying on a QPAM's notification to Plans 
that the QPAM committed serious misconduct would not be an appropriate 
justification for the Department to ignore such serious misconduct and 
to forego taking appropriate action.
    In response to the comment asserting that a lack of clarity exists 
regarding whether an NPA or DPA would have to involve the QPAM's parent 
or whether it could involve the QPAM's most remote affiliate or an 
entity with only a five (5) percent ownership interest in the manager, 
the Department has clarified in the Final Amendment that the Prohibited 
Misconduct provision in Section VI(s)(1) includes NPAs and DPAs entered 
into by the QPAM, or any Affiliates, or owners of five (5) percent or 
more of the QPAM, with a U.S. federal or state prosecutor's office or 
regulatory agency.
    In response to comments that questioned how the Department would 
know if something would be ``successfully'' prosecuted, the Department 
notes that the focus of the provision is not on whether a criminal 
prosecution would have been successful if the case had not been 
settled, but rather whether the allegations by state or federal 
officials that resulted in the NPA or DPA described one of the 
disqualifying crimes set forth in VI(r). The provision does not require 
the Department to know if something would be successfully prosecuted. 
Instead, it requires the Department to determine whether the conduct 
associated with the NPA or DPA would ``if successfully prosecuted'' 
constitute Prohibited Misconduct as defined in paragraph VI(s)(1). In 
such cases, the parties have

[[Page 23102]]

voluntarily entered into a settlement based on allegations of 
disqualifying misconduct. There is sufficient cause for concern in all 
such cases about the entities' culture of compliance to trigger 
ineligibility, start the One-Year Transition Period, and require the 
parties to seek an individual exemption if they would like to continue 
to receive an exemption permitting them to engage in conduct that is 
otherwise prohibited by ERISA and the Code. Moreover, as noted above, 
NPAs and DPAs are commonly supported by Statements of Fact that 
establish the basis for criminal liability by the parties entering into 
the agreements.
    While the Department is removing foreign equivalents of NPAs and 
DPAs as Section I(g) ineligibility events in the Final Amendment, as 
discussed above it is adding a notice requirement that applies when the 
QPAM, its owners of a five (5) percent or more interest, or Affiliates 
enter into a foreign equivalent of an NPA or DPA or Participate In 
Prohibited Misconduct as defined in Section VI(s). Specifically, 
Section I(g)(2) requires the QPAM to submit a notice to [email protected] 
within 30 calendar days after the Ineligibility Date for the Prohibited 
Misconduct as determined under Section (I)(h)(2) or the execution date 
of the substantially-equivalent foreign NPA or DPA, if the QPAM, any 
Affiliate thereof (as defined in Section VI(d)), or any owner, direct 
or indirect, of a five (5) percent or more interest in the QPAM, 
Participates In any Prohibited Misconduct as defined in Section VI(s) 
or enters into an agreement with a foreign government that is 
substantially equivalent to a NPA or DPA described in section VI(s)(1). 
The QPAM must include a description of the Prohibited Misconduct in the 
notice and provide the name of and contact information for the person 
or entity that is responsible for handling this matter to the 
Department.
    The Department clarifies that the Prohibited Misconduct conditions 
in Section VI(s)(1), regarding entering into an NPA or DPA with a U.S. 
federal or state prosecutor's office or regulatory agency, and the 
corresponding notification requirement in Section I(g)(2), are 
prospective only, and therefore only apply to QPAMs, their Affiliates, 
and owners of a five (5) percent or more interest who have executed 
NPAs or DPAs on or after June 17, 2024 based on facts that, if 
successfully prosecuted, would have constituted a crime specified in 
VI(r) of the Final Amendment.

Specific Comments Regarding Prohibited Misconduct Under the Written 
Warning Letter and Ineligibility Notice Process

    In the Proposed Amendment, the Department specifically requested 
comments on the sufficiency of the due process protections provided in 
connection with the Prohibited Misconduct provision. Several commenters 
expressed concern that the due process protections of the written 
warning letter and Written Ineligibility Notice provisions were 
insufficient. For example, some commenters stated that:
     the proposed standards were inadequate to protect the due 
process rights of QPAMs, because the process provided the Department 
with potentially unlimited discretion to decide what types of 
misconduct would trigger ineligibility to be made by an independent, 
disinterested decision-maker;
     the Department's ineligibility process lacks sufficient 
due process and a final determination by a neutral third-party judge, 
and therefore, provides the Department with unilateral discretion;
     due process requires an adversarial process that is 
adjudicated by an independent third party;
     if the ineligibility process for Prohibited Misconduct is 
retained, the Department should develop a process that includes: (1) 
rules for establishing a factual record, including adequate time and 
opportunity for the accused institution to review, challenge, and 
supplement the record; (2) formal rules for soliciting input from 
federal, state, and/or foreign prosecutors involved in the negotiated 
agreement at issue, if any; (3) procedures for selecting an independent 
decision-maker responsible for making factual and legal determinations; 
(4) procedural guardrails to ensure that Department officials involved 
in alleging Prohibited Misconduct are not able to engage in conduct 
that would bias the decision-maker (e.g., prohibiting ex parte 
communications); and (5) an automatic stay of any agency determinations 
during the pendency of federal litigation challenging the 
determination;
     If the Department does not remove the written warning 
letter and Written Ineligibility Notice process from the final 
exemption, the final exemption must provide an opportunity for review 
by an administrative law judge, court, or similar truly independent 
decision maker with the authority to decide whether a QPAM will be 
disqualified, as opposed to providing that authority to itself.
    Additionally, some commenters expressed concern that proposed 
definition of the phrase ``participating in'' was vague and overbroad.

The Department's Response to Specific Comments Regarding the Written 
Warning Letter and Written Ineligibility Notice

    After considering the due process concerns expressed in comments 
regarding the Proposed Amendment, the Department is removing from the 
Final Amendment the written warning letter and Written Ineligibility 
Notice process that was associated with Prohibited Misconduct. The 
Department now is requiring the requisite factual determinations for 
Prohibited Misconduct defined in Section V(s)(2) to have been made in 
specified judicial proceedings.
    Specifically, under the Final Amendment, a QPAM will become 
ineligible under Section I(g) as a result of Prohibited Misconduct as 
defined in Section VI(s)(2) if the QPAM, any Affiliates thereof (as 
defined in Section VI(d)), or any owner, direct or indirect, of a five 
(5) percent or more interest in the QPAM is found or determined in a 
final judgment, or court-approved settlement by a federal or state 
criminal or civil court in a proceeding brought by the Department, the 
Department of Treasury, the Internal Revenue Service, the Securities 
and Exchange Commission, the Department of Justice, the Federal Reserve 
Bank, the Office of the Comptroller of the Currency, the Federal 
Depository Insurance Corporation, the Commodities Futures Trading 
Commission, a state regulator, or state attorney general to have 
Participated In one or more of the following categories of conduct 
irrespective of whether the court specifically considers this exemption 
or its terms:
    (A) engaging in a systematic pattern or practice of conduct that 
violates the conditions of this exemption in connection with otherwise 
non-exempt prohibited transactions;
    (B) intentionally engaging in conduct violates the conditions of 
this exemption in connection with otherwise non-exempt prohibited 
transactions; or
    (C) providing materially misleading information to the Department 
or the Department of Treasury, the Internal Revenue Service, the 
Securities and Exchange Commission, the Department of Justice, the 
Federal Reserve Bank, the Office of the Comptroller of the Currency, 
the Federal Depository Insurance Corporation, the Commodities Futures 
Trading Commission, a state regulator or a state attorney general in

[[Page 23103]]

connection with this exemption's conditions.
    By removing the warning letter and Written Ineligibility Notice 
process and instead providing for ineligibility only after a 
Conviction, a court's final judgment, or a court-approved settlement, 
QPAMs, their Affiliates, and/or owners of a five (5) percent or more 
interest thereby are disqualified only after the culpable entity was 
afforded full due process in a legal proceeding overseen by a court. 
Section V(s)(2) is much narrower than the proposal inasmuch as it 
covers the types of misconduct specified in the proposal only when the 
misconduct is established in court proceedings brought by state or 
federal regulators. It ensures that the finding of misconduct was 
subject to the robust procedural protections provided by such 
proceedings.
    Furthermore, by removing the warning letter and Written 
Ineligibility Notice process, and redefining Prohibited Misconduct in 
Section VI(s)(2) to be based on legal process that results in a court's 
final judgment or court-approved settlement, the QPAM will have been 
provided with sufficient notice that the conduct at issue is Prohibited 
Misconduct that causes ineligibility. This will give QPAMs sufficient 
time to apply for an individual exemption during the One-Year 
Transition Period.
    More generally, the Department notes that the modification in the 
Final Amendment removes the Department from the process of making a 
factual determination that Prohibited Misconduct has occurred. Instead, 
for purposes of ineligibility due to Prohibited Misconduct in Section 
VI(s)(2), the court's final judgment (or approved settlement) must 
resolve the factual issue of whether any of these parties Participated 
In the conduct that constitutes Prohibited Misconduct as defined in 
Section VI(s)(2). Under the provision, the court does not have to make 
a specific legal finding regarding whether such conduct constitutes 
Prohibited Misconduct as defined in Section VI(s)(2) of the exemption, 
but rather whether, as a factual matter, the parties engaged in the 
specific conduct defined as Prohibited Misconduct in Section VI(s)(2). 
The Department has made changes to Section VI(s)(2) to make this 
distinction clear. The Department cautions QPAMs, their Affiliates, and 
owners of a five (5) percent or more interest that final judgments and 
court-approved settlements that include a finding that such conduct has 
occurred will cause immediate ineligibility under Section I(g). In 
these situations, a QPAM that intends to continue to rely on the QPAM 
exemption following the One-Year Transition Period that begins on the 
Ineligibility Date should submit an exemption application to the 
Department as soon as possible.
    As mentioned above, some commenters expressed concern that the 
proposed definition of the phrase ``participating in'' was vague and 
overbroad. The Department disagrees with this concern. The parameters 
of the definition are similar to other definitions and conditions the 
Department has included in administrative exemptions it has issued 
since ERISA's enactment almost fifty years ago. Additionally, the 
commonly accepted definition of what it means to ``participate in'' 
conduct is well understood. The Proposed Amendment specifically 
provided additional guidance in the text of Proposed Section I(g)(3)(B) 
regarding what the Department meant by using the term ``participating 
in.'' \44\ Therefore, the Department has not changed the definition of 
``Participating In'' in the Final Amendment but has included in the 
definition the defined terms ``Participate In,'' ``Participates In,'' 
``Participated In,'' and ``Participation In'' for clarity and accuracy 
and has moved the definition to the Definitions and General Rules in 
Section VI(t).\45\
---------------------------------------------------------------------------

    \44\ The preamble also specifically stated, ``For purposes of 
proposed Section VI(s), the term `participating in' refers not only 
to actively participating in the Prohibited Misconduct but also to 
knowingly approving of the conduct or having knowledge of such 
conduct without taking appropriate and proactive steps to prevent 
such conduct from occurring, including reporting the conduct to 
appropriate compliance personnel.'' 87 FR at 45209.
    \45\ Due to this change, the Recordkeeping provision is 
redesignated as Section VI(u).
---------------------------------------------------------------------------

Costs Associated With Ineligibility Based on Participating In 
Prohibited Misconduct

    Several commenters also noted that regardless of the reason for 
ineligibility, Plans would be exposed to substantial costs if a QPAM 
becomes ineligible. These commenters recommended that the Department 
exercise extreme caution before causing more QPAMs to face 
ineligibility. Some commenters also expressed concerns that the 
imposition of ineligibility is harmful to the Plans and their 
participants and beneficiaries and prevents appointing fiduciaries from 
exercising discretion to determine the best course of action for the 
Plan by placing constraints on the Plan's choice of QPAMs.
    The Department notes that the Proposed Amendment and this Final 
Amendment appropriately place the burden associated with the costs of 
ineligibility on the QPAM. In response to the comment, the Department 
included the One-Year Transition Period in the Final Amendment to 
reduce the costs and burdens associated with the possibility of 
ineligibility, and to provide affected QPAMs with an opportunity to 
apply for individual exemptions with appropriate conditions. Therefore, 
the Department disagrees that the ineligibility provision unduly 
prevents fiduciaries from exercising their discretion.
    In crafting the amendments, the Department was also mindful that 
the conduct that constitutes Prohibited Misconduct under the terms of 
the exemption is quite serious and that engaging in such conduct calls 
into question the QPAM's culture of compliance. The grant of an 
exemption involves a discretionary determination by the Department to 
permit parties to engage in conduct that is otherwise categorically 
prohibited by ERISA and the Code and it requires specific findings 
aimed at ensuring that the exemption is appropriately protective of the 
Plan and participant interests at stake in the regulation of tax-
preferred retirement plans. While the prohibited transaction provisions 
constrain fiduciary choice, those constraints are expressly imposed by 
the statute for the protection of plan participants and beneficiaries. 
An exemption is not justified merely by pointing to a constraint 
expressly imposed by law and noting that it interferes with fiduciary 
discretion; all prohibited transaction provisions constrain fiduciary 
choice. The conditions of the QPAM Exemption are publicly and widely 
available, and the possibility that a QPAM could become ineligible if 
it participates in serious misconduct is clear. Moreover, if a 
fiduciary does not want to provide the additional protections included 
in this Final Amendment, it may pursue other options to receive 
prohibited transaction relief, such as using another relevant class 
prohibited transaction exemption or seeking an individual prohibited 
transaction exemption. Additionally, the sophistication of fiduciaries 
varies dramatically based on a variety of factors. The Department has 
an obligation to protect Plans and their participants and 
beneficiaries, even if an individual Plan fiduciary views such 
protections as unnecessary.
    However, as noted above, the Department modified the scope of the 
Prohibited Misconduct provision in the Final Amendment; first, by 
removing foreign agreements that are equivalent to

[[Page 23104]]

NPAs and DPAs from the definition of Prohibited Misconduct in Section 
VI(s)(1) and second, by basing ineligibility as a result of Prohibited 
Misconduct defined in Section VI(s)(2) on a factual finding or 
determination by a court that the conduct described in Section 
VI(s)(2)(A) through (C) occurred, which should reduce the number of 
QPAMs that become ineligible. Moreover, the indemnification provision 
will ensure that Plans are not bearing the costs of ineligibility for 
QPAMs that become ineligible.

Both Categories of Prohibited Misconduct Only Will Apply Prospectively

    Finally, several commenters requested clarification that the 
Prohibited Misconduct provisions of Section VI(s)(1) and (2) will 
result in ineligibility of a QPAM only on a prospective basis. In 
response, the Department confirms that ineligibility tied to Prohibited 
Misconduct related to executing NPAs and DPAs in Section VI(s)(1) of 
the Final Amendment will be applied only on a prospective basis that 
commences on the execution date of NPAs or DPAs with a U.S. federal or 
state prosecutor's office or regulatory agency that falls on or after 
June 17, 2024.
    Similarly, under the Final Amendment, Section VI(s)(2) 
determinations of Prohibited Misconduct will apply prospectively as of 
the date of a court's final judgment or court-approved settlements that 
fall on or after June 17, 2024.

Violations of the Exemption and Misleading Statements

    One commenter requested that the Department provide examples of 
Prohibited Misconduct for violations of the exemption or misleading 
statements so that firms are not caught off guard for Participating In 
Prohibited Misconduct. Another commenter requested clarification that 
inadvertent technical errors, such as failure to timely notify the 
Department of a legal name change, should not be deemed to be providing 
materially misleading information to the Department. As a general 
matter, the Department's position is that such inadvertent technical 
errors do not result in Prohibited Misconduct, particularly when such 
errors are corrected consistent with ERISA and Code standards, as 
applicable. Similar to Convictions, the exemption's Prohibited 
Misconduct provisions are aimed at protecting Plans and IRA owners from 
conduct that calls into question a QPAMs integrity and compliance 
culture and inadvertent technical errors, especially such errors that 
are promptly corrected, should not amount to such conduct.
    With respect to mistakes in timely reporting a legal name change, 
the Department modified the reporting requirement in this Final 
Amendment to address such issues, as discussed above in connection with 
the reporting requirement. As discussed in detail above, the 
modifications in the Final Amendment to the definition of Prohibited 
Misconduct in Section V(s)(2) whereby requisite factual determinations 
are made through a judicial proceeding will put a QPAM and its 
Affiliates on notice regarding conduct that is defined as Prohibited 
Misconduct in Section V(s)(2)(A) through (C).

Section I(h)--Timing of Ineligibility

    The Proposed Amendment did not include any direct changes to the 
ten-year ineligibility period under current Section I(g).\46\ The 
Department added a new provision, Section I(h), that specified the 
timing of ineligibility. In the Proposed Amendment, for Prohibited 
Misconduct, the ineligibility period would have begun as of the date of 
a Written Ineligibility Notice, whereas, for a Criminal Conviction, it 
would have begun on the date the trial court enters its judgment.\47\ 
The Proposed Amendment clearly stated that for a foreign conviction, 
ineligibility would begin on ``the date of the judgment of any court in 
a foreign jurisdiction that is the equivalent of a U.S. federal or 
state trial court. . . .'' This refers to a trial court of original or 
primary jurisdiction, such as a court of first instance.\48\ The period 
of ineligibility would have begun on the conviction date, regardless of 
whether the judgment is appealed or the appeal has suspensive effect. 
Only upon a subsequent final judgment reversing the conviction would a 
person no longer be considered ``convicted'' for purposes of this 
exemption.
---------------------------------------------------------------------------

    \46\ The One-Year Transition Period, however, has an impact on 
how a QPAM approaches the first year after experiencing an 
ineligibility trigger.
    \47\ For convictions that also result in imprisonment of a 
person, the end of the ten-year period is counted from the date of 
release from imprisonment.
    \48\ This is generally considered to be the lowest level court 
in a particular jurisdiction that has the power to render a judgment 
of conviction.
---------------------------------------------------------------------------

    This Final Amendment retains the ineligibility start date for a 
Criminal Conviction as the date the trial court enters its judgment. 
However, because the Final Amendment does not include the proposed 
warning and Written Ineligibility Notice process, the timing for 
Prohibited Misconduct in Section I(h)(2) of the Final Amendment has 
been modified. In the Final Amendment, the ineligibility period for 
Participating In Prohibited Misconduct begins on the date, on or after 
June 17, 2024 that the QPAM, any Affiliate thereof (as defined in 
Section VI(d)), or any owner, direct or indirect, of a five (5) percent 
or more interest in the QPAM:
    (A) executes an NPA or DPA described in Section VI(s)(1)); or
    (B) is found or determined in a final judgment in certain federal 
or state court proceedings (regardless of whether the judgment is 
appealed) or a court-approved settlement to have Participated In the 
conduct that meets the definition of Prohibited Misconduct in Section 
VI(s)(2).
    In the Proposed Amendment the Department specifically sought 
comments on the timing of ineligibility. One commenter suggested that 
the Winding-Down (Transition) Period should be restructured into two 
distinct periods: the first to allow a QPAM to apply for an individual 
exemption, and the second period to prevent disruption and assist Plans 
in the event a transition is needed to a new QPAM. The Department 
believes it has functionally provided this structure in the Final 
Amendment. The One-Year Transition Period provides time for transition 
that was not previously included in the exemption. As noted earlier in 
this preamble, an ineligible QPAM should initiate an individual 
exemption request as soon as it reasonably believes its Plan clients 
likely will be harmed without additional prohibited transaction relief 
after the Transition Period ends. The Department notes that it will 
continue to consider individual exemption requests for ineligible QPAMs 
to be able to continue providing services, as well as requests for 
additional transitional relief to allow their client Plans to search 
for and hire a new asset manager.
    Proposed Section I(i) \49\--Warning and Opportunity to be Heard in 
Connection With Prohibited Misconduct--Written Ineligibility Notice
---------------------------------------------------------------------------

    \49\ Certain sections of the Final Amendment have been 
renumbered and Section I(i) in the Final Amendment has been 
redesignated as the One-Year Transition Period Due to Ineligibility.
---------------------------------------------------------------------------

    The Department proposed an additional process that would be tied to 
a determination that a QPAM had participated in Prohibited Misconduct. 
In the proposal, before issuing a Written Ineligibility Notice in 
connection with Prohibited Misconduct to the QPAM, the Department 
indicated it would have issued a written warning, identified the 
Prohibited Misconduct, and provided 20

[[Page 23105]]

days for the QPAM to respond. The Proposed Amendment also indicated 
that if the QPAM failed to respond to the written warning within 20 
days, the Department would have issued the Written Ineligibility 
Notice. However, if the QPAM responded within the 20-day timeframe, the 
Department would have provided the QPAM with the opportunity to be 
heard either in person (including by phone or a videoconference) or in 
writing, or a combination of both, before the Department decided 
whether it would have issued the Written Ineligibility Notice.
    As discussed under the Specific Comments Regarding Prohibited 
Misconduct under the Written Ineligibility Notice Process heading 
above, some commenters questioned the sufficiency of the process 
leading to a warning letter and Written Ineligibility Notice, citing 
due process concerns and specifically, the lack of an adversarial 
process adjudicated by an independent third party (such as review by an 
administrative law judge or federal court). Relatedly, another 
commenter indicated that these provisions within the Proposed Amendment 
would have provided the Department with too much discretion to cause a 
QPAM's ineligibility. One commenter specifically noted the additional 
due process protections provided through the court system for Criminal 
Convictions are not present for a QPAM that Participates In Prohibited 
Misconduct. Another commenter noted that the lack of an appeals process 
as part of the proposed Written Ineligibility Notice process could 
provide the Department with unchecked power.
    As more fully discussed above under the Specific Comments Regarding 
Prohibited Misconduct under the Written Ineligibility Notice Process 
heading, in response to the process concerns expressed by commenters, 
the Department has removed the proposed warning letter and Written 
Ineligibility Notice process and modified the definition of Prohibited 
Misconduct under Section VI(s). Removing the proposed warning letter 
and Written Ineligibility Notice process from this Final Amendment, and 
instead providing that a QPAM's ineligibility under Section VI(s)(2) 
only occurs after a Conviction, a court's final judgment, or a court-
approved settlement, will afford QPAMs, their Affiliates, and owners of 
a five (5) percent or more interest with substantial due process in a 
legal proceeding that is overseen by a court, not the Department. Also, 
this Final Amendment provides that ineligibility occurs under Section 
VI(s)(1) when a QPAM, any Affiliate thereof (as defined in Section 
VI(d)), or any owner, direct or indirect, of a five (5) percent or more 
interest in the QPAM executes an NPA or DPA with a U.S. federal or 
state prosecutor's office or regulatory agency, which generally will 
afford QPAMs and their Affiliate(s) and owner(s) with the due process 
protections that are associated with related criminal investigations.

Section I(i)--Mandatory One-Year Transition Period

    Certain sections of the Final Amendment have been renumbered and 
Proposed Section I(j) is now Section I(i) in the Final Amendment. As 
part of the Proposed Amendment, the Department included a mandatory 
one-year Winding-Down Period that would have begun on the Ineligibility 
Date. The Winding-Down Period was designed to provide Plans with the 
ability to wind down their relationships with a QPAM immediately after 
the QPAM becomes ineligible to rely on the exemption. Satisfaction of 
the conditions of the Winding-Down Period would affect the availability 
of relief for all transactions covered by this exemption. As proposed, 
the Department intended to include relief for past transactions and any 
transaction continued during a one-year Winding-Down Period.
    One commenter indicated that the term ``winding-down'' was 
pejorative and should be replaced with more neutral nomenclature such 
as a term indicating it is a transition period. The Department did not 
intend for the term to be pejorative. Therefore, the Department has 
substituted the word ``Transition'' for ``Winding-Down'' to avoid the 
possible unintended implication that the Department intended the term 
``Winding-Down'' to mean that the QPAM was necessarily going out of 
business as a QPAM on the Ineligibility Date. The Department stresses, 
however, that future relief based on an individual exemption 
application is not guaranteed, and the new term should not be read to 
suggest otherwise.
    As noted above, the QPAM is free to apply for an individual 
exemption that would enable it to continue its eligibility to act as a 
QPAM and engage in transactions that would otherwise be prohibited 
after the expiration of the Transition Period, although there is no 
guarantee that the Department will grant such an exemption. Prohibited 
transaction relief during the Transition period would be subject to 
compliance with all conditions of the exemption except Section I(g)(3), 
which is renumbered Section I(g)(1) in this Final Amendment.
    The Proposed Amendment provided that once the Transition Period 
begins, relief under the QPAM Exemption would only be available for 
transactions undertaken for the QPAM's existing clients--i.e., the 
QPAM's client Plans that had a pre-existing Written Management 
Agreement (as required under Section VI(a)) on the Ineligibility Date 
for transactions entered into before the Ineligibility Date. Thus, 
after the Ineligibility Date, the QPAM would be prohibited from 
engaging in new transactions in reliance on the QPAM Exemption for 
existing client Plans. Additionally, if the QPAM obtained new client 
Plans during the Transition Period, the Proposed Amendment would not 
provide relief under the QPAM Exemption for any transactions the QPAM 
entered into on their behalf, unless such relief was granted in a 
separate individual exemption.
    The Department designed the proposed Transition Period to mitigate 
the cost and disruption to Plans, their participants and beneficiaries, 
and IRA owners that can occur when a QPAM becomes ineligible for 
relief. The proposed One-Year Transition Period was intended to give a 
QPAM's client Plans time to decide whether to hire an alternative 
discretionary asset manager that is eligible to operate as a QPAM or 
continue their relationship with the ineligible QPAM. The Department 
believed that a One-Year Transition Period would be necessary to ensure 
that Plans have sufficient time to engage in a search for an 
alternative QPAM or discretionary asset manager if they decide it is in 
the Plan's best interest to do so.
    The proposed Transition Period conditions required the QPAM to 
provide notice of its ineligibility to its existing client Plans and 
the Department (via [email protected]) within 30 days after the 
Ineligibility Date. The proposed notice was required to: (1) include an 
objective description of the facts and circumstances upon which the 
Criminal Conviction or Written Ineligibility Notice \50\ is based; (2) 
be written with sufficient detail, consistent with the QPAM's duties of 
prudence and undivided loyalty under ERISA, to fully inform a Plan 
fiduciary of the nature and severity of the criminal conduct or 
Prohibited Misconduct; and (3) be sufficient enough to enable such Plan 
fiduciary to satisfy its fiduciary duties of

[[Page 23106]]

prudence and loyalty under Title I of ERISA when hiring, monitoring, 
evaluating, and retaining the QPAM.
---------------------------------------------------------------------------

    \50\ The Written Ineligibility Notice has been removed from this 
Final Amendment therefore, the term ``Written Ineligibility Notice'' 
in Section I(i) has been replaced with the term ``Prohibited 
Misconduct'' in the Final Exemption.
---------------------------------------------------------------------------

    The Proposed Amendment required that within 30 days after the 
Ineligibility Date, the QPAM would have to notify its client Plans 
that, as required by the proposed WMA provisions, the QPAM will not 
restrict the client's ability to terminate or withdraw from its 
arrangement with the QPAM. Thus, the QPAM would not be permitted to 
impose any fees, penalties, or charges on client Plans in connection 
with the process of terminating or withdrawing from a QPAM-managed 
Investment Fund except for reasonable fees, appropriately disclosed in 
advance, that are specifically designed to prevent generally recognized 
abusive investment practices or 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. If such fees, penalties, or charges occur, they must be 
applied consistently and in a like manner to all such investors.
    The Proposed Amendment also required the QPAM to indemnify, hold 
harmless, and promptly restore losses to each client Plan for any 
damages resulting from a violation of applicable laws, a breach of 
contract, or any claim arising out the QPAM's ineligibility. For 
purposes of this provision, the Proposed Amendment indicated that 
actual losses specifically include losses and costs arising from 
unwinding transactions with third parties and from transitioning Plan 
assets to an alternative discretionary asset manager.
    Additionally, to ensure Plans were protected from bad actors, the 
Proposed Amendment required the QPAM not to employ or knowingly engage 
any individual that Participated In conduct that is the subject of a 
Criminal Conviction or Prohibited Misconduct. For Criminal Convictions, 
this would apply regardless of whether the individual is separately 
convicted in connection with the criminal conduct. The Proposed 
Amendment indicated that the QPAM must adhere to this requirement no 
later than the Ineligibility Date.
    Finally, the Proposed Amendment prohibited the QPAM from relying on 
the relief provided in the QPAM Exemption after the One-Year Transition 
Period unless the Department granted the QPAM an individual exemption 
allowing it to continue relying upon the exemption. The Proposed 
Amendment provided that the Transition Period would not be suspended 
while an individual exemption application is pending with the 
Department.
    The Department requested comments on the Transition Period, 
including whether one year is the appropriate length of time and 
whether there are additional protections for Plan participants and 
beneficiaries and IRA owners that the Department should consider.
    Many commenters argued that the proposed prohibition on the QPAM 
engaging in any new transactions during the Transition Period, even for 
existing clients, should be removed. These commenters indicated that 
QPAMs who become ineligible should be permitted to make new investments 
during the Transition Period on behalf of their client Plans that 
conform to investment guidelines approved by a Plan fiduciary during 
the Transition Period. In support of this position, commenters 
indicated that when QPAMs have been engaged to carry out an investment 
strategy that requires them to continually make new investments, the 
proposed prohibition on engaging in new transactions for existing 
clients could be particularly detrimental. For instance, there could be 
a series of transactions that require ongoing adjustments (such as in 
the case of swaps and other derivatives), and an inability to adjust 
these transactions could detrimentally impact the QPAM's client Plans 
and counterparties alike.
    After considering these comments, the Department agrees that to 
avoid the potential harm that QPAMs' client Plans could suffer if their 
investments are effectively frozen, it is appropriate to remove the 
prohibition on QPAMs entering into new transactions for existing client 
Plans during the Transition Period. The Department reminds QPAMs that 
they must meet their fiduciary obligations of prudence and loyalty set 
forth in ERISA section 404 when making investment decisions on behalf 
of their ERISA-covered Plan clients and IRA clients (to the extent that 
ERISA section 404 is applicable) during the Transition Period.
    One commenter suggested that the Department included the Transition 
Period provisions in the Proposed Amendment because it clearly assumed 
that QPAMs' client Plans would want to fire their asset manager. The 
Department did not intend to convey this view in the Proposed 
Amendment. The Department included this provision in the Proposed 
Amendment to provide an ineligible QPAM's client Plans with an off-ramp 
if they choose to terminate their relationship with the asset manager. 
The Department's sole reason for including the Transition Period 
provisions is to protect the affected Plans. Thus, for example, if a 
Plan chooses to retain its relationship with a QPAM that becomes 
ineligible, it may do so, but the Department's intention is to prevent 
Plans from being locked into a contractual arrangement with an 
ineligible QPAM.
    Multiple commenters indicated that the process for replacing a 
larger Plan's investment manager typically takes more than one year and 
suggested alternative timeframes for the Transition Period. For 
example, commenters suggested the Department extend the Transition 
Period to at least 18 months or two years, and another commenter 
offered the alternative of having the Transition Period last at least 
until after the Department makes a final determination regarding 
whether to grant or deny the QPAM's individual exemption application.
    After considering these comments, the Department decided not to 
change the timeframe for the Transition Period in the Final Amendment. 
The Department recognizes that in some cases a longer Transition Period 
could be necessary but determined the best way to address this 
circumstance is through the individual exemption process on a case-by-
case basis. Performing the necessary analysis during the individual 
exemption process will ensure the Department has sufficient information 
to appropriately consider whether additional protections are necessary 
for impacted Plans based on the QPAM's particular facts and 
circumstances. The Department does not believe it is appropriate to 
extend the Transition Period until a formal decision on an individual 
exemption has been made as the Department processes individual 
exemption applications on a case-by-case basis and the timeframes for 
each case vary. Therefore, the duration of the Transition Period would 
be uncertain.
    One commenter noted that the Department's participant disclosure 
regulation requires any change to a defined contributions plan's 
designated investment alternatives to be disclosed to participants at 
least 30 days (but not more than 90 days) in advance. The commenter 
indicated that it appeared that the Department has not considered the 
practical limitations of such notices on the duration of the Transition 
Period. The one-year duration of the Transition Period, however, 
provides more than sufficient time to accommodate the requirements of 
the participant disclosure regulation. If additional relief is needed 
beyond the one-year period, the QPAM may request a supplemental 
individual exemption to ensure that such a change is made accordingly.

[[Page 23107]]

    One commenter asserted that the Proposed Amendment did not clearly 
indicate the QPAM's obligations to non-ERISA investors in a pooled fund 
or how these investors would be treated. Another commenter suggested 
that the Department should focus on the issue of pooled funds, where 
QPAMs will need to balance the interests of Plans leaving the fund with 
those Plans remaining in the fund. The Proposed Amendment and this 
Final Amendment treat non-ERISA and Plan investors in a similar manner 
to the way the Department has addressed this issue in individual 
exemptions related to Section I(g) ineligibility. Specifically, the 
provision prohibiting a QPAM from imposing fees, penalties, or charges 
in the Proposed Amendment includes an explicit exception for 
``reasonable fees, appropriately disclosed in advance, that are 
specifically designed to: (a) prevent generally recognized abusive 
investment practices or (b) 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, provided that such fees 
are applied consistently and in a like manner to all such investors.'' 
The Department has retained this exception in this Final Amendment, 
which addresses the commenter's concern.
    Some commenters indicated that Plans should be given more control 
over the decision to continue relying on the QPAMs. The commenters 
suggested that the Department give Plans the ability to decide whether 
to terminate or withdraw from their relationship with a QPAM and the 
flexibility to determine a timeline for withdrawal. One commenter 
asserted that Plans choose asset managers based on their reputation and 
expertise in specific areas of asset management. The commenter added 
that the Plan is in the best position to determine whether it is in the 
Plan's best interests to terminate or withdraw from their relationship 
with the QPAM. As discussed above, however, ultimately the decision on 
whether to grant relief from ERISA and the Code's prohibited 
transaction provisions rests with the Department. In the Department's 
view, the individual exemption process provides a full, fair, and open 
process for the Department to determine whether a QPAM should be 
permitted to engage in otherwise prohibited transactions post-
conviction, and if so, the conditions which should be placed on such 
relief. To the extent QPAMs obtain such individual exemptions, Plans 
remain free to rely upon them to engage in transactions that would 
otherwise be prohibited if the QPAMs meet the conditions that are 
specified in the exemptions.
    Finally, one commenter noted that to fully effectuate the intent of 
the Transition Period provisions for stable value investment contracts, 
the length of the period should be based on the duration of the 
underlying investment portfolio or as otherwise provided under the 
terms of the contract for an extended or amortized termination. The 
Department declines to give preferential treatment to QPAMs responsible 
for such investment contracts in this manner. Here too, the individual 
exemption process is best suited to address any specific issues or 
concerns based on the nature of the QPAM's investments or investment 
practices.
    Finally, the Department made a few additional ministerial changes 
to the Transition Period provisions in the Final Amendment. First, the 
Department capitalized the term ``Transition Period.'' \51\ Second, the 
Department modified the first sentence of the Transition Period 
provision to clarify its focus on client Plans, by replacing the phrase 
``engage in'' with ``provide,'' and by dividing the first sentence into 
two sentences to improve readability. Third, the Department replaced 
the Proposed Amendment's reference to subsection I(g)(2) (regarding the 
WMA) with a reference to subsection I(i) because the Department moved 
the WMA requirements to this subsection. Finally, as noted above, since 
the Written Ineligibility Notice provisions have been removed from the 
Final Amendment, the term ``Written Ineligibility Notice'' as used in 
this Section in the Proposed Amendment, now has been replaced with the 
term ``Prohibited Misconduct.''
---------------------------------------------------------------------------

    \51\ The Department capitalized the term in other Sections of 
the Final Amendment as well.
---------------------------------------------------------------------------

Section I(j)--Requesting an Individual Exemption

    The Proposed Amendment included a new Section I(k),\52\ which 
provided that a QPAM that is ineligible or anticipates becoming 
ineligible may apply for supplemental individual exemption relief. The 
Proposed Amendment's Section I(k) instructed an applicant, as part of 
such a request, to review the Department's most recently granted 
individual exemptions involving Section I(g) ineligibility with the 
expectation that similar conditions will be required if an exemption is 
proposed and granted. Proposed Section I(k) also indicated that if an 
applicant wished to exclude any term or condition from its exemption, 
the applicant would need to accompany such request with a detailed 
explanation of the reason such change is necessary and in the interest 
of and protective of the Plan, its participants and beneficiaries, and 
IRA owners. Proposed Section I(k) indicated that the Department would 
review such requests consistent with the requirements of ERISA section 
408(a) and Code section 4975(c)(2).
---------------------------------------------------------------------------

    \52\ Section I(k) of the Proposed Amendment has been renumbered 
in the Final Amendment as Section I(j).
---------------------------------------------------------------------------

    To facilitate the processing of an individual exemption 
application, proposed Section I(k) also instructed applicants to 
provide detailed information in their applications quantifying the 
specific cost or harms in dollar amounts, if any, that Plans would 
suffer if a QPAM could not rely on the exemption after the Transition 
Period, including the specific dollar amounts of investment losses 
resulting from foregone investment opportunities and any evidence 
supporting the proposition that investment opportunities would only be 
available to Plans on less advantageous terms.
    Proposed Section I(k) also indicated that an applicant should not 
construe the Department's acceptance of an individual exemption 
application as a guarantee that the Department will grant an individual 
exemption. Therefore, a QPAM that submits an individual exemption 
application must ensure that it manages Plan assets prudently and 
loyally during the Transition Period with the understanding that final 
approval of an individual exemption is not guaranteed.
    The Proposed Amendment reinforced that for the Department to make 
the necessary statutory findings under ERISA section 408(a) and Code 
section 4975(c)(2), applicants also should anticipate that the 
Department may condition individual exemptive relief on a certification 
by a senior executive officer of the QPAM (or comparable person) that: 
(1) all of the conditions of the Transition Period were met, and (2) an 
independent audit reviewing the QPAM's compliance with the conditions 
of the Transition Period has been completed.\53\ QPAMs affected by a 
conviction also should not wait until late in the Transition Period to 
apply for an individual exemption.
---------------------------------------------------------------------------

    \53\ The Department additionally clarifies that the 
certification of the independent audit would come at some point 
after an individual exemption is granted and the One-Year Transition 
Period has ended.
---------------------------------------------------------------------------

    The Department received a few comments on this new provision. One 
commenter noted that the conditions that have been incorporated into 
the most recent individual exemption that

[[Page 23108]]

apply to a particular QPAM may not be appropriately tailored to a 
subsequent application and fact pattern. Another commenter indicated 
that the Department is increasingly adopting onerous conditions for 
granting individual exemptions and seems even less likely to grant 
them. Yet another commenter opined that an ineligible QPAM may be 
unlikely to receive an individual exemption that is usable.
    Considering the serious corporate criminal misconduct the 
Department has seen in Section I(g) individual exemption applications 
and audits submitted to the Department as required by granted 
individual exemptions, the Department remains convinced that the proper 
starting point for individual exemption conditions should be the 
Department's most recently-issued individual exemptions. This 
procedural standpoint is neither new nor undisclosed. For decades, the 
Department has generally crafted proposed exemptions for similarly 
situated applicants that contain similar conditions, subject to the 
Department's periodic reevaluation of the exemption conditions to 
ensure that they remain appropriately protective for the Department to 
make the findings required by ERISA section 408(a) and Code section 
4975(c)(2).
    The Department will consider the individual facts and circumstances 
of each application, but Section I(j) (formerly section I(k) in the 
Proposed Amendment) is intended to clearly provide the appropriate 
starting point for applicants that are preparing an exemption 
application in connection with Section I(g) ineligibility. Regarding 
the commenter's reference to the Department's onerous conditions, over 
the past decade, the Department's experience indicates that QPAM 
ineligibility under Section I(g) has occurred in most cases due to 
serious corporate criminal misconduct. The Department believes that it 
has tailored the conditions of the most recent Section I(g) individual 
exemptions to appropriately address the potential for significant 
financial harm to Plans, while providing workable relief. Moreover, if 
a QPAM is concerned about the usability of a Section I(g) individual 
exemption, then the QPAM, its Affiliates, and owners of a five (5) 
percent or more interest may structure their conduct to avoid engaging 
in transactions that are otherwise legally prohibited or rely on 
exemptions other than the QPAM Exemption to avoid the consequences that 
result from Section I(g) ineligibility.
    The Department also notes that applicants may request more limited 
relief than the QPAM Exemption otherwise provides. For example, a QPAM 
may only need prohibited transaction relief for a particular limited 
category of transactions, such as an on-going lease that was entered 
into on behalf of an Investment Fund which is expected to continue past 
the One-Year Transition Period. In such circumstances, due to the 
limited nature of the transaction(s) for which relief is sought, 
applicants should discuss the terms and conditions of prior individual 
exemptions involving Section I(g) in connection with a request for more 
limited prohibited transaction relief. The applicant also should 
include a detailed explanation in its application regarding how Plans 
will be otherwise protected and why the transaction cannot be unwound 
before the end of the Transition Period without harm or losses to such 
Plans.
    Finally, the Department reminds any applicant anticipating that it 
will need relief beyond the end of the One-Year Transition Period to 
apply to the Department for an individual exemption as soon as 
practicable. As a fiduciary, the QPAM has obligations with respect to 
Plans beyond those required by the QPAM Exemption and should approach 
the Department at the earliest point it appears a conviction will 
occur, such as when a plea agreement has been entered into--even if the 
conviction date has not yet been set--to ensure that appropriate steps 
can be taken by or on behalf of its client Plans ultimately impacted by 
the QPAM's loss of exemptive relief.

Section I(c)--Involvement in Investment Decisions by a Party in 
Interest

    The Proposed Amendment included modifications to Section I(c) of 
the QPAM exemption that are consistent with the Department's original 
intent when granting the exemption. In the 1984 grant notice, the 
Department stated that an essential premise of the exemption is that 
broad prohibited transaction relief can be afforded only if the 
negotiations leading to, and the commitments and investments of, plan 
assets are the sole responsibility of an independent investment 
manager. The Department reasoned in the 1984 grant notice that the 
potential for decision making with regard to plan assets that would 
inure to the benefit of a party in interest would be increased if 
exemptive relief were provide in circumstances where the QPAM has less 
than ultimate discretion over acquisitions for an investment fund that 
it manages.\54\
---------------------------------------------------------------------------

    \54\ 49 FR at 9497.
---------------------------------------------------------------------------

    The proposed new language in Section I(c) was intended to make 
clear that a QPAM must not permit a Party in Interest to make decisions 
regarding Plan investments under the QPAM's control. The Proposed 
Amendment included in the opening of Section I(c) a statement providing 
that the terms of the transaction, ``commitments, investment of fund 
assets, and any corresponding negotiations on behalf of the Investment 
Fund are the sole responsibility of the QPAM. . . .'' \55\ The 
Department also proposed to add language at the end of Section I(c) 
stating that the prohibited transaction relief in the exemption applies 
``only in connection with an Investment Fund that is established 
primarily for investment purposes'' and that ``[n]o relief is provided 
under this exemption for any transaction that has been planned, 
negotiated, or initiated by a Party in Interest, in whole or in part, 
and presented to a QPAM for approval because the QPAM would not have 
sole responsibility with respect to the transaction as required by this 
section I(c).'' \56\ For example, as stated in 1982 proposal for the 
QPAM Exemption, a plan sponsor that negotiates a transaction and then 
presents it to a QPAM for approval would not qualify for the relief in 
the class exemption. The 1982 proposal further states that the relief 
in the proposed exemption would be available even though the transfer 
of assets by a plan to a QPAM is subject to general investment 
guidelines, so long as there is no arrangement, direct or indirect, for 
the QPAM to negotiate, or engage in, any specific transaction or to 
benefit any specific person.\57\
---------------------------------------------------------------------------

    \55\ 87 FR at 45227.
    \56\ Id.
    \57\ 47 FR at 56947.
---------------------------------------------------------------------------

    The Department received numerous comments regarding the proposed 
changes to the wording of Section I(c). Some of these commenters 
indicated their understanding of the Department's view that a QPAM 
should not act as a rubber stamp to approve transactions designed by 
the Party in Interest who appointed the QPAM. Similarly, commenters 
indicated they shared the goal of preventing the QPAM Exemption from 
being abused, i.e., a QPAM being used to ``sanitize'' a transaction 
where there is an underlying goal to avoid the restrictions of the 
prohibited transaction rules. One commenter also indicated that it 
understood the Department has long maintained that QPAMs should not 
simply act as ``mere independent approvers'' but should be intimately 
involved in the negotiation and approval of the transaction. The

[[Page 23109]]

commenter believed that this interpretation is widespread in the market 
and needs no clarification. Another commenter also indicated that the 
original QPAM Exemption was clear and understood by practitioners--a 
named fiduciary could not appoint a QPAM to approve a pre-negotiated 
transaction nor could the appointing fiduciary retain a veto or 
approval right over any transaction.
    Commenters also raised a variety of other general issues and 
concerns with the proposed changes to Section I(c). One commenter noted 
that the Department has not identified any evidence of harm 
necessitating changes to the language of Section I(c). Another 
commenter suggested that any proposal to make changes to the way 
various Plan fiduciaries interact with QPAMs should be the subject of a 
separate, carefully crafted proposal with stakeholder input and 
regulatory cost analysis. A commenter also asked whether the 
Department's clarifications were meant to refer to Plan sponsors 
instead of a Party in Interest with no ability to meaningfully 
influence a transaction.
    The Department has an ongoing interest and responsibility under 
ERISA section 408(a) and Code section 4975(c)(2) to revisit and update 
exemptions on an ongoing basis to ensure that that they maintain their 
protective purpose. Although Section I(a) of the exemption directly 
addresses Plan sponsors, Section I(c) provides additional protections 
that also apply to the Plan sponsor. These conditions are intended to 
work together, not separately, to prevent a Plan sponsor from 
attempting to influence a transaction. To the extent QPAMs are already 
fully complying with the Department's expectation of independent 
judgment, and not acting as mere rubber stamps, appropriate clarifying 
language should impose no additional burden. It is essential to the 
achievement of the exemption's aims, however, that the Department's 
expectations be clear in this regard.
    Modifications to Section I(c) are appropriate to ensure the 
Department's intent is understood by practitioners, QPAMs, and their 
client Plans. It is also important for QPAMs to be mindful of the 
requirements of the exemption rather than simply deriving the benefits 
of calling themselves QPAMs while ignoring the QPAM Exemption's core 
requirements and protective intent. Moreover, the Department notes that 
Section I(c) requires the asset manager to act independently, as a 
general matter, from Plan sponsors and Parties in Interest. Without an 
overarching compliance-focused approach to its asset management 
arrangement and Section I(c), the protective purpose of ensuring the 
QPAM's independence is undermined.
    Commenters raised a variety of other topics, such as: (1) the 
amount of permitted involvement by a Party in Interest/Plan sponsor in 
investment decisions, including voting proxies; (2) arrangements that 
involve multiple investment managers; (3) transactions initiated or 
negotiated by a Party in Interest; (4) sub-advisers and collective 
investment trusts; (5) pension risk transfers; (6) an Investment Fund 
established primarily for investment purposes; (7) eliminating all the 
changes in the Proposed Amendment; and (8) alternatives to the changes 
in the Proposed Amendment. The Department revised the wording of 
Section I(c) in this Final Amendment in response to some of these 
comments, as discussed below. However, the Department reemphasizes that 
the role of the QPAM under the terms of the exemption is not to act as 
a mere independent approver of transactions. Rather, the QPAM must have 
and exercise sole discretion over the commitments and investments of 
Plan assets and the related negotiations on behalf of the Plan with 
respect to an Investment Fund that is established primarily for 
investment purposes for the relief provided under the exemption to 
apply.

Involvement in Investment Decisions

    One commenter opined that Plan sponsors and Plan fiduciaries should 
be able to have meaningful involvement in the process of negotiating an 
investment contract's investment guidelines without affecting the 
ability of the investment manager to rely on the QPAM Exemption. 
Another commenter requested that the Department clarify that routine 
monitoring meetings and inquiries by Plan fiduciaries with respect to a 
manager's trading strategies do not constitute ``planning.'' One 
commenter also requested clarification that nothing in the Proposed 
Amendment would prevent the trustees of multiemployer plans from 
retaining or delegating the right to vote proxies held by the QPAM, or 
to exercise other similar shareholder rights, even if such proxies or 
rights relate to investments in a Party in Interest.
    The Department notes that routine monitoring of meetings and 
inquiries by Plan fiduciaries would not be considered ``planning'' for 
purposes of Section I(c). This type of involvement is consistent with a 
fiduciary's obligations under ERISA section 404 and the Department's 
prior guidance regarding investment guidelines that may be provided to 
the QPAM. For clarity, the Department is changing the word ``because'' 
to ``to the extent'' in the proposed sentence:
    No relief is provided under this exemption for any transaction that 
has been planned, negotiated, or initiated by a Party in Interest, in 
whole or in part, and presented to a QPAM for approval because the QPAM 
would not have sole responsibility with respect to the transaction as 
required by this Section I(c).
    That sentence now reads:
    No relief is provided under this exemption for any transaction that 
has been planned, negotiated, or initiated by a Party in Interest, in 
whole or in part, and presented to a QPAM for approval to the extent 
the QPAM would not have sole responsibility with respect to the 
transaction as required by this Section I(c).
    With respect to proxies and exercising other shareholder rights, 
the Department notes that the QPAM Exemption was never intended to 
cover transactions in which a Party in Interest is making the decisions 
pertaining to specific transactions. The possibility that Plan 
fiduciaries have been relying upon the QPAM Exemption for such 
transactions highlights one of the reasons the Department proposed 
changes to Section I(c). The Department would generally consider 
reliance on the QPAM Exemption in these cases to be an abuse or misuse 
of the QPAM Exemption.\58\ Importantly, as the Department stated in the 
preamble of the original granted exemption in 1984, the Department 
``does not interpret Section I(c) as exempting a subsidiary transaction 
unless such transaction is itself subject to relief under the class 
exemption and the applicable conditions are met.'' \59\
---------------------------------------------------------------------------

    \58\ Any parties that require more detailed guidance on the 
applicability of the QPAM Exemption to certain transactions may 
submit an advisory opinion request to the Department.
    \59\ 49 FR at 9497.
---------------------------------------------------------------------------

Multiple Investment Managers

    Commenters indicated that Plan sponsors often hire multiple 
investment managers to execute the Plan's overall investment strategy 
with each manager being given certain assets to manage in a particular 
manner. And since only the Plan sponsor knows the overall strategy, it 
is natural and beneficial for the Plan sponsor to be able to have 
ongoing dialogues with their managers without those dialogues 
disqualifying the manager from serving as a QPAM.
    The Department notes that the proposed changes to Section I(c) were 
not intended to prevent Plan sponsors

[[Page 23110]]

from having ongoing dialogue with an investment manager. The 
Department's intent and additional clarification regarding the proposed 
changes re-emphasize that a Plan sponsor can provide investment 
guidelines to a QPAM. The natural corollary would be for Plan sponsors 
to revisit those investment guidelines at appropriate intervals. One of 
the Department's key points with the proposed changes to Section I(c) 
is that any direction from a Plan sponsor or other Party in Interest 
for a QPAM to engage in a particular transaction would be contrary to 
the intent of Section I(c). A Plan sponsor that utilizes multiple 
QPAMs, however, may interact with each manager as part of a larger 
overall investment strategy as long as the QPAMs retain the sole 
authority to engage in transactions in accordance with the strategy, 
and there is no direct or indirect arrangement for any QPAM to 
negotiate, or engage in, any specific transaction or to benefit any 
specific person.

Initiating, Planning, and Negotiation Transactions

    Many commenters raised concerns regarding the use of the word 
``initiate'' in the Department's proposed changes to Section I(c). Some 
commenters expressed concern because Investment Fund transactions in 
derivatives or other investment products that are developed and pitched 
to a QPAM by a financial institution acting as a service provider to 
the QPAM--a common scenario in the derivatives market--could be 
interpreted as initiated by a Party in Interest. Commenters also 
indicated that even if a transaction is not of a type that is 
customarily negotiated, the counterparty Party in Interest would still 
be involved. A few commenters opined that the reference to a 
transaction being ``negotiated'' by the Party in Interest and then 
``presented to a QPAM for approval'' is sufficient to achieve the 
Department's objective. Further, a commenter indicated that the 
proposed amendments mischaracterize the actual application of a QPAM's 
discretionary authority. This commenter indicated that if not 
eliminated, the terms ``planned,'' ``negotiated,'' and ``initiated'' 
should be clarified to address the Department's concerns more directly. 
For example, if the Department is concerned about the practice of 
hiring a QPAM for the sole purpose of approving a particular 
transaction already contemplated and/or negotiated by another Plan 
fiduciary, the Department should craft language more narrowly aimed at 
preventing this situation.
    The Department notes that whether a particular sales pitch or an 
offer of an investment product from a Party in Interest would run afoul 
of the intent of Section I(c), including the proposed changes, depends 
on the associated facts and circumstances. It would be inappropriate 
for the Department to embed these facts and circumstances into an 
exemption condition, because the exemption would become unduly complex 
and unworkable. As a general matter in this regard, QPAMs should 
interpret the protective nature of Section I(c) expansively and avoid 
responding to any sales pitch or offer with respect to a proposed 
transaction that would call into question whether the QPAM is 
ultimately solely responsible for planning, negotiating, and initiating 
the transaction.
    In order to further clarify this concept, the Department has added 
the following sentences to Section I(c): ``In exercising its authority, 
the QPAM must ensure that any transaction, commitment, or investment of 
fund assets for which it is responsible are based on its own 
independent exercise of fiduciary judgment and free from any bias in 
favor of the interests of the Plan sponsor or other parties in 
interest. The QPAM may not be appointed or relied upon to uncritically 
approve transactions, commitments, or investments negotiated, proposed, 
or approved by the Plan sponsor, or other parties in interest.''

Sub-Advisers and Collective Investment Trusts

    A few commenters indicated that the Department's proposed language 
could be interpreted to restrict the use of sub-advisers by a QPAM, 
including in the context of collective investment trusts (CITs). 
Commenters indicated that utilizing sub-advisers to make 
recommendations for certain investments in which they specialize or 
possess expertise is important because a QPAM may otherwise be 
compelled to do its own research before investing Plan assets, even 
when the QPAM can more readily rely upon a sub-adviser with specialized 
expertise regarding certain types of assets. Commenters noted that 
QPAMs regularly delegate certain investment responsibilities to a sub-
adviser but retain authority to approve transactions. With respect to 
CITs, commenters indicated that in order to comply with securities and 
banking laws, the sponsoring trust company generally retains ultimate 
investment authority, but typically appoints a sub-adviser who invests 
the CIT's assets on a day-to-day basis. Commenters felt the proposed 
revision to Section I(c) would present a structural conundrum for CITs 
and their providers given the standards imposed by the federal 
securities laws and OCC regulations. According to commenters, the 
proposed language requires that the QPAM have the ``sole authority'' 
over the transaction. Commenters indicated that neither the sponsoring 
trust company nor sub-adviser have the sole authority, although both 
are fiduciaries under ERISA and may need to rely on the QPAM Exemption.
    The Department expects that a QPAM may rely on the specific 
expertise of a prudently selected and monitored entity to assist the 
QPAM in prudently managing Plan assets. Therefore, a QPAM's delegation 
of certain investment-related responsibilities to a sub-adviser does 
not, by itself, violate Section I(c), as long as the QPAM retains sole 
authority with respect to planning, negotiating, and initiating the 
transactions covered by the QPAM Exemption. A QPAM should not ``more 
readily'' rely on a sub-adviser that has specialized expertise, in 
order to engage in a particular transaction, if the reliance means that 
the QPAM would not have sole authority with respect to planning, 
negotiating, and initiating the transaction.
    Furthermore, parties that participate in arrangements that do not 
clearly identify which party has the ultimate responsibility and 
authority to engage in a particular transaction should not assume that 
the transaction is permitted by the QPAM Exemption. The Department 
recommends that affected parties involved in such transactions seek an 
advisory opinion or request other guidance from the Department 
regarding whether the QPAM Exemption is available for such 
transactions.

Pension Risk Transfers

    One commenter suggested the proposed changes to Section I(c) could 
render the QPAM Exemption unavailable for pension risk transfers where 
a Plan purchases an annuity from an insurance company in connection 
with the termination of the Plan or to annuitize a subset of the Plan's 
participant population. The commenter did not provide specific details 
as to what aspects of proposed Section I(c) would potentially create 
problems for this type of transaction, however. The QPAM Exemption is 
designed to accommodate a broad range of prudent investment 
transactions, and the Department does not believe that the exemption 
poses any special impediment to such transactions as they may relate to 
pension risk transfers. If

[[Page 23111]]

the commenter's concerns remain after it considers the Department's 
modifications to Section I(c) in the Final Amendment, the affected 
parties may seek an advisory opinion or request other guidance from the 
Department regarding whether the QPAM Exemption is available for such 
transactions.

Fund Established Primarily for Investment Purposes

    In connection with the Department's proposed language that the 
Investment Fund must be established primarily for investment purposes, 
one commenter requested the Department clarify that this includes a 
fund that is established for mixed-use purposes that contains an 
investment component. The commenter indicated the fund may have certain 
non-investment purposes, such as the payment of benefits and Plan 
expenses. Another commenter indicated that the QPAM Exemption long has 
been used by Plans to hire managers, as well as trustees, custodians, 
and recordkeepers, regardless of the type of Plan (pension, savings, or 
welfare).
    The Department notes that a fund that contains only a minor 
investment component would not be eligible for the relief provided by 
the QPAM Exemption. This is true regardless of the Plan type. If a Plan 
has mixed-use purposes, the Plan sponsor should establish a separate 
account for any investments held directly by the Plan in order to rely 
upon the QPAM Exemption for that portion of the Plan's assets. 
Relatedly, a fund or other pool of Plan assets that contains no 
investment assets would not be able to rely upon the QPAM Exemption. 
However, as provided in Section I(c) of this Final Amendment, an 
Investment Fund that makes distributions and/or engages in other 
activities that are ancillary to the fund's primary investment purpose 
will not fail to be an Investment Fund established primarily for 
investment purposes. The Department provides this additional 
clarification in the Final Amendment because distributions and other 
ancillary services are generally necessary in order for investment 
funds to operate.

Recommended Alternatives

    One commenter made a specific recommendation regarding the wording 
of Section I(c) that would specify that the QPAM ``represents the 
interest of the Investment Fund.'' The Department accepts this 
suggested modification in addition to the other modifications discussed 
above.
    Another commenter suggested the Department should issue separate 
guidance on Section I(c) that makes clear that a QPAM is expected to 
act prudently on behalf of its Plan clients for any investment 
opportunity that the QPAM may become aware of and where the QPAM is not 
conflicted--regardless of how it became aware of the opportunity. The 
commenter added that as long as the QPAM has the ultimate discretionary 
authority and responsibility for deciding whether to enter into a given 
transaction, the QPAM should not be prohibited from transactions merely 
because such transaction is planned, negotiated, or initiated by a 
Party in Interest.
    The Department believes many of the revisions to Section I(c) in 
this Final Amendment and related preamble discussion provide the 
requested guidance. If questions remain regarding the source of 
investment opportunities in relation to the QPAM's discretionary 
authority, the Department encourages interested parties to submit an 
advisory opinion request that details the particular facts and 
circumstances that raise issues under Section I(c).

Section VI(a)--Asset Management and Equity Thresholds

    The QPAM Exemption was originally granted, in part, on the premise 
that large financial services institutions would be able to withstand 
improper influence from Parties in Interest. The Department included 
the asset management and equity thresholds in the exemption to set 
minimum size thresholds that would help ensure a QPAM would be able to 
withstand such influence. In 2005, the Department finalized an 
amendment to the QPAM Exemption that updated the asset management and 
shareholders' and partners' equity thresholds for registered investment 
advisers in the QPAM definition in subsection VI(a)(4).\60\ In 
connection with that amendment, the Department indicated that the 
original thresholds ``may no longer provide significant protections for 
Plans in the current financial marketplace'' and adjusted the figures 
based on changes in the Consumer Price Index.\61\
---------------------------------------------------------------------------

    \60\ 70 FR 49305.
    \61\ Proposed Amendment to PTE 84-14, 68 FR 52419, 52423 (Sept. 
3, 2003).
---------------------------------------------------------------------------

    The Department has determined that the same rationale necessitates 
further updates to the registered investment adviser thresholds and 
those of other types of QPAMs, such as banks and insurance companies, 
because they have not been updated since 1984. Therefore, the 
Department is adjusting all of the thresholds in Section VI(a) based on 
the original published figures in the 1984 grant notice. This will 
ensure that changes to the thresholds for all types of financial 
institutions reflect the same baseline change to the Consumer Price 
Index (i.e., 1984 vs. 2021).\62\
---------------------------------------------------------------------------

    \62\ For purposes of these changes, the Department used March 
1984 and December 2021 as the relevant dates in the U.S. Bureau of 
Labor Statistics CPI Inflation Calculator available at: https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------

    The Proposed Amendment would have adjusted the $1,000,000 threshold 
in subsection VI(a)(1) through (3) to $2,720,000 and the assets under 
management threshold of $85,000,000 and the shareholders' and partners' 
equity and the broker-dealer net worth thresholds of $1,000,000 in 
subsection VI(a)(4) to $135,870,000 and $2,000,000, respectively. In 
this Final Amendment, the Department decided to increase the thresholds 
in three-year increments beginning in the year 2024 and ending in 2030. 
The final incremental adjustment will raise the thresholds to the 
amounts included in the Proposed Amendment. The incrementally adjusted 
threshold amounts are provided in subsection VI(a)(1) through (4) of 
the Final Amendment. By publication through notice in the Federal 
Register no later than January 31st every year, the Department will 
make subsequent annual adjustments for inflation to the Equity Capital, 
Net Worth, and asset management thresholds in subsection VI(a)(1) 
through (4) that are rounded to the nearest $10,000.
    As a minor ministerial change, the Department proposed to replace 
the reference to ``Federal Savings and Loan Insurance Corporation'' 
with ``Federal Deposit Insurance Corporation'' in subsection VI(a)(2), 
because the Federal Savings and Loan Insurance Corporation was 
abolished by Congress in 1989, and its responsibilities were 
transferred to the Federal Deposit Insurance Corporation.\63\ The 
Department received no comments on this ministerial change and retains 
it in this Final Amendment.
---------------------------------------------------------------------------

    \63\ See Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, Public Law 101-73 (1989).
---------------------------------------------------------------------------

    The Department received several comments regarding the proposed 
asset management and equity thresholds. One commenter noted that the 
proposed increases may have a material impact on the market for both 
small and large managers. The commenters stated the sudden increase in 
the thresholds could force small organizations out of the market, which 
would prevent small managers and start-up managers from utilizing the 
QPAM Exemption and put them at a competitive disadvantage.

[[Page 23112]]

    As the Department previously stated, the QPAM Exemption was never 
intended for small investment managers, and the exemption's minimum 
asset and equity thresholds are intended to ensure that the fiduciaries 
managing Plan assets are established institutions that are large enough 
not to be unduly influenced in their discretionary decision-making 
process by Parties in Interest. By spreading out the proposed increases 
occurring with this Final Amendment incrementally from 2024 through 
2030, the impact of a sudden increase in the threshold will be greatly 
reduced. This longer implementation period will provide ample 
opportunity for QPAMs to prepare and be on notice that the thresholds 
are increasing in this manner and on an annual basis thereafter. The 
Department notes that small asset managers or start-ups can apply for 
individual exemptive relief to use the QPAM Exemption if they are 
detrimentally impacted by the Final Amendment's increase to the equity 
and asset thresholds, and the Department will consider those requests 
on a case-by-case basis. An individual exemption, if granted, would 
allow the Department to develop conditions for this circumstance that 
would ensure the QPAM retains the appropriate independence and the 
means to provide remedies to harmed Plans.
    Another commenter stated that changes of such significance should 
not be undertaken in the absence of an identifiable harm or evidence 
supporting such harm to Plans, participants, and/or beneficiaries. The 
Department disagrees and notes that the original intent and protection 
of the exemption will erode if the asset and equity thresholds are 
allowed to become irrelevant with the passage of time. What was 
considered a large institution that could serve the protective purposes 
of the exemption in 1984 would not be considered sufficiently large by 
current standards. For the protective nature of the QPAM Exemption to 
remain effective and relevant, the Department must update the asset and 
equity thresholds to ensure that they keep pace with financial and 
economic growth in the marketplace.
    A commenter suggested the Department should conduct a survey or 
issue a request for information designed to gather data necessary to 
make an informed decision as to whether the thresholds should be 
increased and, if so, to what extent. It is clear, however, that the 
asset and equity thresholds have not kept pace with the economic and 
financial growth of the marketplace, and the Department has undertaken 
a robust and thorough rulemaking process for this Final Amendment.
    Another commenter recommended that at the least, the Department 
should grandfather QPAMs that met the pre-existing requirements and 
allow them to continue to rely on the QPAM Exemption. The Department 
declines to make this modification because allowing entities that fail 
to meet the thresholds to avail themselves of the relief in the QPAM 
Exemption would undermine the exemption's core purpose.
    The Department received a comment stating that annual indexing of 
the equity and asset thresholds will create situations where an entity 
is a QPAM on one day, and not thereafter, leaving its client Plans in a 
precarious position if the Plans are invested in continuing 
transactions dependent on the QPAM Exemption. By incrementally 
increasing the asset and equity thresholds, the Department is 
effectively putting QPAMs on notice that the thresholds will increase 
according to a predictable metric (the CPI), which will provide an 
opportunity to prepare and manage their ERISA assets accordingly before 
the increases are fully implemented.\64\
---------------------------------------------------------------------------

    \64\ This includes possibly seeking individual exemption relief 
in such circumstances.
---------------------------------------------------------------------------

    Another comment stated that the indexing should only happen once 
every five years, with a one-year effective date transition. The 
Department declines to adopt this approach to the indexing. Five-year 
indexing periods could lead to substantial deficiencies with respect to 
QPAMs' compliance with the equity and threshold requirements of this 
exemption. As a general matter, asset managers seeking to rely on this 
exemption should be constantly aware of all the requirements of this 
exemption, including the equity and threshold requirements, and take 
appropriate action in response to the risk of non-compliance, including 
by not engaging in prohibited transactions or by relying on and 
complying with alternative exemptions. Further, the current asset and 
equity thresholds are very outdated, and their ineffectiveness would be 
exacerbated by waiting an additional five years to increase them.
    Finally, a commenter recommended that the Department clarify that 
the new dollar thresholds published by January 31st annually in the 
Federal Register will not be applicable until January 1st of the 
following year. The Department has made this clarification in the Final 
Amendment by providing that each increase in the thresholds will be 
effective as of the last day of the QPAM's fiscal year in which the 
increase takes effect. The Department also will include the annual 
notice of increases on the class exemption section of EBSA's 
website.\65\
---------------------------------------------------------------------------

    \65\ Available at: https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/class.
---------------------------------------------------------------------------

Section VI(u)--Recordkeeping

    The Proposed Amendment also included a new recordkeeping 
requirement in Section VI(t), which would require QPAMs to maintain 
records for six years demonstrating compliance with this exemption. The 
Recordkeeping requirement has been redesignated as Section VI(u) in 
this Final Amendment.\66\ The Department proposed this addition to make 
the QPAM Exemption consistent with other exemptions that generally 
impose a recordkeeping requirement on parties relying on an exemption 
and to ensure they will be able to demonstrate, and that the Department 
will be able to verify, compliance with the exemption conditions.
---------------------------------------------------------------------------

    \66\ The Department moved the definition of ``Participating In'' 
that appeared in Section I(g)(3) of the Proposed Amendment into the 
Definitions and General Rules at Section VI(t) of this Final 
Amendment.
---------------------------------------------------------------------------

    The Recordkeeping requirement of the Proposed Amendment would 
require that the records be kept in a manner that is reasonably 
accessible for examination. The records must be made available, to the 
extent permitted by law, to any authorized employee of the Department 
or the Internal Revenue Service or another federal or state regulator; 
any fiduciary of a Plan invested in an Investment Fund managed by the 
QPAM; any contributing employer and any employee organization whose 
members are covered by a Plan invested in an Investment Fund managed by 
the QPAM; and any participant or beneficiary of a Plan and an IRA Owner 
invested in an Investment Fund managed by the QPAM.
    QPAMs also would be required to make such records reasonably 
available for examination at their customary location during normal 
business hours. Participants and beneficiaries of a Plan, IRA owners, 
Plan fiduciaries, and contributing employers/employee organizations 
would be able to request only information applicable to their own 
transactions and not a QPAM's privileged trade secrets or privileged 
commercial or financial information, or confidential information 
regarding other individuals. If the QPAM refuses to disclose 
information to a party other than the Department on the basis that

[[Page 23113]]

the information is exempt from disclosure, the Department would require 
the QPAM to provide a written notice, within 30 days, advising the 
requestor of the reasons for the refusal and that the Department may 
request such information. The requestor would then be able to contact 
the Department if it believes it would be useful for the Department to 
request the information.
    Any failure to maintain the records necessary to determine whether 
the conditions of the exemption have been met would result in the loss 
of the relief provided under the exemption only for the transaction or 
transactions for which such records are missing or have not been 
maintained. Such failure would not affect the relief for other 
transactions if the QPAM maintains required records for such 
transactions.
    The Department received several comments opposing the Proposed 
Amendment's recordkeeping requirement. Some commenters indicated that 
the specific recordkeeping requirements are unnecessary given the 
existing recordkeeping requirements under ERISA section 107. Other 
commenters added that the requirement does not add materially to the 
protective provisions already in place in the exemption and 
unnecessarily increases regulatory compliance costs. Commenters also 
pointed to other status-based exemptions that do not impose any 
recordkeeping requirement on a transaction-by-transaction basis, while 
others, like the insurance company general account exemption (PTE 95-
60) \67\ and INHAM exemption (PTE 96-23) \68\ do not have a 
recordkeeping requirement at all.
---------------------------------------------------------------------------

    \67\ As amended and restated at 87 FR 12985, 12996 (Mar. 8, 
2022).
    \68\ As amended and restated at 76 FR 18255 (Apr. 1, 2011).
---------------------------------------------------------------------------

    Some commenters noted that only the Department (with respect to 
ERISA Title I plans) and the IRS (with respect to ERISA Title II plans, 
including IRAs) have the authority to enforce the terms of the QPAM 
Exemption. Therefore, those commenters argued that requiring that 
records be made available to employers, unions, and participants, 
beneficiaries, and IRA owners, raises the risk of unnecessary 
litigation and could cause QPAMs to increase the fees they charge to 
Plans as a result. One commenter added that there are practical reasons 
why having to retain records sufficient for a determination of 
compliance is unworkable or otherwise not cost effective. For example, 
a commenter argued that despite the Department's expectation that the 
recordkeeping requirements would impose a negligible burden, this 
requirement will, in fact, prove burdensome and costly because QPAMs 
will need to be able to demonstrate compliance for every transaction 
and, in some cases, to prove a negative. Another commenter asked for a 
simplified recordkeeping requirement that would require QPAMs to 
undertake prudent efforts to maintain accurate records reflecting their 
QPAM duties and responsibilities while another commenter suggested the 
Department should modify the Proposed Amendment to require process-
based records of compliance rather than transactional records. Another 
commenter asked for clarification that the six-year recordkeeping 
requirement does not create any new obligation to document the basis 
for satisfaction of the exemption conditions. One commenter indicated 
it is unclear what it means to ``verify'' compliance with the 
conditions of the QPAM Exemption.
    The Department's response to these comments is that these concerns 
are overstated and inconsistent with how recordkeeping requirements 
operate in prohibited transaction exemptions. The extent to which 
transaction-by-transaction records are necessary depends on the facts 
and circumstances. The Department often includes a recordkeeping 
requirement in its administrative prohibited transaction exemptions to 
ensure that the parties relying on an exemption can demonstrate, and 
the Department can verify, compliance with the exemption's conditions. 
Given the broad relief provided by this exemption, including a specific 
recordkeeping requirement is necessary for the Department to verify 
that the exemption conditions are being satisfied rather than relying 
on ERISA's general recordkeeping requirement to maintain records. Given 
the large number and variety of transactions entered into in reliance 
on the QPAM Exemption, the Department did not intend for this provision 
to require transaction-by-transaction recordkeeping. Rather, the 
condition is focused on requiring the QPAM to retain records 
satisfactory to prove compliance with the applicable conditions for any 
section of the exemption the QPAM relied upon, such as satisfying the 
definition of QPAM, and records supporting the limitation on the 
involvement of Parties in Interest in investment transactions. The 
QPAM's reliance on specific transactions covered by Sections II through 
V of the exemption will require it to maintain more detailed records 
such as, but not limited to, copies of leases, sales agreements, 
service contracts, audit reports, policies and procedures, and detailed 
descriptions of real estate. Financial institutions are accustomed to 
keeping records of their transactions as a part of their regular 
business practices and generally have recordkeeping systems already in 
place.
    Additionally, a commenter noted that the National Bank visitorial 
powers provision and the Office of the Comptroller of the Currency 
(OCC) regulations would prevent Plan investors from accessing the 
records of national banks and federal savings associations. The 
commenter asserted that this could lead to an unintended discriminatory 
effect between these banks and state-chartered banks, which may not 
have the same available safeguards on the release of a QPAM bank's 
records. The Department notes that if the OCC regulations, in fact, bar 
Plan investors from accessing this information, that is no reason to 
bar others from accessing the records. If the commenter's purported 
restriction on access to national bank records is meaningful to Plan 
sponsor fiduciaries, then they are free to choose a QPAM that is not 
restricted from providing access to such records.
    One commenter asked the Department to withdraw the recordkeeping 
requirement entirely, or if not, to modify it to be consistent with the 
recordkeeping requirement in PTE 2020-02. As stated above, the 
Department often includes a recordkeeping condition in administrative 
prohibited transaction exemptions to ensure compliance with the 
exemption. The recordkeeping requirement in PTE 2020-02 was developed 
specifically for that exemption and the specific relief for investment 
advice provided pursuant to certain conditions.
    A commenter also requested that the 30-day window for producing 
records should be expanded to at least 90 days and a QPAM should have 
90 days to provide notice of grounds for non-production. The Department 
notes that because QPAMs are fiduciaries, the Department is unpersuaded 
that additional time is necessary or consistent with the QPAM's 
fiduciary status. The Department believes a longer period would be 
required only if a QPAM is not already maintaining the records 
necessary to demonstrate compliance with this condition. To allow a 
QPAM additional time to produce, or indicate that it is not producing, 
records would be directly contrary to the purpose of the recordkeeping 
condition.

[[Page 23114]]

Other Ministerial Changes

    The Department did not receive any comments regarding the 
ministerial changes in the Proposed Amendment. Therefore, the 
Department is finalizing the proposed ministerial changes as proposed, 
which include: (1) changing the headings of each portion of the 
exemption from ``Part'' to ``Section,'' (2) removing many internal 
cross-references to definitional provisions and instead capitalizing 
the terms used in those definitional provisions throughout the 
exemption,\69\ and (3) adding internal references to ``above'' and 
``below'' throughout to direct readers where to find certain cross-
referenced provisions.
---------------------------------------------------------------------------

    \69\ However, for the sake of clarity, cross-references have 
been retained for the term ``Affiliate'' because it is defined in 
different ways under Section VI(c) and (d) of the exemption.
---------------------------------------------------------------------------

    The Department corrected two minor typographical errors by 
changing: (1) ``assure'' to ``ensure'' in Section V and the related 
audit provision in Section VI(q), and (2) ``INHAM'' to ``QPAM'' in 
Section VI(p). All references to ``ERISA'' and the ``Code'' have been 
updated so that they come before the sections referenced, and 
references to the term ``employee benefit plan'' have been removed so 
that the exemption only uses the term ``Plan.'' Finally, the Department 
has amended the definition of the term ``Control'' in Section VI(e) so 
that it specifically refers to variations of the word ``control'' used 
throughout the exemption. Therefore, Section VI(e) now defines the 
terms ``Controlling,'' ``Controlled by,'' ``under Common Control,'' and 
``Controls'' in the same manner as the prior single term ``Control.''

Regulatory Impact Analysis

    The Department has examined the effects of the Final Amendment as 
required by Executive Order 12866,\70\ Executive Order 13563,\71\ the 
Congressional Review Act,\72\ the Paperwork Reduction Act of 1995,\73\ 
the Regulatory Flexibility Act,\74\ section 202 of the Unfunded 
Mandates Reform Act of 1995,\75\ and Executive Order 13132.\76\
---------------------------------------------------------------------------

    \70\ Regulatory Planning and Review, 58 FR 51735 (Oct. 4, 1993).
    \71\ Improving Regulation and Regulatory Review, 76 FR 3821 
(Jan. 21, 2011).
    \72\ 5 U.S.C. 804(2) (1996).
    \73\ 44 U.S.C. 3506(c)(2)(A) (1995).
    \74\ 5 U.S.C. 601 et seq. (1980).
    \75\ 2 U.S.C. 1501 et seq. (1995).
    \76\ Federalism, 64 FR 43255 (Aug. 10, 1999).
---------------------------------------------------------------------------

Executive Order 12866 (Regulatory Planning and Review), Executive Order 
14094 (Modernizing Regulatory Review), and 13563 (Improving Regulation 
and Regulatory Review)

    Under Executive Order 12866 (as amended by Executive Order 14094), 
the Office of Management and Budget (OMB)'s Office of Information and 
Regulatory Affairs determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
executive review by OMB. As amended by Executive Order 14094, section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as a regulatory action that is likely to result in a rule that 
may: (1) have an annual effect on the economy of $200 million or more; 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or state, local, territorial, or tribal governments 
or communities; (2) create a serious inconsistency or otherwise 
interfere with an action taken or planned by another agency; (3) 
materially alter the budgetary impact of entitlements, grants, user 
fees or loan programs or the rights and obligations of recipients 
thereof; or (4) raise legal or policy issues for which centralized 
review would meaningfully further the President's priorities or the 
principles set forth in the Executive Order. OMB has determined that 
the Final Amendment is a significant regulatory action under Section 
3(f)(1) of Executive Order 12866.
    Executive Order 13563 directs agencies to propose or adopt a 
regulation only upon a reasoned determination that its benefits justify 
its costs; the regulation is tailored to impose the least burden on 
society, consistent with achieving the regulatory objectives; and in 
choosing among alternative regulatory approaches, the agency has 
selected those approaches that maximize net benefits. Executive Order 
13563 recognizes that some benefits are difficult to quantify and 
provides that, where appropriate and permitted by law, agencies may 
consider and discuss qualitative values that are difficult or 
impossible to quantify, including equity, human dignity, fairness, and 
distributive impacts.
    The Department has quantified the impact of the Final Amendment 
based on the best available data and provides an assessment of its 
benefits, costs, and transfers below. Based on this assessment, the 
Department concludes that the Final Amendment's benefits would justify 
its costs. Pursuant to the Congressional Review Act, OMB has designated 
the Final Amendment a ``major rule,'' as defined by 5 U.S.C. 804(2).

Need for Regulation

    Substantial changes have occurred in the financial services 
industry since the Department granted the QPAM Exemption in 1984. 
Today's asset management industry has been marked by industry 
consolidation and an increasingly global reach. As a result, QPAM 
affiliations and investment strategies, including those involving Plan 
assets, have changed significantly since 1984. This Final Amendment 
updates some of the key elements of the QPAM Exemption to ensure that 
Plans affected by the exemption remain protected in light of the 
changes in the industry, and that the QPAM Exemption remains consistent 
with the original intent.
    The Final Amendment addresses ambiguity as to whether foreign 
convictions are included in the scope of the ineligibility provision 
under Section I(g). QPAMs today often have corporate or relationship 
ties to a broad range of entities, some of which are located 
internationally. Additionally, some global financial service 
institutions may be headquartered, or have parent entities, in foreign 
jurisdictions. These entities may have significant control and 
influence over the operation of all entities within its organizational 
structure, including those operating as QPAMs. Moreover, the 
international ties of QPAMs extend to their investment strategies, 
including those involving Plan assets.
    The Final Amendment also expands ineligibility to include QPAMs 
(and as applicable, an Affiliate or owner of a five (5) percent or more 
interest) that Participate In Prohibited Misconduct, such as conduct 
that has resulted in QPAMs entering into an NPA or DPA with a U.S. 
federal or state prosecutor's office or regulatory agency; a systematic 
pattern or practice of violating the exemption's conditions; 
intentionally violating the exemption's conditions in connection with 
otherwise non-exempt prohibited transactions; or providing materially 
misleading information to the Department and other regulators in 
connection with the exemption conditions. The Final Amendment ensures 
that QPAMs are not able to avoid the conditions related to integrity 
and ineligibility that are central to the QPAM Exemption by entering 
into NPAs and DPAs with prosecutors to side-step the consequences that 
otherwise would result from a Criminal Conviction. Plans may suffer 
significant

[[Page 23115]]

harm if they are exposed to serious misconduct committed by 
unscrupulous firms or individuals that ultimately results in an NPA or 
DPA rather than Criminal Conviction and consequent ineligibility under 
Section I(g). Likewise, intentionally or systematically violating the 
exemption conditions exposes Plans to significant potential harm caused 
by the misconduct of those with influence or control over managing the 
investment of their assets. In the Department's view, QPAMs, and those 
in a position to influence or control a QPAM's policies, that 
repeatedly engage in serious misconduct do not display the requisite 
standards of integrity necessary to provide the protection intended for 
Plans that they are responsible for under the exemption.
    Through its administration of the individual exemption program, the 
Department also determined that certain aspects of the QPAM Exemption 
would benefit from a focus on mitigating potential costs and disruption 
to Plans that occurs when a QPAM becomes ineligible for the exemptive 
relief because of ineligibility under Section I(g). The Final Amendment 
requires QPAMs to provide a One-Year Transition Period to its client 
Plans to avoid unnecessary disruptions to Plans that could occur upon a 
Criminal Conviction or for Participating In Prohibited Misconduct. The 
Transition Period will help bridge the gap between the QPAM Exemption 
and the Department's administration of its individual exemption program 
in connection with Section I(g) ineligibility.
    The Department believes the changes to Section I(c) in the Final 
Amendment are needed to clarify and remind QPAMs and Parties in 
Interest of the level of involvement Parties in Interest may have in 
investment decisions and prevent possible abuses of the exemption.
    The Final Amendment is also needed to update asset management and 
equity thresholds to current values in the definition of a ``QPAM'' in 
Section VI(a). Some of the thresholds that establish the requisite 
independence upon which the QPAM Exemption is based have not been 
updated since 1984, and the thresholds for registered investment 
advisers have not been updated since 2005. The amendment will 
standardize all the thresholds to current values using the Bureau of 
Labor Statistics Consumer Price Index (CPI).
    Finally, the Final Amendment adds a recordkeeping requirement to 
ensure QPAMs will be able to demonstrate, and the Department will be 
able to verify, compliance with the exemption conditions. This 
requirement is similar to a recordkeeping requirement the Department 
generally includes in its individual Section I(g) exemptions.
    Together, the Department believes the Final Amendment is necessary 
to ensure the QPAM Exemption remains in the interest of and protective 
of the rights of Plans and their participants and beneficiaries and IRA 
owners as required by ERISA section 408(a) and Code section 4975(c)(2).

Affected Entities

    The Final Amendment affects financial institutions acting as a 
QPAM, and client Plans of QPAMs, including their participants and 
beneficiaries.

Qualified Professional Asset Managers (QPAMs)

    As discussed above in this preamble, to qualify as a QPAM, the 
financial institution must be a bank, savings and loan association, 
insurance company, or a registered investment adviser that meets 
specified standards regarding financial size. The financial institution 
must also acknowledge in a Written Management Agreement (WMA) that it 
is a fiduciary with respect to each Plan that retains it as a QPAM. 
Before this Final Amendment, the following entities were able to act as 
a QPAM under the terms of the exemption:
    (1) Banks--as defined in section 202(a)(2) of the Investment 
Advisers Act of 1940, with equity capital in excess of $1,000,000.
    (2) Savings and loan associations--the accounts of which are 
insured by the Federal Deposit Insurance Corporation, with equity 
capital or net worth in excess of $1,000,000;
    (3) Insurance companies--subject to supervision under state law, 
with net worth in excess of $1,000,000; and
    (4) Investment advisers--registered under the Investment Advisers 
Act of 1940 with total client assets under management in excess of 
$85,000,000 and either (1) shareholders' or partners' equity in excess 
of $1,000,000 or (2) payment of liabilities guaranteed by an affiliate, 
another entity that could qualify as a QPAM, or a broker-dealer with 
net worth of more than $1,000,000.
    As amended, the thresholds in Section VI(a) will be indexed to the 
CPI, rounded to the nearest $10,000. The amendment will update these 
thresholds based on the price inflation since 1984. The increases in 
thresholds will be phased-in incrementally between 2024 and 2030. This 
Final Amendment increases the thresholds as follows:
    (1) Banks--as defined in section 202(a)(2) of the Investment 
Advisers Act of 1940, with equity capital in excess of $1,570,300 
effective as of the last day of the fiscal year ending no later than 
December 31, 2024, $2,140,600 effective as of the last day of the 
fiscal year ending no later than December 31, 2027, and $2,720,000 
effective as of the last day of the fiscal year ending no later than 
December 31, 2030.
    (2) Savings and loan associations--the accounts of which are 
insured by the Federal Deposit Insurance Corporation, with equity 
capital or net worth in excess of $1,570,300 as of the last day of the 
fiscal year ending no later than December 31, 2024, $2,140,600 
effective as of the last day of the fiscal year ending no later than 
December 31, 2027, and $2,720,000 effective as of the last day of the 
fiscal year ending no later than December 31, 2030.
    (3) Insurance companies--subject to supervision under state law, 
with net worth in excess of $1,570,300 effective as of the last day of 
the fiscal year ending no later than December 31, 2024, $2,140,600 
effective as of the last day of the fiscal year ending no later than 
December 31, 2027, and $2,720,000 effective as of the last day of the 
fiscal year ending no later than December 31, 2030.
    (4) Investment advisers--registered under the Investment Advisers 
Act of 1940 with total client assets under management in excess of 
$101,956,000 effective as of the last day of the fiscal year ending no 
later than December 31, 2004, $118,912,000 effective as of the last day 
of the fiscal year ending no later than December 31, 2027, and 
$135,868,000 effective as of the last day of the fiscal year ending no 
later than December 31, 2030. In addition, the investment adviser must 
either have shareholders' or partners' equity--or payment of 
liabilities guaranteed by an affiliate, another entity that could 
qualify as a QPAM, or a broker-dealer with net worth--in excess of 
$1,570,300 effective as of the last day of the fiscal year ending no 
later than December 31, 2024, $2,140,600 effective as of the last day 
of the fiscal year ending no later than December 31, 2027, and 
$2,720,000 effective as of the last day of the fiscal year ending no 
later than December 31, 2030.
    The Department will make subsequent annual adjustments for 
inflation to the equity capital, net worth, and asset management 
thresholds, rounded to the nearest $10,000, no later than January 31st 
of each year by publication of a notice in the Federal Register.
    QPAMs that met the prior thresholds, but that otherwise will not 
meet the new threshold requirements, will also be

[[Page 23116]]

affected by the Final Amendment, because they no longer will be able to 
rely on the QPAM Exemption.\77\ The Department proposed introducing the 
entire increase at the end of the first year after granting the 
amendment. However, after considering comments received in response to 
the Proposed Amendment, the Department decided to implement the 
increase incrementally over three-year periods, which provides Plans 
and QPAMs with significantly more time to adjust and prepare if the 
QPAM is unable to continue meeting the updated thresholds.
---------------------------------------------------------------------------

    \77\ As noted earlier in this preamble, such QPAMs may submit an 
individual exemption application requesting relief to continue 
relying upon the QPAM Exemption.
---------------------------------------------------------------------------

    Several comments on the Proposed Amendment stated that the 
Department underestimated the number of QPAMs in the economic analysis 
for the Proposed Amendment, with one commenter remarking that the 
actual number of QPAMs was likely 10 to 20 times larger than the 
Department's original estimate of 616 QPAMs.\78\ Another commenter 
estimated that more than 90 percent of investment managers investing 
Plan assets rely on the QPAM Exemption. They recommended an alternative 
estimation methodology that involved multiplying the number of 
investment managers reported on the Form 5500 Schedule C by 90 
percent.\79\ This results in an estimate of 3,876 QPAMs.\80\ After 
considering these comments, the Department has revised its estimates as 
described below.
---------------------------------------------------------------------------

    \78\ Comment submitted by SIFMA on 11 October 2022. (See https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07/00009.pdf).
    \79\ Comment submitted by the Seward and Kissel. (See https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07/00025.pdf).
    \80\ In the 2020 Form 5500, the Department identified 4,307 
unique investment managers providing services under service code 28 
(investment management) to Plans. This is estimated as: 4,307 x 90% 
= 3,876. As discussed later in this section, small Plans do not file 
the Form 5500 Schedule C, so relying solely on the Form 5500 
Schedule C will likely underestimate the number of QPAMs.
---------------------------------------------------------------------------

    Multiple QPAMs can exist within the same organizational hierarchy. 
Accordingly, when estimating the effect of this exemption, the 
Department focused not on the firm level, but rather at each distinct 
entity within the organizational hierarchy providing services as a 
QPAM. For example, multiple subsidiaries under a parent company may act 
as QPAMs in addition to the parent company itself. The methodology 
suggested by the commenter would count each subsidiary and the parent 
company itself as if each were acting as separate QPAMs. Therefore, to 
estimate the number of QPAMs, the Department identified the number of 
unique entities that provided investment management services in the 
2020 Form 5500 Schedule C dataset.\81\ This analysis yielded 5,702 
unique investment managers.
---------------------------------------------------------------------------

    \81\ The Department included service providers that were listed 
under service codes 28 (investment management), 51 (investment 
management fees paid directly by the plan), or 52 (investment 
management fees paid indirectly by the plan).
---------------------------------------------------------------------------

    Small Plans are not required to file a Schedule C; therefore, in 
order to account for asset managers used by small Plans, the Department 
looked at the Form 5500 Schedule C that were voluntarily filed by small 
Plans. Among the 1,267 small Plans that filed a Schedule C, the 
Department found 10 unique asset managers that were not used by large 
Plans. Applying this ratio to the universe of small Plans, the 
Department estimates that 5,153 additional unique QPAMs may be used by 
small Plans.\82\ The Department believes that this adjustment likely 
overstates the number of unique asset managers servicing the universe 
of small Plans because it assumes unique asset managers would continue 
to be found at the same rate for the entire universe, but the 
Department is using this estimate to derive a conservative estimate for 
purposes of this analysis. Therefore, based on the foregoing, the 
Department estimates that 10,855 unique QPAMs could be affected by the 
Final Amendment.\83\
---------------------------------------------------------------------------

    \82\ If the ratio of 10 unique providers for 1,267 small Plans 
is held constant for the whole universe of small plans, then that 
would indicate a further (10/1,267) x 652,934 = 5,153 additional 
unique QPAMs used exclusively by small Plans.
    \83\ The number of unique QPAMs is calculated as: 5,702 QPAMs 
found on the 2020 Form 5500 Schedule C + 5,153 QPAMs estimated as 
servicing exclusively small Plans = 10,855 QPAMs.
---------------------------------------------------------------------------

    Several comments expressed concern that the proposal would decrease 
the number of entities acting as QPAMs due to the costs and risks 
associated with the proposed requirements to add penalty-free 
withdrawal and indemnification provisions for QPAMs that become 
ineligible due to a Section I(g) triggering event. In response, the 
Department moved these conditions into the transition provision of the 
Final Amendment so that only QPAMs that experience an ineligibility 
trigger will be required to agree to these provisions with their client 
Plans. Based on this revision, the Department expects that the Final 
Amendment will not have a significant effect on the number of entities 
acting as QPAMs.

Plans, Participants, Beneficiaries, and IRA Owners

    The Final Amendment will affect Plans whose assets are held by an 
Investment Fund that is managed by a QPAM. The Department does not 
collect data on Plans that use QPAMs to manage their assets. In the 
proposal, the Department estimated that a single QPAM would service, on 
average, 32 client Plans.\84\ A few commenters stated that the 
Department underestimated the number of Plans that have hired a QPAM. 
Commenters remarked that investment managers may manage assets for 
hundreds to thousands of Plans, while one commenter stated that the 
largest investment managers manage assets for between 2,000 and 4,000 
client Plans.\85\ Another commenter estimated that the average number 
of contracts per QPAM is 14,180 with a median of 14,500 based on the 
number of QPAMs that are members of its association.\86\
---------------------------------------------------------------------------

    \84\ 87 FR at 45220.
    \85\ Comment submitted by SIFMA on 11 October 2022. (See https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07/00009.pdf).
    \86\ Comment submitted by the American Bankers Association on 6 
January 2023. (See https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07-2/00142.pdf).
---------------------------------------------------------------------------

    In response to these comments, the Department conducted further 
analysis on QPAM-Plan relationships. In its analysis of the 2020 Form 
5500, the Department found that the largest QPAMs can have thousands of 
client Plans, with the largest having 3,158 clients. However, the 
average number of client Plans per QPAM was significantly lower. 
Examining the number of unique QPAM-Plan relationships within the Form 
5500 universe, the Department estimates that there are 547,546 client 
Plans with QPAM relationships, resulting in an average of 50 client 
Plans per QPAM.\87\ Additionally, the Department estimates that 215,135 
unique Plans have a relationship with a QPAM.\88\
---------------------------------------------------------------------------

    \87\ In the 2020 Form 5500, the Department found 64,216 QPAM 
relationships amongst a total of 87,559 Plans that filed the Form 
5500 Schedule C. To estimate the number of total Plans with QPAM 
relationships, the Department applies this ratio to the entire Plan 
universe. This assumption implies that small plans have the same 
number of relationships with QPAMs as the larger plans that file 
Schedule C. The number of total Plans with QPAM relationships is 
estimated as: (64,216/87,559) x 746,610 = 547,566 Plan client 
relationships. This equates to an average of 50 clients per QPAM, 
calculated as: 547,566 Plan client relationships/10,855 unique QPAMs 
= 50.44 Plan clients per QPAM, rounded to 50.
    \88\ In the 2020 Form 5500, the Department found 25,230 unique 
plans using QPAMs among amongst a total of 87,559 Plans that filed 
the Form 5500 Schedule C. To estimate the number of total Plans with 
QPAM relationships, the Department applies this ratio to the entire 
Plan universe. This assumption implies that small plans use QPAMs at 
the same rate as the larger plans that file Schedule C. the number 
of unique plans using QPAMs is estimated as (25,230/87,559) x 
746,610 = 215,135.

---------------------------------------------------------------------------

[[Page 23117]]

    While this estimate is larger than the Department's estimate for 
the Proposed Amendment, it is substantially smaller than the estimates 
provided by the commenters. The Department believes variance in the 
estimates is likely due to the definition of Investment Fund in the 
exemption and the various ways Plans may invest through those funds, 
including as individual investment options for participant-directed 
plans. The Department does not have sufficient data to differentiate 
between single and pooled customer funds and/or whether those funds are 
provided to different types of plans, such as defined benefit plans or 
defined contribution plans (including individual account plans).
    The Department reiterates that the scope of this exemption, and the 
unit of analysis, is each distinct legal entity. A firm can have 
multiple distinct legal entities that all act as QPAMs. The number of 
clients per entity would be expected to be lower than the number of 
client Plans per firm. The commenters did not clarify the types of 
Plans or arrangements they were considering in connection with the 
estimates they provided.
    The definition of ``Plan'' also includes IRAs, and therefore, the 
Final Amendment also affects IRA owners who hire a discretionary asset 
manager that is a QPAM or invest in a pooled fund that relies upon a 
QPAM. In 2020, nearly 65 million U.S. taxpayers had an IRA.\89\ A 
survey of U.S. households conducted by the Investment Company Institute 
found that approximately half of the households with a traditional IRA 
consulted a professional financial adviser on how to manage income and 
assets in retirement.\90\ The Department does not have data on the 
proportion of IRAs that rely on a discretionary asset manager; however, 
the Department assumes that such relationships are rare or that the 
involvement of a QPAM is through a pooled investment fund managed on a 
discretionary basis. The Department did not receive any comments 
concerning the number of IRA owners that would be affected.
---------------------------------------------------------------------------

    \89\ Internal Revenue Service. ``SOI Tax Stats--Accumulation and 
distribution of Individual Retirement Arrangements (IRA).'' Table 1. 
(2020). https://www.irs.gov/statistics/soi-tax-stats-accumulation-and-distribution-of-individual-retirement-arrangements.
    \90\ The study found that 67 percent of traditional IRA-owning 
households have a strategy for managing income and asset in 
retirement and that 77 percent of those households consulted with a 
professional financial advisor on how to manage income and assets. 
The percent of IRA-owning households that consulted with a 
professional financial advisor is estimated as: 67% x 77% = 52%. 
(See Investment Company Institute. ``The Role of IRAs in US 
Households' Saving for Retirement, 2022.'' ICI Research Perspective: 
Vol. 29, No. 1. (February 2023). https://www.ici.org/system/files/2023-02/per29-01_0.pdf.)
---------------------------------------------------------------------------

Accounting Table

    In accordance with OMB Circular A-4, Table 1 summarizing the 
Departments' assessment of the benefits, costs, and transfers 
associated with this regulatory action in an accounting statement. The 
Department is unable to quantify all benefits, costs, and transfers of 
this Final Amendment but has sought, where possible, to describe 
qualitatively all non-quantified impacts.
    Many of the expected benefits to Plans and their participants and 
beneficiaries stem from provisions in the Final Amendment that will 
impose minimal or no costs on QPAMs but will benefit them by providing 
more certainty, protection, and transitional support, such as the 
provision clarifying that foreign convictions are included in Section 
I(g), clarification that QPAMs must not permit other Parties in 
Interest to make decisions regarding Plan investments under the QPAM's 
control, and the addition of a One-Year Transition Period for Plans 
after an ineligibility trigger under Section I(g) has occurred.

                                          Table 1--Accounting Statement
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits:
Non-Quantified:
  Ensure the QPAM's integrity is enhanced compared to the regulatory baseline before the Final
 Amendment, which will protect Plans affected by the exemption better than prior Section I(g).
  Provide more clarity, certainty, protection, and transitional support for client Plans of an
 ineligible QPAM.
  Update the asset management and equity thresholds to ensure that QPAMs are sufficiently large to be
 able to withstand improper influence from Parties in Interest.
----------------------------------------------------------------------------------------------------------------
Costs                                                           Estimate       Year   Discount    Period covered
                                                                             dollar   rate (%)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($Million/year).........................      $1.56       2023          7         2024-2033
                                                                    1.44       2023          3         2024-2033
----------------------------------------------------------------------------------------------------------------
Quantified Costs:
  Quantified costs include rule familiarization, the QPAM's adoption of additional protections after an
 ineligibility trigger occurs, satisfying the exemption's recordkeeping requirements, and individual exemption
 application costs for entities losing eligibility due to Participating In Prohibited Misconduct.
Non-Quantified Costs:
  QPAMs that become ineligible for Participating In Prohibited Misconduct may incur costs associated
 with indemnifying their client Plans for ``actual'' losses if they move to a new asset manager.
  Some Plans may incur costs if they conduct a request for proposal sooner than they otherwise would
 have if their asset manager no longer qualified as a QPAM due to the updated equity and asset thresholds in the
 Final Amendment.
Transfers:
----------------------------------------------------------------------------------------------------------------
Non-Quantified:
  Client Plans of ineligible QPAMs may choose to transfer assets and revenue away from the ineligible
 asset managers to its competitors when a QPAM becomes ineligible due to occurrence of a Section I(g) triggering
 event.
----------------------------------------------------------------------------------------------------------------

Benefits

    The new and amended conditions will benefit Plans and their 
participants and beneficiaries by providing more clarity, certainty, 
protection, and transitional support. The heightened standards in this 
Final Amendment may result in entities being more careful about 
ensuring that their compliance programs are sufficiently robust to 
prevent Prohibited Misconduct or Criminal Convictions from occurring. 
In this respect, the exemption would provide clear guardrails that 
would make the costs associated with QPAMs

[[Page 23118]]

becoming ineligible clearly avoidable. The specific benefits expected 
to result from the rulemaking are discussed below.

Ineligibility Due to Foreign Criminal Convictions--Subsection 
I(g)(1)(A) and Subsection VI(r)(2)

    One of the primary underlying principles of the QPAM Exemption is 
that any entity acting as a QPAM, or that is in a position to influence 
a QPAM's policies, should maintain a high standard of integrity.\91\ 
This principle is called into question when a QPAM, or an entity that 
may be in a position to influence its policies, is convicted of certain 
crimes. With this concern in mind, the Department makes entities 
ineligible for the prohibited transaction relief in the QPAM Exemption 
as of the date of the trial court judgment for any of the crimes listed 
in Section VI(r).\92\
---------------------------------------------------------------------------

    \91\ 47 FR at 56947.
    \92\ Criminal Conviction as defined in Section VI(r) of this 
Final Amendment.
---------------------------------------------------------------------------

    The baseline version of the exemption did not explicitly address 
foreign convictions. Since the initial grant of the QPAM Exemption, the 
Department has granted ten individual exemption requests from QPAM 
applicants in connection with a foreign conviction, the first being in 
2000.\93\ The amended exemption directly references foreign-equivalent 
crimes, clarifying that a conviction ``by a foreign court of competent 
jurisdiction or released from imprisonment, whichever is later, as a 
result of a crime, however denominated by the laws of the relevant 
foreign government'' will be considered a Criminal Conviction for 
purposes of ineligibility under Section I(g).
---------------------------------------------------------------------------

    \93\ See Prohibited Transaction Exemption (PTE) 2023-13, 88 FR 
26336 (Apr. 28, 2023); PTE 2020-01, 85 FR 8020 (Feb. 12, 2020); PTE 
2019-01, 84 FR 6163 (Feb. 26, 2019); PTE 2016-11, 81 FR 75150 (Oct. 
28, 2016); PTE 2016-10, 81 FR 75147 (Oct. 28, 2016); PTE 2012-08, 77 
FR 19344 (March 30, 2012); PTE 2004-13, 69 FR 54812 (Sept. 10, 
2004); and PTE 96-62 (``EXPRO'') Final Authorization Numbers 2003-
10E, 2001-02E, and 2000-30E, See https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/expro-exemptions-under-pte-96-62.
---------------------------------------------------------------------------

    The Department believes this clarification in the Final Amendment 
aligns the QPAM Exemption with the realities of modern investment 
practices engaged in by many Plans. Further, it removes all doubt that 
foreign-equivalent crimes are a basis for ineligibility, providing 
necessary protections for Plans as required by ERISA section 408(a) and 
Code section 4975(c)(2). This ultimately provides a benefit to a QPAM's 
client Plans and their participants and beneficiaries that rely upon 
QPAMs that are owned by or affiliated with entities operating in 
foreign jurisdictions by not depriving them of the protection provided 
by the amendment to this exemption, particularly including the 
indemnification and penalty-free withdrawal conditions in the 
Transition Period provisions.

Ineligibility Due to Participating In Prohibited Misconduct--Subsection 
I(g)(1)(B) and Section VI(s) 94
---------------------------------------------------------------------------

    \94\ Subsection I(g)(1) was proposed as subsection I(g)(3).
---------------------------------------------------------------------------

    To reinforce the Department's premise regarding the integrity 
standard, the Department is expanding the circumstances that lead to 
ineligibility. The Final Amendment extends ineligibility under Section 
I(g)(1)(B) to include QPAMs and their Affiliates and owners of a five 
(5) percent or more interest that ``Participate In'' Prohibited 
Misconduct. A more in-depth discussion on how the Department narrowed 
the scope of entities whose ``Prohibited Misconduct'' could lead to 
ineligibility in the Final Amendment is provided in an earlier section 
of this preamble.
    This extension of Section I(g) ineligibility will strengthen the 
protections to Plans and their participants and beneficiaries that rely 
upon QPAMs. The unamended exemption leaves Plans and their participants 
and beneficiaries vulnerable to the activities of corporate families 
with significant compliance failures that pose equal risk of loss to 
Plan assets. Additionally, the Department expects that this Final 
Amendment will prevent unfair and unequal treatment of entities and 
corporate families that have a record of engaging in malfeasance that 
ultimately may not result in a Criminal Conviction.

Mandatory One-Year Transition Period--Section I(i)

    Under the previous and amended text of Section I(g), the immediate 
ineligibility of a QPAM upon a judgment of conviction may expose Plans 
to potential costs and losses without the necessary time to make 
alternative investment arrangements. Before this Final Amendment, the 
only way to avoid immediate ineligibility after a conviction was for 
the QPAM to submit an individual exemption application to the 
Department requesting relief to continue relying upon the QPAM 
Exemption. The QPAM's client Plans had no additional protections under 
the baseline version of the exemption to address the immediate loss of 
the QPAM Exemption.
    The Transition Period included in the Final Amendment is designed 
to benefit client Plans by guarantying transitional relief and 
protections if they decide to wind-down their arrangements with a QPAM 
that becomes ineligible. The Transition Period ensures that responsible 
Plan fiduciaries have the time and ability to choose an alternative 
discretionary asset manager or investment strategy without incurring 
undue costs. If Plan fiduciaries decide to retain an ineligible QPAM as 
a discretionary asset manager, the One-Year Transition Period will 
provide Plan fiduciaries with time to determine and prepare for any 
changes that may become necessary for Plan investments.
    Additionally, the Transition Period benefits QPAMs by providing 
additional time for them to request an individual exemption from the 
Department. This will allow QPAMs to communicate with and assist their 
client Plans in determining an appropriate path forward for the 
management of Plan assets consistent with their applicable fiduciary 
obligations.

Requesting an Individual Exemption--Section I(j)

    In addition to providing more certainty to QPAMs and Plans, the 
Final Amendment also requires QPAMs that seek individual exemption 
relief to review the Department's most recently granted individual 
exemptions with the expectation that similar conditions will be 
required if an exemption is proposed and granted. If an applicant 
requests the Department to exclude any term or condition from its 
exemption that is included in a recently issued similar individual 
exemption, the applicant must accompany such request with a detailed 
explanation of the reason such change is necessary, in the interest of, 
and protective of the Plans and their participants and beneficiaries. 
Applicants also should provide detailed information in their 
applications quantifying the specific cost in dollar amounts, if any, 
of the harms Plans would suffer if a QPAM could not rely on the 
exemption after the Transition Period.
    Currently, the Department requests such information from an 
applicant if it does not include such information in its exemption 
application requesting extended relief under the QPAM Exemption when 
the QPAM becomes ineligible. Therefore, this provision will streamline 
the application process and reduce costs because there will be fewer 
back-and-forth discussions between the Department and the applicant.

[[Page 23119]]

Involvement in Investment Decisions by Parties in Interest--Section 
I(c)

    The modification to the language in Section I(c) will benefit Plans 
and their participants and beneficiaries by ensuring that the Plan is 
not engaging in harmful prohibited transactions that are orchestrated 
by a Party in Interest. The Department understands that some Plan 
fiduciaries, in conjunction with hiring a QPAM, may be engaging in 
abuses of the exemption. The amended language will help ensure that 
Plans, their participants and beneficiaries, and IRA owners are not 
exposed to conflicts of interest that the QPAM Exemption was not 
designed to address and for which the Department should not provide 
prohibited transaction relief.

Asset Management and Equity Thresholds--Section VI(a)

    As discussed earlier in this document, the Final Amendment updates 
the asset management and equity thresholds in the exemption's 
definition of the entities that are eligible to act as a QPAM to 
account for inflation as measured by the CPI. After an initial phase-
in, the thresholds will be updated on an annual basis according to the 
CPI.
    A few commenters expressed concern that the Department did not 
provide evidence in the Proposed Amendment to support the increase in 
size thresholds and that the increased thresholds may create a high 
barrier to entry for financial institutions providing QPAM services. In 
proposing this update, the Department considered its original intent 
when granting the QPAM Exemption. The exemption was based on the 
premise that an asset manager of a certain size would be large enough 
to withstand improper influence from Parties in Interest (i.e., 
maintain independence). Between March 1984, when the exemption was 
published, and April 2023, the CPI increased by 194.4 percent. During 
this period, the Department did not increase the equity thresholds for 
banks, savings and loan associations, and insurance companies. The 
asset management and equity thresholds for registered investment 
advisers were increased only once during this period.
    The Department maintains that while some entities may no longer be 
able to satisfy the updated asset management and/or equity thresholds, 
this Final Amendment is necessary for the Department to continue to 
ensure that QPAMs are indeed large enough to maintain their 
independence. This change will enhance the protections to Plans and 
their participants and beneficiaries relying on a QPAM.

Costs

    This analysis estimates the additional cost incurred by affected 
entities because of the Final Amendment. The Department recognizes that 
financial institutions providing QPAM services are already required to 
comply with certain regulatory requirements in addition to the 
conditions to qualify for exemptive relief under the QPAM Exemption, 
such as those outlined by ERISA's fiduciary duty requirements to the 
extent applicable, or an individual exemption granted in connection 
with Section I(g) ineligibility. The Department considers these 
requirements to be the regulatory baseline. The following analysis 
considers only the additional costs imposed by the Final Amendment.
    The Department estimates that the Final Amendment will impose total 
costs of $6.8 million in the first year and $0.8 million in each 
subsequent year. Over 10 years, the costs associated with the amendment 
will total approximately $11.0 million, annualized to $1.6 million per 
year (using a seven percent discount rate).\95\
---------------------------------------------------------------------------

    \95\ The costs would be $12.3 million over a 10-year period, 
annualized to $1.4 million per year using a three percent discount 
rate.
---------------------------------------------------------------------------

Preliminary Assumptions and Cost Estimate Inputs

    The Department assumes that different types of personnel will be 
responsible for satisfying the requirements in the Final Amendment. To 
account for the labor costs associated with different types of 
personnel, the Department estimates the hourly labor costs for each 
type of personnel. In the analysis below the Department applies the 
hourly labor costs of $63.45 for clerical personnel, $159.34 for 
internal legal professionals, $190.63 for financial managers, and 
$535.85 for outside legal professionals.\96\
---------------------------------------------------------------------------

    \96\ Labor costs for clerical personnel, accountants or 
auditors, internal legal professionals, and financial managers are 
based off internal Department of Labor calculations based on 2023 
labor cost data. For a description of the Department's methodology 
for calculating wage rates, see https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf. Labor costs for outside legal 
professionals is calculated as a composite weighted average based on 
the Laffey Matrix for Wage Rates for the time period 6/01/2022-5/31/
2023, see http://www.laffeymatrix.com/see.html. The labor cost is 
estimated as: (40% x $413) + (35% x $508) + (15% x $733) + (10% x 
$829) = $535.85.
---------------------------------------------------------------------------

    The Final Amendment requires QPAMs to distribute various notices to 
client Plans after an ineligibility trigger, as described below. The 
Department does not have sufficient data to estimate how many QPAMs 
will elect to send such notices electronically or by mail. For the 
purposes of this analysis, the Department estimates that 80 percent of 
these notices will be delivered by first-class mail at a first-class 
mail postage rate of $0.68.\97\
---------------------------------------------------------------------------

    \97\ USPS. ``Mailing & Shipping Prices.'' (2024). https://www.usps.com/business/prices.htm.
---------------------------------------------------------------------------

Costs Incurred by All QPAMs

    The following analysis considers the marginal costs of the 
amendments on all financial institutions acting as QPAMs. As discussed 
in the Affected Entities section, the Department estimates that 10,855 
financial institutions act as QPAMs and rely on the QPAM Exemption.

Rule Familiarization Costs

    The Department expects that QPAMs are likely to rely on outside 
specialized legal counsel to ensure compliance with the Final 
Amendment. The specialized legal counsel likely will review the 
amendment and present updates to multiple clients. On average, the 
Department estimates that each QPAM will incur a cost equivalent to the 
cost of consulting with an outside legal professional for one hour. 
This results in an equivalent cost estimate of $5.82 million in the 
first year.\98\
---------------------------------------------------------------------------

    \98\ The hour burden is estimated as: 10,855 QPAMs x 1 hour = 
10,855 hours. The labor cost of $535.85 is applied for an external 
legal professional. The equivalent cost is estimated as: 10,855 
hours x $535.85 = $5,816,652, rounded to $5.82 million.
---------------------------------------------------------------------------

Reporting Reliance on the QPAM Exemption--Section I(k)

    Section I(k) of the Final Amendment will require QPAMs to report 
their reliance on the QPAM Exemption by emailing the Department at 
[email protected]. The email must include the legal name of the entity and 
any name the QPAM may be operating under. This one-time cost is 
expected to result in a minor clerical cost for QPAMs. The Department 
estimates drafting and sending the email will take a clerical worker 
employed by each QPAM 15 minutes, on average, resulting in an estimated 
cost of $0.17 million in the first year.\99\ In subsequent years, new 
QPAMs or QPAMs that change their name will be required to send the 
notification. The Department does not have data on how many QPAMs will 
be required to send this notification in subsequent years. For the 
purposes of this analysis, the Department assumes

[[Page 23120]]

that one percent of QPAMs, or 109 QPAMs, will either be new or have a 
name change.\100\ Accordingly, the reporting requirement is estimated 
to total 27.3 hours with an equivalent cost of $1,729.\101\
---------------------------------------------------------------------------

    \99\ The hour burden is estimated as: 10,855 QPAMs x 15 minutes 
= 2,713.75 hours. The labor cost of $63.45 is applied for a clerical 
worker. The equivalent cost is estimated as: 10,855 QPAMs x 15 
minutes x $63.45 = $172,187, rounded to $0.17 million.
    \100\ The number of QPAMs is estimated as: 10,855 QPAMs x 1% = 
108.6, rounded to 109.
    \101\ The hour burden is estimated as: 109 QPAMs x 15 minutes = 
27.3 hours. The labor cost of $63.45 is applied for a clerical 
worker. The equivalent cost is estimated as: 109 QPAMs x 15 minutes 
x $63.45 = $1,729.
---------------------------------------------------------------------------

    If a QPAM fails to report its reliance on the exemption within 90 
days, the QPAM must send a notice to the Department within an 
additional 90 days that includes its reliance on the exemption or name 
change and explains the reason(s) for its failure to provide notice. 
The Department does not have sufficient information to determine the 
percentage of QPAMs that are likely to fail to report reliance. For the 
purposes of this analysis, the Department estimates that two percent of 
QPAMs, or 217 QPAMs in the first year and two QPAMs in subsequent years 
will fail to report reliance.\102\ The Department estimates that 
preparing the notice will require a legal professional to spend 30 
minutes. Based on the foregoing, the Department estimates that the 
burden is 108.5 hours with an equivalent cost of approximately $17,288 
in the first year \103\ and one hour with an equivalent cost of 
approximately $159 in subsequent years.\104\ The cost for a clerical 
professional to draft and send an email notifying the Department of its 
reliance or name change is included in the cost estimate of sending 
notice of reliance above.
---------------------------------------------------------------------------

    \102\ The number of QPAMs in the first year is estimated as: 
10,855 x 2% = 217.1, rounded to 217. The number of QPAMs in 
subsequent years is estimated as: 109 QPAMs x 2% = 2.2, rounded to 
2.
    \103\ The number of QPAMs in the first year is 217. The labor 
cost of $159.34 is applied for an internal legal professional. The 
equivalent cost is estimated as: 217 QPAMs x 0.5 hours x $159.34 = 
$17,288, rounded to $17,000.
    \104\ The hour burden is estimated as: 2 QPAMs x 0.5 hour = 1 
hour. The labor cost of $159.34 is applied for an internal legal 
professional. The equivalent cost is estimated as: 1 hour x $159.34 
= $159.34, rounded to $159.
---------------------------------------------------------------------------

Recordkeeping--Section VI(u)

    Under this new provision, QPAMs will be required to maintain 
records sufficient to determine whether the conditions of the exemption 
have been met for a given transaction. QPAMs also will be required to 
make those records available to the persons identified in Subsection 
VI(u)(2) for six years. If a QPAM refuses to disclose information to 
any of the parties listed in Section VI(u) on the basis that 
information is exempt from disclosure, the QPAM must provide a written 
notice advising the requestor of the reason for the refusal and that 
the Department may request such information.
    In the Proposed Amendment, the Department posited that QPAMs, as 
fiduciaries, already maintain records as part of their regular business 
practices consistent with this requirement. Further, the Department 
stated that the recordkeeping requirement corresponds to the six-year 
retention requirement in ERISA section 107. Therefore, the Department 
estimated that the recordkeeping requirement would impose a negligible 
burden, because most QPAMs already are maintaining records in 
accordance with the proposed amendment's recordkeeping 
requirement.\105\
---------------------------------------------------------------------------

    \105\ 87 FR at 45224.
---------------------------------------------------------------------------

    The Department received several comments that the Department 
underestimated the cost associated with the recordkeeping requirement 
in the economic analysis for the Proposed Amendment. Several commenters 
expressed concern that the requirements in the Proposed Amendment were 
vague or confusing. In response to these comments, the Department has 
provided additional guidance on recordkeeping earlier in this preamble 
to alleviate potential confusion. The additional guidance clarifies 
that recordkeeping should be based on a ``facts and circumstances'' 
test. After further consideration, the Department maintains that these 
requirements are consistent with common business practices for entities 
relying on the QPAM Exemption.
    The Department recognizes that some QPAMs may not be maintaining 
records that satisfy the requirements of the Final Amendment and 
accordingly will experience higher marginal costs to comply with this 
requirement. However, the Department expects that most QPAMs are 
already fully compliant. The Department estimates that, on average, the 
additional recordkeeping requirement will require clerical personnel at 
a QPAM to spend one hour annually resulting in an estimated equivalent 
cost of approximately $689,000.\106\
---------------------------------------------------------------------------

    \106\ The hour burden is estimated as: 10,855 QPAMs x 1 hour = 
688,750 hours. The labor cost of $63.45 is applied for clerical 
personnel. The equivalent cost is estimated as: 10,855 QPAMs x 1 
hour x $63.45 = $688,750, rounded to $689,000.
---------------------------------------------------------------------------

    The Department does not have data on how often a QPAM might refuse 
to disclose information to any of the parties listed in Section VI(u); 
however, the Department believes such instances will be rare. The 
Department did not receive comments on the frequency or the costs. For 
the purposes of this analysis, the Department estimates that two 
percent of QPAMs, or 217 QPAMs, will refuse to disclose requested 
information annually. The Department estimates that drafting a written 
notice advising the requestor of the reason for the refusal and that 
the Department may request such information will require an internal 
legal professional to spend one hour, which results in an estimated 
equivalent cost of approximately $35,000.\107\
---------------------------------------------------------------------------

    \107\ The number of QPAMs is estimated as 10,855 x 2% = 217 
QPAMs. The hour burden is estimated as: 217 QPAMs x 1 hour = 217 
hours. The labor cost of $159.34 is applied for a legal 
professional. The equivalent cost is estimated as: 217 QPAMs x 1 
hour x $159.34 = $34,577, rounded to $35,000.
---------------------------------------------------------------------------

    Additionally, some commenters expressed concern that this 
requirement would lead to heightened litigation risk from those who 
request the records, which would further increase costs for QPAMs. This 
concern fails to account for the fact that a QPAM is a fiduciary with 
obligations to its client Plans, including their participants and 
beneficiaries. The Department has included a similar recordkeeping 
requirement in many administrative prohibited transaction exemptions 
and is not aware that such requirements have resulted in increased 
litigation for those entities subject to the requirements. Commenters 
did not provide data or estimates of the direct cost that might be 
associated with the purported increased litigation risk. Therefore, the 
Department believes that such cost will be minimal or nonexistent when 
compared to the baseline litigation risk associated with being a 
fiduciary asset manager.

Involvement in Investment Decisions by Parties in Interest--Section 
I(c)

    The Department anticipates that the modifications to Section I(c) 
will not change the costs of the exemption compared to cost of the 
baseline QPAM Exemption because the types of transactions that were 
intended to be excluded by previous Section I(c) are the same types of 
transactions intended to be excluded by modified Section I(c).

Costs Incurred by QPAMs Losing Eligibility for the Exemption for a 
Criminal Conviction or Prohibited Misconduct

    According to past QPAM Section I(g) individual exemption 
applicants, the QPAM Exemption serves as one of the most advantageous 
exemptions for financial institutions that are involved with 
discretionary asset management. Even if other exemptions are available, 
financial institutions may seek QPAM

[[Page 23121]]

status to mitigate risk of exposure to excise taxes under Code sections 
4975(a) and (b) for engaging in non-exempt prohibited transactions if 
they fail to meet the conditions of those exemptions.
    Financial Institutions also use QPAM status to attract and maintain 
client Plans. Although a QPAM that fails to satisfy Section I(g) may 
continue to operate as an asset manager for Plans, the Department 
understands that some entities use QPAM status as an indicator of size 
and/or sophistication to potential client Plans. According to past 
individual exemption applicants, if an entity is no longer able to 
represent that it is a QPAM, Plans are less likely to retain the QPAM 
as their manager, even in situations where the client technically does 
not need the relief provided by the exemption.
    The loss of eligibility for the QPAM Exemption may create perceived 
or actual costs in the form of lost opportunities for the financial 
institution. The costs associated with the loss of reliance on the QPAM 
Exemption are not added costs imposed by this Final Amendment, but 
rather costs attributable to the criminal behavior of a QPAM or its 
Affiliate or owner of a five (5) percent or more interest. Such costs 
are not considered as part of this analysis, which only considers costs 
that are directly imposed by this amendment.

Estimate of the Number of Financial Institutions Experiencing 
Ineligibility Due to a Criminal Conviction or Prohibited Misconduct

    The Department believes the individual exemptions granted in the 
past provide the best basis for estimating how many QPAMs will 
experience an ineligibility trigger in the future. The Department only 
has data on the number of QPAMs covered by each individual exemption 
since 2013. As shown in Table 2 below, the Department granted 
individual exemptions to 65 QPAMs facing ineligibility under current 
Section I(g) in connection with 14 separate convictions or possible 
convictions.\108\
---------------------------------------------------------------------------

    \108\ Ineligible QPAMs that request individual exemptions 
generally request relief for the entire ten-year ineligibility 
period. However, to engage in a thorough fact-finding process and to 
verify compliance with certain audit provisions in the individual 
exemptions, the Department has granted exemptions that include less 
than ten years of relief in many situations. Ineligible QPAMs then 
typically apply for an extension of relief even though no additional 
conviction has occurred. Additionally, in situations where an 
ineligible QPAM is impacted by a subsequent conviction before the 
expiration of the ten-year ineligibility period for the initial 
conviction, the Transition Period would also not be implicated, so 
there is no additional cost burden associated with subsequent 
convictions. There was a total of three subsequent convictions after 
an initial conviction for some entities in 2017, 2018, and 2019.
---------------------------------------------------------------------------

    The number of QPAMs affected in any given year is a function of the 
number of convictions covered by Section I(g) and the number of 
entities within a corporate family operating as QPAMs. As shown by past 
experience, this number is likely to fluctuate between years. Based on 
the experience shown in Table 2, the Department estimates that, on 
average, eight QPAMs each year will lose eligibility due to a Criminal 
Conviction.\109\ As this is an average, the number of affected QPAMs 
impacted by ineligibility due to a Criminal Conviction could be higher 
than eight in some years and lower than eight in others.
---------------------------------------------------------------------------

    \109\ The Department did not include in this estimate any of the 
possible QPAMs that have remote relationships with a convicted 
entity that are identified in the individual exemptions as ``Related 
QPAMs.'' The Department has never received comments, questions, 
requests for guidance, or separate individual exemption applications 
from any entities that would fall into that definition, and 
therefore, assumes such entities are not operating as QPAMs.

             Table 2--Past Convictions and Affected QPAMs *
------------------------------------------------------------------------
                                             Number of       Number of
                                            convictions   affected QPAMs
------------------------------------------------------------------------
2013....................................               1               4
2014....................................               1               3
2015....................................               1              20
2016....................................               6              25
2017....................................  ..............  ..............
2018....................................  ..............  ..............
2019....................................  ..............  ..............
2020....................................  ..............  ..............
2021....................................               1              13
                                         -------------------------------
    Total...............................              10              65
    Average.............................             1.1             7.2
    Estimated Yearly Average **                        2               8
     (rounded)..........................
------------------------------------------------------------------------
* The average number of affected QPAMs includes zeros for years without
  convictions, 2017 through 2020.
** The corresponding calculated averages include decimals; therefore, to
  err on the side of caution and inclusion the estimated yearly average
  is rounded to the upper integer.

    The Department's expansion of the ineligibility provision to 
include Prohibited Misconduct under Subsection I(g)(1)(B) and Section 
VI(s) will likely increase the number of QPAMs that become ineligible 
under Section I(g). For the Proposed Amendment, the Department 
estimated that eight additional QPAMs each year would experience 
ineligibility due to the Prohibited Misconduct provisions, which equals 
the average annual number of QPAMs that have experienced ineligibility 
due to a Criminal Conviction. The Final Amendment reduced the scope of 
entities whose Prohibited Misconduct could cause ineligibility for a 
QPAM as compared to the Proposed Amendment and as discussed in more 
detail in an earlier section of the preamble. The Department does not 
have sufficient data to determine the exact number of QPAMs that will 
become ineligible due to this change. For the purposes of this 
analysis, the Department assumes four additional QPAMs will become 
ineligible.\110\
---------------------------------------------------------------------------

    \110\ Due to the reduced scope of entities captured by 
Participating In Prohibited Misconduct, the Department lowered the 
estimate to four as compared to the estimate of eight in the 
Proposed Amendment.
---------------------------------------------------------------------------

    The Final Amendment also clarifies that Section I(g) applies to 
foreign

[[Page 23122]]

convictions that are substantially equivalent to U.S. federal or state 
crimes that are enumerated in Section I(g) of the exemption. The 
Department and QPAMs have treated foreign convictions as causing 
ineligibility under Section I(g) since at least 2000.\111\ Therefore, 
the Department believes that the clarifying reference that includes 
foreign convictions within the scope of Section I(g) will not change 
the number of financial institutions losing eligibility.
---------------------------------------------------------------------------

    \111\ See Prohibited Transaction Exemption (PTE) 2023-13, 88 FR 
26336 (Apr. 28, 2023); PTE 2020-01, 85 FR 8020 (Feb. 12, 2020); PTE 
2019-01, 84 FR 6163 (Feb. 26, 2019); PTE 2016-11, 81 FR 75150 (Oct. 
28, 2016); PTE 2016-10, 81 FR 75147 (Oct. 28, 2016); PTE 2012-08, 77 
FR 19344 (March 30, 2012); PTE 2004-13, 69 FR 54812 (Sept. 10, 
2004); and PTE 96-62 (``EXPRO'') Final Authorization Numbers 2003-
10E, 2001-02E, and 2000-30E, See https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/expro-exemptions-under-pte-96-62.
---------------------------------------------------------------------------

    In total, the Department estimates that 12 QPAMs, on average, will 
become ineligible due to a Criminal Conviction or Prohibited Misconduct 
annually. The Department received a few comments confirming that the 
expansion of ineligibility would increase the number of financial 
institutions that would lose eligibility; however, the comments did not 
provide data that directly address the Department's estimates.

Notice to the Department of Prohibited Misconduct or Foreign NPA or DPA 
of the QPAM and Its Affiliates or Owners

    The Department is including a requirement in this Final Amendment 
that whenever a QPAM, its Affiliates, or owners of a five (5) percent 
or more interest Participates In Prohibited Misconduct or executes a 
foreign NPA or DPA, they must notify the Department at [email protected]. 
The Department does not have sufficient data to estimate how frequently 
such Prohibited Misconduct would occur, but the Department assumes it 
will occur infrequently. For the purposes of this analysis, the 
Department assumes that four instances of Prohibited Misconduct each 
year will require such a notice, at a cost of approximately $300.\112\
---------------------------------------------------------------------------

    \112\ The Department estimates that preparing and sending each 
notice will require an in-house legal professional 30 minutes and a 
clerical staff 5 minutes. The hour burden is estimated as: 4 notices 
x (30 minutes + 5 minutes) = 2 hour and 20 minutes. The labor cost 
of $159.34 is applied for an in-house legal professional, and a 
labor cost of $63.45 is applied for clerical staff. The equivalent 
cost is estimated as: 4 notices x [(30 minutes x $159.34) + (5 
minutes x $63.45)] = $324, rounded to $300.
---------------------------------------------------------------------------

Mandatory One-Year Transition Period--Section I(i)

    The amendment includes a mandatory One-Year Transition Period that 
the QPAM must provide to its client Plans that begins on the 
Ineligibility Date. During this period, relief under the QPAM Exemption 
would only be available for existing client Plans of the QPAM. The 
Department modeled the Transition Period provisions from the conditions 
included in the Department's recent individual Section I(g) exemptions.
    This Final Amendment does not include the provisions from the 
Proposed Amendment that would have prevented QPAMs from engaging in new 
transactions on behalf of existing client Plans during the Transition 
Period. The Department has not included a similar requirement in past 
one-year QPAM individual exemptions it has issued, and several 
commenters expressed concern that this provision would be harmful to 
Plans that rely on QPAMs. After considering these comments, the 
Department has removed this restriction in the Final Amendment.
    As amended, the Department expects that QPAMs will not incur 
increased costs as a result of a Criminal Conviction due to the 
Transition Period provisions because these costs would be equivalent to 
the costs incurred by QPAMs who have obtained an individual exemption 
that includes similar conditions. However, an increased cost will be 
associated with the expansion of the ineligibility provisions. As 
discussed above, the Department estimates that four additional QPAMs 
will become ineligible each year due to Participating In Prohibited 
Misconduct.

Notice to Plans--Subsection I(i)(1)

    Within 30 days of the Ineligibility Date, the QPAM must provide 
notice to the Department and each of its client Plans. The preamble 
provides more detail regarding the information the QPAM is required to 
include in this notice.
    QPAMs that experience ineligibility and apply for individual 
exemption relief already are required to provide this type of notice, 
therefore, the Department is not attributing an incremental burden to 
this requirement. However, due to the expanded scope of ineligibility, 
QPAMs that become ineligible due to Participating In Prohibited 
Misconduct will incur the cost of sending notices to their client 
Plans.
    As discussed in the Affected Entities section above, the Department 
estimates that each QPAM provides discretionary asset management 
services to an average of 50 Plans. The Department estimates that a 
legal professional at each QPAM will spend, on average, 30 minutes 
preparing the notice, and clerical personnel will spend two minutes 
preparing each notice to be sent to a Plan by mail, resulting in an 
equivalent labor cost of approximately $700.\113\ Additionally, the 
Department assumes that notices sent by mail will require two pages of 
paper each, resulting in a material and postage cost of approximately 
$100.\114\
---------------------------------------------------------------------------

    \113\ The hour burden is estimated as: (4 QPAMs x 0.5 hours of 
professional legal time) + (4 QPAMs x 50 Plans x 80% of notices 
being mailed x 2/60 hours of clerical personnel time) = 7.3 hours. 
The labor cost of $159.34 is applied for a legal professional, and 
the labor cost of $63.45 is applied for clerical personnel. The 
equivalent cost is estimated as: (4 QPAMs x 0.5 hours of 
professional legal time x $159.34) + (4 QPAMs x 50 Plans x 80% of 
notices being mailed x 2/60 hours of clerical personnel time x 
$63.45) = $657, rounded to $700.
    \114\ The material and postage cost are estimated as: (4 QPAMs x 
50 Plans x 80% of notices being mailed) x [(2 pages x $0.05 per 
page) + $0.68] = $124, rounded to $100.
---------------------------------------------------------------------------

    The Department believes the cost of sending this notice to the 
Department will be negligible because the QPAM will have already 
prepared and sent the notice to client Plans, and the notice to the 
Department is required to be submitted electronically.

Indemnification

    As discussed above, QPAMs will be required to indemnify, hold 
harmless, and promptly restore actual losses to each client Plan for 
any damages directly resulting from a QPAM losing eligibility for the 
exemption due to a Criminal Conviction or Prohibited Misconduct. 
Damages may include losses and related costs arising from unwinding 
transactions with third parties and transitioning Plan assets to an 
alternative asset manager.
    When the Department has granted individual exemptions for Section 
I(g) ineligibility, it has included these additional protections and 
required QPAMs to ensure that Plans are permitted to withdraw from 
their asset management arrangement with an ineligible QPAM without 
penalty and be indemnified and held harmless in the event of future 
misconduct. Accordingly, the Department has not attributed any 
incremental burden to this requirement.
    However, due to the expanded scope of ineligibility, QPAMs that 
become ineligible as a result of Participating In Prohibited Misconduct 
may incur costs associated with indemnifying their client Plans for 
losses that would occur if they moved to a new asset manager. In the 
proposal, the Department requested comments on the cost of the 
indemnification provision. The Department received several comments 
asserting that the indemnity obligation

[[Page 23123]]

will increase the risk and cost associated with being a QPAM, and that 
these costs will be passed onto Plans in the form of higher fees. The 
Department did not receive any comments providing data directly 
addressing the amount of the cost for indemnification.\115\
---------------------------------------------------------------------------

    \115\ The Department received several comments addressing the 
specific costs associated with amending WMAs, as required under the 
Proposed Amendment. These costs did not directly address 
indemnification costs but rather contract negotiation and updating 
the WMAs. The Department moved the proposed requirements for the WMA 
into the Transition Period provisions in response to commenters and 
believes the cost to ineligible QPAMs regarding this will generally 
be captured within the required notices to client Plans after an 
ineligibility trigger.
---------------------------------------------------------------------------

Costs Incurred by QPAMs Requesting an Individual Exemption--Section 
I(j)

    The Final Amendment retains Section I(j) \116\ from the Proposed 
Amendment, which provides that a QPAM that is ineligible or anticipates 
that it will become ineligible may apply for an individual exemption 
from the Department. This individual exemption would allow the QPAM to 
continue relying on the relief provided in the QPAM Exemption for a 
longer period than the One-Year Transition Period.
---------------------------------------------------------------------------

    \116\ Proposed Section I(k) has been redesignated as Section 
I(j) in the Final Amendment.
---------------------------------------------------------------------------

Costs for all QPAMs Seeking an Individual Exemption

    The Department estimates that, on average, three individual 
exemption applications will be submitted to the Department each year. 
The Department estimates that four QPAMs annually will be covered by 
each exemption application (12 QPAMs total; with four losing 
eligibility due to Prohibited Misconduct and eight losing eligibility 
due to a Criminal Conviction). The Final Amendment instructs applicants 
that apply for an individual exemption to provide the Department with 
detailed information quantifying the cost of the harm, if any, its 
client Plans would suffer if a QPAM could not rely on the QPAM 
Exemption after the Transition Period. Section I(j) also instructs all 
applicants to include in their exemption applications the specific 
dollar amounts of investment losses resulting from foregone investment 
opportunities that would result from ineligibility and any evidence 
supporting the proposition that investment opportunities will only be 
available to client Plans on less advantageous terms. For this 
requirement, the Department assumes a financial professional will spend 
four hours preparing this supporting information. Therefore, the 
Department estimates that for the three applications covering the 
estimated 12 QPAMs losing eligibility annually, the cost associated 
with the additional requirement will be approximately $2,300.\117\
---------------------------------------------------------------------------

    \117\ The hour burden is estimated as: 3 applications x 4 hours 
= 12 hours. At an hourly rate of $190.63 is applied for financial 
professional. The equivalent cost is estimated as: (3 applications x 
4 hours x $190.63 financial professional rate) = $2,288, rounded to 
$2,300.
---------------------------------------------------------------------------

    Finally, Section I(j) of the Final Amendment provides that if an 
applicant would like to request the Department to exclude any term or 
condition from its individual exemption that is included in a recently 
granted individual exemption, the applicant must provide a detailed 
statement explaining why the variation is necessary and in the interest 
of and protective of affected Plans, their participants and 
beneficiaries, and IRA owners. The Department expects QPAMs that become 
ineligible due to a Criminal Conviction already will conduct this 
analysis and thus would not incur incremental costs. Alternatively, if 
this information is not included in an application, the Department will 
generally require it before proceeding with a final determination 
regarding the exemption request.
    The Department assumes the four QPAMs that are estimated to become 
ineligible due to Participating In Prohibited Misconduct would incur 
incremental costs due to the requirement to review the Department's 
most recently granted individual exemptions involving Section I(g) 
ineligibility. To satisfy the requirement, the Department estimates 
that an outside legal professional will spend three hours drafting this 
addition to the individual exemption application. Preparing an 
individual exemption application is specialized work, and the 
Department assumes that most legal professionals that are retained by 
QPAMs will have prior experience. Based on the foregoing, the 
Department estimates that the costs associated with the additional 
requirement totals approximately $1,600 for the application covering 
the four ineligible QPAMs due to Participating In Prohibited 
Misconduct.\118\
---------------------------------------------------------------------------

    \118\ The hour burden is estimated as: (1 application x 3 hours) 
= 3 hours. A labor cost of $535.85 is applied for an outside legal 
professional. The equivalent cost is estimated as: (1 application x 
3 hours x $535.85 outside legal professional labor) = $1,608 rounded 
to $1,600.
---------------------------------------------------------------------------

Costs for QPAMs That Become Ineligible Due to Prohibited Misconduct

    In the Final Amendment, the Department expanded the scope of 
ineligibility to include Participating In Prohibited Misconduct. This 
provision could cause additional financial institutions to lose 
eligibility for the QPAM Exemption and may require them to incur the 
additional costs associated with preparing and filing an exemption 
application with the Department.
    In the Proposed Amendment, the Department estimated that two 
additional applicants each year would apply for an individual 
exemption, each covering four ineligible QPAMs, resulting in a total 
cost of approximately $30,000,\119\ or a per-application cost of 
approximately $15,000. The Department received one comment stating that 
the Department underestimated this cost, and that provided an 
alternative estimate that the cost for filing an individual exemption 
will total between $250,000 and $500,000.\120\ This commenter did not 
support its estimates with specific information detailing how the cost 
estimate was derived. However, after considering the comment, the 
Department has revised its estimate as discussed below.
---------------------------------------------------------------------------

    \119\ 87 FR 45204, pp. 45220.
    \120\ Comment submitted by SIFMA on 11 October 2022. (See 
https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07/00009.pdf).
---------------------------------------------------------------------------

    The Department has limited information on the process for preparing 
an exemption application. Based on the applications received, the 
Department believes that each QPAM affected may need to dedicate 
clerical and in-house legal time to gather information for the 
application. For this Final Amendment, the Department estimates that 
gathering the information for the application will require, on average, 
an in-house legal professional and clerical personnel each to spend 20 
hours gathering and preparing information for the application. The 
Department assumes that the formal exemption application will be 
prepared by an outside legal professional specializing in such matters 
who will spend 15 hours, on average, preparing the application. For the 
four QPAMs becoming ineligible due to Participating In Prohibited 
Misconduct, the Department estimates that this provision will result in 
an estimated cost of approximately $26,000.\121\
---------------------------------------------------------------------------

    \121\ The hour burden is estimated as: [4 QPAMs x (20 hours from 
an in-house legal professional + 20 hours for clerical personnel)] + 
(1 application x 15 hours from an external legal professional) = 175 
hours. The labor cost of $159.34 is applied for an in-house legal 
professional, a labor cost of $63.45 is applied for clerical 
personnel, and a labor cost of $535.85 is applied for an outside 
legal professional. The equivalent cost is estimated as: (4 QPAMs x 
20 hours x $159.34) + (4 QPAMs x 20 hours x $63.45) + (1 application 
x 15 hours x $535.85) = $25,861, rounded to $26,000.

---------------------------------------------------------------------------

[[Page 23124]]

    While this estimate is higher than the Department's estimate in the 
Proposed Amendment, it is significantly lower than the estimate 
provided by the commenter. As previously stated, the commenter did not 
elaborate on the methodology it used to derive its cost estimate. The 
Department's analysis only includes the costs directly associated with 
preparing documentation for the application and preparing the 
application itself.\122\ Additionally, the commenter did not elaborate 
on the type of entity that would be requesting exemptive relief. 
Applications may vary in complexity, depending on the nature of the 
Prohibited Misconduct and the number of QPAMs affected. The Department 
believes that its updated estimate for the Final Amendment reflects a 
fair representation of the cost to prepare an exemption application in 
a typical scenario.
---------------------------------------------------------------------------

    \122\ It is unclear if the commenter was also considering the 
ongoing costs associated with complying with the individual 
exemption. For purposes of this portion of the Department's 
analysis, ongoing costs associated with complying with a granted 
individual exemption are not included as a cost of filing the 
exemption application under Section I(j).
---------------------------------------------------------------------------

    Applicants that receive a final granted individual exemption must 
prepare and distribute a notice to interested parties. Similarly, each 
of the four QPAMs will be required to send an objective description of 
the facts and circumstances upon which the misconduct is based to each 
client Plan. The Department estimates that approximately 200 notices 
will be distributed annually, corresponding to an average of 50 client 
Plans for each of the four QPAMs estimated to be affected by the 
application. The Department estimates that clerical personnel will 
spend 10 minutes distributing the notices and objective descriptions, 
resulting in a labor cost of approximately $2,100.\123\ In addition, 
the Department estimates that material and mailing costs for these 
notices will total approximately $400.\124\
---------------------------------------------------------------------------

    \123\ The hour burden is estimated as: 4 QPAMs x 50 Plans per 
QPAM x (10/60) hours = 33.3 hours. A labor cost of $63.45 is applied 
for clerical personnel The equivalent cost is estimated as: 4 QPAMs 
x 50 Plans per QPAM x (10/60) hours x $63.45 = $2,116, rounded to 
$2,100.
    \124\ The Department further assumes that notices and the 
descriptions of facts and circumstances will be delivered 
separately, comprising 15 and 5 pages, respectively. With a printing 
cost of $0.05 per page and a mailing cost of $0.66 per notice, the 
Department estimates the mailing cost as 4 QPAMs x 50 Plans per QPAM 
x 80% of notices mailed x {[(15 x $0.05) + $0.68] + [(5 x $0.05) + 
$0.68]{time}  = $378, rounded to $400.
---------------------------------------------------------------------------

Costs Incurred by Plans and Participants, Beneficiaries

    The Department received several comments stating that the Proposed 
Amendment would increase Plan expenses. Commenters identified the 
following as factors that are likely to increase Plan expenses: (1) 
increased resources devoted to avoiding non-exempt prohibited 
transactions; (2) disruptions during the Transition Period; (3) 
increased fees due to the risk of ineligibility, and (4) transition 
costs associated with replacing an ineligible QPAM.
    The Department also received several comments stating that the 
Proposed Amendment would decrease the investment options available to 
Plans, specifically regarding a counterparty in a trade who is a Party 
in Interest. Several commenters expressed concern that the proposed 
modifications to Section I(c) would limit access to primary investment 
markets and could limit access to asset classes that are not typically 
traded on large exchanges, such as asset-backed securities. In response 
to these comments, the Department did not include many of the proposed 
modifications in the Final Amendment. Therefore, the Department 
believes there will be no related costs incurred by Plans and their 
participants and beneficiaries due to the modifications to Section I(c) 
in the Final Amendment.

Asset Management and Equity Thresholds--Section VI(a)

    As a result of the adjustments to the asset management and equity 
thresholds in the QPAM definition in Section VI(a), the Department 
acknowledges that some QPAMs may not meet the new threshold 
requirements, and, consequently, would no longer be able to rely on the 
QPAM Exemption. The Department expects Plans that utilize these QPAMs 
will incur costs due to this transition but does not have sufficient 
data to estimate the impact.\125\
---------------------------------------------------------------------------

    \125\ Some QPAMs have suggested in the past that there could be 
costs associated with unwinding transactions that relied on the QPAM 
Exemption and reinvesting assets in other ways. The loss of QPAM 
status could also require an asset manager to keep lists of Parties 
in Interest to its client Plans to ensure the asset manager does not 
engage in prohibited transactions. However, even without the QPAM 
Exemption, a wide variety of investments are available that do not 
involve non-exempt prohibited transactions.
---------------------------------------------------------------------------

    The Department requested similar data in connection with individual 
exemption applications when a QPAM becomes ineligible due to 
convictions covered by Section I(g), but the data provided, and cost 
identified by applicants has been limited. Additionally, the Department 
requested comments and data in the Proposed Amendment regarding the 
number of QPAMs who will potentially become unable to rely upon the 
QPAM Exemption and the number of Plans and the value of Plan assets 
that will be impacted by the increase in asset management and equity 
thresholds.
    As discussed in the Benefits section above, several commenters 
expressed concern that the Department did not provide evidence to 
support the increase in the asset and equity thresholds. Additionally, 
commenters noted that the increased thresholds may create a high 
barrier to entry for financial institutions or would disqualify small 
financial institutions, which would impose transition costs for client 
Plans that search for a new investment manager to replace an ineligible 
QPAM. One commenter noted that the inflation increases would introduce 
uncertainty regarding a QPAM's eligibility.\126\ One commenter noted 
that a Plan transitioning to a new asset manager would incur costs 
associated with searching for a new asset manager to replace the QPAM 
(such as the costs and time required for a request for proposal 
process; costs associated with consultants to assist or manage the 
process, legal review and negotiation of a new management agreement, 
and other due diligence expenses; brokerage and other transaction costs 
associated with the sale of portfolio investments to accommodate the 
investment policies and strategy of the new asset manager; the 
opportunity costs of holding cash pending investment by the new asset 
manager; and lost investment opportunities in connection with a change 
of asset manager). Another commenter estimated that a formal request 
for proposal for a new QPAM would cost between $10,000 and $50,000 with 
legal fees ranging between $10,000 and $20,000 for a typical asset 
class or $20,000 to $40,000 for a more specialized strategy.
---------------------------------------------------------------------------

    \126\ Comment submitted by the Spark Institute on 11 October 
2022. (See https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-comments/1210-ZA07/00026.pdf).
---------------------------------------------------------------------------

    However, none of the commenters directly addressed the number of 
QPAMs that will lose eligibility due to the increased thresholds or 
relatedly, the number of client Plans serviced by those QPAMs. The 
Department received one comment stating that an incremental increase 
approach would give smaller investment fiduciaries, who would be most 
affected by the threshold

[[Page 23125]]

changes, more time to prepare for and respond to threshold changes and 
minimize the negative impact on these entities.
    As discussed in the preamble and after considering these comments, 
the Department decided to phase in the initial increase to asset and 
equity thresholds incrementally over an extended period rather than 
implement the entire increase in a single year in order to reduce the 
immediate impact on QPAMs and their client Plans. QPAMs and Plans 
relying on those QPAMs that will lose the ability to rely upon the QPAM 
Exemption, particularly in the second and third portions of the phase-
in period will have time to make needed adjustments.
    Although Plans may continue to rely on asset managers who do not 
satisfy the definition of QPAM, the Department acknowledges that some 
Plans may choose to hire a different asset manager if their current 
asset manager is not able to rely on the QPAM Exemption. The Department 
understands that it is common industry practice to conduct a request 
for proposal every three to five years, and some Plans may choose to do 
so sooner than they otherwise would have because of the new threshold 
requirements. These Plans will incur costs with preparing and reviewing 
proposals from potential new asset managers. The Department lacks 
sufficient data to estimate the number of Plans and QPAMs that would be 
affected by the increased thresholds in the definition of QPAM.

Summary of Costs

    The total estimated annual costs associated with the Final 
Amendment will be approximately $6.8 million in the first year and $0.8 
million in subsequent years. Table 3 summarizes the costs for each 
requirement.

                          Table 3--Cost Summary
------------------------------------------------------------------------
                                     Aggregate cost change (in dollars)
            Requirement            -------------------------------------
                                        First year      Subsequent year
------------------------------------------------------------------------
All QPAMs:
    Rule Familiarization..........         $5,816,652  .................
    Reporting Reliance on the QPAM            172,187             $1,729
     Exemption....................
    Notice of Failure to Report                17,288                159
     Reliance on the QPAM
     Exemption....................
    Recordkeeping.................            688,750            688,750
    Refusal to Disclose Requested              34,577             34,577
     Information..................
QPAMs Losing Eligibility:
    Notice to Plans...............                782                782
    Notice to the Department of                   340                340
     Prohibited Misconduct and
     Foreign NPA/DPA..............
QPAMs Applying for Individual
 Exemptions:
    Quantification of Costs Plans               2,288              2,288
     Will Suffer..................
    Review of Past Exemptions.....              1,608              1,608
    Exemption Application.........             25,861             25,861
    Individual Exemption Notices..              2,494              2,494
                                   -------------------------------------
        Total Estimated Annual              6,762,827            758,588
         Cost.....................
------------------------------------------------------------------------
Note: Only quantifiable costs are displayed.

Transfers

    If an asset manager cannot rely on the relief under the QPAM 
Exemption (e.g., because it is ineligible due to its Participation In 
Prohibited Misconduct or due to the change in asset or equity 
thresholds), its client Plans may choose to transfer assets and revenue 
away from the asset manager to its competitors. From the Plan's 
perspective, the reduction in assets entrusted to the original asset 
manager (and associated revenue reduction) are offset by the increase 
in assets managed by another asset manager or managers (and associated 
revenue increase). Even if the impact of the switch is minimal or 
neutral from the point of view of the Plan, it is nevertheless 
appropriately characterized as a transfer from a societal 
perspective.\127\
---------------------------------------------------------------------------

    \127\ Although a QPAM's client Plans could be expected to move 
some or all of its assets to another asset manager if the QPAM is 
convicted of an enumerated crime, this discussion does not address 
these transfers. The Department has long viewed both domestic and 
foreign convictions as causing ineligibility under the existing 
exemption. Consequently, the regulatory baseline already includes 
the impact of such convictions.
---------------------------------------------------------------------------

    Although the Department does not have sufficient data to quantify 
the likely size of such revenue transfers, they could have an annual 
effect that exceeds $200 million due to the significant pool of Plan 
assets that QPAMs manage. To the extent the Final Amendment results in 
the movement of assets from asset managers that cannot rely on the 
exemption to other asset managers, the associated revenue transfers 
promote the Department's objectives in issuing this amendment to the 
QPAM Exemption and enhance the security of Plan investments.
    In the Proposed Amendment, the Department requested comments on 
whether a QPAM's client Plans would be likely to move all or some of 
their assets to an alternative asset manager after a QPAM becomes 
ineligible due to expansion of the ineligibility provision. The 
Department did not receive comments directly addressing this issue. The 
cost of conducting a request for proposal and searching for a new asset 
manager are discussed in greater detail above, in the Cost section.

Regulatory Alternatives

    Section 6(a)(3)(C) of Executive Order 12866 requires the Department 
to assess the cost and benefits of feasible alternatives for rules that 
are determined to be ``significant'' under Section 3(f)(1) of the 
executive order. Therefore, the Department considered several 
alternatives to the provisions in the Final Amendment that are 
discussed in this section.
    Do not amend the QPAM Exemption--Continue status quo of addressing 
ineligibility under current Section I(g) and only through 
administration of the individual exemption program.
    The Department considered not expanding the scope of Section I(g) 
and maintaining its practice of addressing ineligibility under Section 
I(g) only

[[Page 23126]]

through the individual exemption process. However, it is the 
Department's understanding that its issuance of a subsequently revoked 
opinion caused uncertainty in the regulated community regarding whether 
foreign convictions are within the scope of Section I(g) of the QPAM 
Exemption. This amendment provides clarity on that point. Further, 
immediate ineligibility under Section I(g) has become a source of 
uncertainty and potential disruption to Plans. As the financial 
services industry has become increasingly consolidated, the number of 
entities becoming ineligible for relief under the QPAM Exemption has 
grown, prompting more entities to face ineligibility. Through the 
individual exemption process, client Plans would continue to be exposed 
to the potential for immediate disruption and transition costs that 
might otherwise be avoided through this Final Amendment.
    The Department decided against this alternative in favor of this 
amendment, relying on its experience processing individual exemption 
applications to create a smoother transition between the QPAM Exemption 
and the individual exemption program so that a QPAM's client Plans have 
certainty regarding their rights after an ineligibility event occurs.
    Amend the QPAM Exemption to expressly exclude foreign convictions.
    The Department considered expressly limiting the scope of 
convictions to only those in a U.S. federal or state trial courts. 
However, given the increasingly global reach of asset managers and 
investment strategies, the Department determined such a limitation 
would leave Plans less protected and be inconsistent with the ERISA 
section 408(a) and Code section 4975(c)(2) required findings. An 
affiliated entity's criminal misconduct in a foreign jurisdiction is an 
important indicator of the integrity of the entire corporate 
organization and casts doubt on a QPAM's ability to act in a manner 
that will properly protect Plans and their participants and 
beneficiaries from the related damages, losses, and other harm that 
often result from such criminal misconduct.
    Amend the QPAM Exemption to require QPAMs to amend Written 
Management Agreements with up-front terms that apply in the event of 
ineligibility.
    In the proposal, the Department included a requirement for all 
QPAMs to amend their WMAs with client Plans to include:
    (1) A provision providing that in the event the QPAM, its 
Affiliates, and five percent or more owners engage in conduct resulting 
in a Criminal Conviction or receipt of a Written Ineligibility Notice, 
the QPAM would not restrict its client Plan's ability to terminate or 
withdraw from its arrangement with the QPAM;
    (2) A provision requiring the QPAM to indemnify, hold harmless, and 
promptly restore actual losses to each client Plan for any damages 
directly resulting from a violation of applicable laws, a breach of 
contract, or any claim arising out of the failure of such QPAM to 
remain eligible for relief under the QPAM Exemption as a result of 
conduct that leads to a Criminal Conviction or Prohibited Misconduct; 
and
    (3) A provision requiring the QPAM to agree not to employ or 
knowingly engage any individual that Participated In the conduct that 
is the subject of a Criminal Conviction or Prohibited Misconduct.
    In the Proposed Amendment, the Department remarked that these 
provisions would benefit Plans by providing them with additional 
certainty that the Plan and its assets will be insulated from losses if 
a Criminal Conviction or Prohibited Misconduct occurs.
    The Department estimated that the cost associated with amending the 
WMAs would result in a total equivalent cost of $135,540,\128\ 
resulting in an average cost of approximately $220 for each QPAM. 
Comments on the Proposed Amendment criticized the Department's 
estimation methods, stating that the Department had significantly 
underestimated the burden this requirement would impose. For instance, 
one commenter estimated that the Department's estimate was off at least 
by a factor of 100. Another commenter estimated that it would cost 
between $1 billion and $12.3 billion.
---------------------------------------------------------------------------

    \128\ 87 FR 45204, pp. 45218.
---------------------------------------------------------------------------

    In its estimate, the Department assumed that amendments to WMAs 
would be uniform across client Plans, and accordingly, the Department 
estimated that the associated costs would be relatively small. However, 
several commenters disagreed with this assumption, stating that the 
necessary amendments would differ by the type of relationship and 
investment strategy. Some commenters noted that such amendments would 
require QPAMs to open contract negotiations with each QPAM client Plan, 
potentially leading to a time-consuming process. Other commenters 
indicated that some QPAMs would incur costs associated with consulting 
outside counsel on these provisions and contract negotiations. Further, 
several of the commenters stated that amending necessary contracts 
would not be possible within the 60-day effective period proposed.
    The Department believes that these provisions provide an important 
protection to Plans, participants, beneficiaries, and IRA owners. 
Namely, these provisions ensure that Plans and IRA owners can terminate 
the arrangement or withdraw from a QPAM-managed Investment Fund without 
penalty, protecting Plans and IRA owners from unnecessary costs when 
relief under the exemption is lost through no fault of their own. 
However, based on the feedback from commenters, the Department removed 
the requirement to amend WMAs. Instead, the Final Amendment requires 
QPAMs to notify and agree to these provisions with Plans in the Notice 
to Plans required within 30 days of the Ineligibility Date. The 
Department determined the approach in the Final Amendment provides the 
same protection to Plans while significantly reducing the cost burden.

Asset Management and Equity Thresholds

    The Department considered two alternatives related to the asset 
management and equity thresholds, described below.
    Amend the QPAM Exemption to remove asset management and equity 
thresholds.
    As an alternative to updating the asset management and equity 
thresholds, the Department revisited whether such thresholds could be 
removed entirely from the exemption. The Department determined that 
this approach would be inconsistent with one of the core concepts upon 
which the QPAM Exemption was based. In the absence of an appropriate 
alternative ensuring that a QPAM will remain an independent decision-
maker, free from influence of other Plan fiduciaries, the Department is 
unable to justify the removal of the thresholds.
    Update the asset management and equity thresholds to full CPI-
adjusted values at once.
    The proposal included CPI-adjusted values that would have been 
fully updated to 2022 values. The Department received a variety of 
comments regarding the possible unintended impact to QPAMs and their 
client Plans who would not be able to satisfy such significant 
increases at once. In response to those concerns, the Department 
determined that a more appropriate way to update the thresholds is 
through a phase-in to the proposed values, which is included in this 
Final Amendment.

[[Page 23127]]

    Amend the QPAM Exemption to include entering into NPAs or DPAs of 
owners and Affiliates of QPAMs as a possible Section I(g) ineligibility 
trigger.
    In the Proposed Amendment, Section I(g) would have been implicated 
if the QPAM, its owners of a five (5) percent or more interest, or 
Affiliates enter into an NPA or DPA and subsequently received a Written 
Ineligibility Notice from the Department. The approach in the Proposed 
Amendment was intended to ensure QPAMs could not avoid the consequences 
that otherwise would result from a Criminal Conviction under Section 
I(g) by entering into NPAs or DPAs with prosecutors. In this Final 
Amendment, the Department limited the scope of Prohibited Misconduct to 
NPAs or DPAs that are entered into with a U.S. Federal or State 
prosecutor's office or regulatory agency and Prohibited Misconduct that 
is found in or determined by a court or court-approved settlement.
    In the Proposed Amendment, the Department estimated that eight 
QPAMs would be affected by the ineligibility provisions due to 
Participating In Prohibited Misconduct.\129\ As discussed in the cost 
section, due to the narrowing of the Prohibited Misconduct provision, 
the Department estimates that four QPAMs annually may become ineligible 
due to the reduced scope of entities captured in the Final Amendment 
rather than the eight QPAMs that were estimated in the Proposed 
Amendment.
---------------------------------------------------------------------------

    \129\ 87 FR at 45218.
---------------------------------------------------------------------------

Uncertainty Associated With the Final Amendment

    The Department is uncertain regarding the total number of QPAMs and 
examined multiple alternative estimation methodologies before utilizing 
the one outlined in this amendment.
    The first alternative considered was adding additional service 
codes from form 5500 data. The Department looked at service providers 
identified under service code 28 and found that they were also 
frequently identified under service code 50 and 27 (direct payment from 
the plan and investment advisory respectively). However, after 
examining these codes in detail, the Department found them too 
definitionally dissimilar from investment management and that the firms 
under these codes seemed less likely to meet the asset and equity 
thresholds required by the QPAM Exemption. Thus, the Department only 
included codes 28, 51, and 52.
    The Department also examined completely different methodologies for 
generating the number of QPAMs. One proposed methodology was to use 
data from the SEC and FDIC to estimate the number of QPAMs. The 
Department could use the FDIC data to see banks with defined benefit 
plan or defined contribution plan funds in trustee accounts and could 
use asset data to estimate the number of entities above and below the 
asset threshold, but that data was generated at the firm-level. Since a 
firm can contain multiple distinct entities, all acting as QPAMs, the 
Department believed that use of this data would lead to a significant 
undercount of QPAMs.
    The Department is also uncertain about the extent to which the 
changes in asset management and equity thresholds would give rise to 
new costs because some QPAMs that meet the current thresholds no longer 
would be able to rely on the exemption if they do not meet the 
increased thresholds. Some of these small QPAMs may lose this portion 
of their business. However, there still may be other exemptions that 
they could use, or they could seek an individual exemption that could 
allow them to continue offering services.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the 
Department solicited comments concerning the information collection 
request included in the Proposed Amendment entitled ``Proposed 
Amendment to Prohibited Transaction Class Exemption 84-14 (the QPAM 
Exemption).'' \130\ At the same time, the Department also submitted an 
information collection request to the (OMB), in accordance with 44 
U.S.C. 3507(d).
---------------------------------------------------------------------------

    \130\ 87 FR 45204.
---------------------------------------------------------------------------

    The Department received one comment addressing the audit cost 
estimates in the paperwork burden analysis of the information 
collections. Other comments submitted contained information relevant to 
the costs and administrative burdens attendant to the Proposed 
Amendment. The Department considered these public comments in 
connection with making changes to the Final Amendment, analyzing the 
economic impact of the Proposed Amendment and developing the revised 
paperwork burden analysis summarized below.
    ICRs are available at RegInfo.gov (reginfo.gov/public/do/PRAMain). 
Requests for copies of the ICR can be sent to the PRA addressee:

By mail: James Butikofer, Office of Research and Analysis, Employee 
Benefits Security Administration, U.S. Department of Labor, 200 
Constitution Avenue NW, Room N-5718, Washington, DC 20210
By email: [email protected]

    Prohibited Transaction Exemption 84-14, 49 FR 9494 (March 13, 
1984), as corrected at 50 FR 41430 (October 10, 1985) and amended at 70 
FR 49305 (August 23, 2005) and at 75 FR 38837 (July 6, 2010) (the QPAM 
Exemption) permits various parties related to Plans to engage in 
transactions involving Plan assets if, among other conditions, the 
assets are managed by a QPAM. The following analysis considers the 
paperwork burden associated with the existing QPAM Exemption as well as 
the incremental cost associated with the Final Amendment.

Affected Entities

    As discussed in the Affected Entities section of the regulatory 
impact analysis, the Department estimates that there are 10,855 QPAMs. 
Additionally, the Department estimates that each QPAM, on average, 
provides services to 50 Plans and that there are 215,135 total Plans 
with relationships with QPAMs.\131\
---------------------------------------------------------------------------

    \131\ For more information on how the number of QPAMs, average 
number of relationships between QPAMs and Plans, and unique number 
of Plans was estimated, refer to the Affected Entities section of 
the regulatory impact analysis.
---------------------------------------------------------------------------

QPAM-Sponsored Plans--Policies and Procedures--Section V(b)

    The existing information collection requirements of the QPAM 
Exemption require in-house QPAMs to develop written policies and 
procedures designed to ensure compliance with the conditions of the 
exemption. Existing in-house QPAMs will have already prepared their 
policies and procedures in accordance with the QPAM Exemption. However, 
some in-house QPAMs may also update their policies and procedures in a 
given year.
    The latest Form 5500 estimates from the year 2020 indicate that 
there are approximately 50 in-house QPAMs.\132\ The Department 
estimates that the burden associated with preparing policies and 
procedures will affect ten percent of all in-house QPAMs, including all 
new in-house QPAMs and some existing in-house QPAMs. Therefore, the 
Department estimates that about five QPAMs will need to

[[Page 23128]]

update their policies and procedures each year.\133\ The Department 
estimates that the burden associated with new QPAMs meeting the 
policies and procedures requirements of the QPAM Exemption will be five 
hours with an equivalent cost of $797.\134\
---------------------------------------------------------------------------

    \132\ The Department estimated the number of in-house QPAMs by 
examining Schedule C of the 2020 Form 5500. Small Plans are not 
required to file the Schedule C. This estimate could underestimate 
the number of in-house QPAMs with small Plans, but the Department 
believes that in-house QPAMs with small Plans would be rare. In 
order for this to occur, an investment manager would have to 
simultaneously be large enough to qualify as a QPAM and small enough 
to qualify as a small plan for the Form 5500-SF.
    \133\ This is estimated as: 50 in-house QPAMs x 10% = 5.
    \134\ The burden is estimated as follows: (5 QPAMs x 1 hour) = 5 
hours. A labor rate of $159.34 is used for legal counsel and applied 
in the following calculation: (5 QPAMs x 1 hour x $159.34) = $797.
---------------------------------------------------------------------------

QPAM-Sponsored Plans--Independent Audit--Section V(c)

    Additionally, the exemption requires in-house QPAMs to engage an 
independent auditor to conduct an annual exemption audit and issue an 
audit report to the Plan. The Department estimates that each of the 50 
in-house QPAMs will use in-house legal professionals, financial 
managers, and clerical time to provide documents and respond to 
questions from the auditor. The Department assumes QPAMs use either a 
law firm or a consulting firm to conduct the exemption audits, and the 
Department assumes that the average cost of an exemption audit is 
$25,000.\135\ This results in a total estimated cost of 
$1,250,000.\136\ Additionally, each exemption audit is assumed to 
require about 5 hours of a legal professional's time, 13 hours of a 
financial manager's time, and six hours of clerical time for each of 
the 50 QPAMs to provide needed materials for the audit. This results in 
a burden estimate of 1,200 hours with an equivalent cost of 
$182,780.\137\
---------------------------------------------------------------------------

    \135\ The Department has received information from industry 
representatives that the cost of a similar annual audit required by 
PTE 96-23 (the INHAM Exemption) may range from approximately $10,000 
to $25,000, depending on asset size and how many years the INHAM has 
used the auditing firm. Because of the type of audit required for an 
in-house QPAM, the Department has assumed that the average cost of 
an exemption audit required by the QPAM Exemption would be $25,000.
    \136\ Assuming that the average cost of an exemption audit would 
be $25,000: 50 in-house QPAMs x $25,000 = $1,250,000.
    \137\ The burden is estimated as follows: (50 x 5 hours) + (50 x 
13 hours) + (50 x 6 hours) = 1,200 hours. A labor rate of $159.34 is 
used for legal counsel, a labor rate of $190.63 is used for a 
financial professional, and a labor rate of $63.45 is used for a 
clerical worker. These labor rates are applied in the following 
calculation: (50 x 5 hours x $159.34) + (50 x 13 hours x $190.63) + 
(50 x 6 hours x $63.45) = $182,780.
---------------------------------------------------------------------------

    This results in a per-entity cost of $28,656 for each audit. The 
Department received one comment on its cost estimate for the audit, 
noting that legal expenses associated with QPAMs would approach or 
exceed $100,000. This commenter did not provide additional information 
to support this estimate.

Property Manager Written Guidelines--Section I(c)

    The exemption also contains a requirement for written guidelines 
when, in certain instances, a property manager acts on behalf of a 
QPAM. In this case, the QPAM is required to establish and administer 
the guidelines. Because agreements between an institution and a 
property manager are customary, the Department estimates that this 
requirement will impose no additional burden on QPAMs.

Reporting Reliance on the QPAM Exemption--Subsection I(k)

    QPAMs will have to report their reliance on the QPAM Exemption via 
email to [email protected]. This notification would occur only once for most 
QPAMs. The information required under subsection I(k) is limited to the 
legal name of the entity relying upon the exemption and any name the 
QPAM may be operating under. The Department expects it will take 15 
minutes, on average, for each QPAM to both prepare and send this 
electronic notification. This burden is estimated to amount to 2,713.8 
hours with an equivalent cost of $172,187 in the first year.\138\ In 
subsequent years, new QPAMs or QPAMs that change their name will be 
required to send the notification. The Department does not have data on 
how many QPAMs will be required to send this notification in subsequent 
years. For the purposes of this analysis, the Department assumes that 
one percent of QPAMs, or 109 QPAMs, will either be new or have a name 
change.\139\ Accordingly, this is estimated to amount to 27.3 hours, 
with an equivalent cost of $1,729.\140\
---------------------------------------------------------------------------

    \138\ The hour burden is estimated as: 10,855 QPAMs x 15 minutes 
= 2,713.8 hours. The labor cost of $63.45 is applied for a clerical 
worker. The equivalent cost is estimated as: 10,855 QPAMs x 15 
minutes x $63.45 = $172,187.
    \139\ The number of QPAMs is estimated as: 10,855 QPAMs x 1% = 
108.6, rounded to 109.
    \140\ The hour burden is estimated as: 109 QPAMs x 15 minutes = 
27.3 hours. The labor cost of $63.45 is applied for a clerical 
worker. The equivalent cost is estimated as: 109 QPAMs x 15 minutes 
x $63.45 = $1,729.
---------------------------------------------------------------------------

    If a QPAM fails to report its reliance on the exemption within 90 
days, the QPAM must send a notice to the Department within an 
additional 90 days, indicating its reliance on the exemption or name 
change, as well as an explanation for the failure to provide notice. 
The Department does not have information on what percent of QPAMs are 
likely to fail to report reliance. For the purposes of this analysis, 
the Department estimates that two percent of QPAMs required to report 
will fail to report reliance each year, or 217 QPAMs in the first year 
and two QPAMs in subsequent years.\141\ The Department estimates that 
preparing the notice will require a legal professional 30 minutes. The 
burden is estimated to be 108.5 hours with an equivalent cost of 
approximately $17,288 in the first year \142\ and one hour with an 
equivalent cost of approximately $159 in subsequent years.\143\ The 
cost for a clerical professional to draft and send an email notifying 
the Department of its reliance or name change is included in the cost 
estimate of sending notice of reliance above.
---------------------------------------------------------------------------

    \141\ The number of QPAMs in the first year is estimated as: 
10,855 x 2% = 217.1, rounded to 217. The number of QPAMs in 
subsequent years is estimated as: 109 QPAMs x 2% = 2.2, rounded to 
2.
    \142\ The hour burden is estimated as: 217 QPAMs x 0.5 hour = 
108.5 hours. The labor cost of $159.34 is applied for an internal 
legal professional. The equivalent cost is estimated as: 108.5 hours 
x $159.34 = $17,288, rounded to $17,000.
    \143\ The hour burden is estimated as: 2 QPAMs x 0.5 hour = 1 
hour. The labor cost of $159.34 is applied for an internal legal 
professional. The equivalent cost is estimated as: 1 hour x $159.34 
= $159.34, rounded to $159.
---------------------------------------------------------------------------

Recordkeeping--Section VI(u)

    The amendment adds a new recordkeeping provision that will apply to 
all 10,855 QPAMs. Due to the fiduciary status of QPAMs and the existing 
regulatory environment in which they exist, the Department assumes that 
QPAMs already maintain many of the required records as part of their 
regular business practices. In addition, the recordkeeping requirements 
correspond to the six-year period in ERISA sections 107 and 413. The 
Department expects that the recordkeeping requirement would impose, on 
average, a burden of one hour per QPAM. Therefore, the Department 
estimates that the overall hour burden of this recordkeeping 
requirement for all 10,855 QPAMs will be 10,855 hours with an 
equivalent cost of $688,750.\144\
---------------------------------------------------------------------------

    \144\ The hour burden is estimated as: 10,855 QPAMs x 1 hour = 
10,855 hours. The labor cost of $63.45 is applied for clerical 
personnel. The equivalent cost is estimated as: 10,855 QPAMs x 1 
hour x $63.45 = $688,750.
---------------------------------------------------------------------------

    If a QPAM refuses to disclose information to any of the parties 
listed in Section VI(u) on the basis that such information is exempt 
from disclosure, the QPAM must provide a written notice advising the 
requestor of the reason for the refusal and that the Department may 
request such information. The Department does not have data on how 
often such a refusal is likely to occur. For the purposes of this 
illustration, the Department

[[Page 23129]]

estimates that two percent of QPAMs, or 217 QPAMs, will refuse to 
disclose requested information annually. The Department estimates that 
drafting a written notice advising the requestor of the reason for the 
refusal and that the Department may request such information will 
require an internal legal professional to spend one hour, resulting in 
a burden of 217 hours with an equivalent cost of approximately 
$34,577.\145\
---------------------------------------------------------------------------

    \145\ The number of QPAMs is estimated as 10,855 x 2% = 217 
QPAMs. The hour burden is estimated as: 217 QPAMs x 1 hour = 217 
hours. The labor cost of $159.34 is applied for a legal 
professional. The equivalent cost is estimated as: 217 QPAMs x 1 
hour x $159.34 = $34,577.
---------------------------------------------------------------------------

Notice to Plans--Subsection I(i)(1)

    Within 30 days after the Ineligibility Date, the QPAM must provide 
notice to the Department and each of its client Plans. The preamble 
provides more detail on what the QPAM is required to include in this 
notice. As discussed in the Cost section of the regulatory impact 
analysis, the Department estimates that 12 QPAMs will lose eligibility 
each year, eight due to a Criminal Conviction and four due to 
Participating In Prohibited Misconduct.
    As discussed in the Affected Entities section, the Department 
estimates that each QPAM provides services to 50 Plans, on average. The 
Department estimates that a legal professional at each ineligible QPAM 
will spend one hour preparing the notice and two minutes for clerical 
personnel will spend two minutes preparing each notice to be sent to a 
Plan by mail, resulting in an hour burden of 22 hours with an 
equivalent cost of $1,971.\146\ Additionally, the Department assumes 
that notices sent by mail will require two pages of paper each, 
resulting in a material and postage cost of approximately $374.\147\
---------------------------------------------------------------------------

    \146\ The hour burden is estimated as: (12 QPAMs x 0.5 hours of 
professional legal time) + (12 QPAMs x 50 Plans x 80% of notices 
being mailed x 2/60 hours of clerical personnel time) = 22 hours. 
The labor cost of $159.34 is applied for a legal professional, and 
the labor cost of $63.45 is applied for clerical personnel. The 
equivalent cost is estimated as: (12 QPAMs x 0.5 hours of 
professional legal time x $159.34) + (12 QPAMs x 50 Plans x 80% of 
notices being mailed x 2/60 hours of clerical personnel time x 
$63.45) = $1,971.
    \147\ The material and postage cost are estimated as: (12 QPAMs 
x 50 Plans x 80% of notices being mailed) x [(2 pages x $0.05 per 
page) + $0.68] = $374.
---------------------------------------------------------------------------

    The Department believes the cost of sending this notice to the 
Department will be negligible since the QPAM will already prepare and 
send the notice to their client Plans and the notice is required to be 
sent electronically.

Notice to the Department of Prohibited Misconduct and Foreign NPA or 
DPA

    If a QPAM, an Affiliate, or owner of a five (5) percent or more 
interest in a QPAM Participates in Prohibited Misconduct or enters into 
a foreign equivalent of an NPA or DPA, the QPAM is required to provide 
notice to the Department of the agreement. The Department does not have 
data on how frequently these entities enter into such agreements but 
assumes it will be infrequent. For the purposes of this analysis, the 
Department assumes that four instances each year will require such a 
notice. The Department estimates that this will result in a cost of 
approximately $340.\148\
---------------------------------------------------------------------------

    \148\ If preparing and sending each notice were to require an 
in-house legal professional 30 minutes and a clerical staff 5 
minutes. The hour burden is estimated as: 4 notices x (30 minutes + 
5 minutes) = 2 hour and 20 minutes. The labor cost of $159.34 is 
applied for an in-house legal professional, and a labor cost of 
$63.45 is applied for clerical staff. The equivalent cost is 
estimated as: 4 notices x [(30 minutes x $159.34) + (5 minutes x 
$63.45)] = $340. The Department assumes such notices will be sent 
electronically and will not create material or postage costs.
---------------------------------------------------------------------------

Requesting an Individual Exemption--Section I(j)

    Participating In Prohibited Misconduct could lead a QPAM to request 
an individual exemption. The burden for filing an application 
requesting an individual exemption is included in the ICR for the 
Exemption Procedure Regulation, which has been approved under OMB 
Control Number 1210-0060. Instead of amending that ICR, the estimated 
burden for applications from QPAMs Participating In Prohibited 
Misconduct is included here.\149\
---------------------------------------------------------------------------

    \149\ In three years when control number 1210-0060 is extended, 
the increase in requests for individual exemptions will be captured 
in the historical data used for the renewal and the burden going 
forward will be captured there.
---------------------------------------------------------------------------

    The Department estimates that there will, on average, be one 
application each year related to Prohibited Misconduct, affecting four 
QPAMs. The Department estimates that gathering and preparing the 
information for the application will take, on average, 20 hours of in-
house legal professional labor and 20 hours of clerical personnel labor 
at each QPAM. The Department assumes that the application will be 
prepared by an outside legal professional specializing in such matters. 
The Department estimates that it will require 15 hours, on average, of 
outside legal professional labor to prepare the application. For the 
four QPAMs losing eligibility due to Prohibited Misconduct, this will 
result in an hour burden of 175 hours with an equivalent cost of 
$25,861.\150\
---------------------------------------------------------------------------

    \150\ The hour burden is estimated as: [4 QPAMs x (20 hours from 
an in-house legal professional + 20 hours for clerical personnel)] + 
(1 application x 15 hours from an external legal professional) = 175 
hours. The labor cost of $159.34 is applied for an in-house legal 
professional, a labor cost of $63.45 is applied for clerical 
personnel, and a labor cost of $535.85 is applied for an outside 
legal professional. The equivalent cost is estimated as: (4 QPAMs x 
20 hours x $159.34) + (4 QPAMs x 20 hours x $63.45) + (1 application 
x 15 hours x $535.85) = $25,861.
---------------------------------------------------------------------------

    For applications that reach the stage of publication of a proposed 
individual exemption in the Federal Register, a notice must be prepared 
and distributed to interested parties. Similarly, if the exemption is 
ultimately granted, each of these four QPAMs will be required to send 
an objective description of the facts and circumstances upon which the 
misconduct is based to each client Plan. The Department estimates that 
approximately 200 notices will be distributed annually, corresponding 
to an average of 50 client Plans for each of the four QPAMs estimated 
to be affected by the application. The Department estimates that it 
will take 10 minutes for clerical personnel to distribute the notices 
and objective descriptions, resulting in an hour burden of 33.3 hours 
with an equivalent cost of approximately $2,116.\151\ In addition, 
material and mailing costs for all of these notices totals 
approximately $378.\152\ The Department estimates that approximately 40 
(20 percent of the total number of notices) will be distributed 
electronically.
---------------------------------------------------------------------------

    \151\ The hour burden is estimated as: 4 QPAMs x 50 Plans per 
QPAM x (10/60) hours = 33.3 hours. A labor cost of $63.45 is applied 
for clerical personnel The equivalent cost is estimated as: 4 QPAMs 
x 50 Plans per QPAM x (10/60) hours x $63.45 = $2,116, rounded to 
$2,100.
    \152\ The Department further assumes that notices and the 
descriptions of facts and circumstances will be delivered 
separately, comprising 15 and 5 pages, respectively. With a printing 
cost of $0.05 per page and a mailing cost of $0.66 per notice, the 
Department estimates the mailing cost as 4 QPAMs x 50 Plans per QPAM 
x 80% of notices mailed x {[(15 x $0.05) + $0.68] + [(5 x $0.05) + 
$0.68]{time}  = $378.
---------------------------------------------------------------------------

Additional Requirement for QPAMs Requesting an Individual Exemption

    New Section I(j) indicates that a QPAM that is ineligible or 
anticipates that it will become ineligible due to an actual or possible 
Criminal Conviction or Participating In Prohibited Misconduct may apply 
for an individual exemption from the Department to continue to rely on 
the relief provided in this exemption for a longer period than the One-
Year Transition Period. In such an event, an applicant should review 
the Department's most recently granted individual exemptions

[[Page 23130]]

involving Section I(g) ineligibility. If an applicant requests the 
Department to exclude any term or condition from its exemption that is 
included in a recently granted individual exemption, the applicant must 
include a detailed statement with its exemption application explaining 
the reason(s) why the variation is necessary and in the interest and 
protective of affected Plans and their participants and beneficiaries. 
For the three applications covering the 12 ineligible QPAMs, the burden 
is estimated to be 9 hours with an equivalent cost of $4,823.\153\
---------------------------------------------------------------------------

    \153\ The hour burden is estimated as: (3 applications x 3 
hours) = 9 hours. A labor cost of $535.85 is applied for an outside 
legal professional. The equivalent cost is estimated as: (3 
application x 3 hours x $535.85 outside legal professional labor) = 
$4,823.
---------------------------------------------------------------------------

    Such applicants also should provide detailed information in their 
applications quantifying the specific cost or harms in dollar amounts, 
if any, Plans would suffer if a QPAM could not rely on the exemption 
after the Transition Period, including the specific dollar amounts of 
investment losses resulting from foregone investment opportunities and 
any evidence supporting the proposition that investment opportunities 
would only be available to Plans on less advantageous terms. All three 
applications will need to include this information if they submit an 
exemption application. The Department estimates that it will require 
four hours of a financial professional's time to prepare such 
information. Therefore, for the three applications covering the 
estimated 12 QPAMs losing eligibility annually, the cost associated 
with the additional requirement results in an hour burden of 12 hours 
with an equivalent cost of $2,288.\154\
---------------------------------------------------------------------------

    \154\ The hour burden is estimated as: 3 applications x 4 hours 
= 12 hours. At an hourly rate of $190.63 is applied for financial 
professional. The equivalent cost is estimated as: (3 applications x 
4 hours x $190.63 financial professional rate) = $2,288.
---------------------------------------------------------------------------

Summary

    Based on the foregoing, the PRA burden associated with the 
information collection requirements contained in the QPAM Exemption are 
summarized below:
    Agency: DOL-EBSA.
    Type of Review: Revision.
    Title of Collection: Plan Asset Transactions Determined by 
Independent Qualified Professional Asset Managers under Prohibited 
Transaction Exemption 1984-14.
    OMB Control Number: 1210-0128.
    Affected Public: Business or other for-profits.
    Estimated Number of Respondents: 10,855.
    Estimated Number of Annual Responses: 23,093.
    Frequency of Response: Annual or as needed.
    Estimated Total Annual Burden Hours: 15,353.
    Estimated Total Annual Burden Cost: $1,250,752.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \155\ imposes certain 
requirements with respect to federal rules that are subject to the 
notice and comment requirements of section 553(b) of the Administrative 
Procedure Act and are likely to have a significant economic impact on a 
substantial number of small entities.\156\ Unless an agency determines 
that a regulation or amendment will not have a significant economic 
impact on a substantial number of small entities, section 604 of the 
RFA requires the agency to present a final regulatory flexibility 
analysis of the Final Amendment.
---------------------------------------------------------------------------

    \155\ 5 U.S.C. 601 et seq. (1980).
    \156\ 5 U.S.C. 551 et seq. (1946).
---------------------------------------------------------------------------

    The Department emphasizes that the QPAM Exemption was always 
premised on the QPAM being an entity of sufficient size to withstand 
undue influence from Parties in Interest. The Department clearly makes 
this point in the preamble to 1982 QPAM proposal where it stated that 
the minimum capital and funds-under-management standards are intended 
to ensure that the eligible fiduciaries managing the accounts or 
investment funds are established institutions which are large enough to 
discourage the exercise of undue influence upon their decision-making 
processes by parties in interest.\157\
---------------------------------------------------------------------------

    \157\ 47 FR 56945, 56947 (Dec. 21, 1982).
---------------------------------------------------------------------------

    This is consistent with the Department's past actions. When the 
exemption was granted, the Department declined to reduce or delete the 
asset and equity thresholds as requested by some commenters.\158\ 
Furthermore, when the Department raised the thresholds for investment 
advisers in 2005, it stated that the thresholds had ``not been revised 
since 1984 and may no longer provide significant protections for plans 
in the current financial marketplace.'' \159\
---------------------------------------------------------------------------

    \158\ See 49 FR at 9502.
    \159\ See Proposed Amendment, 68 FR 52419, 52423 (Sept. 3, 
2003).
---------------------------------------------------------------------------

    As discussed in greater detail below, the Department lacks data to 
be able to identify how many asset managers providing services to Plans 
fall below the SBA size thresholds and above the QPAM eligibility 
thresholds. However, given the nature of the QPAM Exemption and based 
on the premise of the entity being large enough to remain independent, 
the requirements of this Final Amendment are applicable to all 
entities, regardless of size.
    On September 16, 2022, the Department published a supplementary 
Initial Regulatory Flexibility Analysis explaining the possible impact 
on small entities of the amended exemption.\160\
---------------------------------------------------------------------------

    \160\ 87 FR 56912.
---------------------------------------------------------------------------

    The Department has considered the comments submitted to the 
Department as well as the information discussed in hearings conducted 
by the Department to update this analysis. Specifically, the Department 
responded to the following comments in this analysis:
     Several commenters on the Proposed Amendment stated that 
the Department underestimated the number of QPAMs in the supplementary 
Initial Regulatory Flexibility Analysis for the Proposed Amendment. In 
response to these comments, the Department has revised its methodology 
to estimate the number of QPAMs leading to an increase in the estimate 
of QPAMs.
     A few commenters stated that the Department underestimated 
the number of Plans that have hired a QPAM. In response to these 
comments, the Department has revised its estimates of the number of 
QPAM-Plan relationships.
     The Department received several comments that the 
Department underestimated the cost associated with the recordkeeping 
requirement in the supplementary Initial Regulatory Flexibility 
Analysis for the Proposed Amendment. In response to these comments, the 
Department has provided additional guidance on recordkeeping earlier in 
this preamble to alleviate potential confusion.
    There were no comments filed by the SBA's Office of Advocacy.
    Despite the importance of a QPAM being sufficiently large to 
withstand undue influence from parties in interest, the Department has 
determined that the Final Amendment could have a significant impact on 
a substantial number of small entities in an abundance of caution, 
because it does not have sufficient information to determine it would 
not. Therefore, the Department presents its Final Regulatory 
Flexibility Analysis below.

Need for and Objectives of the Amendment

    Substantial changes have occurred in the financial services 
industry since the

[[Page 23131]]

Department granted the QPAM Exemption in 1984. These changes include 
industry consolidation and an increasingly global reach for financial 
services institutions, both in their affiliations and in their 
investment strategies.
    The baseline version of the QPAM Exemption is ambiguous regarding 
whether foreign convictions are included in the scope of the 
ineligibility provision under Section I(g). Today, QPAMs often have 
corporate or relationship ties to a broad range of entities, some of 
which are located internationally. Additionally, some global financial 
service institutions are headquartered or have parent entities that 
reside in foreign jurisdictions. These entities may have significant 
control and influence over the operation and management of all entities 
within a large financial institution's organizational structure, 
including those entities operating as QPAMs. Additionally, the 
international ties of QPAMs come not just from their affiliations and 
parent entities, but also their investment strategies, including those 
involving Plan assets.
    The Department is also concerned about QPAMs that engage in 
significant misconduct of a similar type and nature as the conduct that 
might lead to a Criminal Conviction,\161\ but ultimately does not 
result in a conviction. Under the baseline version of the exemption, a 
QPAM could theoretically avoid the conditions related to integrity and 
ineligibility under Section I(g) by entering into an NPA or DPA with 
prosecutors, which would allow it to side-step the consequences that 
otherwise would result from a Criminal Conviction. Plans may suffer 
significant harm if they are exposed to serious misconduct committed by 
a QPAM, its Affiliates, or owners of a five (5) percent or more 
interest that ultimately results in a an NPA or DPA rather than a 
Criminal Conviction and consequent ineligibility under Section I(g).
---------------------------------------------------------------------------

    \161\ The term ``Criminal Conviction'' is defined in Section 
VI(r) of this Final Amendment.
---------------------------------------------------------------------------

    Likewise, intentionally or systematically violating the conditions 
of the exemption exposes Plans to significant potential harm at the 
hands of those with influence or control over their assets. In the 
Department's view, QPAMs that repeatedly engage in these types of 
serious misconduct do not display the requisite standards of integrity 
necessary to warrant their eligibility for the broad relief provided in 
the QPAM Exemption.
    Through its administration of the individual exemption program, the 
Department also determined that certain aspects of the QPAM Exemption 
would benefit from a focus on mitigating potential costs and disruption 
to Plans when a QPAM becomes ineligible for the exemptive relief due to 
Section I(g). The Final Amendment would reduce the harmful impact on 
Plans by requiring QPAMs that become ineligible to allow their client 
Plans to withdraw from their arrangement with the QPAM penalty-free and 
indemnify their client Plans for certain losses during a One-Year 
Transition Period to avoid unnecessary disruptions to Plans when a QPAM 
becomes ineligible due to a Criminal Conviction or Participation In 
Prohibited Misconduct. The Transition Period will help bridge the gap 
between the QPAM Exemption and the Department's administration of its 
individual exemption program in connection with Section I(g) 
ineligibility.
    The Final Amendment also is needed to update asset management and 
equity thresholds to current values in the definition of QPAM in 
Section VI(a). Some of the thresholds that establish the requisite 
independence upon which the QPAM Exemption is based have not been 
updated since 1984, and the thresholds for registered investment 
advisers have not been updated since 2005. The amendment will 
standardize all the thresholds to current values using the CPI.
    Finally, the Final Amendment is needed to add a standard 
recordkeeping requirement to ensure QPAMs will be able to demonstrate, 
and the Department will be able to verify, compliance with the 
exemption conditions.
    As a whole, the changes to the QPAM Exemption in this Final 
Amendment are necessary to ensure it remains in the interest of and 
protective of the rights of Plans and their participants and 
beneficiaries as required by ERISA section 408(a) and Code section 
4975(c)(2).

Affected Small Entities

Qualified Professional Asset Managers (QPAMs)

    To qualify as a QPAM, financial institutions must meet equity 
capital, net worth, and/or asset under management requirements. The 
Final Amendment will update these thresholds based on the price 
inflation since 1984, incrementally phasing in the thresholds from the 
Proposed Amendment over the period between 2024 and 2030. This Final 
Amendment increases the thresholds as follows:
    (1) Banks--as defined in section 202(a)(2) of the Investment 
Advisers Act of 1940, with equity capital in excess of $1,570,300 as of 
the last day of the fiscal year ending no later than December 31, 2024, 
$2,140,600 effective as of the last day of the fiscal year ending no 
later than December 31, 2027, and $2,720,000 effective as of the last 
day of the fiscal year ending no later than December 31, 2030.
    (2) Savings and loan associations--the accounts of which are 
insured by the Federal Deposit Insurance Corporation, with equity 
capital or net worth in excess of $1,570,300 effective as of the last 
day of the fiscal year ending no later than December 31, 2024, 
$2,140,600 effective as of the last day of the fiscal year ending no 
later than December 31, 2027, and $2,720,000 effective as of the last 
day of the fiscal year ending no later than December 31, 2030.
    (3) Insurance companies--subject to supervision under state law, 
with net worth in excess of $1,570,300 effective as of the last day of 
the fiscal year ending no later than December 31, 2024, $2,140,600 
effective as of the last day of the fiscal year ending no later than 
December 31, 2027, and $2,720,000 effective as of the last day of the 
fiscal year ending no later than December 31, 2030.
    (4) Investment advisers--registered under the Investment Advisers 
Act of 1940 with total client assets under management in excess of 
$101,956,000 effective as of the last day of the fiscal year ending no 
later than December 31, 2024, $118,912,000 effective as of the last day 
of the fiscal year ending no later than December 31, 2027, and 
$135,868,000 effective as of the last day of the fiscal year ending no 
later than December 31, 2030. In addition, the investment adviser must 
either have shareholders' or partners' equity-- or payment of 
liabilities guaranteed by an affiliate, another entity that could 
qualify as a QPAM, or a broker-dealer with net worth-- in excess of 
$1,570,300 effective as of the last day of the fiscal year ending no 
later than December 31, 2024, $2,140,600 effective as of the last day 
of the fiscal year ending no later than December 31, 2027, and 
$2,720,000 effective as of the last day of the fiscal year ending no 
later than December 31, 2030.
    The Department will make subsequent annual adjustments for 
inflation to the equity capital, net worth, and asset management 
thresholds, rounded to the nearest $10,000, no later than January 31 of 
each year by publication in the Federal Register.
    As discussed in the Affected Entities section above, the Department 
estimates that there are 10,855 QPAMs. The Department does not know how 
many

[[Page 23132]]

QPAMs fit the SBA's small entity definition for the finance and 
insurance sector. SBA outlines size standards to determine whether an 
entity is a small entity. The size standards and NAICS codes are 
summarized in the table below.

                       Table 4--SBA Size Thresholds and NAICS Codes by Potential QPAM Type
----------------------------------------------------------------------------------------------------------------
                                                                                        SBA size threshold
                                                                                 -------------------------------
                           Entity type                              NAICS codes     Receipts in      Assets in
                                                                                    millions of     millions of
                                                                                      dollars         dollars
----------------------------------------------------------------------------------------------------------------
Investment Banks................................................          523150            47.0  ..............
Commercial Banks................................................          522110  ..............            $850
Savings and Loan Associations...................................          522180  ..............             850
Insurance Companies.............................................          524113            47.0  ..............
Investment Advisers.............................................          523940            47.0  ..............
----------------------------------------------------------------------------------------------------------------

    The Department lacks sufficient data to identify how many of the 
estimated asset managers providing services to Plans fall below the SBA 
size thresholds and are above the QPAM eligibility thresholds. However, 
the Department believes some small entities that meet the SBA's 
definition could be significantly impacted by the Final Amendment to 
the QPAM Exemption.
    For example, some smaller QPAMs may no longer be able to rely upon 
the exemption due to the increases in the asset and equity thresholds 
in the definition of ``QPAM'' in Section VI(a) of the Final Amendment. 
After considering public comments and testimony at the public hearing 
regarding the Proposed Amendment, the Department has decided to 
implement the proposed increase in thresholds incrementally between 
2024 and 2030 to reduce the potential impact on small entities. 
Additionally, to the extent that Plans that are small entities are more 
likely to hire a QPAM that is a small entity, the Final Amendment could 
also impact them by reducing the market of available QPAMs.
Plans, Participants, Beneficiaries, and IRA Owners
    The Final Amendment will affect Plans whose assets are held by an 
Investment Fund that is managed by a QPAM. The Department does not 
collect data on Plans that use QPAMs to manage their assets. As 
discussed in the Affected Entities section of the regulatory impact 
analysis above, the Department estimates that a single QPAM services, 
on average, 50 client Plans, resulting in an estimate of 547,566 total 
client Plan relationships. The Department estimates that 483,350 of 
these relationships are with small Plans.\162\ Additionally, the 
Department estimates that 215,135 unique Plans have a relationship with 
a QPAM, of which 189,905 are assumed to be small Plans.\163\
---------------------------------------------------------------------------

    \162\ In the 2020 Form 5500, the Department found 64,216 QPAM 
relationships amongst a total of 87,559 Plans that filed the Form 
5500 Schedule C. Small Plans are not required to file Schedule C. 
The number of client-Plan relationships for small Plans is estimated 
as: 547,566 - 64,216 = 483,350.
    \163\ In the 2020 Form 5500, the Department found 25,230 Plans 
that used QPAM service providers of 87,559 Plans that filed the Form 
5500 Schedule C. Small Plans are not required to file Schedule C. 
The number of client-Plan relationships for small Plans is estimated 
as: 215,135 - 25,230 = 189,905.
---------------------------------------------------------------------------

Impacts of the Rule
    In analyzing compliance costs associated with the Final Amendment, 
the Department considers the QPAM's existing compliance costs as the 
regulatory baseline. This includes ERISA's fiduciary duty requirements 
(to the extent applicable), requirements under the prior version of the 
QPAM Exemption, typical requirements in the individual exemption 
process, and individual exemptions granted in connection with Section 
I(g) ineligibility. The Department does not expect that the Final 
Amendment will lead to more than a modest increase to the existing 
costs associated with QPAM ineligibility and individual exemption 
requests related to Criminal Convictions. The Department is uncertain, 
however, regarding the number of QPAMs that would become ineligible 
under the expansion of the ineligibility provision related to 
Participating In Prohibited Misconduct. The Department also is 
uncertain about the extent to which the changes to asset management and 
equity thresholds in the Final Amendment will cause new costs for a 
small, unknown number of QPAMs that would lose their eligibility to 
rely on the exemption because they do not meet the increased 
thresholds. In order to mitigate such costs, the Department has phased-
in the increase in the equity and asset thresholds in three-year 
increments beginning in 2024 and ending in 2030.
    As discussed above, the Department lacks information and data to 
estimate the number of small QPAMs that would no longer be able to rely 
upon the exemption due to the expansion of the ineligibility provision 
related to Participating In Prohibited Misconduct or due to the 
increased size thresholds. The Department expects that small QPAMs 
remaining able to rely upon the amended QPAM Exemption will experience 
a similar impact as larger entities. Accordingly, the following 
analysis considers the cost that each QPAM is estimated to incur, 
depending on whether that QPAM loses the ability to rely upon the QPAM 
Exemption.
    Although the Department has provided a cost analysis below, the 
heightened standards in this Final Amendment may result in entities 
being more diligent in compliance. Further, the Final Amendment will 
provide clear guardrails that would make the costs associated with 
QPAMs becoming ineligible under Section I(g) more clearly avoidable.
Preliminary Assumptions and Cost Estimate Inputs
    The Department assumes that different types of personnel will be 
responsible for satisfying the requirements in the Final Amendment. To 
account for the labor costs associated with different types of 
personnel, the Department estimates the hourly labor costs for each 
type of personnel. In the analysis below, the Department applies the 
hourly labor costs of $63.45 for clerical personnel, $159.34 for 
internal legal professionals, $190.63 for financial managers, and 
$535.85 for outside legal professionals.\164\
---------------------------------------------------------------------------

    \164\ Labor costs for clerical personnel, accountants or 
auditors, internal legal professionals, and financial managers are 
based off internal Department of Labor calculations based on 2023 
labor cost data. For a description of the Department's methodology 
for calculating wage rates, see https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-june-2019.pdf. Labor costs for outside legal 
professionals is calculated as a composite weighted average based on 
the Laffey Matrix for Wage Rates for the time period 6/01/2022-5/31/
2023, see http://www.laffeymatrix.com/see.html. The labor cost is 
estimated as: (40% x $413) + (35% x $508) + (15% x $733) + (10% x 
$829) = $535.85.

---------------------------------------------------------------------------

[[Page 23133]]

    The Final Amendment requires QPAMs to distribute various notices to 
client Plans in certain situations, as described below. The Department 
does not have sufficient data to estimate how often QPAMs will elect to 
send such notices electronically or by mail. For the purposes of this 
analysis, the Department estimates that 80 percent of these notices 
will be delivered by first-class mail. The Department assumes the 
postage cost associated with sending notices through first-class mail 
is $0.66.\165\
---------------------------------------------------------------------------

    \165\ See USPS. ``Mailing & Shipping Prices.'' (2023). https://www.usps.com/business/prices.htm.
---------------------------------------------------------------------------

Costs Incurred by All QPAMs
Rule Familiarization Costs
    The Department expects that QPAMs are likely to rely on outside 
specialized legal counsel to ensure compliance with the Final 
Amendment. On average, the Department estimates that each QPAM will 
incur a cost equivalent to the cost of consulting with an outside legal 
professional for one hour. This results in an average cost of $536 per 
entity in the first year.\166\
---------------------------------------------------------------------------

    \166\ The labor cost of $535.85 is applied for an external legal 
professional. The cost burden is estimated as: 1 hour x $535.85 = 
$535.85, rounded to $536.
---------------------------------------------------------------------------

Reporting Reliance on the QPAM Exemption--Subsection I(k)
    The Department believes that the one-time requirement to report 
reliance on the QPAM Exemption via email to [email protected] will result in 
a minor additional clerical cost. The information required under 
subsection I(k) is limited to the legal name of the entity relying upon 
the exemption and any name the QPAM may be operating under. This 
notification would occur only once for most QPAMs. In subsequent years, 
new QPAMs or QPAMs that change their name will be required to send the 
notification. The Department expects it will take one hour, on average, 
for each QPAM to prepare and send this electronic notification. This 
cost is estimated to be approximately $63 per entity either upon 
enactment of the Final Amendment, origination of a new QPAM, or a name 
change.\167\
---------------------------------------------------------------------------

    \167\ The labor rate of $63.45 is applied for a clerical worker. 
The cost is estimated as: (15/60) hours x $63.45 = $15.86, rounded 
to $16.
---------------------------------------------------------------------------

    If a QPAM fails to report their reliance on the exemption within 90 
days, the Final Amendment provides the QPAM with an additional 90 days 
to send the notice to the Department. This notice must include an 
explanation for the QPAM's failure to provide timely notice. The 
Department estimates that preparing the notice will require a legal 
professional to spend 30 minutes on average resulting in a cost 
estimate of $80 per entity upon the effective date of the Final 
Amendment, origination of a new QPAM, or a name change.\168\ The 
Department includes the cost for a clerical professional to draft and 
send an email notifying the Department of its reliance or name change 
in the cost estimate.
---------------------------------------------------------------------------

    \168\ The labor rate of $159.34 is applied for an internal legal 
professional. The cost is estimated as: 0.5 hour x $159.34 = $79.67, 
rounded to $80.
---------------------------------------------------------------------------

Recordkeeping--Section VI(u)
    The Final Amendment includes a new recordkeeping provision that 
will apply to all QPAMs. Due to the fiduciary status of QPAMs and the 
existing regulatory environment, the Department assumes that QPAMs 
already maintain such records as part of their regular business 
practices. In addition, the recordkeeping requirements correspond to 
the six-year record retention period in ERISA section 107. The 
Department recognizes that some QPAMs may not be keeping records that 
satisfy the requirements and accordingly will experience a larger 
marginal cost for this requirement. However, the Department expects 
that most QPAMs are already fully compliant. The Department estimates 
that, on average, the additional recordkeeping requirements will 
require a QPAM's clerical personnel to spend one hour, resulting in a 
per-QPAM cost of $63.\169\
---------------------------------------------------------------------------

    \169\ The labor rate of $63.45 is applied for a clerical 
professional. The cost is estimated as: 1 hour x $63.45 = $63.45, 
rounded to $63.
---------------------------------------------------------------------------

    If a QPAM refuses to disclose information to any of the parties 
listed in Section VI(u), on the basis that information is exempt from 
disclosure, the QPAM must provide a written notice advising the 
requestor of the reason for the refusal and that the Department may 
request such information. The Department does not have sufficient data 
to estimate how often such a refusal is likely to occur; however, the 
Department believes such instances will be rare. In the case when a 
QPAM refuses to disclose the information, the Department estimates that 
an internal legal professional will spend one hour, resulting in a per-
QPAM cost of $159.\170\
---------------------------------------------------------------------------

    \170\ The labor rate of $159.34 is applied for an internal legal 
professional. The cost is estimated as: 1 hour x $159.34 = $159.34, 
rounded to $159.
---------------------------------------------------------------------------

Costs Incurred by QPAMs Losing Eligibility for the Exemption for a 
Criminal Conviction or Prohibited Misconduct
    In the regulatory impact analysis, the Department estimated that 
eight QPAMs would lose eligibility due to Criminal Convictions and four 
QPAMs would lose eligibility due to Prohibited Misconduct each year. 
The Department does not have sufficient data to estimate how many QPAMs 
losing eligibility are small entities. The following analysis examines 
the per-entity cost of a typical QPAM losing eligibility. The 
Department does not expect the cost for small and large QPAMs losing 
eligibility to be significantly different.
Notice to the Department of Prohibited Misconduct and Foreign NPAs or 
DPAs
    If the QPAM, its Affiliates, or owners of a five percent or more 
interest in a QPAM Participates in Prohibited Misconduct or enters into 
a foreign equivalent of an NPA or DPA, the QPAM must notify the 
Department of the agreement. The Department assumes that this notice 
will require a legal professional to spend 30 minutes producing the 
notice and a clerical worker five minutes to send the notice, resulting 
in a per-entity cost of $85.\171\
---------------------------------------------------------------------------

    \171\ If preparing and sending each notice were to require an 
in-house legal professional 30 minutes and a clerical staff 5 
minutes. The hour burden is estimated as: 1 notices x (30 minutes + 
5 minutes) = 35 minutes. The labor cost of $159.34 is applied for an 
in-house legal professional, and a labor cost of $63.45 is applied 
for clerical staff. The cost is estimated as: (30 minutes x $159.34) 
+ (5 minutes x $63.45) = $85. The Department assumes such notices 
will be sent electronically and will not create material or postage 
costs.
---------------------------------------------------------------------------

Mandatory One-Year Transition Period--Section I(i)
    As amended, the Department expects that the costs incurred by a 
QPAM during the Transition Period would be equivalent to the costs 
incurred by a QPAM obtaining an individual exemption. However, there 
will be an increased cost associated with the expansion of the 
ineligibility provisions. As discussed above, the Department estimates 
that four additional QPAMs will become ineligible each year due to 
Prohibited Misconduct.
Notice to Plans--Subsection I(i)(1)
    Within 30 days after the Ineligibility Date, the QPAM must provide 
notice to the Department and each of its client Plans. The preamble 
provides more detail on the information the QPAM is required to include 
in this notice.
    QPAMs that experience ineligibility and apply for individual 
exemption relief are already required to provide

[[Page 23134]]

this type of notice. Therefore, the Department has attributed no 
incremental burden to this requirement for QPAMs that become ineligible 
due to a Criminal Conviction. However due to the expanded scope of 
ineligibility, QPAMs that become ineligible due to Participating In 
Prohibited Misconduct will incur costs to send notices to their client 
Plans.
    The Department estimates that a legal professional will spend 30 
minutes preparing the notification for each QPAM, and clerical staff 
will spend two minutes preparing and distributing the notifications by 
mail. Additionally, the Department assumes that each notice will 
require two sheets of paper. The total incremental cost related to 
ineligibility for Participating in Prohibited Misconduct is $196 per 
entity, including mailing expenses.\172\
---------------------------------------------------------------------------

    \172\ The labor cost of $159.34 is applied for a legal 
professional, and the labor cost of $63.45 is applied for clerical 
personnel. The equivalent cost is estimated as: (0.5 hours of 
professional legal time x $159.34) + (50 Plans x 80% of notices 
being mailed x 2/60 hours of clerical personnel time x $63.45) = 
$165. The material and postage cost are estimated as: (50 Plans x 
80% of notices being mailed) x [(2 pages x $0.05 per page) + $0.68] 
= $31. The total cost is estimated to be $196 ($165 + $31).
---------------------------------------------------------------------------

    The cost to send this notice to the Department will be negligible 
because it is required to be sent electronically, and the QPAM will 
have already prepared and sent the notice to its client Plans.
Indemnification
    As discussed above, the Final Amendment requires QPAMs to agree to 
indemnify, hold harmless, and promptly restore actual losses to each 
client Plan for any damages directly resulting from a QPAM losing 
eligibility for the exemption due to a Criminal Conviction or 
Prohibited Misconduct. Damages may include losses and related costs 
arising from unwinding transactions with third parties, transitioning 
Plan assets to an alternative asset manager, and exposure to excise 
taxes under Code section 4975.
    When the Department has granted individual exemptions regarding 
section I(g) ineligibility, it has required applicants to comply with 
additional protections for their plan and IRA clients that allow them 
to withdraw from the asset management arrangement without penalty and 
indemnify and hold them harmless in the event future misconduct occurs. 
Accordingly, in this analysis, no incremental burden is attributed to 
this requirement for QPAMs that become ineligible due to a Criminal 
Conviction.
    However due to the expanded scope of ineligibility, QPAMs that 
become ineligible due to Participating In Prohibited Misconduct may 
incur costs associated with indemnifying their client Plans for losses 
that would occur if they moved to a new asset manager. In the Proposed 
Amendment, the Department requested comments on the costs of the 
indemnification provisions. The Department received several comments 
noting that the indemnity obligation will increase the risk and cost 
associated with being a QPAM and that these costs will be passed onto 
Plans in higher fees. The Department, however, did not receive any 
comments directly addressing the amount of the indemnification costs, 
and the Department does not have sufficient information and data to 
estimate these costs.\173\
---------------------------------------------------------------------------

    \173\ The Department received several comments addressing the 
specific costs associated with amending WMAs, as required under the 
Proposed Amendment. These costs did not directly address 
indemnification costs but rather contract negotiation and updating 
the WMAs. The Department moved the proposed requirements for the WMA 
into the Transition Period provisions in response to commenters and 
believes the cost to ineligible QPAMs regarding this will generally 
be captured within the required notices to client Plan after an 
ineligibility trigger.
---------------------------------------------------------------------------

Costs Incurred by QPAMs Requesting an Individual Exemption--Section 
I(j)
    The amendment adds Section I(j), which states that a QPAM that is 
ineligible or anticipates that it will become ineligible may apply for 
an individual exemption from the Department. This individual exemption 
would allow the QPAM to continue relying on the relief provided in the 
QPAM Exemption for a longer period than the One-Year Transition Period.
Costs for all QPAMs Seeking an Individual Exemption
    The Department estimates that, on average, QPAMs will submit three 
applications annually. In these three applications, the Department 
estimates that 12 QPAMs annually will become ineligible, with four 
losing eligibility due to Prohibited Misconduct and eight losing 
eligibility due to a Criminal Conviction.
    The Final Amendment will require all QPAMs to include in their 
exemption applications the specific dollar amounts of investment losses 
resulting from foregone investment opportunities and any evidence 
supporting the proposition that investment opportunities would only be 
available to client Plans on less advantageous terms. For this 
requirement, the Department assumes a financial professional will spend 
four hours preparing the report, resulting in a per-application cost of 
$763, and a per-entity cost of $191.\174\
---------------------------------------------------------------------------

    \174\ An hourly rate of $190.63 is applied for financial 
professional. The equivalent cost is estimated as: (4 hours x 
$190.63 financial professional rate) = $763.
---------------------------------------------------------------------------

    If an applicant requests the Department to exclude any term or 
condition from its exemption that is included in a recently granted 
individual exemption, the applicant must include a detailed statement 
with its exemption application explaining the reason(s) why the 
variation is necessary and in the interest and protective of affected 
Plans, their participants and beneficiaries, and IRA owners. While the 
Department is including this requirement in the Final Amendment, it 
expects that applicants who are ineligible due to Criminal Conduct 
already are conducting this analysis and thus would not incur an 
incremental cost.
    QPAMs that become ineligible due to Participating In Prohibited 
Misconduct will incur incremental costs due to the requirement to 
review the Department's most recently granted individual exemptions 
involving Section I(g) ineligibility. The Department estimates that an 
outside legal professional would spend three hours reviewing past 
individual exemptions and draft this addition to the individual 
exemption application, resulting in a per-application cost of 
$1,600.\175\ The Department estimates that each application would cover 
four QPAMs, resulting in a per-entity cost of $402.
---------------------------------------------------------------------------

    \175\ A labor cost of $535.85 is applied for an outside legal 
professional. The equivalent cost is estimated as: (3 hours x 
$535.85 outside legal professional labor) = $1,608.
---------------------------------------------------------------------------

    Due to the expanded scope of ineligibility to include Participating 
In Prohibited Misconduct, additional financial institutions may lose 
eligibility for the QPAM Exemption and may seek an individual 
exemption. These entities would incur the additional costs of filing 
the application.
    For this Final Amendment, the Department estimates that gathering 
the information for the application will require, on average, an in-
house legal professional and clerical personnel to spend 10 hours each 
gathering and preparing information for the application at each QPAM. 
The Department assumes that the application will be prepared by an 
outside legal professional specializing in such matters. Once it 
receives information from the affected QPAMs, the Department estimates 
that an outside legal professional will spend 15 hours preparing the 
application. For the four QPAMs losing eligibility due to Prohibited 
Misconduct, this will result

[[Page 23135]]

in a per-application cost of $26,000 \176\ or a per-QPAM cost of 
$6,465.
---------------------------------------------------------------------------

    \176\ The hour burden is estimated as: [4 QPAMs x (20 hours from 
an in-house legal professional + 20 hours for clerical personnel)] + 
(1 application x 15 hours from an external legal professional) = 175 
hours. The labor cost of $159.34 is applied for an in-house legal 
professional, a labor cost of $63.45 is applied for clerical 
personnel, and a labor cost of $535.85 is applied for an outside 
legal professional. The equivalent cost is estimated as: (4 QPAMs x 
20 hours x $159.34) + (4 QPAMs x 20 hours x $63.45) + (1 application 
x 15 hours x $535.85) = $25,861, rounded to $26,000.
---------------------------------------------------------------------------

    For applications that are published as proposed exemptions, the 
QPAM must prepare and distribute a notice to interested persons. 
Similarly, if the exemptions are ultimately granted, each of these four 
QPAMs will be required to send an objective description of the facts 
and circumstances upon which the misconduct is based to each client 
Plan. The Department estimates four QPAMs will be required to notify 
interested parties and client Plans under these circumstances, with 
each QPAM having an average of 50 client Plans. The Department 
estimates that clerical personnel will spend 10 minutes to distribute 
the notices and objective descriptions, resulting in a per-QPAM cost of 
$264 \177\ In addition, material and mailing costs for these notices 
totals approximately $94.\178\
---------------------------------------------------------------------------

    \177\ A labor cost of $63.45 is applied for clerical personnel 
The equivalent cost is estimated as: 50 Plans per QPAM x (10/60) 
hours x $63.45 = $264.
    \178\ The Department further assumes that notices and the 
descriptions of facts and circumstances will be delivered 
separately, comprising 15 and 5 pages, respectively. With a printing 
cost of $0.05 per page and a mailing cost of $0.68 per notice, the 
Department estimates the mailing cost as 50 Plans per QPAM x 80% of 
notices mailed x {[(15 x $0.05) + $0.68] + [(5 x $0.05) + 
$0.68]{time}  = $94.
---------------------------------------------------------------------------

Costs Incurred by Plans and Participants and Beneficiaries
    As a result of the adjustments to the asset management and equity 
thresholds to the QPAM definition in Section VI(a), the Department 
acknowledges some QPAMs may not meet the new threshold requirements, 
and, consequently, would no longer be able to rely on the QPAM 
Exemption. The Department expects QPAMs and Plans that utilize these 
QPAMs to incur costs due to this transition, but it lacks sufficient 
data to estimate the impact.\179\ The Department has requested similar 
data in connection with individual exemption applications following 
convictions covered by Section I(g), but the data provided by 
applicants and costs identified by them has been limited. The 
Department requested comments on these costs in the Proposed Amendment 
but did not receive comments identifying specific costs that would be 
incurred due to a possible transition to a new QPAM by small or large 
entities.
---------------------------------------------------------------------------

    \179\ Some QPAMs have suggested in the past that there could be 
costs associated with unwinding transactions that relied on the QPAM 
Exemption and reinvesting assets in other ways. The loss of QPAM 
status could also require an asset manager to keep lists of Parties 
in Interest to its client Plans to ensure the asset manager does not 
engage in prohibited transactions. However, even without the QPAM 
Exemption, a wide variety of investments are available that do not 
involve non-exempt prohibited transactions.
---------------------------------------------------------------------------

Summary of Costs
    The Department estimates that the total, per-entity, estimated 
incremental annual costs associated with the amendment will range 
between $854 and $10,282 in the first year and between $318 and $9,746 
in subsequent years. Table 5 summarizes the per entity costs for each 
requirement and the estimated annual costs associated with the 
amendment for QPAMs to comply with the exemption, QPAMs who trigger the 
conditions associated with Participating In Prohibited Misconduct, and 
QPAMs that become ineligible due to a Criminal Conviction.

                    Table 5--Incremental Cost Summary Associated With Amendments, per Entity
----------------------------------------------------------------------------------------------------------------
                                                                                  Cost for QPAMs
                                                                                       with       Cost for QPAMs
                                                                  Cost for QPAMs    prohibited        with a
                           Requirement                            to comply with    misconduct      conviction
                                                                     exemption     (estimated 4    (estimated 8
                                                                                     per year)       per year)
----------------------------------------------------------------------------------------------------------------
Rule Familiarization............................................            $536            $536            $536
Reporting Reliance on the QPAM Exemption \1\....................             $16             $16             $16
Notice of Failure To Report Reliance \2\........................             $80             $80             $80
Recordkeeping...................................................             $63             $63             $63
Notice of Refusal To Disclose Requested Information.............            $159            $159            $159
Notice of Prohibited Misconduct or Foreign NPA/DPA \3\..........  ..............             $85  ..............
Notice to Plans of Ineligibility................................  ..............            $196  ..............
Requesting an Individual Exemption Costs: \4\
    Preparation Labor Cost......................................  ..............          $6,465  ..............
    Notices Distribution........................................  ..............            $622  ..............
    Additional Requirement--Criminal Conviction.................  ..............  ..............            $191
    Additional Requirement--Prohibited Misconduct...............  ..............            $593  ..............
                                                                 -----------------------------------------------
        First Year Total Estimated Annual Cost..................            $854          $8,815          $1,045
Cost as a Percentage of Equity Capital or Net Worth Threshold              0.05%           0.65%           0.07%
 Effective December 31, 2024 \5\................................
                                                                 -----------------------------------------------
        Subsequent Years Total Estimated Annual Cost \1\........            $318          $9,746            $509
Cost as a Percentage of Equity Capital or Net Worth Threshold              0.02%           0.62%           0.03%
 Effective December 31, 2024 \5\................................
----------------------------------------------------------------------------------------------------------------
Notes: Only quantifiable costs are displayed.
\1\ Most entities will only need to provide this notice once, either upon the effective date of the Final
  Amendment or when first relying on the QPAM Exemption. Entities will also need to provide the notice after a
  name change.
\2\ Entities will only need to provide this notice after failing to report its reliance on the exemption within
  the allotted time.
\3\ Entities will only need to provide such a notice if the QPAM, its Affiliates, or owners of a five (5)
  percent or more interest Participate In Prohibited Misconduct or execute a foreign equivalent of a non-
  prosecution or deferred prosecution agreement.
\4\ One individual exemption application associated with ineligible QPAMs (caused by Prohibited Misconduct) are
  estimated each year, affecting 4 QPAMs. This cost reflects the total cost of the application divided by the
  number of QPAMs.

[[Page 23136]]

 
\5\ Banks, savings and loan associations, insurance companies, and investment advisers each have different size
  threshold requirements, as discussed in more detail in the Affected Entities Section of the regulatory impact
  analysis. However, the size threshold requirements for each entity type include either an equity capital or
  net worth requirement. Effective no later than December 31, 2024, the equity capital and net worth
  requirements will be $1,570,300. For subsequent years, this estimate does not reflect future increases in
  equity capital and net worth threshold requirements. As these thresholds increase, the Department expects that
  the cost as a percentage of equity capital or net worth will decrease.

    On January 1, 2025, each entity type will be required to have 
either equity capital or net worth exceeding $1,570,300. Table 5 shows 
the per entity cost as a percent of this equity capital or net worth 
threshold. While some entities face additional size threshold 
requirements, this measure can provide insight into the magnitude of 
costs faced by small QPAMs. This demonstrates that the smallest asset 
managers able to qualify for the QPAM Exemption, who are not facing 
ineligibility, are estimated to incur costs amounting to 0.05 percent 
of this threshold in the first year and 0.02 percent in subsequent 
years. The incremental costs incurred by the few QPAMs facing 
ineligibility due to Prohibited Misconduct or a Criminal Conviction are 
higher but remain below one percent of the threshold.
    As discussed in the Affected Entities section, the Department lacks 
sufficient data to identify how many of the estimated asset managers 
providing services to Plans fall below the SBA's small business size 
thresholds and are above the QPAM eligibility thresholds. Table 6 shows 
the estimated cost as a percent of the SBA size threshold, in terms of 
annual receipts for investment banks, insurance companies and 
investment advisers and in terms of assets under management for 
commercial banks and savings and loans associations. For most QPAMs, 
the cost to comply with the Final Amendment is expected to amount to 
less than 0.01 percent of the respective SBA threshold. The few QPAMs 
facing ineligibility due to Prohibited Misconduct or a Criminal 
Conviction may incur costs around 0.02 percent of the respective SBA 
threshold. The table also shows the estimated cost relative to 50 
percent and 10 percent of the SBA threshold for receipts and assets. 
Even for entities with receipts or assets amounting to 10 percent of 
the SBA threshold, the costs associated with the Final Amendment 
account for less than 0.5 percent of the SBA threshold.

                               Table 6--Incremental Cost Associated With Amendments, as a Percent of the SBA Size Standard
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   SBA threshold               50% of SBA threshold            10% of SBA threshold
                                                         -----------------------------------------------------------------------------------------------
                      Size standard                        $47.0 Million   $850 Million    $23.5 Million   $425 Million    $4.7 Million    $85.0 Million
                                                            in receipts    in assets \2\    in receipts    in assets \2\    in receipts    in assets \2\
                                                              \1\ (%)           (%)           \1\ (%)           (%)           \1\ (%)           (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         First Year Total Estimated Annual Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Compliance With the Exemption...........................           0.002           (\3\)           0.004           (\3\)           0.018           0.001
QPAMs With Prohibited Misconduct........................           0.022           0.001           0.044           0.002           0.219           0.012
QPAMs With a Conviction.................................           0.002           (\3\)           0.004           (\3\)           0.022           0.001
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Subsequent Years Total Estimated Annual
--------------------------------------------------------------------------------------------------------------------------------------------------------
Compliance With the Exemption...........................           0.001           (\3\)           0.001           (\3\)           0.007           (\3\)
QPAMs With Prohibited Misconduct........................           0.021           0.001           0.041           0.002           0.207           0.011
QPAMs With a Conviction.................................           0.001           (\3\)           0.002           (\3\)           0.011           0.001
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The entities subject to this SBA size threshold include investment banks, insurance companies, and investment advisers.
\2\ The entities subject to this SBA size threshold include commercial banks and savings and loan associations.
\3\ Less than 0.001%.

    In summary, the Department lacks data on how QPAMs are distributed 
relative to the measures of size used by the SBA. However, due to the 
equity capital and net worth thresholds to qualify for the QPAM 
exemption, the Department expects that most QPAMs will be on the higher 
end of the receipts or assets distribution. Based on the analysis 
above, the Department does not expect the costs associated with the 
Final Amendment to represent a significant percentage of annual 
receipts or assets under management of QPAMs.
Regulatory Alternatives
    This section of the Final Regulatory Flexibility Act analysis 
addresses alternatives the Department considered when developing the 
Final Amendment. The Department evaluates these alternatives and 
discusses how the alternatives would have affected small entities 
qualitatively and quantitatively where possible. A more in-depth 
discussion of the regulatory alternatives is included in the regulatory 
impact analysis above.
Do Not Amend the QPAM Exemption
    The Department considered not expanding the scope of Section I(g) 
and maintaining its practice of addressing ineligibility under Section 
I(g) only through the individual exemption process. In considering 
whether to amend the QPAM Exemption, the Department compared the 
marginal costs imposed on QPAMs to the marginal benefits experienced by 
Plans. The Department decided against this alternative in favor of this 
Final Amendment, relying on its experience processing individual 
exemption applications to create a smoother transition between the QPAM 
Exemption and the individual exemption program so that a QPAM's client 
Plans have certainty regarding their rights after an ineligibility 
event occurs.
    While QPAMs, including small QPAMs, will experience increased costs 
associated with the Final Amendment, for most QPAMs, these costs are 
expected to be small compared to the size thresholds required for an 
investment manager to qualify as a QPAM. This is demonstrated in Table 
5 above.
    Amend the QPAM Exemption to require QPAMs to amend Written 
Management Agreements with up-front terms that apply in the event of 
ineligibility.
    In the Proposed Amendment, the Department included a requirement 
for all QPAMs to amend their WMAs with client Plans to include:
    (1) A provision providing that in the event the QPAM, its 
Affiliates, and five percent or more owners engage in conduct resulting 
in a Criminal Conviction or receipt of a Written

[[Page 23137]]

Ineligibility Notice, the QPAM would not restrict its client Plan's 
ability to terminate or withdraw from its arrangement with the QPAM;
    (2) A provision requiring the QPAM to indemnify, hold harmless, and 
promptly restore actual losses to each client Plan for any damages 
directly resulting from a violation of applicable laws, a breach of 
contract, or any claim arising out of the failure of such QPAM to 
remain eligible for relief under the QPAM Exemption as a result of 
conduct that leads to a Criminal Conviction or Prohibited Misconduct; 
and
    (3) A provision requiring the QPAM to agree not to employ or 
knowingly engage any individual that Participated In the conduct that 
is the subject of a Criminal Conviction or Prohibited Misconduct.
    As discussed in greater detail above in the preamble, the 
Department believes that these provisions provide an important 
protection to Plans, participants, beneficiaries, and IRA owners. 
However, based on the feedback from commenters, the Department has 
removed the requirement to amend WMAs. Instead, the Final Amendment 
requires QPAMs to notify and agree to these provisions with Plans in 
the Notice QPAMs must send to Plans within 30 days after the 
Ineligibility Date. The Department determined the approach in the Final 
Amendment provides the same protection to Plans while significantly 
reducing the cost burden for large and small QPAMs to amend their WMAs.
Asset Management and Equity Thresholds
    The Department considered two alternatives related to the asset 
management and equity thresholds, described below.
    Amend the QPAM Exemption to remove asset management and equity 
thresholds.
    As an alternative to updating the asset management and equity 
thresholds, the Department revisited whether such thresholds could be 
removed entirely from the exemption. Removing thresholds would allow 
more small investment managers to qualify for relief under the 
exemption. However, the Department determined that this approach would 
be inconsistent with one of the core concepts upon which the QPAM 
Exemption was based. In the absence of an appropriate alternative 
ensuring that a QPAM will remain an independent decision-maker, free 
from the influence of other Plan fiduciaries, the Department is unable 
to justify the removal of the thresholds.
    Update the asset management and equity thresholds to full CPI-
adjusted values at once.
    The Proposed Amendment included CPI-adjusted values that would have 
been fully updated to 2022 values. The Department received a variety of 
comments regarding the possible unintended impact to QPAMs and their 
client Plans who would not be able to satisfy such significant 
increases at once. This could have resulted in smaller QPAMs losing 
relief and caused significant disruption and cost to those small QPAMs 
and their client Plans.
    In order to minimize the impact of an immediate increase in the 
asset and equity thresholds on small QPAMs who may lose QPAMs status, 
the Department determined that the most appropriate method to update 
the thresholds in the Final Amendment is to increase them in three-year 
increments beginning in 2024 and ending in 2030. This approach will 
limit the disruption an uncertain number of small QPAMs could 
experience if they lose their eligibility to rely on the exemption due 
to the increased thresholds by providing them with an extended period 
to adjust their business models.
Steps the Agency Has Taken To Minimize the Impacts on Small Entities
    The Department's decision to update the asset management and equity 
thresholds could have a significant impact on some small QPAMs that no 
longer qualify to use the exemption. As discussed in the Regulatory 
Alternatives section, to reduce the impact on small QPAMs, the 
thresholds were adjusted in three-year increments to give small QPAMs 
time to make decisions and adjust.
    Some small QPAMs may lose the QPAM portion of their business. 
Others may adapt. There still may be other exemptions that these QPAMs 
could use to service their Plan clients, or they could seek an 
individual exemption that could allow them to continue offering QPAM 
services, depending upon the facts and circumstances presented to the 
Department in the exemption application.
Duplicate, Overlapping, or Relevant Federal Rules
    The Department has attempted to avoid duplication of requirements. 
The required policies and procedures and exemption audit are unique to 
the circumstances of the particular transactions covered by the 
exemption and do not replicate any other requirements by state or 
federal regulations. The exemption permits respondents to satisfy the 
requirements for written guidelines between the QPAM and property 
manager with documents that are already in existence due to ordinary 
and customary business practices, provided such documents contain the 
required disclosures.
Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 requires each 
federal agency to prepare a written statement assessing the effects of 
any federal mandate in a proposed or final agency rule that may result 
in an expenditure of $100 million or more (adjusted annually for 
inflation with the base year 1995) in any one year by state, local, and 
tribal governments, in the aggregate, or by the private sector.\180\ 
For purposes of the Unfunded Mandates Reform Act, as well as Executive 
Order 12875, this Final Amendment does not include any federal mandate 
that the Department expects would result in such expenditures by state, 
local, or tribal governments, or the private sector.\181\
---------------------------------------------------------------------------

    \180\ 2 U.S.C. 1501 et seq. (1995).
    \181\ Enhancing the Intergovernmental Partnership, 58 FR 58093 
(Oct. 28, 1993).
---------------------------------------------------------------------------

Federalism Statement
    Executive Order 13132 outlines fundamental principles of 
federalism, and requires adherence by federal agencies to specific 
criteria in the process of their formulation and implementation of 
policies that have ``substantial direct effects'' on the states, the 
relationship between the national government and states, or on the 
distribution of power and responsibilities among the various levels of 
government.\182\ Federal agencies promulgating regulations that have 
federalism implications must consult with state and local officials and 
describe the extent of their consultation and the nature of the 
concerns of state and local officials in the preamble to the final 
rule.
---------------------------------------------------------------------------

    \182\ Federalism, 64 FR 153 (Aug. 4, 1999).
---------------------------------------------------------------------------

    In the Department's view, this Final Amendment will not have 
federalism implications because it would not have direct effects on the 
states, on the relationship between the national government and the 
states, nor on the distribution of power and responsibilities among 
various levels of government. The Department welcomed input from 
affected states regarding this assessment in the Proposed Amendment but 
received no comments.
General Information
    The attention of interested persons is directed to the following:

[[Page 23138]]

    (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 with respect to a Plan 
or IRA, from certain other provisions of ERISA and the Code, including 
but not limited to any prohibited transaction provisions to which the 
exemption does not apply and the general fiduciary responsibility 
provisions of ERISA section 404 which require, among other things, that 
a fiduciary act prudently and discharge their duties respecting the 
Plan solely in the interests of the participants and beneficiaries of 
the Plan. Additionally, the fact that a transaction is the subject of 
an exemption does not affect the requirements of Code section 401(a), 
including that the Plan must operate for the exclusive benefit of the 
employees of the employer maintaining the Plan and their beneficiaries;
    (2) In accordance with ERISA section 408(a) and Code section 
4975(c)(2), and based on the entire record, the Department finds that 
this exemption is administratively feasible, in the interests of Plans, 
their participants and beneficiaries, and IRA owners, and protective of 
the rights of participants and beneficiaries of the Plan and IRA 
owners;
    (3) The Final Amendment to the QPAM Exemption is applicable to a 
particular transaction only if the transaction satisfies the conditions 
specified in the exemption; and
    (4) The Final Amendment to the QPAM Exemption is supplemental to, 
and not in derogation of, any other provisions of ERISA and 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.
PTE 84-14
    PTE 84-14 is amended to read as follows:
Section I--General Exemption
    The restrictions of ERISA section 406(a)(1)(A) through (D) and the 
taxes imposed by Code section 4975(a) and (b), by reason of Code 
section 4975(c)(1)(A) through (D), shall not apply to a transaction 
between a Party in Interest with respect to a Plan and an Investment 
Fund (as defined in Section VI(b)) in which the Plan has an interest, 
and which is managed by a Qualified Professional Asset Manager (QPAM) 
(as defined in Section VI(a)), if the following conditions are 
satisfied:
    (a) At the Time of the Transaction (as defined in Section VI(i)), 
the Party in Interest, or its Affiliate (as defined in Section VI(c)), 
does not have the authority to--
    (1) Appoint or terminate the QPAM as a manager of the Plan assets 
involved in the transaction, or
    (2) Negotiate on behalf of the Plan the terms of the management 
agreement with the QPAM (including renewals or modifications thereof) 
with respect to the Plan assets involved in the transaction;
    Notwithstanding the foregoing, in the case of an Investment Fund in 
which two or more unrelated Plans have an interest, a transaction with 
a Party in Interest with respect to a Plan will be deemed to satisfy 
the requirements of this Section I(a) if the assets of the Plan managed 
by the QPAM in the Investment Fund, when combined with the assets of 
other Plans established or maintained by the same employer (or 
Affiliate thereof described in Section VI(c)(1) below) or by the same 
employee organization, and managed in the same Investment Fund, 
represent less than ten (10) percent of the assets of the Investment 
Fund;
    (b) The transaction is not described in--
    (1) Prohibited Transaction Exemption 2006-16 (71 FR 63786; October 
31, 2006) (relating to securities lending arrangements) (as amended or 
superseded),
    (2) Prohibited Transaction Exemption 83-1 (48 FR 895; January 7, 
1983) (relating to acquisitions by plans of interests in mortgage 
pools) (as amended or superseded), or
    (3) Prohibited Transaction Exemption 82-87 (47 FR 21331; May 18, 
1982) (relating to certain mortgage financing arrangements) (as amended 
or superseded);
    (c) The terms of the transaction, commitments, and investment of 
fund assets, and any associated negotiations are determined by the QPAM 
(or under the authority and direction of the QPAM) which represents the 
interests of the Investment Fund. Either the QPAM, or (so long as the 
QPAM retains full fiduciary responsibility with respect to the 
transaction) a property manager acting in accordance with written 
guidelines established and administered by the QPAM, makes the decision 
on behalf of the Investment Fund to enter into the transaction, 
provided that the transaction is not part of an agreement, arrangement, 
or understanding designed to benefit a Party in Interest. In exercising 
its authority, the QPAM must ensure that any transaction, commitment, 
or investment of fund assets for which it is responsible is based on 
its own independent exercise of fiduciary judgment and free from any 
bias in favor of the interests of the plan sponsor or other parties in 
interest. The QPAM may not be appointed or relied upon to uncritically 
approve transactions, commitments, or investments negotiated, proposed, 
or approved by the plan sponsor, or other parties in interest. The 
prohibited transaction relief provided under this exemption applies 
only in connection with an Investment Fund that is established 
primarily for investment purposes. No relief is provided under this 
exemption for any transaction that has been planned, negotiated, or 
initiated by a Party in Interest, in whole or in part, and presented to 
a QPAM for approval to the extent the QPAM would not have sole 
responsibility with respect to the transaction as required by this 
Section I(c);
    (d) The Party in Interest dealing with the Investment Fund is 
neither the QPAM nor a person Related to the QPAM;
    (e) The transaction is not entered into with a Party in Interest 
with respect to any Plan whose assets are managed by the QPAM, when 
combined with the assets of other Plans established or maintained by 
the same employer (or Affiliate thereof described in subsection 
VI(c)(1) below) or by the same employee organization, and managed by 
the QPAM, represent more than twenty (20) percent of the total client 
assets managed by the QPAM at the time of the transaction; and
    (f) At the Time of the Transaction, and at the time of any 
subsequent renewal or modification thereof that requires the consent of 
the QPAM, the terms of the transaction are at least as favorable to the 
Investment Fund as the terms generally available in arm's length 
transactions between unrelated parties.
    (g) Integrity.
    (1) Ineligibility due to a Criminal Conviction or Prohibited 
Misconduct. Subject to the Ineligibility Date provision set forth in 
Section I(h), a QPAM is ineligible to rely on this exemption for 10 
years following:
    (A) A Criminal Conviction, as defined in Section VI(r), of the QPAM 
or any Affiliate thereof (as defined in Section VI(d)), or any owner, 
direct or indirect, of a five (5) percent or more interest in the QPAM; 
or
    (B) The QPAM, any Affiliate thereof (as defined in Section VI(d)), 
or any owner, direct or indirect, of a five (5) percent or more 
interest in the QPAM Participates In Prohibited Misconduct as defined 
in Section VI(s) and VI(t); or

[[Page 23139]]

    (2) Notice to the Department regarding Participation In Prohibited 
Misconduct. The QPAM must submit a notice to the Department at 
[email protected] if the QPAM, any Affiliate (as defined in Section VI(d)), 
or any owner, direct or indirect, of a five (5) percent or more 
interest in the QPAM, Participates In Prohibited Misconduct as defined 
in Section VI(s) and VI(t), or enters into an agreement with a foreign 
government, however denominated by the laws of the relevant foreign 
government, that is substantially equivalent to a non-prosecution 
agreement (NPA) or deferred prosecution agreement (DPA) described in 
section VI(s)(1). The notice must be sent within 30 calendar days after 
the Ineligibility Date for the Prohibited Misconduct as determined 
pursuant to Section (I)(h)(2) below or the execution date of the 
substantially-equivalent foreign NPA or DPA, and the notice must 
include a description of the Prohibited Misconduct or the 
substantially-equivalent foreign NPA or DPA and the name of and contact 
information for the QPAM.
    (h) Ineligibility Date. A QPAM shall become ineligible:
    (1) as of the ``Conviction Date,'' which is the date of the 
judgment of the trial court (or the date of the judgment of any court 
in a foreign jurisdiction that is the equivalent of a U.S. federal or 
state trial court), regardless of whether that judgment is appealed; or
    (2) (A) as of the date on or after June 17, 2024 that the QPAM, any 
Affiliate thereof (as defined in Section VI(d)), or any owner, direct 
or indirect, of a five (5) percent or more interest in the QPAM 
executes a non-prosecution agreement, or a deferred prosecution 
agreement described in Section VI(s)(1); or
    (B) as of the date on or after June 17, 2024 that a final judgment 
(regardless of whether the judgment is appealed) or a court-approved 
settlement is ordered by a Federal or State criminal or civil court in 
connection with determining that the QPAM, any Affiliate thereof (as 
defined in Section VI(d)), or any owner, direct or indirect, of a five 
(5) percent or more interest in the QPAM has engaged in Prohibited 
Misconduct as defined in Section VI(s)(2) and VI(t).
    A person will become eligible to rely on this exemption again only 
upon a subsequent judgment reversing such person's conviction or civil 
judgment, the effective date of any individual prohibited transaction 
exemption it receives that expressly permits the relief in this 
exemption, or the expiration of the 10-year ineligibility period.
    (i) One-Year Transition Period Due to Ineligibility (One-Year 
Transition Period or Transition Period). Any QPAM that becomes 
ineligible under subsection I(g)(1) must provide a Transition Period 
for its client Plans. Relief is available for transactions (including 
past transactions) under this exemption during the Transition Period 
for a maximum period of one year after the Ineligibility Date, provided 
that the QPAM complies with each condition of the exemption throughout 
the one-year period (including those additional conditions specified in 
this subsection (i)). The relief is available during the Transition 
Period under this exemption only for the QPAM's client Plans that had a 
pre-existing Written Management Agreement required under subsection 
VI(a) with the QPAM on the Ineligibility Date. A QPAM must ensure that 
it manages Plan assets prudently and loyally during the Transition 
Period. During the Transition Period, the QPAM must comply with the 
following additional conditions:
    (1) Within 30 days after the Ineligibility Date, the QPAM must 
provide notice to the Department at [email protected] and each of its Client 
Plans stating:
    (A) Its failure to satisfy subsection I(g)(1) and the resulting 
initiation of this One-Year Transition Period;
    (B) That during the Transition Period, the QPAM:
    (i) Agrees not to restrict the ability of a client Plan to 
terminate or withdraw from its arrangement with the QPAM;
    (ii) Will not impose any fees, penalties, or charges on client 
Plans in connection with the process of terminating or withdrawing from 
an Investment Fund managed by the QPAM except for reasonable fees, 
appropriately disclosed in advance, that are specifically designed to: 
(a) prevent generally recognized abusive investment practices, or (b) 
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, provided that such fees are applied consistently 
and in a like manner to all such investors;
    (iii) Agrees to indemnify, hold harmless, and promptly restore 
actual losses to the client Plans for any damages that directly result 
to them from a violation of applicable laws, a breach of contract, or 
any claim arising out of the conduct that is the subject of a Criminal 
Conviction or Prohibited Misconduct of the QPAM, an Affiliate (as 
defined in Section VI(d)), or an owner, direct or indirect, of a five 
(5) percent or more interest in the QPAM. Actual losses specifically 
include losses and 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 as a result of a QPAM's inability to rely upon 
the relief in the QPAM Exemption; and
    (iv) Will not employ or knowingly engage any individual that 
Participated In the conduct that is the subject of a Criminal 
Conviction or Prohibited Misconduct, regardless of whether the 
individual is separately convicted in connection with the criminal 
conduct.
    (C) An objective description of the facts and circumstances upon 
which the Criminal Conviction or Prohibited Misconduct is based, 
written with sufficient detail to fully inform the client Plan's 
fiduciary of the nature and severity of the conduct so that the 
fiduciary can satisfy its duties of prudence and loyalty under section 
404 of ERISA (29 U.S.C. 1104), as applicable, with respect to hiring, 
monitoring, evaluating, and retaining the QPAM in a non-QPAM capacity;
    (2) As of the Ineligibility Date under Section I(h), the QPAM must 
not employ or knowingly engage any individual that Participated In the 
conduct that is the subject of a Criminal Conviction or that 
Participated In Prohibited Misconduct causing ineligibility of the QPAM 
under subsection I(g)(1); and
    (3) After the One-Year Transition Period expires, and if the 
Criminal Conviction is not reversed on appeal, the entity may not rely 
on the relief provided in this exemption until the expiration of the 
10-year ineligibility period unless it obtains an individual exemption 
permitting it to continue relying upon this exemption.
    (j) Requests for an Individual Exemption. A QPAM that is ineligible 
or anticipates that it will become ineligible due to an actual or 
possible Criminal Conviction or Participating In Prohibited Misconduct 
as defined in Sections VI(r) and VI(s) may apply for an individual 
exemption from the Department to continue to rely on the relief 
provided in this exemption for a longer period than the One-Year 
Transition Period. An applicant should review the Department's most 
recently granted individual exemptions involving Section I(g) 
ineligibility with the expectation that similar conditions will be 
required of the applicant, if the Department proposes and grants a 
requested exemption. To that end, if an applicant requests the 
Department to exclude any term or condition from its

[[Page 23140]]

exemption that is included in a recently granted individual exemption, 
the applicant must include a detailed statement with its exemption 
application explaining the reason(s) why the proposed variation is 
necessary and in the interest and protective of affected Plans, their 
participants and beneficiaries, and individuals for whose benefit a 
Plan described in Code section 4975(e)(1)(B) or (C) is established (IRA 
owners). The Department will review such requests consist with the 
requirements of ERISA section 408(a) and Code section 4975(c)(2). Such 
applicants also should provide detailed information in their 
applications quantifying the specific cost or harms in dollar amounts, 
if any, their client Plans would suffer if the QPAM could not rely on 
the exemption after the Transition Period, including the specific 
dollar amounts of investment losses resulting from foregone investment 
opportunities and any evidence supporting the proposition that 
investment opportunities would be available to client Plans on less 
advantageous terms. An applicant should not construe the Department's 
acceptance of an individual exemption application as a guarantee that 
the Department will grant an individual exemption. A QPAM that submits 
an individual exemption application must ensure that it manages Plan 
assets prudently and loyally during the Transition Period in accordance 
with section 404 of ERISA (29 U.S.C. 1104), as applicable.
    (k) Any QPAM that relies upon this exemption must notify the 
Department via email at [email protected]. Each QPAM that relies upon the 
exemption must report the legal name of each business entity relying 
upon the exemption in the email to the Department and any name the QPAM 
may be operating under. This notification needs to be reported only 
once unless there is a change to the legal name or operating name(s) of 
the QPAM relying upon the exemption or the QPAM no longer is relying on 
the exemptive relief provided in the exemption. The QPAM must provide 
notice to the Department within ninety (90) calendar days of its 
reliance on the exemption or a change to its legal or operating name. 
If the QPAM inadvertently fails to provide notice to the Department 
within the initial 90 calendar day period, it may notify the Department 
of its reliance on the exemption or name change and failure to report 
without losing the relief provided by this exemption. This notice must 
be provided within an additional 90 calendar days along with an 
explanation for the QPAM's failure to provide notice. A QPAM may notify 
the Department if it is no longer relying upon this exemption at any 
time.
Section II--Specific Exemption for Employers
    The restrictions of ERISA sections 406(a), 406(b)(1), and 407(a) 
and the taxes imposed by Code section 4975(a) and (b), by reason of 
Code section 4975(c)(1)(A) through (E), shall not apply to:
    (a) The sale, leasing, or servicing of Goods or the furnishing of 
services, to an Investment Fund managed by a QPAM by a Party in 
Interest with respect to a Plan having an interest in the fund, if--
    (1) The Party in Interest is an employer any of whose employees are 
covered by the Plan or is a person who is a Party in Interest by virtue 
of a relationship to such an employer (described in Section VI(c) 
below),
    (2) The transaction is necessary for the administration or 
management of the Investment Fund,
    (3) The transaction takes place in the ordinary course of a 
business engaged in by the Party in Interest with the general public,
    (4) The amount attributable in any taxable year of the Party in 
Interest to transactions engaged in with an Investment Fund pursuant to 
this Section II(a) does not exceed one (1) percent of the gross 
receipts derived from all sources for the prior taxable year of the 
Party in Interest, and
    (5) The requirements of Sections I(c) through (g) above are 
satisfied with respect to the transaction.
    (b) The leasing of office or commercial space by an Investment Fund 
maintained by a QPAM to a Party in Interest with respect to a Plan 
having an interest in the Investment Fund, if--
    (1) The Party in Interest is an employer any of whose employees are 
covered by the Plan or is a person who is a Party in Interest by virtue 
of a relationship to such an employer (described in Section VI(c) 
below);
    (2) No commission or other fee is paid by the Investment Fund to 
the QPAM or to the employer, or to an Affiliate of the QPAM or employer 
(as defined in Section VI(c) below), in connection with the 
transaction;
    (3) Any unit of space leased to the Party in Interest by the 
Investment Fund is suitable (or adaptable without excessive cost) for 
use by different tenants;
    (4) The amount of space covered by the lease does not exceed 
fifteen (15) percent of the rentable space of the office building, 
integrated office park, or of the commercial center (if the lease does 
not pertain to office space);
    (5) In the case of a Plan that is not an eligible individual 
account plan (as defined in ERISA section 407(d)(3)), immediately after 
the transaction is entered into, the aggregate fair market value of 
employer real property and employer securities held by the Investment 
Funds of the QPAM in which the Plan has an interest does not exceed ten 
(10) percent of the fair market value of the assets of the Plan held in 
those Investment Funds. In determining the aggregate fair market value 
of employer real property and employer securities as described herein, 
a Plan shall be considered to own the same proportionate undivided 
interest in each asset of the Investment Fund or funds as its 
proportionate interest in the total assets of the Investment Fund(s). 
For purposes of this requirement, the term ``employer real property'' 
means real property leased to, and the term ``employer securities'' 
means securities issued by an employer any of whose employees are 
covered by the Plan or a Party in Interest of the Plan by reason of a 
relationship to the employer described in ERISA section 3(14)(E) or 
(G); and
    (6) The requirements of Sections I(c) through (g) above are 
satisfied with respect to the transaction.
Section III--Specific Lease Exemption for QPAMs
    The restrictions of ERISA section 406(a)(1)(A) through (D), 
406(b)(1) and (2), and the taxes imposed by Code section 4975(a) and 
(b), by reason of Code section 4975(c)(1)(A) through (E), shall not 
apply to the leasing of office or commercial space by an Investment 
Fund managed by a QPAM to the QPAM, a person who is a Party in Interest 
of a Plan by virtue of a relationship to such QPAM described in ERISA 
section 3(14)(G), (H), or (I), or a person not eligible for the General 
Exemption of Section I above by reason of Section I(a), if--
    (a) The amount of space covered by the lease does not exceed the 
greater of 7,500 square feet or one (1) percent of the rentable space 
of the office building, integrated office park, or of the commercial 
center in which the Investment Fund has the investment;
    (b) The unit of space subject to the lease is suitable (or 
adaptable without excessive cost) for use by different tenants;
    (c) At the Time of the Transaction, and at the time of any 
subsequent renewal or modification thereof that requires the consent of 
the QPAM, the terms of the transaction are not more

[[Page 23141]]

favorable to the lessee than the terms generally available in arm's 
length transactions between unrelated parties; and
    (d) No commission or other fee is paid by the Investment Fund to 
the QPAM, any person possessing the disqualifying powers described in 
Section I(a), or any Affiliate of such persons (as defined in Section 
VI(c) below), in connection with the transaction.
Section IV--Transactions Involving Places of Public Accommodation
    The restrictions of ERISA section 406(a)(1)(A) through (D) and 
406(b)(1) and (2) and the taxes imposed by Code section 4975(a) and 
(b), by reason of Code section 4975(c)(1)(A) through (E), shall not 
apply to the furnishing of services and facilities (and Goods 
incidental thereto) by a place of public accommodation owned by an 
Investment Fund managed by a QPAM to a Party in Interest with respect 
to a Plan having an interest in the Investment Fund, if the services 
and facilities (and incidental Goods) are furnished on a comparable 
basis to the general public.
Section V--Specific Exemption Involving QPAM-Sponsored Plans
    The relief in Sections I, III, or IV above from the applicable 
restrictions of ERISA section 406(a), section 406(b)(1) and (2), and 
the taxes imposed by Code section 4975(a) and (b), by reason of Code 
section 4975(c)(1)(A) through (E), shall apply to a transaction 
involving the assets of a Plan sponsored by the QPAM or an Affiliate 
(as defined in Section VI(c)) of the QPAM if:
    (a) The QPAM has discretionary authority or control with respect to 
the Plan assets involved in the transaction;
    (b) The QPAM adopts Written Policies and Procedures that are 
designed to ensure compliance with the conditions of the exemption;
    (c) An independent auditor, who has appropriate technical training 
or experience and proficiency with ERISA's fiduciary responsibility 
provisions and so represents in writing, conducts an Exemption Audit on 
an annual basis. Following completion of the Exemption Audit, the 
auditor shall issue a written report to the Plan presenting its 
specific findings regarding the level of compliance with: (1) the 
Written Policies and Procedures adopted by the QPAM in accordance with 
Section V(b) above, and (2) the objective requirements of this 
exemption. The written report shall also contain the auditor's overall 
opinion regarding whether the QPAM's program complied with: (1) the 
Written Policies and Procedures adopted by the QPAM, and (2) the 
objective requirements of the exemption. The Exemption Audit and the 
written report must be completed within six months following the end of 
the year to which the audit relates; and
    (d) The transaction meets the applicable requirements set forth in 
Sections I, III, or IV above.
Section VI--Definitions and General Rules
    For purposes of this exemption:
    (a) The term ``Qualified Professional Asset Manager'' or ``QPAM'' 
means an Independent Fiduciary which is--
    (1) A bank, as defined in section 202(a)(2) of the Investment 
Advisers Act of 1940 that has the power to manage, acquire or dispose 
of assets of a Plan, which bank has, as of the last day of its most 
recent fiscal year, Equity Capital in excess of $1,000,000. Effective 
as of the last day of the fiscal year ending no later than December 31, 
2024, substitute $1,570,300 for $1,000,000. Effective as of the last 
day of the fiscal year ending no later than December 31, 2027, 
substitute $2,140,600 for $1,000,000. Effective as of the last day of 
the fiscal year ending no later than December 31, 2030, substitute 
$2,720,000 for $1,000,000; or
    (2) A savings and loan association, the accounts of which are 
insured by the Federal Deposit Insurance Corporation that has made 
application for and been granted trust powers to manage, acquire or 
dispose of assets of a Plan by a State or Federal authority having 
supervision over savings and loan associations, which savings and loan 
association has, as of the last day of its most recent fiscal year, 
Equity Capital or Net Worth in excess of $1,000,000. Effective as of 
the last day of the fiscal year ending no later than December 31, 2024, 
substitute $1,570,300 for $1,000,000. Effective as of the last day of 
the fiscal year ending no later than December 31, 2027, substitute 
$2,140,600 for $1,000,000. Effective as of the last day of the fiscal 
year ending no later than December 31, 2030, substitute $2,720,000 for 
$1,000,000; or
    (3) An insurance company which is qualified under the laws of more 
than one State to manage, acquire, or dispose of any assets of a Plan, 
which company has, as of the last day of its most recent fiscal year, 
Net Worth in excess of $1,000,000 and which is subject to supervision 
and examination by a State authority having supervision over insurance 
companies. Effective as of the last day of the fiscal year ending no 
later than December 31, 2024, substitute $1,570,300 for $1,000,000. 
Effective as of the last day of the fiscal year ending no later than 
December 31, 2027, substitute $2,140,600 for $1,000,000. Effective as 
of the last day of the fiscal year ending no later than December 31, 
2030, substitute $2,720,000 for $1,000,000; or
    (4) An investment adviser registered under the Investment Advisers 
Act of 1940 that has total client assets under its management and 
control in excess of $85,000,000 as of the last day of its most recent 
fiscal year, and either (A) Shareholders' or Partners' Equity in excess 
of $1,000,000, or (B) payment of all of its liabilities including any 
liabilities that may arise by reason of a breach or violation of a duty 
described in ERISA sections 404 and 406 is unconditionally guaranteed 
by--(i) A person with a relationship to such investment adviser 
described in subsection VI(c)(1) below if the investment adviser and 
such Affiliate have Shareholders' or Partners' Equity, in the 
aggregate, in excess of $1,000,000; or (ii) A person described in 
(a)(1), (a)(2) or (a)(3) of Section VI above; or (iii) A broker-dealer 
registered under the Securities Exchange Act of 1934 that has, as of 
the last day of its most recent fiscal year, Net Worth in excess of 
$1,000,000. Effective as of the last day of the fiscal year ending no 
later than December 31, 2024, substitute $101,956,000 for $85,000,000 
and $1,346,000 for $1,000,000. Effective as of the last day of the 
fiscal year ending no later than December 31, 2027, substitute 
$118,912,000 for $85,000,000 and $1,694,000 for $1,000,000. Effective 
as of the last day of the fiscal year ending no later than December 31, 
2030, substitute $135,868,000 for $85,000,000 and $2,040,000 for 
$1,000,000;
    Provided that such bank, savings and loan association, insurance 
company, or investment adviser has acknowledged in a ``Written 
Management Agreement'' that it is a fiduciary with respect to each Plan 
that has retained the QPAM.
    (5) By publication through notice in the Federal Register, the 
Department will make subsequent annual adjustments for inflation to the 
Equity Capital, Net Worth, and asset management thresholds in 
subsection VI(a)(1) through (4), rounded to the nearest $10,000, no 
later than January 31 of each year. The adjustments will be effective 
as of the last day of the fiscal year in which the increase takes 
effect, ending no later than December 31 of such fiscal year.
    (b) An ``Investment Fund'' includes single customer and pooled 
separate accounts maintained by an insurance company, individual trusts 
and common, collective or group trusts maintained by a bank, and any 
other

[[Page 23142]]

account or fund to the extent that the disposition of its assets 
(whether or not in the custody of the QPAM) is subject to the 
discretionary authority of the QPAM.
    (c) For purposes of Section I(a) and Sections II and V above, an 
``Affiliate'' of a person means--
    (1) Any person directly or indirectly, through one or more 
intermediaries, Controlling, Controlled by, or under Common Control 
with the person;
    (2) Any corporation, partnership, trust or unincorporated 
enterprise of which such person is an officer, director, ten (10) 
percent or more partner (except with respect to Section II this figure 
shall be five (5) percent), or highly compensated employee as defined 
in Code section 4975(e)(2)(H) (but only if the employer of such 
employee is the Plan sponsor); and
    (3) Any director of the person or any employee of the person who is 
a highly compensated employee, as defined in Code section 
4975(e)(2)(H), or who has direct or indirect authority, responsibility 
or control regarding the custody, management or disposition of Plan 
assets involved in the transaction. A named fiduciary (within the 
meaning of ERISA section 402(a)(2)) of a Plan with respect to the Plan 
assets involved in the transaction and an employer any of whose 
employees are covered by the Plan will also be considered Affiliates 
with respect to each other for purposes of Section I(a) above if such 
employer or an Affiliate of such employer has the authority, alone or 
shared with others, to appoint or terminate the named fiduciary or 
otherwise negotiate the terms of the named fiduciary's employment 
agreement.
    (d) For purposes of Section I(g) above an ``Affiliate'' of a person 
means--
    (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 five 
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 Code section 
4975(e)(2)(H) or officer (earning ten (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.
    (e) The terms ``Controlling,'' ``Controlled by,'' ``under Common 
Control with,'' and ``Controls'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (f) The term ``Party in Interest'' means a person described in 
ERISA section 3(14) and includes a ``disqualified person,'' as defined 
in Code section 4975(e)(2).
    (g) The term ``Relative'' means a relative as that term is defined 
in ERISA section 3(15), or a brother, a sister, or a spouse of a 
brother or sister.
    (h) A QPAM is ``Related'' to a Party in Interest for purposes of 
Section I(d) above if, as of the last day of its most recent calendar 
quarter: (i) The QPAM owns a ten (10) percent or more Interest in the 
Party in Interest; (ii) a person Controlling, or Controlled by, the 
QPAM owns a twenty (20) percent or more Interest in the Party in 
Interest; (iii) the Party in Interest owns a ten (10) percent or more 
Interest in the QPAM; or (iv) a person Controlling, or Controlled by, 
the Party in Interest owns a twenty (20) percent or more Interest in 
the QPAM. Notwithstanding the foregoing, a Party in Interest is 
``Related'' to a QPAM if: (i) A person Controlling, or Controlled by, 
the Party in Interest has an ownership Interest that is less than 
twenty (20) percent but greater than ten (10) percent in the QPAM and 
such person exercises Control over the management or policies of the 
QPAM by reason of its ownership Interest; (ii) a person Controlling, or 
Controlled by, the QPAM has an ownership Interest that is less than 
twenty (20) percent but greater than ten (10) percent in the Party in 
Interest and such person exercises Control over the management or 
policies of the Party in Interest by reason of its ownership Interest. 
For purposes of this definition:
    (1) The term ``Interest'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership, or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an ``Interest'' if, other than in 
a fiduciary capacity, the person has or shares the authority--
    (A) To exercise any voting rights or to direct some other person to 
exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (i) ``At the Time of the Transaction'' means the date upon which 
the transaction is entered into. In addition, in the case of a 
transaction that is continuing, the transaction shall be deemed to 
occur until it is terminated. If any transaction is entered into on or 
after December 21, 1982, or a renewal that requires the consent of the 
QPAM occurs on or after December 21, 1982, and the requirements of this 
exemption are satisfied at the time the transaction is entered into or 
renewed, respectively, the requirements will continue to be satisfied 
thereafter with respect to the transaction. Notwithstanding the 
foregoing, this exemption shall cease to apply to a transaction exempt 
by virtue of Section I or Section II above at such time as the 
percentage requirement contained in Section I(e) is exceeded, unless no 
portion of such excess results from an increase in the assets 
transferred for discretionary management to a QPAM. For this purpose, 
assets transferred do not include the reinvestment of earnings 
attributable to those Plan assets already under the discretionary 
management of the QPAM. Nothing in this paragraph shall be construed as 
exempting a transaction entered into by an Investment Fund which 
becomes a transaction described in ERISA section 406 or Code section 
4975 while the transaction is continuing, unless the conditions of this 
exemption were met either at the time the transaction was entered into 
or at the time the transaction would have become prohibited but for 
this exemption.
    (j) The term ``Goods'' includes all things which are movable or 
which are fixtures used by an Investment Fund but does not include 
securities, commodities, commodities futures, money, documents, 
instruments, accounts, chattel paper, contract rights, and any other 
property, tangible or intangible, which, under the relevant facts and 
circumstances, is held primarily for investment.
    (k) For purposes of subsection VI(a)(1) and (2) above, the term 
``Equity Capital'' means stock (common and preferred), surplus, 
undivided profits, contingency reserves, and other capital reserves.
    (l) For purposes of subsection VI(a)(2), (3), and (4) above, the 
term ``Net Worth'' means capital, paid-in and contributed surplus, 
unassigned surplus, contingency reserves, group contingency reserves, 
and special reserves.
    (m) For purposes of subsection VI(a)(4) above, the term 
``Shareholders' or Partners' Equity'' means the equity

[[Page 23143]]

shown in the most recent balance sheet prepared within the two years 
immediately preceding a transaction undertaken pursuant to this 
exemption, in accordance with generally accepted accounting principles.
    (n) The term ``Plan'' refers to an employee benefit plan described 
in ERISA section 3(3) and/or a plan described in Code section 
4975(e)(1).
    (o) For purposes of Section VI(a) above, the term ``Independent 
Fiduciary'' means a fiduciary managing the assets of a Plan in an 
Investment Fund that is independent of and unrelated to the employer 
sponsoring such Plan. For purposes of this exemption, the fiduciary 
will not be deemed to be independent of and unrelated to the employer 
sponsoring the Plan if such fiduciary directly or indirectly Controls, 
is Controlled by, or is under Common Control with the employer 
sponsoring the Plan. Notwithstanding the foregoing: (1) for the period 
from December 21, 1982, through November 3, 2010, a QPAM managing the 
assets of a Plan in an Investment Fund will not fail to satisfy the 
requirements of this section solely because such fiduciary is the 
employer sponsoring the Plan or directly or indirectly Controls, is 
Controlled by, or is under Common Control with the employer sponsoring 
the Plan; and (2) effective after November 3, 2010 a QPAM acting as a 
manager for its own Plan or the Plan of an Affiliate (as defined in 
subsection VI(c)(1) above) will be deemed to satisfy the requirements 
of this section if the requirements of Section V above are met.
    (p) An ``Exemption Audit'' of a Plan must consist of the following:
    (1) A review of the Written Policies and Procedures adopted by the 
QPAM pursuant to Section V(b) above for consistency with each of the 
objective requirements of this exemption (as described in Section VI(q) 
below);
    (2) A test of a representative sample of the Plan's transactions 
during the audit period that is sufficient in size and nature to afford 
the auditor a reasonable basis:
    (A) To make specific findings regarding whether the QPAM is in 
compliance with (i) the Written Policies and Procedures adopted by the 
QPAM pursuant to Section VI(q) below and (ii) the objective 
requirements of this exemption, and
    (B) To render an overall opinion regarding the level of compliance 
of the QPAM's program with subsection VI(p)(2)(A)(i) and (ii) above;
    (3) A determination as to whether the QPAM has satisfied the 
definition of a QPAM under the exemption; and
    (4) Issuance of a written report describing the steps performed by 
the auditor during the course of its review and the auditor's findings.
    (q) For purposes of Section VI(p), the Written Policies and 
Procedures must describe the following objective requirements of this 
exemption and the steps adopted by the QPAM to ensure compliance with 
each of these requirements:
    (1) The definition of a QPAM in Section VI(a);
    (2) The requirement of Sections V(a) and I(c) regarding the 
discretionary authority or control of the QPAM with respect to the Plan 
assets involved in the transaction, in negotiating the terms of the 
transaction and with respect to the decision on behalf of the 
Investment Fund to enter into the transaction;
    (3) For a transaction described in Section I above:
    (A) That the transaction is not entered into with any person who is 
excluded from relief under Section I(a), Section I(d), or Section I(e) 
above;
    (B) That the transaction is not described in any of the class 
exemptions listed in Section I(b) above;
    (4) If the transaction is described in Section III above:
    (A) That the amount of space covered by the lease does not exceed 
the limitations described in Section III(a) above, and
    (B) That no commission or other fee is paid by the Investment Fund 
as described in Section III(d) above.
    (r) ``Criminal Conviction'' occurs when a QPAM, any Affiliate 
thereof (as defined in Section VI(d)), or any owner, direct or 
indirect, of a five (5) percent or more interest in the QPAM:
    (1) is convicted in a U.S. federal or state court or released from 
imprisonment, whichever is later, as a result of any felony involving 
abuse or misuse of such person's Plan position or employment, or 
position or employment with a labor organization; any felony arising 
out of the conduct of the business of a broker, dealer, investment 
adviser, bank, insurance company or fiduciary; income tax evasion; any 
felony involving the larceny, theft, robbery, extortion, forgery, 
counterfeiting, fraudulent concealment, embezzlement, fraudulent 
conversion, or misappropriation of funds or securities; conspiracy or 
attempt to commit any such crimes or a crime in which any of the 
foregoing crimes is an element; or any crime that is identified or 
described in ERISA section 411; or
    (2) is convicted by a foreign court of competent jurisdiction or 
released from imprisonment, whichever is later, as a result of a crime, 
however denominated by the laws of the relevant foreign government, 
that is substantially equivalent to an offense described in(r)(1) above 
(excluding convictions and imprisonment that occur within a foreign 
country that is included on the Department of Commerce's list of 
``foreign adversaries'' that is codified in 15 CFR 7.4, as amended).
    (s) ``Prohibited Misconduct'' means when a QPAM, any Affiliate 
thereof (as defined in Section VI(d)), or any owner, direct or 
indirect, of a five (5) percent or more interest in the QPAM:
    (1) Enters into a non-prosecution (NPA) or deferred prosecution 
agreement (DPA) on or after June 17, 2024 with a U.S. federal or state 
prosecutor's office or regulatory agency, where the factual allegations 
that form the basis for the NPA or DPA would have constituted a crime 
described in Section VI(r) if they were successfully prosecuted; or
    (2) Is found or determined in a final judgment, or court-approved 
settlement by a Federal or State criminal or civil court that is 
entered on or after June 17, 2024 in a proceeding brought by the 
Department, the Department of Treasury, the Internal Revenue Service, 
the Securities and Exchange Commission, the Department of Justice, the 
Federal Reserve Bank, the Office of the Comptroller of the Currency, 
the Federal Depository Insurance Corporation, the Commodities Futures 
Trading Commission, a state regulator, or state attorney general to 
have Participated In one or more of the following categories of conduct 
irrespective of whether the court specifically considers this exemption 
or its terms:
    (A) engaging in a systematic pattern or practice of conduct that 
violates the conditions of this exemption in connection with otherwise 
non-exempt prohibited transactions;
    (B) intentionally engaging in conduct that violates the conditions 
of this exemption in connection with otherwise non-exempt prohibited 
transactions; or
    (C) providing materially misleading information to the Department, 
the Department of Treasury, the Internal Revenue Service, the 
Securities and Exchange Commission, the Department of Justice, the 
Federal Reserve Bank, the Office of the Comptroller of the Currency, 
the Federal Depository Insurance Corporation, the Commodities Futures 
Trading Commission, a state regulator or a state attorney general in

[[Page 23144]]

connection with the conditions of the exemption.
    (t) ``Participate In,'' ``Participates In,'' ``Participating In,'' 
``Participated In,'' and ``Participation In'' all refer not only to 
active participation in Prohibited Misconduct, but also to knowing 
approval of the conduct, or knowledge of such conduct without taking 
active steps to prohibit such conduct, including reporting the conduct 
to the appropriate compliance personnel.
    (u) The QPAM maintains the records necessary to enable the persons 
described in subsection (u)(2) below to determine whether the 
conditions of this exemption have been met with respect to a 
transaction for a period of six years from the date of the transaction 
in a manner that is reasonably accessible for examination. No 
prohibited transaction will be considered to have occurred solely due 
to the unavailability of such records if they are lost or destroyed due 
to circumstances beyond the control of the QPAM before the end of the 
six-year period.
    (1) No party, other than the QPAM responsible for complying with 
this Section VI(u), will be subject to the civil penalty that may be 
assessed under ERISA section 502(i) or the excise tax imposed by Code 
section 4975(a) and (b), if applicable, if the records are not 
maintained or available for examination as required by this Section 
VI(u) below.
    (2) Except as provided in subsection (3) or precluded by 12 U.S.C. 
484 (regarding limitations on visitorial powers for national banks), 
and notwithstanding any provisions of ERISA section 504(a)(2) and (b), 
the records are reasonably available at their customary location during 
normal business hours for examination by:
    (A) Any authorized employee of the Department or the Internal 
Revenue Service or another state or federal regulator,
    (B) Any fiduciary of a Plan invested in an Investment Fund managed 
by the QPAM,
    (C) Any contributing employer and any employee organization whose 
members are covered by a Plan invested in an Investment Fund managed by 
the QPAM, or
    (D) Any participant or beneficiary of a Plan invested in an 
Investment Fund managed by the QPAM.
    (3) None of the persons described in subsection (2)(B) through (D) 
above are authorized to examine records regarding an Investment Fund 
that they are not invested in, privileged trade secrets or privileged 
commercial or financial information of the QPAM, or information 
identifying other individuals.
    (4) Should the QPAM refuse to disclose information to a person 
described in subsection (2)(A) through (D) above on the basis that the 
information is exempt from disclosure, the QPAM must provide a written 
notice advising the requestor of the reasons for the refusal and that 
the Department may request such information by the close of the 
thirtieth (30th) day following the request.
    (5) A QPAM's failure to maintain the records necessary to determine 
whether the conditions of this exemption have been met will result in 
the loss of the relief provided under this exemption only for the 
transaction or transactions for which such records are missing or have 
not been maintained. Such failure does not affect the relief for other 
transactions if the QPAM maintains required records for such 
transactions in compliance with this Section VI(u).

    Signed at Washington, DC, this 18th day of March, 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2024-06059 Filed 4-2-24; 8:45 am]
BILLING CODE 4510-29-P