[Federal Register Volume 89, Number 156 (Tuesday, August 13, 2024)]
[Rules and Regulations]
[Pages 65779-65786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17586]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

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


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

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

ACTION: Final amendment to class exemption; technical correction.

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SUMMARY: This document gives notice of a technical correction to the 
Department of Labor's final amendment to class prohibited transaction 
exemption (PTE) 84-14 (the QPAM Exemption), which was published in the 
Federal Register on April 3, 2024. 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). The corrections in this document fix a 
typographical error and make a minor clarification to a provision to 
reflect the Department's original intent for the effect of the 
amendment. These technical corrections are consistent with the amended 
exemption's intended scope and the analysis and data relied upon in the 
Department's final regulatory impact analysis (RIA).

DATES: 
    Issuance date: This technical correction is issued on August 13, 
2024 without further action or notice.
    Exemption Date: The PTE 84-14 amendment, as corrected herein, is 
effective on 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: This document makes a technical correction 
to the Department of Labor's final amendment to class prohibited 
transaction exemption (PTE) 84-14 (the QPAM Exemption), which was 
published in the Federal Register on April 3, 2024 (89 FR 23090).

Background of the QPAM Exemption

    A QPAM must be a registered investment adviser, bank, or insurance 
company that meets asset and equity thresholds set forth in the 
exemption. Section I of The QPAM Exemption permits an investment fund 
managed by a QPAM to engage in a broad range of transactions with 
parties in interest with respect to an ERISA-covered employee benefit 
plan that invests in the fund as long as the QPAM satisfies certain 
protective conditions that are set forth in the exemption. These 
transactions would be prohibited by ERISA and the Internal Revenue Code 
(the Code) without the relief provided in the exemption. Section I of 
the QPAM Exemption does not include relief for the QPAM to engage in 
any transactions involving its own self-dealing or conflicts of 
interest.

The QPAM Final Amendment

    The final amendment to the QPAM Exemption the Department published 
on April 3, 2024 (the Final Amendment) \1\ 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 or participate in prohibited misconduct. Among other changes, 
the final amendment provides a One-Year 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). During the transition 
period, ineligible QPAMs must send a notice to their plan clients. 
Section I(i)(1)(B)(i) of the Final Amendment requires ineligible QPAMs 
to agree in their Transition Period notice that they will not restrict 
withdrawals during the Transition Period (the Termination Provision). 
Also, Section I(i)(1)(B)(ii) of the Final Amendment prohibits 
Ineligible QPAMs from imposing any ``fees, penalties, or charges on 
client Plans in connection with the process of terminating or 
withdrawing from and Investment Fund managed by the QPAM. . . .'' (The 
Penalty-Free Withdrawal Provision).
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    \1\ See Amendment to Prohibited Transaction Class Exemption 84-
14 for Transactions Determined by Independent Qualified Professional 
Asset Managers (the QPAM Exemption) 89 FR 23090 (April 3, 2024).
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Explanation of Corrections to the Final Amendment

    This document makes the following technical corrections to the 
Final Amendment:

1. Extraneous Word ``or'' at the End of Section I(g)(1)(B)

    The Department is removing the extraneous word ``or'' that appears 
at the end of Section I(g)(1)(B) of the Final Amendment due to a 
scrivener's error.

2. Requirement for Ineligible QPAMs Not To Restrict Withdrawals During 
the One-Year Transition Period--Section I(i)((1)(B)(i)

    As stated above, Section I(i)(1)(B)(i) and (ii) of the Final 
Amendment require ineligible QPAMs to include the Termination and 
Penalty-Free Withdrawal Provisions in the One-Year Transition Period 
notices they send to their plan clients. Both requirements are based on 
conditions the Department has

[[Page 65780]]

included in individual exemptions it has granted to QPAMs that have 
become ineligible under Section I(g) of the exemption. In the 
individual exemptions, the Department has included exception language 
in both conditions that allow QPAMs to place restrictions or impose 
fees on certain withdrawals to ensure that all fund investors are 
treated equitably and to prevent a fund's withdrawal from having 
adverse consequences for other investors remaining in the pooled fund. 
The exception language protects ERISA-covered plans and IRAs from 
circumstances that could occur where a few investors immediately 
withdraw from the fund, resulting in the fund not having sufficient 
liquidity to satisfy the remaining investors' withdrawal requests, 
causing delays and potential harm to the remaining investors.
    The Department intended to include similar exception language in 
the Termination and Penalty-Free Withdrawal conditions of the Final 
Amendment to reflect the language included in the conditions in its 
individual exemptions and to make the conditions consistent with each 
other in the Final Amendment. However, the Department inadvertently 
omitted the exception language from the Termination Provision.
    This technical correction reflects the Department's original intent 
to make the provisions in the Final Amendment consistent with each 
other and with the provisions in the Department's individual exemptions 
by adding the following exception language to the Termination provision 
in Section I(i)(1)(B)(i) of the amended QPAM exemption: ``. . . with 
the exception of reasonable restrictions, appropriately disclosed in 
advance, that are specifically designed to ensure equitable treatment 
of all investors in a pooled fund in the event such withdrawal or 
termination may have adverse consequences for all other investors. In 
connection with any of these arrangements involving investments in 
pooled funds subject to ERISA the adverse consequences must relate to a 
lack of liquidity of the underlying assets, valuation issues, or 
regulatory reasons that prevent the fund from promptly redeeming a 
client Plan's investment, and such restrictions must be applicable to 
all investors in the pooled fund on equal terms and effective no longer 
than reasonably necessary to avoid the adverse consequences.''
    In summary, these technical corrections add language to the 
exemption that the Department intended to include to make the 
Termination and Penalty-Free Withdrawal Provisions consistent with each 
other and the provisions in the Department's individual exemptions and 
to fix a scrivener's error. Therefore, based on the limited, corrective 
purpose of these changes, the Department finds for good cause that a 
notice and public comment procedure is unnecessary.\2\ The Department 
further finds good cause to determine that given the limited, 
corrective purpose of these changes, it is unnecessary to change the 
effective date of the final amendment, which remains June 17, 2024.\3\ 
The corrections do not alter the analysis and data contained in the RIA 
applicable to the Final Amendment, including the assessment of its 
costs and benefits.
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    \2\ 5 U.S.C. 553(b).
    \3\ 5 U.S.C. 553(d).
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    The Department granted the Final Amendment, 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, as 
amended and corrected herein, 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. For convenience, the Department is re-publishing the full 
text of the corrected exemption below.
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    \4\ The exemption was granted in accordance with procedures set 
forth in 29 CFR part 2570, subpart B (76 FR 66637 (October 27, 
2011)). Procedures Governing the Filing and Processing of Prohibited 
Transaction Exemption Applications were amended effective April 8, 
2024 (29 CFR part 2570, subpart B (89 FR 4662 (January 24, 2024)). 
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.
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PTE 84-14

    Based on the foregoing, PTE 84-14 is corrected 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

[[Page 65781]]

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);
    (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, with the 
exception of reasonable restrictions, appropriately disclosed in 
advance, that are specifically designed to ensure equitable treatment 
of all investors in a pooled fund in the event such withdrawal or 
termination may have adverse consequences for all other investors. In 
connection with any of these arrangements involving investments in 
pooled funds subject to ERISA the adverse consequences must relate to a 
lack of liquidity of the underlying assets, valuation issues, or 
regulatory reasons that prevent the fund from promptly redeeming a 
client Plan's investment, and such restrictions must be applicable to 
all investors in the pooled fund on equal terms and effective no longer 
than reasonably necessary to avoid the adverse consequences;
    (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

[[Page 65782]]

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 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 consistent 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

[[Page 65783]]

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 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 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,

[[Page 65784]]

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 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--

[[Page 65785]]

    (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 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

[[Page 65786]]

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 
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 1st day of August, 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2024-17586 Filed 8-12-24; 8:45 am]
BILLING CODE 4510-29-P