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News September 20, 2004 Issue

DOL Proposes Changes to PTE 84-24

In keeping with its philosophy that a transaction really isnít in danger of manipulation by a plan trustee or investment manager if they have no discretion over the assets in the transaction, the Department of Labor proposed to amend class Prohibited Transaction Exemption 84-24, used by some fund complexes.

On September 9, DOL proposed to add a new provision to PTE 84-24 that effectively makes the exemption available for purchases of fund shares by an ERISA plan even when an affiliate of the fundís principal underwriter (or certain other entities) is a trustee or investment manager with discretion over plan assets ó provided the affiliate does not have discretion over the particular assets involved in the transaction (other than as a nondiscretionary trustee).

In April 2004, DOL proposed a similar change to PTE 75-1 to clarify that the exemption is available when plans buy and sell fund shares, provided that the fiduciary that makes the decision to buy or sell the fund shares is not the fundís principal underwriter or an affiliate of the fund.

Both sets of proposed changes were made in recognition that consolidation in the financial services industry has resulted in affiliations that cause normal business transactions being deemed ERISA prohibited transactions.

According to a DOL official, the PTE 84-24 and 75-1 changes are "housekeeping" changes designed to bring those older exemptions in line with the agencyís current thinking.