DOL Adopts Final QPAM Amendments; In-House QPAMs To Get Relief
Advisers that rely on the QPAM ("qualified professional asset manager") exemption to manage their own employee benefit plans (or their affiliates’ plans) can breathe a sigh of relief: the Department of Labor has decided to continue to allow in-house QPAMs — provided they jump through some additional hoops.
In adopting amendments to PTE 84-14 late last month, DOL stuck to its guns and required that QPAMs be "independent fiduciaries." DOL described that requirement as merely a "clarification" of existing law. When the amendments were proposed in September 2003, however, several ERISA lawyers viewed the "clarification" as a brand new requirement. In any event, in its adopting release DOL recognized that the industry had been doing its best to comply with the QPAM exemption and that some managers had relied on the advice of counsel in serving as QPAMs for their own plans. Rather than cracking down, DOL magnanimously provided "limited retroactive and transitional relief" by proposing a brand new section of 84-14 to specifically cover in-house QPAMs.
Under the proposed provision, if a manager that meets all of the conditions of the general QPAM exemption, except for the fact that it is not an "independent fiduciary" (because the QPAM is managing its own plan, or the plan of an entity it directly or indirectly controls, is controlled by, or is under common control with), the manager can still qualify as a QPAM if it adopts written policies and procedures designed to assure compliance with the QPAM exemption, and to submit to an annual "exemption audit" conducted by an independent auditor. The audit would involve a review of the manager’s compliance with the QPAM exemption’s conditions, including a review of the manager’s policies and procedures. In addition, the auditor would test a representative sample of transactions involving the QPAM’s plan in order to determine whether the QPAM is in compliance with its policies and procedures.
Comments on the in-house QPAM proposal are due October 7.
DOL also provided retroactive relief to in-house QPAMs: the independent fiduciary requirement of the QPAM exemption will not apply for periods from December 21, 1982 (the date PTE 84-14 was first proposed) through the date that DOL adopts the final in-house QPAM provision, whenever that may be.
The QPAM amendments also may affect some smaller advisers: to be a QPAM, an adviser will have to have $85 million in client assets under management (up from $50 million) and shareholders’ or partners’ equity in excess of $1 million (up from $750,000) (or payment of its liabilities unconditionally guaranteed).