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

<RULE> DEPARTMENT OF LABOR <SUBAGY>Employee Benefits Security Administration</SUBAGY> <CFR>29 CFR Part 2550</CFR> <DEPDOC>[Application No. D-12022]</DEPDOC> <RIN>Z-RIN 1210 ZA07</RIN> <SUBJECT>Prohibited Transaction Class Exemption 84-14 for Transactions Determined by Independent Qualified Professional Asset Managers (the QPAM Exemption); Correction</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Employee Benefits Security Administration, U.S. Department of Labor. <HD SOURCE="HED">ACTION:</HD> Final amendment to class exemption; technical correction. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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 <E T="04">Federal Register</E> 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). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Issuance date:</E> This technical correction is issued on August 13, 2024 without further action or notice. <E T="03">Exemption Date:</E> The PTE 84-14 amendment, as corrected herein, is effective on June 17, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> 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). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> 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 <E T="04">Federal Register</E> on April 3, 2024 (89 FR 23090). <HD SOURCE="HD1">Background of the QPAM Exemption</HD> 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. <HD SOURCE="HD1">The QPAM Final Amendment</HD> The final amendment to the QPAM Exemption the Department published on April 3, 2024 (the Final Amendment)  <SU>1</SU> <FTREF/> 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). <FTNT> <SU>1</SU>  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). </FTNT> <HD SOURCE="HD1">Explanation of Corrections to the Final Amendment </HD> This document makes the following technical corrections to the Final Amendment: <HD SOURCE="HD2">1. Extraneous Word “or” at the End of Section I(g)(1)(B)</HD> 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. <HD SOURCE="HD2">2. Requirement for Ineligible QPAMs Not To Restrict Withdrawals During the One-Year Transition Period—Section I(i)((1)(B)(i)</HD> 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 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. <SU>2</SU> <FTREF/> 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. <SU>3</SU> <FTREF/> 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. <FTNT> <SU>2</SU>  5 U.S.C. 553(b). </FTNT> <FTNT> <SU>3</SU>  5 U.S.C. 553(d). </FTNT> 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). <SU>4</SU> <FTREF/> 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. <FTNT> <SU>4</SU>  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 autho ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 57k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━