You Spin Me QPAM Baby QPAM: DOL’s proposed QPAM rule could result in changes to collective trust agreements for plan sponsors | Holland & Hart – The Benefit Dial

The DOL published on July 27, 2022 a proposed amendment to the QPAM exemption (“Proposed QPAM Amendment”) which may require pension plan sponsors to update their collective trust agreements to meet the new requirements of the DOL. Group trusts have become an increasingly common way for qualified pension plan committees/plan sponsors to reduce investment expenses for some of their plans’ investment options.

These group trusts are managed by investment managers who often use other financial institutions to execute transactions involving the retirement assets held by the group trust. These transactions involving pension plan assets may sometimes be performed by a financial institution that also provides services (such as record keeping) to the same pension plan. In the absence of an exemption, these types of related party transactions may violate ERISA’s prohibited transaction rules.

Because group trusts hold the assets of many ERISA pension plans, and an investment manager will not always know whether a particular transaction would violate ERISA prohibited transaction rules, investment managers have historically sought to satisfy an exemption a common prohibited transaction called the Qualified Professional Asset Manager Exemption (“QPAM”).

If the proposed amendment to QPAM becomes effective, investment managers relying on the QPAM exemption:

  • Will be required to meet a higher Assets Under Management requirement in order to continue to qualify as a QPAM.
  • Must begin complying with new DOL reporting and record keeping requirements.
  • Will be subject to new disqualification rules for misconduct.
  • Must inform plan sponsors that the asset manager is solely responsible for ensuring that a particular transaction satisfies the QPAM exemption.
  • Must update agreements with 401(k) plan sponsors to reflect new requirements.
  • Must indemnify the plans for losses and costs incurred as a result of the asset manager losing the QPAM exemption due to wrongdoing.

401(k) plan committees and plan sponsors should start evaluating now whether one of the plan’s investment options is a group trust or similar arrangement that relies on the QPAM exemption to execute transactions. . While 401(k) investment options may be affected by the proposed QPAM amendment, plan committees and sponsors should enter into discussions with the investment manager to confirm that the manager is prepared to comply with these requirements.

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