Letter to DOL on the Proposed Amendments to QPAM

Assistant Secretary Ali Khawar
Office of Exemption Determinations
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Dear Assistant Secretary Khawar:

The American Bankers Association (ABA) appreciates the opportunity to provide comments to the Department of Labor (Department) on proposed amendments (Proposal) to prohibited transaction class exemption (PTE) 84-14, commonly referred to as the QPAM exemption (QPAM Exemption or Exemption). Under the QPAM Exemption, an investment fund holding assets of retirement plans and individual retirement accounts (IRAs) (collectively, Plans) that is managed by a qualified professional asset manager (the QPAM) generally may engage in transactions with one or more parties in interest or disqualified persons to a Plan, subject to protective conditions and safeguards. Institutional investment managers of retirement assets, which include ABA member banks, serve as QPAMs and therefore rely on the Exemption for relief from certain prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (Code).

Since its issuance nearly four decades ago, the retirement services industry has widely and responsibly relied on the QPAM Exemption to enhance investment performance for retirement assets by (i) providing Plans with the full range of investment management strategies and investment options, and (ii) authorizing QPAMs to engage sub-advisors and other investment management experts to assist the QPAM in effective, efficient, and prudent investment decision-making and risk management. The Exemption, in fact, has become a core market practice of the retirement services industry across the spectrum of financial lines of business and products. Moreover, the QPAM Exemption’s guardrails ensure proper use of the Exemption, and provide the Department with full authority to supervise its implementation and to sanction improper conduct, including – where necessary – QPAM ineligibility (i.e., disqualification from QPAM status). The QPAM Exemption, in other words, has functioned well and exactly as intended.

Curiously, by issuing the Proposal, the Department has elected to undertake a sweeping overhaul of the QPAM Exemption. We believe this Department action will drastically impact continued reliance on the QPAM Exemption and its critical role as a retirement industry standard. Specifically, the Proposal would (i) considerably expand Department direction, discretion, and oversight, (ii) unilaterally alter existing investment management agreements, (iii) significantly broaden the circumstances under which an asset manager would be disqualified from serving as a QPAM, and (iv) greatly restrict the authority of a QPAM to direct investments and its ability to maximize investment performance for Plan assets. We believe these proposed additions and revisions are entirely unnecessary and unwarranted and may result in an unclear, imbalanced, costly, and unworkable Exemption, while creating significantly heightened compliance and reputation risks. Ironically, rather than benefitting Plans, a finalized Proposal could inflict immediate and lasting harm on Plan participants and beneficiaries and on IRA owners through (i) diminished and compromised returns on retirement assets, (ii) fewer available investment options and strategies, (iii) reduced choice in asset managers, and (v) increased Plan expenses.

We recommend, therefore, that the Department withdraw the Proposal and, prior to any re-proposal, conduct a comprehensive study and assessment of the QPAM Exemption, including: (i) an assessment of the QPAM Exemption’s established position in the retirement marketplace for day-to-day investment management activity, (ii) roundtable discussions with QPAMs, client plans that retain QPAMs, and industry stakeholders, and (iii) formal consultations with the federal financial agencies, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Office of the Comptroller of the Currency (OCC), as well as with the Department of Justice (DOJ), to determine whether significant revision to the QPAM Exemption is necessary or appropriate and consistent with the rules and regulations of these peer agencies. This should be followed by additional public hearings on the QPAM Exemption and a publicly released written report on the results of the study and assessment.

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