401(k) Specialist Issue 2 - 2023 - 19

On July 26, 2022, the DOL proposed
amendments to the QPAM Exemption that
would modify and expand its ineligibility
provisions by clarifying that disqualifying
crimes include foreign convictions and by
adding new circumstances that would trigger
disqualification; require a notice to the
DOL of an entity's reliance on the QPAM
Exemption; require that all QPAMs amend
their plan or IRA agreements to provide
certain indemnification rights in the event
of the QPAM's ineligibility; raise the assets
under management, capitalization, and net
worth requirements for a QPAM; and make
the QPAM Exemption unavailable for any
transaction that is not initiated and negotiated
solely by the QPAM.
Groom Law Associate Anthony Onuoha,
who works on a wide array of ERISA
regulatory compliance issues, specifically
fiduciary duties and prohibited transactions
with respect to plan investments, said the
QPAM Exemption is typically viewed as a
" one-stop shop " form of exemptive relief
for investment managers, as it provides an
efficient way for investment managers to
comply with ERISA and the Code while
engaging in a wide variety of transactions
on behalf of ERISA plan clients.
" The proposed amendments to the
QPAM Exemption raise significant concerns
(1) by raising the risks imposed on
asset managers who operate as QPAMs and
(2) by potentially shrinking the market for
available QPAMs, making it difficult for
plan fiduciaries to prudently select a QPAM
and/or resulting in increased costs for client
plans, " Onuoha said.
Most of the DOL's activity on the QPAM
Exemption in recent years has centered on
the criminal disqualification provisions of
the exemption, Mayland added. While it was
expected that the DOL would address this,
" What we did not expect is that the DOL's
proposed amendments could also limit the
types of investments or investment strategies
the QPAM Exemption would allow, "
Mayland said.
Mayland, who testified at the DOL's
hearings on the proposed amendments last
October along with Groom Law Principal
Kevin Walsh, said the staff appeared
Jake Eigner
to acknowledge that the amendment text
was more restrictive as to investments or
investment strategies than they may have
intended, but added that only time will tell
how this issue plays out.
ESG Rule
Another area keeping ERISA attorneys
busy lately is the Department of Labor's
controversial Environmental, Social and Governance
(ESG) Rule, which took effect on
Feb. 1, 2023. The rule clarifies that fiduciaries
may consider climate change and other ESG
factors when they make investment decisions
and when they exercise shareholder rights,
including voting on shareholder resolutions
and board nominations.
Onuoha noted that ESG investing within
the retirement space tends to be highly
politicized, and the tenor of DOL guidance
and regulations with respect to ESG investing
often changes depending on the party
in control of the executive branch-generally,
Democratic administrations are more
expressly open to the consideration of ESG
factors than Republican administrations.
" Whether the current ESG rule is here
to stay largely depends on the outcome of
the 2024 U.S. elections. In any case, plan fiduciaries
should be sure to (1) appropriately
consider the economic facts and circumstances
relevant to an investment decision or
course of action, (2) prioritize plan participants'
and beneficiaries' economic interests
in the investment decision-making process,
and (3) document its process for arriving at
the investment decision or course of action. "
DC Matters
With all the ERISA regulatory activity
coming from inside the Beltway, it's no
wonder that ERISA-focused law firms feel
it is important to maintain a strong presence
in Washington, D.C.
Close proximity to the federal agencies
that regulate retirement plans helps
firms maintain connections that allow for
increased visibility into the ever-changing
policy landscape.
" We are able to provide a lot of value to
our clients by keeping an eye on the DOL's
regulatory agenda as well as legislative
developments, " Groom Law Associate Jacob
Eigner said. " Consequently, an area we will
certainly be keeping an eye on in the future
is potential updates to the DOL's definition
of a fiduciary, as well as litigation updates in
this area, which has the potential to have a
huge effect on regulated entities that make
rollover recommendations to clients. "
ISSUE 2 2023 | 401kSpecialist.com
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401(k) Specialist Issue 2 - 2023

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