DOL Clarifies PTE Exemption for QPAM, Advice Offering

Transactions between an investment management firm and investment funds managed by a qualified professional asset manager (QPAM) as an option under a retirement plan satisfy a Prohibited Transaction Exemption, according to regulators.

The Department of Labor (DoL) this week issued Advisory Opinion 2007-01A earlier this week in response to a lawyer seeking clarification under Prohibited Transaction Exemption (PTE) 84-14, which permits certain transactions between a party in interest with respect to an employee benefit plan and an investment fund in which the plan has an interest and which is managed by a qualified professional asset manager (QPAM), provided the conditions of the exemption are satisfied.

The lawyer sought clarification from the Department on behalf of her clients, an investment manager/broker-dealer that was a “frequent counter party to plans and vehicles that hold plan assets’ and its subsidiary that offers advice to retirement plan participants for a fee. The subsidiary’s role in working with the plans was limited to advice, the opinion said; that subsidiary does not work with the plan sponsor to decide retirement plan investments, nor does it have any control over participant accounts.

In the case presented, the retirement plan offered a separate account managed by a QPAM who was not related to the broker-dealer or the subsidiary offering participant level advice. However, that subsidiary does offer investment allocation that pertains to the fund managed by the QPAM. The plan sponsor fiduciary, selected the QPAM for the retirement plan and was the only person able to hire and fire the QPAM. The opinion said this situation met the criteria for an exemption to PTE 84-14, which prohibits a party in interest or its affiliate from having the authority to appoint or terminate the QPAM as a plan asset manager, or to negotiate the management agreement with the QPAM with respect to the plan assets. Despite the subsidiary’s fee-based advice to participants, this situation still functions under the PTE, the Opinion said.

This PTE is, however, separate from a prohibited transaction under Employee Retirement Income Security Act (ERISA) Section 406(b), which addresses self-dealing and prohibited transactions between a plan and its fiduciary. If the subsidiary advised plan participants to invest in a QPAM-managed fund and the subsidiary or broker-dealer benefited from that investment because of an existing arrangement or understanding with the QPAM, that would violate ERISA’s prohibited transaction rules, the DoL advised.

Advisory Opinion 2007-01A is available at