DOL Publishes 1st List of Firms Using Qualified Plan Exemptions

The list includes nearly 900 companies as part of the DOL’s finalized amendment to PTE 84-14.

The U.S. Department of Labor last week published a list of nearly 900 companies that have used or planned to use the qualified professional asset manager exemption, as of September 30.

The initial public list comes after the DOL published in April a new amendment to the rule governing the QPAM exemption, which regulates transactions between an investment manager and a qualified plan. The prohibited transaction exemption, or PTE 84-14, provides relief for those employee benefit plan and individual retirement account transactions that would otherwise not be allowed by the Employee Retirement Income Security Act.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Under the amended PTE 84-14, any firm that relies on the exemption must notify the DOL. The regulator’s list, published Wednesday, lists firms that have used the exemption and includes many of the biggest names in asset management, insurance and recordkeeping. According to the DOL, the list will be updated periodically.

The publication and maintenance of the list is required by the amendment that both broadened the types of misconduct that would require an investment manager exemption and made it easier for a retirement plan sponsor to exit a QPAM relationship. The amendment was first proposed in July 2022 and received industry pushback and comment over the subsequent years before it was finalized.

Ruth Delaney, a partner in the asset management and investment funds practice group of K&L Gates, says the DOL had indicated it would maintain a public list of firms relying on the QPAM exemption on its website and that the lengthy list makes sense, given the circumstances.

“Given that the QPAM exemption is one of the broadest and most commonly relied on exemptions in the financial services industry, the long list of entities, including many major players in the industry, does not come as a surprise,” she says.

The DOL noted in Wednesday’s release that it had not directly verified whether any of the listed entities met the exemption’s requirements and that inclusion on the list should “not be taken as the Department’s endorsement of the use of the entity as a service provider or fiduciary.” Plan fiduciaries, it noted, should consult with legal counsel regarding working with a QPAM.

David Kaleda, a principal in Groom Law Group, Chartered, says it is important that plan fiduciaries do not see this list of disclosures as a “blessing” by the DOL.

“The DOL makes clear on the webpage that disclosure on the page does not … mean that the entity is in fact a ‘qualified professional asset manager’ or that an entity that is otherwise a QPAM in fact complies with the conditions of the QPAM Exemption,” he says. “That is, the DOL does not independently verify QPAM status or exemption compliance, and it is the responsibility of plan fiduciaries to make that determination.” 

Kaleda also notes that many organizations have multiple affiliates listed, showing that “each discretionary manager” within a firm that wants to use the exemption must independently meet its requirements.

The DOL stated in April that the amendment to PTE 84-14 was designed to modernize the rule from its initial 1984 creation. It included changes such as:

  • Clarifying that foreign convictions are included in the scope of the exemption’s ineligibility provision;
  • Adding a one-year transition period intended to mitigate potential costs and disruptions to plans and individual retirement account owners when a QPAM becomes ineligible;
  • Updating asset management and equity thresholds in the QPAM definition;
  • Clarifying the requisite independence and control a QPAM must have with respect to investment decisions and transactions; and
  • Adding a standard recordkeeping requirement.

Kaleda believes the public disclosure requirement and web page will serve as an enforcement tool for the DOL. For example, if the regulator sees that a financial services firm is being convicted of certain crimes or has entered into a settlement related to certain crimes, “it may look to see if such entity or its affiliates are listed on the website. Then, it could use its investigation and enforcement authority to assure that the entity and its affiliates no longer rely on the QPAM exemption or get an individual exemption.”

In addition, he notes, the web page is the “only centralized, comprehensive list of which I am aware available to the DOL of asset managers who likely manage ERISA-covered assets. These are managers over which DOL has enforcement authority, regardless of whether they rely on the QPAM exemption.”

Plan Sponsors Seeking ‘Higher-Touch’ Adviser Services

A Morgan Stanley survey of 200 plan sponsors found a trend toward more service needs, including 3(38) investment management.

Plan sponsors seem to want more from their advisers, but that desire could pave the way for more paid services, according to a survey released Monday by Morgan Stanley.

In a survey of almost 200 401(k) plan sponsors, 80% said they work with plan advisers on their plans, and their responses highlighted a desire for more services related to investment decisions, participant planning tools and direct participant education, according to the qualified plan and wealth advisory’s 2024 Retirement Plan Survey.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

When honing in on investment services, the survey found a shift toward 3(38) services, in which an adviser makes the investment decisions for the plan, as opposed to 3(21) services, in which a fiduciary makes recommendations.

“While 3(21) relationships are still about twice as common as 3(38) relationships, the gap is likely to continue closing,” Morgan Stanley wrote in the report. “Most 3(38) users have initiated these engagements in the past five years, and about half of the non-3(38) users are considering switching to this type of engagement.”

According to the survey, about 55% of plan sponsors have a 3(21) relationship, as compared with 27% who have a 3(38). More than half of those 3(38) setups began in the past five years. However, another 42% of sponsors are considering moving to a 3(38) investment manager.

“The increasingly complex investment and regulatory landscape is a catalyst for the continued rise of 3(38) relationships,” the firm wrote in the report.

The survey polled plan sponsors with assets ranging from $50 million to roughly $1 billion.

Participant Education

Another, perhaps less lucrative, area for advisers, at least initially, is plan sponsor demand for participant education and financial guidance for all employees.

Plan sponsors identified consultants and advisers as the most common source of participant educational resources at 47% of respondents. That outranked recordkeepers (46%), third-party providers (42%), internal staff (36%) and asset managers (23%).

“Historically, sponsors have predominantly relied on recordkeepers to provide these tools and resources,” the researchers wrote. “But recently, other service providers in the retirement ecosystem have begun offering this content, and today consultants/advisors are the most common source, according to our survey. This trend should continue as leading consultants continue to expand their core offerings to include participant education and engagement resources.”

Much of that education, according to the report, comes from education tools and resources such as online retirement planners (85%), account review and analysis tools (74%) and educational content (73%). But those are closely followed by live remote training sessions (52%), personalized financial guidance (50%) and live in-person training (47%).

Investment Lineups

Finally, the survey pointed to shifts in what plan sponsors want to see in an investment lineup.

While sponsors are not looking to increase the number of asset managers they use, more than one-third want to be able to offer expanded investment options. About one-quarter are likely to look for help in doing so (23%), with the other 77% saying it will be at least somewhat easy to make the move.

When it comes to adding relatively newer investment options for participants, plan sponsors appear to be taking action, having added or currently in the process of adding: target-date funds with guaranteed payouts (71%), multi-asset strategies (65%) and hybrid default investment options (56%), according to the survey. Meanwhile, 64% reported offering a managed account, and 22% more plan to do so.

Even retirement income solutions are making headway, with 41% of plan sponsors saying they are offering them and an additional 44% intending to. However, there are various stumbling blocks plan sponsors see in these solutions.

According to the survey, participant understanding and education leads the list of concerns at 65%, followed by fiduciary concerns at 53% and relatively higher fees at 48%.

“Offering participants access to educational materials applies to every part of the plan lineup,” the researchers noted. “But the need is particularly acute for retirement income solutions given how complicated these tools can be and how differently they work from mutual funds, traditional target date funds or other common savings tools.”

«