“The extended comment period, hearing, and supplemental comment period will provide interested parties with a full opportunity to consider the proposal and provide important input that will inform our next steps,” Khawar added.
The proposed amendment would modify Section I(g) of the prohibited transaction exemption so that a company or investment manager would be ineligible for the exemption for 10 years if it, or its various affiliates or 5% or more of its owners were convicted of certain crimes.
The amendment would also require firms to provide a onetime notice to the Labor Department that they are relying upon the exemption and require up-front terms in a written management agreement that apply if they are ineligible to serve as a QPAM. The amendment also requires firms to update the list of crimes to explicitly include foreign crimes that are substantially equivalent to the listed crimes.
The amendment furthermore expands the circumstances that may lead a firm to become ineligible, and provides a one-year winding-down period to help retirement plans and IRAs avoid or minimize the possible negative effects of terminating or switching investment managers or adjusting asset management arrangements when a manager becomes ineligible.
To currently qualify for QPAM status, a bank, savings and loan association, an insurance company, or a registered investment advisor needs to have $1 million in shareholder or partner equity and $85 million in assets under management at the end of its taxable year.
The DOL proposal would increase the equity threshold to $2,040,000 for RIAs and $2,720,000 for banks, savings and loans, and insurance companies. The proposal would also increase the assets under management threshold to $135,870,000. In addition, the DOL has proposed that such threshold amounts be updated on January 31 each year for inflation.