Initial Regulatory Flexibility Analysis for Proposed Amendment to Prohibited Transaction Class Exemption 84-14 (the QPAM Exemption), 56912-56920 [2022-20099]
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Federal Register / Vol. 87, No. 179 / Friday, September 16, 2022 / Proposed Rules
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In the Requirements Related to
Surprise Billing; Part II interim final
rule, HHS estimated that a total of
511,748 providers associated with
health care facilities, individual
physician practitioners, and wholly
physician-owned private practices
would incur the burden and costs
associated with generating a GFE for
uninsured (or self-pay) individuals.32
• Are there factors that should be
considered that might alter the number
of providers and facilities that would
incur the burden and cost of providing
a GFE to plans, issuers, and carriers for
covered individuals?
Some states have adopted laws
requiring providers and facilities; or
plans and issuers; or both providers and
facilities and payers, to provide cost
estimates to consumers before health
care items or services are furnished.
These laws vary with respect to the
entities covered, the items or services to
which requirements apply, how
individualized the estimates must be,
the format and timing of the estimates,
the contents of the estimates, other
accompanying requirements, and
enforcement of these requirements. The
Departments and OPM request feedback
on the potential impacts of these
policies.
• The Departments and OPM are
interested in studies or other evidence
related to the implementation and any
effects of State laws that require entities
to provide expected charges for health
care items or services to consumers in
advance of receiving these items or
services. The Departments and OPM are
particularly interested in publicly
available studies or evidence.
• Is there other information that the
Departments and OPM could find useful
for quantifying the benefits of
implementing requirements related to
AEOB and GFE for covered individuals?
III. Collection of Information
Requirements
Please note, this is a request for
information (RFI) only. In accordance
with the implementing regulations of
the Paperwork Reduction Act of 1995
(PRA), specifically 5 CFR 1320.3(h)(4),
this general solicitation is exempt from
the PRA. Facts or opinions submitted in
response to general solicitations of
comments from the public, published in
the Federal Register or other
publications, regardless of the form or
format thereof, provided that no person
is required to supply specific
information pertaining to the
commenter, other than that necessary
for self-identification, as a condition of
32 86
the agency’s full consideration, are not
generally considered information
collections and therefore not subject to
the PRA.
This RFI is issued solely for
information and planning purposes; it
does not constitute a Request for
Proposal (RFP), applications, proposal
abstracts, or quotations. This RFI does
not commit the U.S. Government to
contract for any supplies or services or
make a grant award. Further, the
Departments and OPM are not seeking
proposals through this RFI and will not
accept unsolicited proposals.
Responders are advised that the U.S.
Government will not pay for any
information or administrative costs
incurred in response to this RFI; all
costs associated with responding to this
RFI will be solely at the interested
party’s expense. The Departments and
OPM note that not responding to this
RFI does not preclude participation in
any future procurement, if conducted. It
is the responsibility of the potential
responders to monitor this RFI
announcement for additional
information pertaining to this request.
In addition, the Departments and OPM
will not respond to questions about the
policy issues raised in this RFI.
The Departments and OPM will
actively consider all input as the
Departments and OPM develop future
regulatory proposals or future
subregulatory policy guidance. The
Departments and OPM may or may not
choose to contact individual responders.
These communications would be for the
sole purpose of clarifying statements in
the responders’ written responses.
Contractor support personnel may be
used to review responses to this RFI.
Responses to this notice are not offers
and cannot be accepted by the U.S.
Government to form a binding contract
or issue a grant. Information obtained as
a result of this RFI may be used by the
U.S. Government for program planning
on a non-attribution basis. Responders
should not include any information that
might be considered proprietary or
confidential. This RFI should not be
construed as a commitment or
authorization to incur cost for which
reimbursement would be required or
sought. All submissions become U.S.
Government property and will not be
returned. In addition, the Departments
and OPM may publicly post the public
comments received, or a summary of
those public comments.
FR 56080 (October 7, 2021).
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Signed at Washington DC.
Laurie Bodenheimer,
Associate Director, Healthcare and Insurance,
Office of Personnel Management.
Signed at Washington DC.
Rachel D. Levy,
Associate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes) Internal Revenue Service, Department
of the Treasury.
Signed at Washington DC.
Carol A. Weiser,
Benefits Tax Counsel, Department of the
Treasury.
Signed at Washington DC.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits
Security Administration, U.S. Department of
Labor.
Xavier Becerra,
Secretary, Department of Health and Human
Services.
[FR Doc. 2022–19798 Filed 9–14–22; 4:15 pm]
BILLING CODE 6523–63–P; 4830–01–P; 4510–29–P;
4120–01–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2550
[Application No. D–12022]
Z–RIN 1210 ZA07
Initial Regulatory Flexibility Analysis
for Proposed Amendment to
Prohibited Transaction Class
Exemption 84–14 (the QPAM
Exemption)
Employee Benefits Security
Administration, U.S. Department of
Labor.
ACTION: Notice of Initial Regulatory
Flexibility Analysis for the proposed
amendment to the QPAM Exemption.
AGENCY:
This document gives notice of
the Department’s Initial Regulatory
Flexibility Analysis for a proposed
amendment to prohibited transaction
class exemption 84–14 (the QPAM
Exemption).
DATES: Written comments must be
submitted to the Department by October
11, 2022.
ADDRESSES: All written comments
concerning the Initial Regulatory
Flexibility Analysis should be sent to
the Office of Exemption Determinations
through the Federal eRulemaking Portal
and identified by Application No. D–
12022:
Federal eRulemaking Portal: https://
www.regulations.gov at Docket ID
SUMMARY:
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Federal Register / Vol. 87, No. 179 / Friday, September 16, 2022 / Proposed Rules
number: EBSA–2022–0008. Follow the
instructions for submitting comments.
See SUPPLEMENTARY INFORMATION
below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT:
James Butikofer, telephone (202) 693–
8434, Office of Research and Analysis,
Employee Benefits Security
Administration, U.S. Department of
Labor (this is not a toll-free number).
SUPPLEMENTARY INFORMATION:
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Comment Instructions
All comments must be received by the
end of the comment period. In light of
the current circumstances surrounding
the COVID–19 pandemic, persons are
encouraged to submit all comments
electronically and not to submit paper
copies. The comments may be available
for public inspection in the Public
Disclosure Room of the Employee
Benefits Security Administration, U.S.
Department of Labor, Room N–1513,
200 Constitution Avenue NW,
Washington, DC 20210; however, the
Public Disclosure Room may be closed
for all or a portion of the comment
period due to circumstances
surrounding the COVID–19 pandemic.
Comments will also be available online
at https://www.regulations.gov, at
Docket ID number: EBSA–2022–0008
and https://www.dol.gov/ebsa, at no
charge.
Warning: All comments received will
be included in the public record
without change and will be made
available online at https://
www.regulations.gov, including any
personal information provided, unless
the comment includes information
claimed to be confidential or other
information whose disclosure is
restricted by statute. If you submit a
comment, EBSA recommends that you
include your name and other contact
information, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as Social Security number or
unlisted phone number), or confidential
business information that you do not
want publicly disclosed. However, if
EBSA cannot read your comment due to
technical difficulties and cannot contact
you for clarification, EBSA might not be
able to consider your comment.
Additionally, the https://
www.regulations.gov website is an
‘‘anonymous access’’ system, which
means EBSA will not know your
identity or contact information unless
you provide it.
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Reason for the Supplemental Initial
Regulatory Flexibility Analysis
The Department published a proposed
amendment to PTE 84–14 (the QPAM
Exemption) on July 27, 2022 (the
Proposed QPAM Amendment).1 The
Department originally provided a 60day comment period in the Proposed
QPAM Amendment, which was
scheduled to expire on September 26,
2022. The Department then extended
this initial comment period until
October 11, 2022, in a Federal Register
notice published on September 7, 2022.2
In the same notice, the Department
announced that it is scheduling a virtual
public hearing regarding the Proposed
Amendment on November 17, 2022 (and
if necessary, November 18, 2022). In
connection with the hearing, the
Department will also provide a
supplementary comment period that
will end approximately 14 days after the
hearing transcript is posted on EBSA’s
website.
Pursuant to section 605(b) of the
Regulatory Flexibility Act (RFA),3 the
Acting Assistant Secretary of the
Employee Benefits Security
Administration certified that the
Proposed QPAM amendment would not
have a significant economic impact on
a substantial number of small entities.
After consulting with the Small
Business Administration’s Office of
Advocacy, however, the Department has
decided to publish this Initial
Regulatory Flexibility Analysis (IRFA)
explaining its possible impact on small
entities. The Department requests
comments by October 11, 2022, the
same deadline as the extended comment
period for the Proposed QPAM
amendment. Although the Department
is aligning the deadlines for comments
regarding the supplemental IRFA and
the Proposed QPAM amendment, the
Department will provide additional time
for public input on all aspects of the
Proposed QPAM Amendment
(including the supplemental IRFA)
when the comment period reopens on
the hearing date.
Regulatory Flexibility Act (RFA)
The RFA imposes certain
requirements with respect to Federal
rules that are subject to the notice and
comment requirements of section 553(b)
of the Administrative Procedure Act and
are likely to have a significant economic
impact on a substantial number of small
entities.4 Unless an agency determines
that a proposal is not expected to have
1 87
FR 45204.
FR 54715.
3 5 U.S.C. 601 et seq. (1980).
4 5 U.S.C. 551 et seq. (1946).
2 87
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a significant economic impact on a
substantial number of small entities,
section 603 of the RFA requires the
agency to present an IRFA of the
Proposed QPAM Amendment.
The Department emphasizes that the
QPAM Exemption has always been
premised on the QPAM being an entity
of sufficient size to withstand undue
influence from parties in interest. The
Department clearly stated this position
in the preamble to the initial proposal
in 1982:
The minimum capital and funds-undermanagement standards of the proposed
exemption are intended to [ensure] that the
eligible fiduciaries managing the accounts or
funds (‘‘investment funds’’) . . . are
established institutions which are large
enough to discourage the exercise of undue
influence upon their decision-making
processes by parties in interest.5
When the exemption was granted in
1984, the Department declined to
reduce or delete the minimum asset and
equity thresholds as requested by some
commenters.6 Furthermore, when the
Department raised the thresholds for
investment advisers in 2005, it stated
that the thresholds had ‘‘not been
revised since 1984 and may no longer
provide significant protections for plans
in the current financial marketplace.’’ 7
Despite the importance of a QPAM
being sufficiently large to withstand
undue influence from parties in interest,
in an abundance of caution, the
Department is issuing this supplemental
IRFA, which analyzes and seeks public
comment on potential economic
impacts of the Proposed QPAM
Amendment on small entities.
Need for and Objectives of the Proposed
QPAM Amendment
As noted in the preamble of the
Proposed QPAM Amendment,
substantial changes have occurred in the
financial services industry since the
Department granted the QPAM
Exemption in 1984. These changes
include industry consolidation caused
by a variety of factors and an
increasingly global reach for financial
services institutions, both in their
affiliations and in their investment
strategies, including those for Plan
assets.
An amendment to the QPAM
Exemption is needed to address
ambiguity as to whether foreign
convictions are included in the scope of
the ineligibility provision under Section
I(g). QPAMs today often have corporate
5 47
FR 56945, 56947 (Dec. 21, 1982).
49 FR 9494, 9502 (Mar. 13, 1984).
7 See Proposed QPAM Amendment, 68 FR 52419,
52423 (Sept. 3, 2003).
6 See
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or relationship ties to a broad range of
entities, some of which are located
internationally. Additionally, some
global financial service institutions are
headquartered or have parent entities
that reside in foreign jurisdictions.
These entities may have significant
control and influence over the operation
and management of all entities within a
large financial institution’s
organizational structure, including those
operating as QPAMs for some Plans.
Additionally, the international ties of
QPAMs come not just from their
affiliations and parent entities, but also
their investment strategies, including
those involving Plan assets.
The Department is also concerned
about corporate families and entities
that engage in significant misconduct of
a similar type and quality as the
conduct that might lead to a Criminal
Conviction,8 but which ultimately does
not result in a conviction. The
amendment is needed to ensure that
QPAMs are not able to avoid the
conditions related to integrity and
ineligibility under Section I(g) simply
by entering into non-prosecution and
deferred prosecution agreements with
prosecutors to side-step the
consequences that otherwise would
result from a Criminal Conviction. Plans
may suffer significant harm if they are
exposed to serious misconduct
committed by unscrupulous firms or
individuals that ultimately results in a
deferred or non-prosecution agreement
rather than Criminal Conviction and
consequent ineligibility under Section
I(g). Likewise, intentionally or
systematically violating the conditions
of the exemption exposes Plans to
significant potential harm at the hands
of those with influence or control over
their assets. In the Department’s view,
QPAMs and those in a position to
influence or control a QPAM’s policies
that repeatedly engage in these types of
8 The Proposed QPAM Amendment defines
‘‘Criminal Conviction’’ to mean the person or entity:
(1) is convicted in a U.S. Federal or state court or
released from imprisonment, whichever is later, as
a result of any felony involving abuse or misuse of
such person’s Plan position or employment, or
position or employment with a labor organization;
any felony arising out of the conduct of the business
of a broker, dealer, investment adviser, bank,
insurance company or fiduciary; income tax
evasion; any felony involving the larceny, theft,
robbery, extortion, forgery, counterfeiting,
fraudulent concealment, embezzlement, fraudulent
conversion, or misappropriation of funds or
securities; conspiracy or attempt to commit any
such crimes or a crime in which any of the
foregoing crimes is an element; or a crime identified
in ERISA section 411; or (2) is convicted by a
foreign court of competent jurisdiction as a result
of a crime, however denominated by the laws of the
relevant foreign government, that is substantially
equivalent to an offense described in (1), above. See
87 FR 45204, 45231–32.
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serious misconduct do not display the
requisite standards of integrity
necessary to provide the protection
intended for Plans under the exemption.
Through its administration of the
individual exemption program, the
Department also determined that certain
aspects of the QPAM Exemption would
benefit from a focus on mitigating
potential costs and disruption to Plans
when a QPAM becomes ineligible for
the exemptive relief because of a
conviction under Section I(g). Two
major ways in which the amendment
would reduce the harmful impact on
Plans is by requiring penalty-free
withdrawal and indemnification terms
to be included in the QPAM’s Written
Management Agreement with its client
Plans and including a one-year windingdown period to avoid unnecessary
disruptions to Plans upon a Criminal
Conviction or receipt of an Ineligibility
Notice due to other Prohibited
Misconduct.9 The winding-down period
would help bridge the gap between the
QPAM Exemption and the Department’s
administration of its individual
exemption program in connection with
Section I(g) ineligibility.
The Proposed QPAM Amendment is
also needed to update asset management
and equity thresholds to current values
in the definition of ‘‘QPAM’’ in Section
VI(a). Some of the thresholds that
establish the requisite independence
upon which the QPAM Exemption is
based have not been updated since
1984, and the thresholds for registered
investment advisers have not been
updated since 2005. The Proposed
QPAM Amendment would standardize
all the thresholds to current values
using the Bureau of Labor Statistics
Consumer Price Index.
Finally, the QPAM Exemption
currently lacks a recordkeeping
requirement which the Department
generally includes in its administrative
exemptions. The Proposed QPAM
Amendment would add a recordkeeping
requirement to ensure QPAMs would be
9 The Proposed QPAM Amendment defines
‘‘Prohibited Misconduct’’ to mean: (1) any conduct
that forms the basis for a non-prosecution or
deferred prosecution agreement that, if successfully
prosecuted, would have constituted a crime
described in Section VI(r); (2) any conduct that
forms the basis for an agreement, however
denominated by the laws of the relevant foreign
government, that is substantially equivalent to a
non-prosecution agreement or deferred prosecution
agreement described in (1); (3) engaging in a
systematic pattern or practice of violating the
conditions of this exemption in connection with
otherwise non-exempt prohibited transactions; (4)
intentionally violating the conditions of this
exemption in connection with otherwise nonexempt prohibited transactions; or (5) providing
materially misleading information to the
Department in connection with the conditions of
the exemption. See 87 FR at 45232.
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able to demonstrate, and the Department
would be able to verify, compliance
with the exemption conditions.
Together, the Department believes
these updates are necessary to ensure
the QPAM Exemption remains in the
interest of and protective of the rights of
Plans, their participants and
beneficiaries, and individual retirement
account (IRA) owners as required by
section 408(a) of the Employee
Retirement Income Security Act of 1974
(ERISA) and section 4975(c)(2) of the
Internal Revenue Code (Code).
Affected Small Entities
Qualified Professional Asset Managers
(QPAMs)
The following entities generally
qualify or would qualify for the relief set
out in the QPAM Exemption and
Proposed QPAM Amendment:
(1) Banks—as defined in section
202(a)(2) of the Investment Advisers Act
of 1940, with equity capital in excess of
$1,000,000 (proposed increase to
$2,720,000);
(2) Savings and loan associations—
the accounts of which are insured by the
Federal Savings and Loan Insurance
Corporation, with equity capital or net
worth in excess of $1,000,000 (proposed
increase to $2,720,000);
(3) Insurance companies—subject to
supervision under state law, with net
worth in excess of $1,000,000 (proposed
increase to $2,720,000); and
(4) Investment advisers—registered
under the Investment Advisers Act of
1940 with total client assets under
management in excess of $85,000,000
(proposed increase to $135,870,00) and
either (1) shareholders’ or partners’
equity in excess of $1,000,000 (proposed
increase to $2,040,000) or (2) payment
of liabilities guaranteed by an affiliate,
another entity that could qualify as a
QPAM, or a broker-dealer with net
worth of more than $1,000,000
(proposed increase to $2,040,000).
The Proposed QPAM Amendment
also provides that the Department
would make subsequent annual
inflation adjustments to these
thresholds, rounded to the nearest
$10,000, no later than January 31 of
each year and announce the increased
thresholds in a Federal Register notice.
Estimates of QPAMs
The Department estimates that there
are 616 potential QPAMs by
approximating the total number of
service providers who in 2019 provided
‘‘Investment Management’’ and ‘‘Named
Fiduciary’’ services simultaneously to at
least one plan as reported on Schedule
C of the 2019 Form 5500, and whose
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North American Industry Classification
System (NAICS) codes start with the 2digit 52, which corresponds to Finance
and Insurance Institutions.10 There are
about 234,440 small firms that report a
NAICS code of 52.11 Because the SBA’s
small entity definitions are generally
based upon revenues and not asset
management or equity thresholds, the
Department does not know how many
QPAMs fit the SBA’s small entity
definitions for the finance and
insurance sector nor how many of those
would be affected by the Proposed
QPAM Amendment. However, the
Department acknowledges that it is
possible that some small entities that
meet the SBA’s definitions could be
significantly impacted by the Proposed
QPAM Amendment.
The Department expects that small
entities remaining eligible to rely upon
the amended exemption as proposed
should expect to be impacted the same
as entities described in the Department’s
Regulatory Impact Analysis for the
Proposed QPAM Amendment, which
begins at 87 FR 45214. However, due to
the proposed increases to asset
management and equity thresholds in
the definition of ‘‘QPAM’’ in Section
VI(a) of the amendment, if finalized,
some entities may not satisfy this
definition. In that case, they would no
longer be able to rely upon the QPAM
Exemption. Those entities may fall
within the SBA’s small entity
definitions. Additionally, to the extent
plans that are small entities are more
likely to hire a QPAM that is a small
entity, the Proposed QPAM Amendment
could also impact them. The
Department requests comments
regarding how likely this is to occur.
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Plans With Assets in an Investment
Fund Managed by a QPAM
The Proposed QPAM Amendment
would affect Plans whose assets are held
by an Investment Fund that is managed
by a QPAM. The Department does not
collect data on Plans that use QPAMs to
manage their assets. Nevertheless, the
Department estimates that on average, a
single QPAM services 32 client Plans.12
10 Using 2019 Form 5500 data, the Department
counted in total 1390 service providers who
provided services of ‘‘Investment Management’’ and
‘‘Named Fiduciary,’’ of which only 765 reported
their business code. Out of these 765 providers, 339
reported their business code starting with the 2digit NAICS code 52, yielding a ratio of 0.44 of
potential QPAMs to other providers. Therefore, the
Department estimates that there were 0.44 * 1390
= 616 potential QPAMs in 2019.
11 Source: Small Business Administration
calculations of the number of firms reporting a
NAICS code of 52 from the 2017 Statistics of U.S.
Businesses.
12 Although the Department estimates there are
616 QPAMs, it can only observe and count the
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Therefore, the Department estimates
that there are 19,712 client Plans (616
QPAMs * 32 client Plans per QPAM) in
total. The Department also estimates
there could be approximately 60.4
million participants in plans serviced by
potential QPAMs, with most being in
large plans.13
The Department estimates that three
percent of client Plans are small.14 The
Department does not view this as a
substantial number of small plans. For
purposes of this IRFA, the Department
considers a small entity to be an
employee benefit plan with fewer than
100 participants.15 The basis of this
definition is found in ERISA section
104(a)(2), which permits the Secretary
of Labor to prescribe simplified annual
reports for pension plans that cover
fewer than 100 participants. Under
section 104(a)(3), the Secretary may also
provide for exemptions or simplified
annual reporting and disclosure for
welfare benefit plans. Pursuant to the
authority of section 104(a)(3), the
Department has previously issued
certain simplified reporting provisions
and limited exemptions from reporting
and disclosure requirements for small
plans.16 While some large employers
may have small plans, in general small
employers maintain small plans. Thus,
EBSA believes that assessing the impact
of the Proposed QPAM Amendment on
small plans is an appropriate substitute
for evaluating the effect on small
entities. The definition of small entity
considered appropriate for this purpose
differs, however, from a definition of
small business that is based on size
standards promulgated by the Small
number of client Plans corresponding to 339
QPAMs. The Department counted 10,719 Plans
served by these 339 observable QPAMs, yielding an
average of 32 client Plans per QPAM in 2019. The
Department acknowledges that these entities do not
necessarily act as QPAMs to their client Plans, and,
therefore, considers this average as an upper limit
for the number of client Plans served by a QPAM.
13 The Department estimated an average of 3,151
participants per plan among the 10,719 Plans
served by the 339 observable potential QPAMs.
Applying this average to all estimated 19,712 client
plans leads to 60.4 million participants in affected
plans (19,712 client Plans * 3,151 participants per
client Plan).
14 Using the 2019 Form 5500 the Department
estimates that only three percent of the 10,719 Plans
served by the 339 observable potential QPAMs are
small plans, having less than 100 participants.
15 The Department consulted with the Small
Business Administration’s Office of Advocacy
before making this determination, as required by 5
U.S.C. 603(c) and 13 CFR 121.903(c). Memorandum
received from the U.S. Small Business
Administration, Office of Advocacy on July 10,
2020.
16 See 29 CFR 2520.104–20, 2520.104–21,
2520.104–41, 2520.104–46, and 2520.104b–10.
Such plans include unfunded or insured welfare
plans covering fewer than 100 participants and
satisfying certain other requirements.
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Business Administration (SBA) 17
pursuant to the Small Business Act.18
The Department requests comment on
the number of plans that may need to
find an alternative asset manager or
investment fund(s) as a result of the
proposed increased thresholds and
other amendments.
Impacts of the Exemption
All QPAMs must acknowledge that
they are fiduciaries within the meaning
of Title I of ERISA and/or the Code with
respect to each Plan that has retained
the QPAM. In analyzing compliance
costs associated with the Proposed
QPAM Amendment, the Department
considers the regulatory baseline that
QPAMs already are required to comply
with—primarily ERISA’s fiduciary duty
requirements (to the extent applicable),
the other existing conditions in the
QPAM Exemption, and the individual
exemption process as well as related
individual exemptions granted in
connection with Section I(g)
ineligibility. The Department does not
expect the Proposed QPAM Amendment
to increase, more than marginally,
existing costs associated with QPAM
ineligibility and individual exemption
requests related to Criminal
Convictions. The Department is
uncertain, however, regarding the
number of QPAMs that would become
ineligible under the proposed expansion
of the ineligibility provision related to
participating in Prohibited Misconduct.
The Department is also uncertain about
the extent to which the proposed
changes in asset management and equity
thresholds would give rise to new costs
because some QPAMs that meet the
current thresholds no longer would be
able to rely on the exemption if they do
not meet the proposed increased
thresholds.
The following analysis considers the
impact on all QPAMs, except that the
analysis of the cost of the winding-down
provision is only considered for
ineligible QPAMs. Although the
Department has provided a cost analysis
below, the heightened standards
proposed in the Proposed QPAM
Amendment may result in entities being
more careful about ensuring that their
compliance programs are sufficiently
robust to prevent Prohibited Misconduct
or Convictions from occurring. In this
respect, the proposed exemption would
provide clear guardrails that would
make the costs associated with QPAMs
becoming ineligible clearly avoidable.
17 13
18 15
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Reporting Reliance on the QPAM
Exemption—Subsection I(g)(1)
The Department believes that the onetime requirement to report reliance on
the QPAM Exemption via email to
QPAM@dol.gov would result in a minor
additional clerical cost. The information
required under subsection I(g)(1) is
limited to the legal name of the entity
relying upon the exemption and any
name the QPAM may be operating
under.
This notification would occur only
once for most QPAMs. Therefore, the
Department expects it would take 15
minutes, on average, for each QPAM to
prepare and send this electronic
notification. This cost is estimated to be
approximately $14 per entity.19 The
Department requests comments on this
estimate.
Written Management Agreement—
Subsection I(g)(2)
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The Department believes that the cost
associated with adding the required
terms under subsection I(g)(2) to a
QPAM’s Written Management
Agreement only would impose costs
related to updating existing
management agreements. QPAMs would
need to send the update to each of their
client Plans, but the QPAM likely would
be able to prepare a single standard form
with identical language and then send it
to each client Plan. For each QPAM, the
Department estimates it would take one
hour of in-house legal professional time
to update and supplement their existent
standard management agreements, and
two minutes of clerical time to prepare
and mail a one-page addition to the
agreement to each client Plan. Including
mailing costs, the total estimated cost of
this requirement amounts to
approximately $220 per entity.20
19 The cost is based upon the expenditure of 0.25
hours for each QPAM: To calculate the cost, an
hourly labor rate of $55.23 is used for a clerical
worker. Therefore, the total cost amounts to: (0.25
hours * $55.23) = $14 (rounded). The Department
estimates of labor costs by occupation reflect
estimates of total compensation and overhead costs.
Estimates for total compensation are based on mean
hourly wages by occupation from the 2020
Occupational Employment Statistics and estimates
of wages and salaries as a percentage of total
compensation by occupation from the 2020
National Compensation Survey’s Employee Cost for
Employee Compensation. Estimates for overhead
costs for services are imputed from the 2017 Service
Annual Survey. To estimate overhead cost on an
occupational basis, the Office of Research and
Analysis allocates total industry overhead cost to
unique occupations using a matrix of detailed
occupational employment for each NAICS industry.
All values are presented in 2020 dollars.
20 This cost is based upon the expenditure of one
hour of a legal professional for each QPAM using
an hourly labor rate of $140.96. As specified in the
PRA section, the Department estimates each QPAM
serves 32 client Plans on average. The Department
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Ineligibility Due to Foreign
Convictions—Subsection I(g)(3)(A) and
Subsection VI(r)(2)
The Department and QPAMs have
treated foreign convictions as causing
ineligibility under Section I(g) since at
least 2000.21 Therefore, the Department
believes that the clarifying reference
that includes foreign convictions within
the scope of Section I(g) would not
change the costs of the exemption as
compared to the current costs.
Mandatory One-Year Winding-Down
Period—Section I(j)
The Department estimated that eight
QPAMs each year would be subject to
the one-year winding-down period after
a Criminal Conviction. The number of
QPAMs affected in any given year is a
function of the number of convictions
covered by Section I(g) and the number
of entities within a corporate family
operating as QPAMs. Therefore, in some
years, the number of affected QPAMs
impacted by ineligibility due to a
Criminal Conviction could be higher
than eight, and in other years it could
be lower. The Department’s proposed
expansion of the ineligibility provision
to include Prohibited Misconduct that
leads to an Ineligibility Notice likely
would increase the number of QPAMs
that become ineligible due to Section
I(g). Although the Department does not
have the data to determine the exact
number of QPAMs that would become
ineligible due to this proposed
expansion, the Department has assumed
the additional number of ineligible
QPAMs to be equal to the eight QPAMs
that experience ineligibility due to a
conviction under current Section I(g),
resulting in a total of 16 ineligible
QPAMs. The Department requests
comments on this assumption and data
also expects each QPAM would have to append one
page to their existing management agreements and
that it would take each QPAM two minutes of
clerical time to prepare and mail this one-page
addition to each client Plan. This labor cost is then
estimated as (32 client Plans * (2/60) hours *
$55.23) = $58.90 for clerical time (rounded). The
Department estimates that the costs of printing and
mailing one page are $0.05 and $0.58, respectively.
Therefore, adding one page to all management
agreements amounts the total printing and mailing
cost to 32 client per Plans * 1 page * ($0.05 + $0.58)
= $ 20 (rounded). The estimated total cost of the
provision is therefore $141 + $58.90 + $20 = $220
(rounded).
21 See, e.g., Prohibited Transaction Exemption
(PTE) 2020–01, 85 FR 8020 (Feb. 12, 2020); PTE
2019–01, 84 FR 6163 (Feb. 26, 2019); PTE 2016–11,
81 FR 75150 (Oct. 28, 2016); PTE 2016–10, 81 FR
75147 (Oct. 28, 2016); PTE 2012–08, 77 FR 19344
(March 30, 2012); PTE 2004–13, 69 FR 54812 (Sept.
10, 2004); and PTE 96–62 (‘‘EXPRO’’) Final
Authorization Numbers 2003–10E, 2001–02E, and
2000–30E, available at https://www.dol.gov/
agencies/ebsa/laws-and-regulations/rules-andregulations/exemptions/expro-exemptions-underpte-96-62.
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or other information that would allow
the Department to more precisely
estimate the number of QPAMs that
would lose eligibility due to this
proposed expansion.
Because the conditions of the
winding-down provision borrow from
the conditions included in the
Department’s existing individual
Section I(g) exemptions, the Department
does not believe there would be any
added cost with respect to the proposed
winding-down period for QPAMs that
become ineligible due to a Criminal
Conviction relative to the current
baseline of obtaining an individual
exemption covering this same time
period. However, an additional eight
QPAMs, on average, may become
ineligible each year for participating in
Prohibited Misconduct, implicating the
winding-down period and the
conditions related to proposed
provisions that are required to be
included in the Written Management
Agreement. As a result, QPAMs would
possibly have to bear the costs
associated with indemnifying their
client Plans for losses that would occur
if they move to a new asset manager.
The Department lacks sufficient data at
this time to estimate these costs
associated with the winding-down
period and requests comments regarding
these costs. The Department welcomes
comments that would provide data to
assist in calculating an estimate. The
Department also lacks data to estimate
the number of ineligible QPAMs that
would be small entities, and requests
comments regarding this number.
Notice to Plans—Subsection I(j)(1)
Within 30 days after the conviction
date, the QPAM must provide notice to
the Department at QPAM@dol.gov and
each of its client Plans stating (i) its
failure to satisfy subsection I(g)(3); and
(ii) that it agrees, as required by
subsection I(g)(2), not to restrict the
ability of a client Plan to terminate or
withdraw from its arrangement with the
QPAM. QPAMs that violate Section I(g)
under the current QPAM Exemption are
required to provide this type of notice
when they obtain an individual
exemption, so no incremental burden is
attributed to this requirement for
QPAMs that become ineligible due to a
Criminal Conviction. However, due to
the expanded proposed scope of
ineligibility, QPAMs that become
ineligible after receiving an Ineligibility
Notice due to participating in Prohibited
Misconduct would incur the cost of
sending notices to their client Plans for
the first time. The Department estimates
that total incremental cost related to
ineligibility after receiving an
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Ineligibility Notice is $135 per entity
(including mailing expenses).22
The Department believes the cost of
sending this notice to the Department
would be negligible because the QPAM
would have already prepared and sent
the notice to client Plans and the notice
to the Department is required to be sent
electronically.
Warning and Opportunity To Be Heard
in Connection With Prohibited
Misconduct—Section I(i)
As described above, the Department
estimates eight QPAMs could
experience ineligibility due to
participating in Prohibited Misconduct.
Before QPAMs become ineligible, they
would be provided with a written
warning and an opportunity to be heard
under Section I(i). As a result, QPAMs
would possibly have to bear the costs
associated with this process. The
Department estimates that this process
would occur twice each year, with each
process covering four QPAMs that are
part of the same corporate family. The
Department estimates that preparing a
response to the ineligibility notice and
for a conference with the Department
would require 10 in-house legal
professional hours (two preparations *
10 hours) resulting in 20 total hours at
an equivalent cost of approximately
$352.23 The Department estimates that
preparing a response and preparing for
the conference would also require two
total outside legal professional hours for
each QPAM resulting in a cost of
$988.24 Thus, the total labor cost of
preparing a response and preparing for
a conference amounts to $1,340 per
entity. The Department requests
comment on this cost estimate.
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Requesting an Individual Exemption—
Section I(k)
Proposed new Section I(k) provides
that a QPAM that is ineligible or
22 The burden is estimated assuming each QPAM
services (on average) 32 plans. Notice preparation
and distribution is estimated to require 0.5 hours
of professional legal time and roughly 0.85 hours
of clerical time. The Department also assumes that
80 percent of all notices would be delivered by
regular mail and would consist of two pages.
Therefore, the total per entity cost associated with
this requirement is (0.5 hours legal professional
labor rate of $140.96) + (0.85 hours * clerical labor
rate of $55.23) + [80% mailed * (2 pages * $0.05
per page + $0.58 postage)] = $135 (rounded). Any
discrepancies in the calculations are a result of
rounding.
23 This cost is based upon an hourly labor rate of
$140.96 for an in-house legal professional. 2020
National Compensation Survey’s Employee Cost for
Employee Compensation.
24 The outside legal professional labor rate is a
composite weighted average of the Laffey Matrix for
Wage Rates (https://www.laffeymatrix.com/see.html,
Year: 6/01/21–5/31/22): ($381 * 0.4) + ($468 * 0.35)
+ ($676 * 0.15) + ($764 * 0.1) = $494.
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16:16 Sep 15, 2022
Jkt 256001
anticipates that it would become
ineligible due to an actual or possible
Criminal Conviction may apply for an
individual exemption from the
Department to continue to rely on the
relief provided in the QPAM Exemption
for a longer period than the one-year
winding-down period. In such an event,
the exemption provides that an
applicant should review the
Department’s most recently granted
individual exemptions involving
Section I(g) ineligibility. If an applicant
requests the Department to exclude any
term or condition from its exemption
that is included in a recently granted
individual exemption, the applicant
must include a detailed statement with
its exemption application explaining the
reason(s) why the proposed variation is
necessary and in the interest and
protective of affected Plans, their
participants and beneficiaries, and IRA
owners. Such applicants also should
provide detailed information in their
applications quantifying the specific
cost in dollar amounts, if any, of any
harm its client Plans would suffer if a
QPAM could not rely on the exemption
after the winding-down period,
including the specific dollar amounts of
investment losses resulting from
foregone investment opportunities and
any evidence supporting the proposition
that investment opportunities would
only be available to Plans on less
advantageous terms.
Due to the proposed expansion of the
scope of ineligibility to include
participating in Prohibited Misconduct,
the Department estimates that two
additional applicants each year would
apply for an individual exemption, each
covering four ineligible QPAMs. The
Department estimates that each of these
two new applicants would spend 12
hours of in-house legal professional and
13 hours of in-house clerical time
preparing the required documentation
for the application that would be used
by an outside legal professional. The
Department estimates the per entity cost
associated with document preparation
for the application at approximately
$2,410.25 Further, the Department
estimates that, on average, 25 hours of
outside legal professional time would be
spent preparing the documentation for
the application per QPAM application,
with a labor rate for outside legal
professionals averaging $494.00 per
hour resulting in a total of $12,350 in
25 12 in-house legal professional hours at $140.96
per hour yields $1,692 (rounded), and the 13 inhouse clerical hours are estimated to cost $718
(rounded). This totals to $2,410 (rounded). Any
discrepancies in the calculations are a result of
rounding.
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Frm 00013
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56917
outside legal costs per application.26
Thus, the total labor cost of each
application preparation amounts to
nearly $15,000.
For applications that reach the stage
of publication of a proposed exemption
in the Federal Register, a notice must be
prepared and distributed to interested
parties. If both applications are
published annually, approximately 256
notices would be distributed (this
corresponds to 32 client Plans per each
of the eight QPAMs affected by two
applications). Similarly, if the proposed
exemptions are ultimately granted, each
of these eight QPAMs would be required
to send an objective description of the
facts and circumstances upon which the
misconduct is based to each client Plan.
The Department estimates that the
distribution for notices and objective
descriptions would require 10 minutes
for each of the 32 plans the QPAM
serves, totaling approximately 10.67
hours at a cost of approximately $295.27
In addition, material and mailing costs
for these notices totals approximately
$55 per QPAM.28 Therefore, the
Department estimates that the total costs
per QPAM associated with notice
distribution would be approximately
$350.
The Department anticipates that few
small entities would be impacted by the
ineligibility provision based on its past
applicants. Additionally, the
Department expects that a small entity
would be more likely to fall below the
average of 32 client Plans. Therefore, the
expected cost to small entity QPAMs
would be lower than the estimated
average cost.
Additional Requirement for QPAMs
Requesting an Individual Exemption
If an applicant requests the
Department to exclude any term or
condition from its exemption that is
included in a recently granted
individual exemption, the applicant
must include a detailed statement with
its exemption application explaining the
reason(s) why the proposed variation is
necessary and in the interest and
protective of affected Plans, their
participants and beneficiaries, and IRA
26 See
supra, note 24.
total cost is calculated as: [(10/60) hours
* 32 interested parties * $55.23 hourly clerical rate]
= $295 (rounded).
28 The Department estimates that 80% (26) of
these notices, would be delivered by regular mail.
The Department further assumes that notices and
the descriptions of facts and circumstances would
be delivered separately, comprising 15 and 5 pages,
respectively. Therefore, with a printing cost of
$0.05 per page and a mailing cost of $0.58 per
notice, the Department estimates the total mailing
cost as (26 * (15 * $0.05) + $0.58) + (26 * (5 * $0.05)
+ $0.58) = $55 (rounded).
27 The
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owners. In these applications, detailed
information would be required
quantifying the specific cost to Plans, in
dollar amounts, of the harm its client
Plans would suffer if a QPAM could not
rely on the exemption after the windingdown period. This should include
dollar amounts of investment losses
resulting from foregone investment
opportunities and any evidence
supporting the proposition that
investment opportunities would only be
available to Plans on less advantageous
terms.
The Department assumes the eight
QPAMs that are estimated to become
ineligible due to the receipt of a written
Ineligibility Notice would incur
incremental costs due to the cost
quantification requirement described
above and also the requirement to
review the Department’s most recently
granted individual exemptions
involving Section I(g) ineligibility. To
satisfy the requirement to review the
Department’s most recently granted
individual exemptions, the Department
estimates that it would require three
hours of outside legal professional time
to review past individual exemptions
and draft this addition to the individual
exemption application. Therefore, the
Department estimates the cost
associated with the additional
requirement totals $2,144 per
application, or roughly $536 per
affected QPAM.29
The eight QPAMs that would become
ineligible due to a Criminal Conviction
would only incur an incremental cost to
ensure they include in their exemption
applications the specific dollar amounts
of investment losses resulting from
foregone investment opportunities and
any evidence supporting the proposition
that investment opportunities would
only be available to client Plans on less
advantageous terms. For this
requirement, the Department assumes it
would require four hours of a financial
professional’s time to prepare such a
report. Therefore, each of two
applications covering the eight
29 At an hourly rate of $165.45 for financial
professional time, the cost associated with the cost
quantification requirement is estimated as: (4 hours
* $165.45 financial professional rate) = $662
(rounded). For the cost associated with the review
of past exemptions, a composite wage rate is used
for the outside legal professional by employing a
weighted average of the legal fees reported in the
Laffey Matrix for Wage Rates (https://
www.laffeymatrix.com/see.html, Year: 6/01/21- 5/
31/22): ($381 * 0.4) + ($468 * 0.35) + ($676 * 0.15)
+ ($764 * 0.1) = $494. The total cost associated with
reviewing past exemptions is estimated as (3 hours
* $494 outside legal professional rate) = $1,482
(rounded). Therefore, the total cost associated with
the additional requirement for QPAMs ineligible
due to receiving a written Ineligibility Notice is
($662 + $1,482) = $2,144 (rounded).
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ineligible QPAMs due to a Criminal
Conviction is estimated to cost $662,
which amounts to $165 per affected
QPAM.30
The impact could be less as the
Department anticipates that few small
entities would be impacted by the
ineligibility provision based on its past
applicants. Additionally, the
Department expects that a small entity
would be more likely to fall below the
average of 32 client Plans.
Involvement in Investment Decisions by
Parties in Interest—Section I(c)
The Department anticipates that the
modifications to Section I(c) would not
change the costs of the exemption as
compared to the cost of the current
QPAM Exemption because the types of
transactions that were intended to be
excluded by current Section I(c) are the
same types of transactions intended to
be excluded by modified Section I(c).
Asset Management and Equity
Thresholds—Section VI(a)
As a result of the proposed
adjustments to the asset management
and equity thresholds to the QPAM
definition in Section VI(a), the
Department acknowledges some QPAMs
may not meet the new threshold
requirements, and, consequently, would
no longer be able to rely on the QPAM
Exemption. The Department expects
QPAMs and Plans that utilize these
QPAMs to incur costs due to this
transition but lacks strong data to
estimate the impact.31 The Department
has requested similar data in connection
with individual applications for
exemptions following convictions
covered by Section I(g), but the data
provided by applicants has been
limited, as have been the costs
identified by the applicants. The
Department seeks comments and data
on the number of QPAMs, including
those that meet the SBA definitions of
a small entity, who would potentially
become unable to rely upon the
exemption (along with the number of
Plans and value of Plan assets) that
30 At an hourly rate of $165.45 for financial
professional time, the cost per application is
estimated as: (4 hours * $165.45 financial
professional rate) = $662 (rounded). Assuming each
application covers 4 QPAMs yields 165 ($662/4 =
$165).
31 Some QPAMs have suggested in the past that
there could be costs associated with unwinding
transactions that relied on the QPAM Exemption
and reinvesting assets in other ways. The loss of
QPAM status could also require an asset manager
to keep lists of parties in interest to its client Plans
to ensure the asset manager does not engage in
prohibited transactions. However, even without the
QPAM Exemption, a wide variety of investments
are available that do not involve non-exempt
prohibited transactions.
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would be impacted by the increase in
asset management and equity
thresholds.
Change in Revenue Due to Adjustments
to the Asset Management and Equity
Thresholds
If an asset manager is no longer
eligible for relief under the QPAM
Exemption (i.e., because it no longer
satisfies the asset management and
equity thresholds), its client plans may
choose to transfer assets and the related
revenue away from the asset manager to
its competitors. From the Plan’s
perspective, the reduction in assets
entrusted to the original asset manager
(and associated revenue reduction) are
offset by the increase in assets managed
by another asset manager or managers
(and associated revenue increase). Even
if the impact of the switch is minimal
or neutral from the plan’s perspective, it
may lead to lost revenue for small
QPAMs if plans move assets away from
a small QPAM or lead to revenue gains
if a small QPAM received some of these
assets that are moved.32
The Department does not have
sufficient data to quantify the likely size
of such asset and revenue changes or the
number of impacted small QPAMs.
These revenue changes could have a
significant impact on small QPAMs
experiencing revenue gains or losses
from assets that are moved. The
Department also does not have
sufficient data to estimate whether the
assets being transferred away from small
QPAMs will be transferred to large
entities or to other small entities that are
able to meet the proposed increases to
asset management and equity
thresholds. However, this proposed
requirement would promote the
protective nature of the exemption by
ensuring a QPAM is of a sufficient size
to resist undue influence from parties in
interest (i.e., maintain independence).
The Department is interested in
receiving comments addressing whether
a QPAM’s client Plans would be likely
to move all or some their assets to an
alternative asset manager if the QPAM
that manages their assets no longer
meets the asset management and equity
thresholds.
32 Although a QPAM’s client Plans could be
expected to move some or all of its assets to another
asset manager if the QPAM that manages their
assets is convicted of an enumerated crime, this
discussion does not address these transfers. The
Department has long viewed both domestic and
foreign convictions as causing ineligibility under
the existing exemption. Consequently, the
regulatory baseline already includes the impact of
such convictions.
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Recordkeeping—Section VI(t)
The Proposed QPAM Amendment
would also add a new recordkeeping
provision that would apply to all
QPAMs. Due to the fiduciary status of
QPAMs and the existing regulatory
environment, the Department assumes
that QPAMs already maintain such
records as part of their regular business
practices. In addition, the recordkeeping
requirements correspond to the six-year
period in ERISA sections 107 and 413.
Therefore, the Department expects that
the recordkeeping requirement would
impose a negligible burden. The
Department welcomes comments
regarding the burden associated with
the recordkeeping requirement.
If a QPAM refuses to disclose
information to any of the parties listed
Proposed QPAM Amendment. The
familiarization cost is estimated to be
approximately $494 per QPAM.33 The
Department seeks comment on this
estimate.
in Section VI(t), on the basis that
information is exempt from disclosure,
the QPAM must provide a written
notice advising the requestor of the
reason for the refusal and that the
Department may request such
information. The Department does not
have data on how often such a refusal
is likely to occur; however, the
Department believes such instances
would be rare. As a result, the
Department believes this requirement
would impose negligible cost. The
Department requests comments about
whether this may happen more
frequently and the possible costs.
Summary of Quantified Costs
The total, per entity, quantified
annual costs associated with the
Proposed QPAM Amendment would be
$728 in the first year and $220 in
subsequent years for plans in
compliance with the exemption. Table 1
summarizes the per entity costs for each
requirement and the estimated annual
costs associated with the amendment for
QPAMs in compliance with the
exemption, QPAMs with prohibited
misconduct, and QPAMs with
convictions.
Rule Familiarization Costs
The Department estimates that it
would take 60 minutes, on average, for
each QPAM to become familiar with the
TABLE 1—INCREMENTAL COSTS ASSOCIATED WITH PROPOSED QPAM AMENDMENT, PER ENTITY
Requirement
Cost for
QPAMs in
compliance
with
exemption
Cost for
QPAMs with
prohibited
misconduct
(estimated 8
per year)
Cost for
QPAMS with a
conviction
(estimated 8
per year)
Reporting Reliance on the QPAM Exemption .............................................................................
Written Management Agreement .................................................................................................
Notice to Plans ............................................................................................................................
Written Warning and Opportunity to be Heard ............................................................................
Requesting an Individual Exemption Costs: ................................................................................
Preparation Labor Cost ...............................................................................................................
Notices Distribution ......................................................................................................................
Additional Requirement-Criminal Conviction QPAMs .................................................................
Additional Requirement-Prohibited Misconduct QPAMs .............................................................
Rule Familiarization Costs ...........................................................................................................
$14
220
........................
........................
........................
........................
........................
........................
........................
494
$14
220
135
1,340
........................
........................
350
........................
536
494
$14
220
........................
........................
........................
........................
........................
165
........................
494
First Year Total Estimated Annual Cost ..................................................................................
Subsequent Years Total Estimated Annual Cost 1 ...............................................................
728
0
3,089
2,361
893
165
Notes: Only quantifiable costs are displayed.
Additionally, two individual exemption applications associated with ineligible QPAMs (caused by either prohibited misconduct or a conviction)
are estimated each year at an estimated cost of approximately $15,000 per entity.
1 Excludes rule familiarization and the initial reporting reliance costs.
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Alternatives
In order to make the statutory findings
for issuing exemptions dictated by
ERISA section 408(a) and Code section
4975(c)(2), the Department must find
that an exemption is in the interest of
and protective of the rights of plans,
their participants and beneficiaries, and
IRA owners. Therefore, the Department
provides alternatives, as discussed
below, that were considered in
connection with the statutorily
mandated exemption requirements.
33 The cost is based upon the expenditure of 1.0
hours for each QPAM to become familiar with the
Proposed QPAM Amendment. To calculate the cost
a composite wage rate is used by employing a
weighted average of the legal fees reported in the
Laffey Matrix for Wage Rates. (https://
www.laffeymatrix.com/see.html, Year: 6/01/21–
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Phase-In and Incremental Increases to
Asset Management and Equity
Thresholds Over Longer Period
The Department considered a longer
phase-in period and incremental
increases for the proposed updates to
the asset management and equity
thresholds. This alternative could
reduce the likelihood that a small entity
QPAM would no longer be able to
satisfy the definition of QPAM and lose
the corresponding ability to rely upon
the exemption.34
5/31/22): ($381 * 0.4) + ($468 * 0.35) + ($676 * 0.15)
+ ($764 * 0.1) = $494. This amounts to: (1 hour *
$494) = $494. Note that QPAMs likely rely on
outside specialized legal counsel to help keep them
in compliance with the QPAM Exemption. The
specialized outside legal counsel likely would
review the amendment and present updates to their
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
The Department determined that a
significant lag in updating the
thresholds to current CPI-adjusted
values had the potential to deprive
Plans of the important protective nature
of these aspects of the QPAM definition.
The Department requests comments on
alternative effective dates for the
increases and/or appropriately
protective incremental increases and
time periods for such increases.
clients, which means that the costs would be spread
out over multiple clients.
34 For instance, an incremental increase over a
longer period might allow a small entity to increase
the size of its business in tandem with the increases
to the asset management and equity thresholds.
E:\FR\FM\16SEP1.SGM
16SEP1
56920
Federal Register / Vol. 87, No. 179 / Friday, September 16, 2022 / Proposed Rules
khammond on DSKJM1Z7X2PROD with PROPOSALS
Amend the QPAM Exemption To
Remove Asset Management and Equity
Thresholds
As an alternative to updating the asset
management and equity thresholds, the
Department revisited whether such
thresholds could be removed entirely
from the exemption. Doing so could
have avoided any cost impact or
revenue loss to small entities associated
with losing eligibility to rely on the
QPAM exemption due to the increased
thresholds.
The Department determined that this
approach would be inconsistent with
one of the core concepts upon which the
QPAM Exemption was based (i.e.,
independence of the QPAM). As the
Department noted in the preamble of the
Proposed QPAM Amendment, the
QPAM Exemption was originally
granted, in part, on the premise that
large financial institutions would be
able to withstand undue influence from
parties in interest.35 Some of the
thresholds that establish the requisite
independence upon which the QPAM
Exemption is based have not been
updated since 1984, and the thresholds
for registered investment advisers have
not been updated since 2005.36
In the absence of an appropriate
alternative ensuring that a QPAM would
remain an independent decision-maker,
free from influence of other insiders to
the Plan and Plan sponsor, the
Department is unable to justify the
removal of the thresholds. The
Department requests comments on
alternatives that could minimize the
potential impact of the Proposed QPAM
Amendment on small entities,
especially with respect to the increased
asset management and equity
thresholds.
Duplicate, Overlapping, or Relevant
Federal Rules
The Department has attempted to
avoid duplication of requirements. The
required policies and procedures and
exemption audit are unique to the
circumstances of the particular
transactions covered by the exemption
and do not replicate any other
requirements by state or Federal
regulations.37 The exemption permits
respondents to satisfy the requirements
for written guidelines between the
QPAM and a property manager with
documents that are already in existence
35 See the Proposed QPAM Amendment, 87 FR
45213 (emphasis added).
36 Id. at 45215.
37 See Section V of the current QPAM Exemption.
The requirements of Section V were not discussed
in this IRFA because the Proposed QPAM
Amendment would not change the existing
requirements of Section V.
VerDate Sep<11>2014
16:16 Sep 15, 2022
Jkt 256001
due to ordinary and customary business
practices, provided such documents
contain the required disclosures.38
Signed at Washington, DC, this 13th day of
September, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits
Security Administration, U.S. Department of
Labor.
[FR Doc. 2022–20099 Filed 9–14–22; 4:15 pm]
BILLING CODE 4510–29–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R03–OAR–2020–0325; FRL–10118–
03–R3]
Air Plan Approval; Maryland; Clean
Data Determination and Approval of
Select Attainment Plan Elements for
the Anne Arundel County and
Baltimore County, Maryland Sulfur
Dioxide Nonattainment Area;
Extension of Comment Period
Environmental Protection
Agency (EPA).
ACTION: Proposed rule; extension of
public comment period.
AGENCY:
On August 19, 2022, the U.S.
Environmental Protection Agency (EPA)
published a proposed rule determining
that the Anne Arundel County and
Baltimore County, Maryland sulfur
dioxide (SO2) nonattainment area
attained the 2010 primary SO2 national
ambient air quality standard (2010 SO2
NAAQS) under EPA’s Clean Data Policy
using a clean data determination (CDD).
EPA simultaneously proposed to
approve certain elements of the
attainment plan contained in
Maryland’s state implementation plan
(SIP) revision for the Anne Arundel
County and Baltimore County SO2
nonattainment area, submitted to EPA
on January 31, 2020. Additionally, EPA
proposed to approve as SIP
strengthening measures certain emission
limit requirements on large SO2
emission sources that were submitted as
part of Maryland’s attainment plan for
the nonattainment area. EPA
inadvertently failed to upload the
supporting and related materials in the
docket simultaneously with the
publication of the notice of proposed
rulemaking (NPRM) on August 19, 2022
(87 FR 51006). The supporting and
related materials were added to the
SUMMARY:
38 See Section I(c) of the current QPAM
Exemption and Proposed QPAM Amendment. The
amendment would not modify this aspect of
Section I(c).
PO 00000
Frm 00016
Fmt 4702
Sfmt 4702
docket on August 29, 2022. To ensure
that the public has adequate time and
information to submit comments, EPA is
extending the comment period for ten
days to September 29, 2022. This action
is being taken under the Clean Air Act
(CAA).
DATES: The public comment period for
the proposal published in the Federal
Register on August 19, 2022 (87 FR
51006) is extended from September 19,
2022 to September 29, 2022. Written
comments must be received on or before
September 29, 2022.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–R03–
OAR–2020–0325 at
www.regulations.gov, or via email to
gordon.mike@epa.gov. For comments
submitted at Regulations.gov, follow the
online instructions for submitting
comments. Once submitted, comments
cannot be edited or removed from
Regulations.gov. For either manner of
submission, EPA may publish any
comment received to its public docket.
Do not submit electronically any
information you consider to be
confidential business information (CBI)
or other information whose disclosure is
restricted by statute. Multimedia
submissions (audio, video, etc.) must be
accompanied by a written comment.
The written comment is considered the
official comment and should include
discussion of all points you wish to
make. EPA will generally not consider
comments or comment contents located
outside of the primary submission (i.e.,
on the web, cloud, or other file sharing
system). For additional submission
methods, please contact the person
identified in the For Further
Information Contact section. For the full
EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
www.epa.gov/dockets/commenting-epadockets.
FOR FURTHER INFORMATION CONTACT:
Brian Rehn, Planning & Implementation
Branch (3AD30), Air & Radiation
Division, U.S. Environmental Protection
Agency, Region III, Four Penn Center,
1600 John F. Kennedy Boulevard,
Philadelphia, Pennsylvania 19103. The
telephone number is (215) 814–2176.
Mr. Rehn can also be reached via
electronic mail at rehn.brian@epa.gov.
SUPPLEMENTARY INFORMATION:
On August 19, 2022, the EPA
published a proposed rule taking several
actions (87 FR 51006). First, the EPA
proposed under its Clean Data Policy to
determine that the Anne Arundel
County and Baltimore County,
Maryland SO2 nonattainment area has
E:\FR\FM\16SEP1.SGM
16SEP1
]]>Agencies
[Federal Register Volume 87, Number 179 (Friday, September 16, 2022)]
[Proposed Rules]
[Pages 56912-56920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20099]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2550
[Application No. D-12022]
Z-RIN 1210 ZA07
Initial Regulatory Flexibility Analysis for Proposed Amendment to
Prohibited Transaction Class Exemption 84-14 (the QPAM Exemption)
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of Initial Regulatory Flexibility Analysis for the
proposed amendment to the QPAM Exemption.
-----------------------------------------------------------------------
SUMMARY: This document gives notice of the Department's Initial
Regulatory Flexibility Analysis for a proposed amendment to prohibited
transaction class exemption 84-14 (the QPAM Exemption).
DATES: Written comments must be submitted to the Department by October
11, 2022.
ADDRESSES: All written comments concerning the Initial Regulatory
Flexibility Analysis should be sent to the Office of Exemption
Determinations through the Federal eRulemaking Portal and identified by
Application No. D-12022:
Federal eRulemaking Portal: https://www.regulations.gov at Docket
ID
[[Page 56913]]
number: EBSA-2022-0008. Follow the instructions for submitting
comments.
See SUPPLEMENTARY INFORMATION below for additional information
regarding comments.
FOR FURTHER INFORMATION CONTACT: James Butikofer, telephone (202) 693-
8434, Office of Research and Analysis, Employee Benefits Security
Administration, U.S. Department of Labor (this is not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Comment Instructions
All comments must be received by the end of the comment period. In
light of the current circumstances surrounding the COVID-19 pandemic,
persons are encouraged to submit all comments electronically and not to
submit paper copies. The comments may be available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, U.S. Department of Labor, Room N-1513, 200
Constitution Avenue NW, Washington, DC 20210; however, the Public
Disclosure Room may be closed for all or a portion of the comment
period due to circumstances surrounding the COVID-19 pandemic. Comments
will also be available online at https://www.regulations.gov, at Docket
ID number: EBSA-2022-0008 and https://www.dol.gov/ebsa, at no charge.
Warning: All comments received will be included in the public
record without change and will be made available online at https://www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information, but DO NOT submit information that you consider to
be confidential, or otherwise protected (such as Social Security number
or unlisted phone number), or confidential business information that
you do not want publicly disclosed. However, if EBSA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EBSA might not be able to consider your comment.
Additionally, the https://www.regulations.gov website is an ``anonymous
access'' system, which means EBSA will not know your identity or
contact information unless you provide it.
Reason for the Supplemental Initial Regulatory Flexibility Analysis
The Department published a proposed amendment to PTE 84-14 (the
QPAM Exemption) on July 27, 2022 (the Proposed QPAM Amendment).\1\ The
Department originally provided a 60-day comment period in the Proposed
QPAM Amendment, which was scheduled to expire on September 26, 2022.
The Department then extended this initial comment period until October
11, 2022, in a Federal Register notice published on September 7,
2022.\2\ In the same notice, the Department announced that it is
scheduling a virtual public hearing regarding the Proposed Amendment on
November 17, 2022 (and if necessary, November 18, 2022). In connection
with the hearing, the Department will also provide a supplementary
comment period that will end approximately 14 days after the hearing
transcript is posted on EBSA's website.
---------------------------------------------------------------------------
\1\ 87 FR 45204.
\2\ 87 FR 54715.
---------------------------------------------------------------------------
Pursuant to section 605(b) of the Regulatory Flexibility Act
(RFA),\3\ the Acting Assistant Secretary of the Employee Benefits
Security Administration certified that the Proposed QPAM amendment
would not have a significant economic impact on a substantial number of
small entities. After consulting with the Small Business
Administration's Office of Advocacy, however, the Department has
decided to publish this Initial Regulatory Flexibility Analysis (IRFA)
explaining its possible impact on small entities. The Department
requests comments by October 11, 2022, the same deadline as the
extended comment period for the Proposed QPAM amendment. Although the
Department is aligning the deadlines for comments regarding the
supplemental IRFA and the Proposed QPAM amendment, the Department will
provide additional time for public input on all aspects of the Proposed
QPAM Amendment (including the supplemental IRFA) when the comment
period reopens on the hearing date.
---------------------------------------------------------------------------
\3\ 5 U.S.C. 601 et seq. (1980).
---------------------------------------------------------------------------
Regulatory Flexibility Act (RFA)
The RFA imposes certain requirements with respect to Federal rules
that are subject to the notice and comment requirements of section
553(b) of the Administrative Procedure Act and are likely to have a
significant economic impact on a substantial number of small
entities.\4\ Unless an agency determines that a proposal is not
expected to have a significant economic impact on a substantial number
of small entities, section 603 of the RFA requires the agency to
present an IRFA of the Proposed QPAM Amendment.
---------------------------------------------------------------------------
\4\ 5 U.S.C. 551 et seq. (1946).
---------------------------------------------------------------------------
The Department emphasizes that the QPAM Exemption has always been
premised on the QPAM being an entity of sufficient size to withstand
undue influence from parties in interest. The Department clearly stated
this position in the preamble to the initial proposal in 1982:
The minimum capital and funds-under-management standards of the
proposed exemption are intended to [ensure] that the eligible
fiduciaries managing the accounts or funds (``investment funds'') .
. . are established institutions which are large enough to
discourage the exercise of undue influence upon their decision-
making processes by parties in interest.\5\
---------------------------------------------------------------------------
\5\ 47 FR 56945, 56947 (Dec. 21, 1982).
When the exemption was granted in 1984, the Department declined to
reduce or delete the minimum asset and equity thresholds as requested
by some commenters.\6\ Furthermore, when the Department raised the
thresholds for investment advisers in 2005, it stated that the
thresholds had ``not been revised since 1984 and may no longer provide
significant protections for plans in the current financial
marketplace.'' \7\
---------------------------------------------------------------------------
\6\ See 49 FR 9494, 9502 (Mar. 13, 1984).
\7\ See Proposed QPAM Amendment, 68 FR 52419, 52423 (Sept. 3,
2003).
---------------------------------------------------------------------------
Despite the importance of a QPAM being sufficiently large to
withstand undue influence from parties in interest, in an abundance of
caution, the Department is issuing this supplemental IRFA, which
analyzes and seeks public comment on potential economic impacts of the
Proposed QPAM Amendment on small entities.
Need for and Objectives of the Proposed QPAM Amendment
As noted in the preamble of the Proposed QPAM Amendment,
substantial changes have occurred in the financial services industry
since the Department granted the QPAM Exemption in 1984. These changes
include industry consolidation caused by a variety of factors and an
increasingly global reach for financial services institutions, both in
their affiliations and in their investment strategies, including those
for Plan assets.
An amendment to the QPAM Exemption is needed to address ambiguity
as to whether foreign convictions are included in the scope of the
ineligibility provision under Section I(g). QPAMs today often have
corporate
[[Page 56914]]
or relationship ties to a broad range of entities, some of which are
located internationally. Additionally, some global financial service
institutions are headquartered or have parent entities that reside in
foreign jurisdictions. These entities may have significant control and
influence over the operation and management of all entities within a
large financial institution's organizational structure, including those
operating as QPAMs for some Plans. Additionally, the international ties
of QPAMs come not just from their affiliations and parent entities, but
also their investment strategies, including those involving Plan
assets.
The Department is also concerned about corporate families and
entities that engage in significant misconduct of a similar type and
quality as the conduct that might lead to a Criminal Conviction,\8\ but
which ultimately does not result in a conviction. The amendment is
needed to ensure that QPAMs are not able to avoid the conditions
related to integrity and ineligibility under Section I(g) simply by
entering into non-prosecution and deferred prosecution agreements with
prosecutors to side-step the consequences that otherwise would result
from a Criminal Conviction. Plans may suffer significant harm if they
are exposed to serious misconduct committed by unscrupulous firms or
individuals that ultimately results in a deferred or non-prosecution
agreement rather than Criminal Conviction and consequent ineligibility
under Section I(g). Likewise, intentionally or systematically violating
the conditions of the exemption exposes Plans to significant potential
harm at the hands of those with influence or control over their assets.
In the Department's view, QPAMs and those in a position to influence or
control a QPAM's policies that repeatedly engage in these types of
serious misconduct do not display the requisite standards of integrity
necessary to provide the protection intended for Plans under the
exemption.
---------------------------------------------------------------------------
\8\ The Proposed QPAM Amendment defines ``Criminal Conviction''
to mean the person or entity: (1) is convicted in a U.S. Federal or
state court or released from imprisonment, whichever is later, as a
result of any felony involving abuse or misuse of such person's Plan
position or employment, or position or employment with a labor
organization; any felony arising out of the conduct of the business
of a broker, dealer, investment adviser, bank, insurance company or
fiduciary; income tax evasion; any felony involving the larceny,
theft, robbery, extortion, forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent conversion, or
misappropriation of funds or securities; conspiracy or attempt to
commit any such crimes or a crime in which any of the foregoing
crimes is an element; or a crime identified in ERISA section 411; or
(2) is convicted by a foreign court of competent jurisdiction as a
result of a crime, however denominated by the laws of the relevant
foreign government, that is substantially equivalent to an offense
described in (1), above. See 87 FR 45204, 45231-32.
---------------------------------------------------------------------------
Through its administration of the individual exemption program, the
Department also determined that certain aspects of the QPAM Exemption
would benefit from a focus on mitigating potential costs and disruption
to Plans when a QPAM becomes ineligible for the exemptive relief
because of a conviction under Section I(g). Two major ways in which the
amendment would reduce the harmful impact on Plans is by requiring
penalty-free withdrawal and indemnification terms to be included in the
QPAM's Written Management Agreement with its client Plans and including
a one-year winding-down period to avoid unnecessary disruptions to
Plans upon a Criminal Conviction or receipt of an Ineligibility Notice
due to other Prohibited Misconduct.\9\ The winding-down period would
help bridge the gap between the QPAM Exemption and the Department's
administration of its individual exemption program in connection with
Section I(g) ineligibility.
---------------------------------------------------------------------------
\9\ The Proposed QPAM Amendment defines ``Prohibited
Misconduct'' to mean: (1) any conduct that forms the basis for a
non-prosecution or deferred prosecution agreement that, if
successfully prosecuted, would have constituted a crime described in
Section VI(r); (2) any conduct that forms the basis for an
agreement, however denominated by the laws of the relevant foreign
government, that is substantially equivalent to a non-prosecution
agreement or deferred prosecution agreement described in (1); (3)
engaging in a systematic pattern or practice of violating the
conditions of this exemption in connection with otherwise non-exempt
prohibited transactions; (4) intentionally violating the conditions
of this exemption in connection with otherwise non-exempt prohibited
transactions; or (5) providing materially misleading information to
the Department in connection with the conditions of the exemption.
See 87 FR at 45232.
---------------------------------------------------------------------------
The Proposed QPAM Amendment is also needed to update asset
management and equity thresholds to current values in the definition of
``QPAM'' in Section VI(a). Some of the thresholds that establish the
requisite independence upon which the QPAM Exemption is based have not
been updated since 1984, and the thresholds for registered investment
advisers have not been updated since 2005. The Proposed QPAM Amendment
would standardize all the thresholds to current values using the Bureau
of Labor Statistics Consumer Price Index.
Finally, the QPAM Exemption currently lacks a recordkeeping
requirement which the Department generally includes in its
administrative exemptions. The Proposed QPAM Amendment would add a
recordkeeping requirement to ensure QPAMs would be able to demonstrate,
and the Department would be able to verify, compliance with the
exemption conditions.
Together, the Department believes these updates are necessary to
ensure the QPAM Exemption remains in the interest of and protective of
the rights of Plans, their participants and beneficiaries, and
individual retirement account (IRA) owners as required by section
408(a) of the Employee Retirement Income Security Act of 1974 (ERISA)
and section 4975(c)(2) of the Internal Revenue Code (Code).
Affected Small Entities
Qualified Professional Asset Managers (QPAMs)
The following entities generally qualify or would qualify for the
relief set out in the QPAM Exemption and Proposed QPAM Amendment:
(1) Banks--as defined in section 202(a)(2) of the Investment
Advisers Act of 1940, with equity capital in excess of $1,000,000
(proposed increase to $2,720,000);
(2) Savings and loan associations--the accounts of which are
insured by the Federal Savings and Loan Insurance Corporation, with
equity capital or net worth in excess of $1,000,000 (proposed increase
to $2,720,000);
(3) Insurance companies--subject to supervision under state law,
with net worth in excess of $1,000,000 (proposed increase to
$2,720,000); and
(4) Investment advisers--registered under the Investment Advisers
Act of 1940 with total client assets under management in excess of
$85,000,000 (proposed increase to $135,870,00) and either (1)
shareholders' or partners' equity in excess of $1,000,000 (proposed
increase to $2,040,000) or (2) payment of liabilities guaranteed by an
affiliate, another entity that could qualify as a QPAM, or a broker-
dealer with net worth of more than $1,000,000 (proposed increase to
$2,040,000).
The Proposed QPAM Amendment also provides that the Department would
make subsequent annual inflation adjustments to these thresholds,
rounded to the nearest $10,000, no later than January 31 of each year
and announce the increased thresholds in a Federal Register notice.
Estimates of QPAMs
The Department estimates that there are 616 potential QPAMs by
approximating the total number of service providers who in 2019
provided ``Investment Management'' and ``Named Fiduciary'' services
simultaneously to at least one plan as reported on Schedule C of the
2019 Form 5500, and whose
[[Page 56915]]
North American Industry Classification System (NAICS) codes start with
the 2-digit 52, which corresponds to Finance and Insurance
Institutions.\10\ There are about 234,440 small firms that report a
NAICS code of 52.\11\ Because the SBA's small entity definitions are
generally based upon revenues and not asset management or equity
thresholds, the Department does not know how many QPAMs fit the SBA's
small entity definitions for the finance and insurance sector nor how
many of those would be affected by the Proposed QPAM Amendment.
However, the Department acknowledges that it is possible that some
small entities that meet the SBA's definitions could be significantly
impacted by the Proposed QPAM Amendment.
---------------------------------------------------------------------------
\10\ Using 2019 Form 5500 data, the Department counted in total
1390 service providers who provided services of ``Investment
Management'' and ``Named Fiduciary,'' of which only 765 reported
their business code. Out of these 765 providers, 339 reported their
business code starting with the 2-digit NAICS code 52, yielding a
ratio of 0.44 of potential QPAMs to other providers. Therefore, the
Department estimates that there were 0.44 * 1390 = 616 potential
QPAMs in 2019.
\11\ Source: Small Business Administration calculations of the
number of firms reporting a NAICS code of 52 from the 2017
Statistics of U.S. Businesses.
---------------------------------------------------------------------------
The Department expects that small entities remaining eligible to
rely upon the amended exemption as proposed should expect to be
impacted the same as entities described in the Department's Regulatory
Impact Analysis for the Proposed QPAM Amendment, which begins at 87 FR
45214. However, due to the proposed increases to asset management and
equity thresholds in the definition of ``QPAM'' in Section VI(a) of the
amendment, if finalized, some entities may not satisfy this definition.
In that case, they would no longer be able to rely upon the QPAM
Exemption. Those entities may fall within the SBA's small entity
definitions. Additionally, to the extent plans that are small entities
are more likely to hire a QPAM that is a small entity, the Proposed
QPAM Amendment could also impact them. The Department requests comments
regarding how likely this is to occur.
Plans With Assets in an Investment Fund Managed by a QPAM
The Proposed QPAM Amendment would affect Plans whose assets are
held by an Investment Fund that is managed by a QPAM. The Department
does not collect data on Plans that use QPAMs to manage their assets.
Nevertheless, the Department estimates that on average, a single QPAM
services 32 client Plans.\12\ Therefore, the Department estimates that
there are 19,712 client Plans (616 QPAMs * 32 client Plans per QPAM) in
total. The Department also estimates there could be approximately 60.4
million participants in plans serviced by potential QPAMs, with most
being in large plans.\13\
---------------------------------------------------------------------------
\12\ Although the Department estimates there are 616 QPAMs, it
can only observe and count the number of client Plans corresponding
to 339 QPAMs. The Department counted 10,719 Plans served by these
339 observable QPAMs, yielding an average of 32 client Plans per
QPAM in 2019. The Department acknowledges that these entities do not
necessarily act as QPAMs to their client Plans, and, therefore,
considers this average as an upper limit for the number of client
Plans served by a QPAM.
\13\ The Department estimated an average of 3,151 participants
per plan among the 10,719 Plans served by the 339 observable
potential QPAMs. Applying this average to all estimated 19,712
client plans leads to 60.4 million participants in affected plans
(19,712 client Plans * 3,151 participants per client Plan).
---------------------------------------------------------------------------
The Department estimates that three percent of client Plans are
small.\14\ The Department does not view this as a substantial number of
small plans. For purposes of this IRFA, the Department considers a
small entity to be an employee benefit plan with fewer than 100
participants.\15\ The basis of this definition is found in ERISA
section 104(a)(2), which permits the Secretary of Labor to prescribe
simplified annual reports for pension plans that cover fewer than 100
participants. Under section 104(a)(3), the Secretary may also provide
for exemptions or simplified annual reporting and disclosure for
welfare benefit plans. Pursuant to the authority of section 104(a)(3),
the Department has previously issued certain simplified reporting
provisions and limited exemptions from reporting and disclosure
requirements for small plans.\16\ While some large employers may have
small plans, in general small employers maintain small plans. Thus,
EBSA believes that assessing the impact of the Proposed QPAM Amendment
on small plans is an appropriate substitute for evaluating the effect
on small entities. The definition of small entity considered
appropriate for this purpose differs, however, from a definition of
small business that is based on size standards promulgated by the Small
Business Administration (SBA) \17\ pursuant to the Small Business
Act.\18\
---------------------------------------------------------------------------
\14\ Using the 2019 Form 5500 the Department estimates that only
three percent of the 10,719 Plans served by the 339 observable
potential QPAMs are small plans, having less than 100 participants.
\15\ The Department consulted with the Small Business
Administration's Office of Advocacy before making this
determination, as required by 5 U.S.C. 603(c) and 13 CFR 121.903(c).
Memorandum received from the U.S. Small Business Administration,
Office of Advocacy on July 10, 2020.
\16\ See 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-
46, and 2520.104b-10. Such plans include unfunded or insured welfare
plans covering fewer than 100 participants and satisfying certain
other requirements.
\17\ 13 CFR 121.201.
\18\ 15 U.S.C. 631 et seq.
---------------------------------------------------------------------------
The Department requests comment on the number of plans that may
need to find an alternative asset manager or investment fund(s) as a
result of the proposed increased thresholds and other amendments.
Impacts of the Exemption
All QPAMs must acknowledge that they are fiduciaries within the
meaning of Title I of ERISA and/or the Code with respect to each Plan
that has retained the QPAM. In analyzing compliance costs associated
with the Proposed QPAM Amendment, the Department considers the
regulatory baseline that QPAMs already are required to comply with--
primarily ERISA's fiduciary duty requirements (to the extent
applicable), the other existing conditions in the QPAM Exemption, and
the individual exemption process as well as related individual
exemptions granted in connection with Section I(g) ineligibility. The
Department does not expect the Proposed QPAM Amendment to increase,
more than marginally, existing costs associated with QPAM ineligibility
and individual exemption requests related to Criminal Convictions. The
Department is uncertain, however, regarding the number of QPAMs that
would become ineligible under the proposed expansion of the
ineligibility provision related to participating in Prohibited
Misconduct. The Department is also uncertain about the extent to which
the proposed changes in asset management and equity thresholds would
give rise to new costs because some QPAMs that meet the current
thresholds no longer would be able to rely on the exemption if they do
not meet the proposed increased thresholds.
The following analysis considers the impact on all QPAMs, except
that the analysis of the cost of the winding-down provision is only
considered for ineligible QPAMs. Although the Department has provided a
cost analysis below, the heightened standards proposed in the Proposed
QPAM Amendment may result in entities being more careful about ensuring
that their compliance programs are sufficiently robust to prevent
Prohibited Misconduct or Convictions from occurring. In this respect,
the proposed exemption would provide clear guardrails that would make
the costs associated with QPAMs becoming ineligible clearly avoidable.
[[Page 56916]]
Reporting Reliance on the QPAM Exemption--Subsection I(g)(1)
The Department believes that the one-time requirement to report
reliance on the QPAM Exemption via email to [email protected] would result
in a minor additional clerical cost. The information required under
subsection I(g)(1) is limited to the legal name of the entity relying
upon the exemption and any name the QPAM may be operating under.
This notification would occur only once for most QPAMs. Therefore,
the Department expects it would take 15 minutes, on average, for each
QPAM to prepare and send this electronic notification. This cost is
estimated to be approximately $14 per entity.\19\ The Department
requests comments on this estimate.
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\19\ The cost is based upon the expenditure of 0.25 hours for
each QPAM: To calculate the cost, an hourly labor rate of $55.23 is
used for a clerical worker. Therefore, the total cost amounts to:
(0.25 hours * $55.23) = $14 (rounded). The Department estimates of
labor costs by occupation reflect estimates of total compensation
and overhead costs. Estimates for total compensation are based on
mean hourly wages by occupation from the 2020 Occupational
Employment Statistics and estimates of wages and salaries as a
percentage of total compensation by occupation from the 2020
National Compensation Survey's Employee Cost for Employee
Compensation. Estimates for overhead costs for services are imputed
from the 2017 Service Annual Survey. To estimate overhead cost on an
occupational basis, the Office of Research and Analysis allocates
total industry overhead cost to unique occupations using a matrix of
detailed occupational employment for each NAICS industry. All values
are presented in 2020 dollars.
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Written Management Agreement--Subsection I(g)(2)
The Department believes that the cost associated with adding the
required terms under subsection I(g)(2) to a QPAM's Written Management
Agreement only would impose costs related to updating existing
management agreements. QPAMs would need to send the update to each of
their client Plans, but the QPAM likely would be able to prepare a
single standard form with identical language and then send it to each
client Plan. For each QPAM, the Department estimates it would take one
hour of in-house legal professional time to update and supplement their
existent standard management agreements, and two minutes of clerical
time to prepare and mail a one-page addition to the agreement to each
client Plan. Including mailing costs, the total estimated cost of this
requirement amounts to approximately $220 per entity.\20\
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\20\ This cost is based upon the expenditure of one hour of a
legal professional for each QPAM using an hourly labor rate of
$140.96. As specified in the PRA section, the Department estimates
each QPAM serves 32 client Plans on average. The Department also
expects each QPAM would have to append one page to their existing
management agreements and that it would take each QPAM two minutes
of clerical time to prepare and mail this one-page addition to each
client Plan. This labor cost is then estimated as (32 client Plans *
(2/60) hours * $55.23) = $58.90 for clerical time (rounded). The
Department estimates that the costs of printing and mailing one page
are $0.05 and $0.58, respectively. Therefore, adding one page to all
management agreements amounts the total printing and mailing cost to
32 client per Plans * 1 page * ($0.05 + $0.58) = $ 20 (rounded). The
estimated total cost of the provision is therefore $141 + $58.90 +
$20 = $220 (rounded).
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Ineligibility Due to Foreign Convictions--Subsection I(g)(3)(A) and
Subsection VI(r)(2)
The Department and QPAMs have treated foreign convictions as
causing ineligibility under Section I(g) since at least 2000.\21\
Therefore, the Department believes that the clarifying reference that
includes foreign convictions within the scope of Section I(g) would not
change the costs of the exemption as compared to the current costs.
---------------------------------------------------------------------------
\21\ See, e.g., Prohibited Transaction Exemption (PTE) 2020-01,
85 FR 8020 (Feb. 12, 2020); PTE 2019-01, 84 FR 6163 (Feb. 26, 2019);
PTE 2016-11, 81 FR 75150 (Oct. 28, 2016); PTE 2016-10, 81 FR 75147
(Oct. 28, 2016); PTE 2012-08, 77 FR 19344 (March 30, 2012); PTE
2004-13, 69 FR 54812 (Sept. 10, 2004); and PTE 96-62 (``EXPRO'')
Final Authorization Numbers 2003-10E, 2001-02E, and 2000-30E,
available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/expro-exemptions-under-pte-96-62.
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Mandatory One-Year Winding-Down Period--Section I(j)
The Department estimated that eight QPAMs each year would be
subject to the one-year winding-down period after a Criminal
Conviction. The number of QPAMs affected in any given year is a
function of the number of convictions covered by Section I(g) and the
number of entities within a corporate family operating as QPAMs.
Therefore, in some years, the number of affected QPAMs impacted by
ineligibility due to a Criminal Conviction could be higher than eight,
and in other years it could be lower. The Department's proposed
expansion of the ineligibility provision to include Prohibited
Misconduct that leads to an Ineligibility Notice likely would increase
the number of QPAMs that become ineligible due to Section I(g).
Although the Department does not have the data to determine the exact
number of QPAMs that would become ineligible due to this proposed
expansion, the Department has assumed the additional number of
ineligible QPAMs to be equal to the eight QPAMs that experience
ineligibility due to a conviction under current Section I(g), resulting
in a total of 16 ineligible QPAMs. The Department requests comments on
this assumption and data or other information that would allow the
Department to more precisely estimate the number of QPAMs that would
lose eligibility due to this proposed expansion.
Because the conditions of the winding-down provision borrow from
the conditions included in the Department's existing individual Section
I(g) exemptions, the Department does not believe there would be any
added cost with respect to the proposed winding-down period for QPAMs
that become ineligible due to a Criminal Conviction relative to the
current baseline of obtaining an individual exemption covering this
same time period. However, an additional eight QPAMs, on average, may
become ineligible each year for participating in Prohibited Misconduct,
implicating the winding-down period and the conditions related to
proposed provisions that are required to be included in the Written
Management Agreement. As a result, QPAMs would possibly have to bear
the costs associated with indemnifying their client Plans for losses
that would occur if they move to a new asset manager. The Department
lacks sufficient data at this time to estimate these costs associated
with the winding-down period and requests comments regarding these
costs. The Department welcomes comments that would provide data to
assist in calculating an estimate. The Department also lacks data to
estimate the number of ineligible QPAMs that would be small entities,
and requests comments regarding this number.
Notice to Plans--Subsection I(j)(1)
Within 30 days after the conviction date, the QPAM must provide
notice to the Department at [email protected] and each of its client Plans
stating (i) its failure to satisfy subsection I(g)(3); and (ii) that it
agrees, as required by subsection I(g)(2), not to restrict the ability
of a client Plan to terminate or withdraw from its arrangement with the
QPAM. QPAMs that violate Section I(g) under the current QPAM Exemption
are required to provide this type of notice when they obtain an
individual exemption, so no incremental burden is attributed to this
requirement for QPAMs that become ineligible due to a Criminal
Conviction. However, due to the expanded proposed scope of
ineligibility, QPAMs that become ineligible after receiving an
Ineligibility Notice due to participating in Prohibited Misconduct
would incur the cost of sending notices to their client Plans for the
first time. The Department estimates that total incremental cost
related to ineligibility after receiving an
[[Page 56917]]
Ineligibility Notice is $135 per entity (including mailing
expenses).\22\
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\22\ The burden is estimated assuming each QPAM services (on
average) 32 plans. Notice preparation and distribution is estimated
to require 0.5 hours of professional legal time and roughly 0.85
hours of clerical time. The Department also assumes that 80 percent
of all notices would be delivered by regular mail and would consist
of two pages. Therefore, the total per entity cost associated with
this requirement is (0.5 hours legal professional labor rate of
$140.96) + (0.85 hours * clerical labor rate of $55.23) + [80%
mailed * (2 pages * $0.05 per page + $0.58 postage)] = $135
(rounded). Any discrepancies in the calculations are a result of
rounding.
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The Department believes the cost of sending this notice to the
Department would be negligible because the QPAM would have already
prepared and sent the notice to client Plans and the notice to the
Department is required to be sent electronically.
Warning and Opportunity To Be Heard in Connection With Prohibited
Misconduct--Section I(i)
As described above, the Department estimates eight QPAMs could
experience ineligibility due to participating in Prohibited Misconduct.
Before QPAMs become ineligible, they would be provided with a written
warning and an opportunity to be heard under Section I(i). As a result,
QPAMs would possibly have to bear the costs associated with this
process. The Department estimates that this process would occur twice
each year, with each process covering four QPAMs that are part of the
same corporate family. The Department estimates that preparing a
response to the ineligibility notice and for a conference with the
Department would require 10 in-house legal professional hours (two
preparations * 10 hours) resulting in 20 total hours at an equivalent
cost of approximately $352.\23\ The Department estimates that preparing
a response and preparing for the conference would also require two
total outside legal professional hours for each QPAM resulting in a
cost of $988.\24\ Thus, the total labor cost of preparing a response
and preparing for a conference amounts to $1,340 per entity. The
Department requests comment on this cost estimate.
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\23\ This cost is based upon an hourly labor rate of $140.96 for
an in-house legal professional. 2020 National Compensation Survey's
Employee Cost for Employee Compensation.
\24\ The outside legal professional labor rate is a composite
weighted average of the Laffey Matrix for Wage Rates (https://www.laffeymatrix.com/see.html, Year: 6/01/21-5/31/22): ($381 * 0.4)
+ ($468 * 0.35) + ($676 * 0.15) + ($764 * 0.1) = $494.
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Requesting an Individual Exemption--Section I(k)
Proposed new Section I(k) provides that a QPAM that is ineligible
or anticipates that it would become ineligible due to an actual or
possible Criminal Conviction may apply for an individual exemption from
the Department to continue to rely on the relief provided in the QPAM
Exemption for a longer period than the one-year winding-down period. In
such an event, the exemption provides that an applicant should review
the Department's most recently granted individual exemptions involving
Section I(g) ineligibility. If an applicant requests the Department to
exclude any term or condition from its exemption that is included in a
recently granted individual exemption, the applicant must include a
detailed statement with its exemption application explaining the
reason(s) why the proposed variation is necessary and in the interest
and protective of affected Plans, their participants and beneficiaries,
and IRA owners. Such applicants also should provide detailed
information in their applications quantifying the specific cost in
dollar amounts, if any, of any harm its client Plans would suffer if a
QPAM could not rely on the exemption after the winding-down period,
including the specific dollar amounts of investment losses resulting
from foregone investment opportunities and any evidence supporting the
proposition that investment opportunities would only be available to
Plans on less advantageous terms.
Due to the proposed expansion of the scope of ineligibility to
include participating in Prohibited Misconduct, the Department
estimates that two additional applicants each year would apply for an
individual exemption, each covering four ineligible QPAMs. The
Department estimates that each of these two new applicants would spend
12 hours of in-house legal professional and 13 hours of in-house
clerical time preparing the required documentation for the application
that would be used by an outside legal professional. The Department
estimates the per entity cost associated with document preparation for
the application at approximately $2,410.\25\ Further, the Department
estimates that, on average, 25 hours of outside legal professional time
would be spent preparing the documentation for the application per QPAM
application, with a labor rate for outside legal professionals
averaging $494.00 per hour resulting in a total of $12,350 in outside
legal costs per application.\26\ Thus, the total labor cost of each
application preparation amounts to nearly $15,000.
---------------------------------------------------------------------------
\25\ 12 in-house legal professional hours at $140.96 per hour
yields $1,692 (rounded), and the 13 in-house clerical hours are
estimated to cost $718 (rounded). This totals to $2,410 (rounded).
Any discrepancies in the calculations are a result of rounding.
\26\ See supra, note 24.
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For applications that reach the stage of publication of a proposed
exemption in the Federal Register, a notice must be prepared and
distributed to interested parties. If both applications are published
annually, approximately 256 notices would be distributed (this
corresponds to 32 client Plans per each of the eight QPAMs affected by
two applications). Similarly, if the proposed exemptions are ultimately
granted, each of these eight QPAMs would be required to send an
objective description of the facts and circumstances upon which the
misconduct is based to each client Plan. The Department estimates that
the distribution for notices and objective descriptions would require
10 minutes for each of the 32 plans the QPAM serves, totaling
approximately 10.67 hours at a cost of approximately $295.\27\ In
addition, material and mailing costs for these notices totals
approximately $55 per QPAM.\28\ Therefore, the Department estimates
that the total costs per QPAM associated with notice distribution would
be approximately $350.
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\27\ The total cost is calculated as: [(10/60) hours * 32
interested parties * $55.23 hourly clerical rate] = $295 (rounded).
\28\ The Department estimates that 80% (26) of these notices,
would be delivered by regular mail. The Department further assumes
that notices and the descriptions of facts and circumstances would
be delivered separately, comprising 15 and 5 pages, respectively.
Therefore, with a printing cost of $0.05 per page and a mailing cost
of $0.58 per notice, the Department estimates the total mailing cost
as (26 * (15 * $0.05) + $0.58) + (26 * (5 * $0.05) + $0.58) = $55
(rounded).
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The Department anticipates that few small entities would be
impacted by the ineligibility provision based on its past applicants.
Additionally, the Department expects that a small entity would be more
likely to fall below the average of 32 client Plans. Therefore, the
expected cost to small entity QPAMs would be lower than the estimated
average cost.
Additional Requirement for QPAMs Requesting an Individual Exemption
If an applicant requests the Department to exclude any term or
condition from its exemption that is included in a recently granted
individual exemption, the applicant must include a detailed statement
with its exemption application explaining the reason(s) why the
proposed variation is necessary and in the interest and protective of
affected Plans, their participants and beneficiaries, and IRA
[[Page 56918]]
owners. In these applications, detailed information would be required
quantifying the specific cost to Plans, in dollar amounts, of the harm
its client Plans would suffer if a QPAM could not rely on the exemption
after the winding-down period. This should include dollar amounts of
investment losses resulting from foregone investment opportunities and
any evidence supporting the proposition that investment opportunities
would only be available to Plans on less advantageous terms.
The Department assumes the eight QPAMs that are estimated to become
ineligible due to the receipt of a written Ineligibility Notice would
incur incremental costs due to the cost quantification requirement
described above and also the requirement to review the Department's
most recently granted individual exemptions involving Section I(g)
ineligibility. To satisfy the requirement to review the Department's
most recently granted individual exemptions, the Department estimates
that it would require three hours of outside legal professional time to
review past individual exemptions and draft this addition to the
individual exemption application. Therefore, the Department estimates
the cost associated with the additional requirement totals $2,144 per
application, or roughly $536 per affected QPAM.\29\
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\29\ At an hourly rate of $165.45 for financial professional
time, the cost associated with the cost quantification requirement
is estimated as: (4 hours * $165.45 financial professional rate) =
$662 (rounded). For the cost associated with the review of past
exemptions, a composite wage rate is used for the outside legal
professional by employing a weighted average of the legal fees
reported in the Laffey Matrix for Wage Rates (https://www.laffeymatrix.com/see.html, Year: 6/01/21- 5/31/22): ($381 * 0.4)
+ ($468 * 0.35) + ($676 * 0.15) + ($764 * 0.1) = $494. The total
cost associated with reviewing past exemptions is estimated as (3
hours * $494 outside legal professional rate) = $1,482 (rounded).
Therefore, the total cost associated with the additional requirement
for QPAMs ineligible due to receiving a written Ineligibility Notice
is ($662 + $1,482) = $2,144 (rounded).
---------------------------------------------------------------------------
The eight QPAMs that would become ineligible due to a Criminal
Conviction would only incur an incremental cost to ensure they include
in their exemption applications the specific dollar amounts of
investment losses resulting from foregone investment opportunities and
any evidence supporting the proposition that investment opportunities
would only be available to client Plans on less advantageous terms. For
this requirement, the Department assumes it would require four hours of
a financial professional's time to prepare such a report. Therefore,
each of two applications covering the eight ineligible QPAMs due to a
Criminal Conviction is estimated to cost $662, which amounts to $165
per affected QPAM.\30\
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\30\ At an hourly rate of $165.45 for financial professional
time, the cost per application is estimated as: (4 hours * $165.45
financial professional rate) = $662 (rounded). Assuming each
application covers 4 QPAMs yields 165 ($662/4 = $165).
---------------------------------------------------------------------------
The impact could be less as the Department anticipates that few
small entities would be impacted by the ineligibility provision based
on its past applicants. Additionally, the Department expects that a
small entity would be more likely to fall below the average of 32
client Plans.
Involvement in Investment Decisions by Parties in Interest--Section
I(c)
The Department anticipates that the modifications to Section I(c)
would not change the costs of the exemption as compared to the cost of
the current QPAM Exemption because the types of transactions that were
intended to be excluded by current Section I(c) are the same types of
transactions intended to be excluded by modified Section I(c).
Asset Management and Equity Thresholds--Section VI(a)
As a result of the proposed adjustments to the asset management and
equity thresholds to the QPAM definition in Section VI(a), the
Department acknowledges some QPAMs may not meet the new threshold
requirements, and, consequently, would no longer be able to rely on the
QPAM Exemption. The Department expects QPAMs and Plans that utilize
these QPAMs to incur costs due to this transition but lacks strong data
to estimate the impact.\31\ The Department has requested similar data
in connection with individual applications for exemptions following
convictions covered by Section I(g), but the data provided by
applicants has been limited, as have been the costs identified by the
applicants. The Department seeks comments and data on the number of
QPAMs, including those that meet the SBA definitions of a small entity,
who would potentially become unable to rely upon the exemption (along
with the number of Plans and value of Plan assets) that would be
impacted by the increase in asset management and equity thresholds.
---------------------------------------------------------------------------
\31\ Some QPAMs have suggested in the past that there could be
costs associated with unwinding transactions that relied on the QPAM
Exemption and reinvesting assets in other ways. The loss of QPAM
status could also require an asset manager to keep lists of parties
in interest to its client Plans to ensure the asset manager does not
engage in prohibited transactions. However, even without the QPAM
Exemption, a wide variety of investments are available that do not
involve non-exempt prohibited transactions.
---------------------------------------------------------------------------
Change in Revenue Due to Adjustments to the Asset Management and Equity
Thresholds
If an asset manager is no longer eligible for relief under the QPAM
Exemption (i.e., because it no longer satisfies the asset management
and equity thresholds), its client plans may choose to transfer assets
and the related revenue away from the asset manager to its competitors.
From the Plan's perspective, the reduction in assets entrusted to the
original asset manager (and associated revenue reduction) are offset by
the increase in assets managed by another asset manager or managers
(and associated revenue increase). Even if the impact of the switch is
minimal or neutral from the plan's perspective, it may lead to lost
revenue for small QPAMs if plans move assets away from a small QPAM or
lead to revenue gains if a small QPAM received some of these assets
that are moved.\32\
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\32\ Although a QPAM's client Plans could be expected to move
some or all of its assets to another asset manager if the QPAM that
manages their assets is convicted of an enumerated crime, this
discussion does not address these transfers. The Department has long
viewed both domestic and foreign convictions as causing
ineligibility under the existing exemption. Consequently, the
regulatory baseline already includes the impact of such convictions.
---------------------------------------------------------------------------
The Department does not have sufficient data to quantify the likely
size of such asset and revenue changes or the number of impacted small
QPAMs. These revenue changes could have a significant impact on small
QPAMs experiencing revenue gains or losses from assets that are moved.
The Department also does not have sufficient data to estimate whether
the assets being transferred away from small QPAMs will be transferred
to large entities or to other small entities that are able to meet the
proposed increases to asset management and equity thresholds. However,
this proposed requirement would promote the protective nature of the
exemption by ensuring a QPAM is of a sufficient size to resist undue
influence from parties in interest (i.e., maintain independence).
The Department is interested in receiving comments addressing
whether a QPAM's client Plans would be likely to move all or some their
assets to an alternative asset manager if the QPAM that manages their
assets no longer meets the asset management and equity thresholds.
[[Page 56919]]
Recordkeeping--Section VI(t)
The Proposed QPAM Amendment would also add a new recordkeeping
provision that would apply to all QPAMs. Due to the fiduciary status of
QPAMs and the existing regulatory environment, the Department assumes
that QPAMs already maintain such records as part of their regular
business practices. In addition, the recordkeeping requirements
correspond to the six-year period in ERISA sections 107 and 413.
Therefore, the Department expects that the recordkeeping requirement
would impose a negligible burden. The Department welcomes comments
regarding the burden associated with the recordkeeping requirement.
If a QPAM refuses to disclose information to any of the parties
listed in Section VI(t), on the basis that information is exempt from
disclosure, the QPAM must provide a written notice advising the
requestor of the reason for the refusal and that the Department may
request such information. The Department does not have data on how
often such a refusal is likely to occur; however, the Department
believes such instances would be rare. As a result, the Department
believes this requirement would impose negligible cost. The Department
requests comments about whether this may happen more frequently and the
possible costs.
Rule Familiarization Costs
The Department estimates that it would take 60 minutes, on average,
for each QPAM to become familiar with the Proposed QPAM Amendment. The
familiarization cost is estimated to be approximately $494 per
QPAM.\33\ The Department seeks comment on this estimate.
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\33\ The cost is based upon the expenditure of 1.0 hours for
each QPAM to become familiar with the Proposed QPAM Amendment. To
calculate the cost a composite wage rate is used by employing a
weighted average of the legal fees reported in the Laffey Matrix for
Wage Rates. (https://www.laffeymatrix.com/see.html, Year: 6/01/21- 5/
31/22): ($381 * 0.4) + ($468 * 0.35) + ($676 * 0.15) + ($764 * 0.1)
= $494. This amounts to: (1 hour * $494) = $494. Note that QPAMs
likely rely on outside specialized legal counsel to help keep them
in compliance with the QPAM Exemption. The specialized outside legal
counsel likely would review the amendment and present updates to
their clients, which means that the costs would be spread out over
multiple clients.
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Summary of Quantified Costs
The total, per entity, quantified annual costs associated with the
Proposed QPAM Amendment would be $728 in the first year and $220 in
subsequent years for plans in compliance with the exemption. Table 1
summarizes the per entity costs for each requirement and the estimated
annual costs associated with the amendment for QPAMs in compliance with
the exemption, QPAMs with prohibited misconduct, and QPAMs with
convictions.
Table 1--Incremental Costs Associated With Proposed QPAM Amendment, per Entity
----------------------------------------------------------------------------------------------------------------
Cost for QPAMs
with Cost for QPAMS
Cost for QPAMs prohibited with a
Requirement in compliance misconduct conviction
with exemption (estimated 8 (estimated 8
per year) per year)
----------------------------------------------------------------------------------------------------------------
Reporting Reliance on the QPAM Exemption........................ $14 $14 $14
Written Management Agreement.................................... 220 220 220
Notice to Plans................................................. .............. 135 ..............
Written Warning and Opportunity to be Heard..................... .............. 1,340 ..............
Requesting an Individual Exemption Costs:....................... .............. .............. ..............
Preparation Labor Cost.......................................... .............. .............. ..............
Notices Distribution............................................ .............. 350 ..............
Additional Requirement-Criminal Conviction QPAMs................ .............. .............. 165
Additional Requirement-Prohibited Misconduct QPAMs.............. .............. 536 ..............
Rule Familiarization Costs...................................... 494 494 494
-----------------------------------------------
First Year Total Estimated Annual Cost........................ 728 3,089 893
Subsequent Years Total Estimated Annual Cost \1\............ 0 2,361 165
----------------------------------------------------------------------------------------------------------------
Notes: Only quantifiable costs are displayed.
Additionally, two individual exemption applications associated with ineligible QPAMs (caused by either
prohibited misconduct or a conviction) are estimated each year at an estimated cost of approximately $15,000
per entity.
\1\ Excludes rule familiarization and the initial reporting reliance costs.
Alternatives
In order to make the statutory findings for issuing exemptions
dictated by ERISA section 408(a) and Code section 4975(c)(2), the
Department must find that an exemption is in the interest of and
protective of the rights of plans, their participants and
beneficiaries, and IRA owners. Therefore, the Department provides
alternatives, as discussed below, that were considered in connection
with the statutorily mandated exemption requirements.
Phase-In and Incremental Increases to Asset Management and Equity
Thresholds Over Longer Period
The Department considered a longer phase-in period and incremental
increases for the proposed updates to the asset management and equity
thresholds. This alternative could reduce the likelihood that a small
entity QPAM would no longer be able to satisfy the definition of QPAM
and lose the corresponding ability to rely upon the exemption.\34\
---------------------------------------------------------------------------
\34\ For instance, an incremental increase over a longer period
might allow a small entity to increase the size of its business in
tandem with the increases to the asset management and equity
thresholds.
---------------------------------------------------------------------------
The Department determined that a significant lag in updating the
thresholds to current CPI-adjusted values had the potential to deprive
Plans of the important protective nature of these aspects of the QPAM
definition. The Department requests comments on alternative effective
dates for the increases and/or appropriately protective incremental
increases and time periods for such increases.
[[Page 56920]]
Amend the QPAM Exemption To Remove Asset Management and Equity
Thresholds
As an alternative to updating the asset management and equity
thresholds, the Department revisited whether such thresholds could be
removed entirely from the exemption. Doing so could have avoided any
cost impact or revenue loss to small entities associated with losing
eligibility to rely on the QPAM exemption due to the increased
thresholds.
The Department determined that this approach would be inconsistent
with one of the core concepts upon which the QPAM Exemption was based
(i.e., independence of the QPAM). As the Department noted in the
preamble of the Proposed QPAM Amendment, the QPAM Exemption was
originally granted, in part, on the premise that large financial
institutions would be able to withstand undue influence from parties in
interest.\35\ Some of the thresholds that establish the requisite
independence upon which the QPAM Exemption is based have not been
updated since 1984, and the thresholds for registered investment
advisers have not been updated since 2005.\36\
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\35\ See the Proposed QPAM Amendment, 87 FR 45213 (emphasis
added).
\36\ Id. at 45215.
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In the absence of an appropriate alternative ensuring that a QPAM
would remain an independent decision-maker, free from influence of
other insiders to the Plan and Plan sponsor, the Department is unable
to justify the removal of the thresholds. The Department requests
comments on alternatives that could minimize the potential impact of
the Proposed QPAM Amendment on small entities, especially with respect
to the increased asset management and equity thresholds.
Duplicate, Overlapping, or Relevant Federal Rules
The Department has attempted to avoid duplication of requirements.
The required policies and procedures and exemption audit are unique to
the circumstances of the particular transactions covered by the
exemption and do not replicate any other requirements by state or
Federal regulations.\37\ The exemption permits respondents to satisfy
the requirements for written guidelines between the QPAM and a property
manager with documents that are already in existence due to ordinary
and customary business practices, provided such documents contain the
required disclosures.\38\
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\37\ See Section V of the current QPAM Exemption. The
requirements of Section V were not discussed in this IRFA because
the Proposed QPAM Amendment would not change the existing
requirements of Section V.
\38\ See Section I(c) of the current QPAM Exemption and Proposed
QPAM Amendment. The amendment would not modify this aspect of
Section I(c).
Signed at Washington, DC, this 13th day of September, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2022-20099 Filed 9-14-22; 4:15 pm]
BILLING CODE 4510-29-P
