Proposed Exemption for Certain Prohibited Transaction Restrictions Pacific Investment Management Company LLC, Newport Beach, California, 18333-18347 [2023-06346]
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Federal Register / Vol. 88, No. 59 / Tuesday, March 28, 2023 / Notices
section 337 based upon the importation
into the United States, the sale for
importation, and the sale within the
United States after importation of
certain mobile phones, tablet
computers, smart watches, smart
speakers, and digital media players, and
products containing same by reason of
infringement of certain claims of U.S.
Patent Nos. 7,151,430 (‘‘the ’430
patent’’); 9,509,273 (‘‘the ’273 patent’’);
9,853,621 (‘‘the ’621 patent’’); 7,957,770
(‘‘the ’770 patent’’); and 9,705,400 (‘‘the
’400 patent’’) (collectively, ‘‘Asserted
Patents’’). See id. The notice of
investigation names Apple, Inc.
(‘‘Apple’’) of Cupertino, California, as
the respondent in the investigation. See
id. The Office of Unfair Import
Investigations (‘‘OUII’’) is also a party to
the investigation. See id.
On December 16, 2022, the
Commission partially terminated the
investigation as to: (1) all asserted
claims of the ’400 patent; (2) all asserted
claims of the ’621 patent; (3) claims 11
and 12 of the ’430 patent; (4) claims 1
and 7 of the ’273 patent; and (5) claims
4, 8–10, 12, 15, and 16 of the ’770 patent
based on withdrawal of the complaint as
to those patents and claims. See Order
No. 25 (Nov. 21, 2022), unreviewed by
Comm’n Notice (Dec. 16, 2022).
On July 26, 2022, Ericsson filed a
motion for summary determination that
the economic prong of the domestic
industry requirement is satisfied for
each of the Asserted Patents (‘‘Ericsson’s
SD Motion’’). On August 4, 2022, Apple
filed a response to Ericsson’s SD Motion
stating that Apple does not dispute
Ericsson’s SD Motion to the extent it
relates to the economic prong of the
domestic industry requirement but that
Apple disputes that Ericsson has
satisfied the technical prong of the
domestic industry requirement.
On November 30, 2022, the ALJ
issued an ID (Order No. 29) granting
summary determination that Ericsson
satisfies the economic prong of the
domestic industry requirement. On
March 2, 2023, the Commission issued
a notice extending until March 24, 2023,
the deadline for determining whether to
review the ID (Order No. 29).
On February 6, 2023, Ericsson and
Apple jointly moved to terminate the
investigation in its entirety based on
settlement. On February 7, 2023, OUII
filed a response in support of the joint
motion.
On February 22, 2023, the ALJ issued
an ID (Order No. 34) granting the joint
motion to terminate the investigation.
The ID finds that the joint motion
complies with Commission Rule
210.21(b)(1), 19 CFR 210.21(b)(1). See ID
at 3. Specifically, the ID notes that the
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joint motion includes confidential and
public copies of the settlement
agreement. See id. In addition, the
motion states that ‘‘[t]here are no other
agreements, written or oral, express or
implied between the Ericsson and
Apple concerning the subject matter of
this Investigation.’’ See id. Furthermore,
in accordance with Commission Rule
210.50(b)(2), 19 CFR 210.50(b)(2), the ID
finds that ‘‘terminating this
Investigation is in the public interest
and will conserve public and private
resources.’’ See id.
No petitions for review of the subject
IDs (Order Nos. 29 and 34) were filed.
The Commission has determined not
to review the ID terminating the
investigation based on settlement (Order
No. 34). In addition, the Commission
has determined to vacate as moot the ID
(Order No. 29) granting summary
determination that the economic prong
of the domestic industry requirement is
satisfied. The investigation is
terminated.
The Commission’s vote for these
determinations took place on March 22,
2023.
The authority for the Commission’s
determination is contained in section
337 of the Tariff Act of 1930, as
amended (19 U.S.C. 1337), and in part
210 of the Commission’s Rules of
Practice and Procedure (19 CFR part
210).
By order of the Commission.
Issued: March 22, 2023.
Lisa R. Barton,
Secretary to the Commission.
[FR Doc. 2023–06335 Filed 3–27–23; 8:45 am]
BILLING CODE 7020–02–P
DEPARTMENT OF LABOR
[Exemption Application No. D–12075]
Proposed Exemption for Certain
Prohibited Transaction Restrictions
Pacific Investment Management
Company LLC, Newport Beach,
California
Employee Benefits Security
Administration, Labor.
ACTION: Notice of proposed exemption.
AGENCY:
This document provides
notice of the pendency before the
Department of Labor (the Department) of
a proposed individual exemption from
certain of the prohibited transaction
restrictions of the Employee Retirement
Income Security Act of 1974 (ERISA or
the Act) and/or the Internal Revenue
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Code of 1986 (the Code). If the proposed
exemption is granted, certain asset
managers with specified relationships to
the Pacific Investment Management
Company LLC (PIMCO or the Applicant)
will not be precluded from relying on
the exemptive relief provided by
Prohibited Transaction Class Exemption
84–14 (PTE 84–14 or the QPAM
Exemption), notwithstanding the
upcoming judgment of conviction
against Allianz Global Investors US LLC
(AGI US) for one count of securities
fraud.
DATES:
Comments due: Written comments
and requests for a public hearing on the
proposed exemption should be
submitted to the Department by May 12,
2023.
Exemption dates: If granted, this
proposed exemption will be in effect for
a period of five years beginning on May
17, 2023, and ending on May 16, 2028.
ADDRESSES: All written comments and
requests for a hearing should be
submitted to the Employee Benefits
Security Administration (EBSA), Office
of Exemption Determinations,
Attention: Application No. D–12075 via
email to e-OED@dol.gov or online
through https://www.regulations.gov.
Any such comments or requests should
be sent by the end of the scheduled
comment period. The application for
exemption and the comments received
will be available for public inspection in
the Public Disclosure Room of the
Employee Benefits Security
Administration, U.S. Department of
Labor, Room N–1515, 200 Constitution
Avenue NW, Washington, DC 20210.
See SUPPLEMENTARY INFORMATION below
for additional information regarding
comments.
Mr.
Joseph Brennan of the Department at
(202) 693–8456. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION:
Comments: Persons are encouraged to
submit all comments electronically and
not to follow with paper copies.
Comments should state the nature of the
person’s interest in the proposed
exemption and how the person would
be adversely affected by the exemption,
if granted. Any person who may be
adversely affected by an exemption can
request a hearing on the exemption. A
request for a hearing must state: (1) The
name, address, telephone number, and
email address of the person making the
request; (2) the nature of the person’s
interest in the exemption and the
manner in which the person would be
adversely affected by the exemption;
FOR FURTHER INFORMATION CONTACT:
Employee Benefits Security
Administration
SUMMARY:
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and (3) a statement of the issues to be
addressed and a general description of
the evidence to be presented at the
hearing. The Department will grant a
request for a hearing made in
accordance with the requirements above
where a hearing is necessary to fully
explore material factual issues
identified by the person requesting the
hearing. A notice of such hearing shall
be published by the Department in the
Federal Register. The Department may
decline to hold a hearing if: (1) the
request for the hearing does not meet
the requirements above; (2) the only
issues identified for exploration at the
hearing are matters of law; or (3) the
factual issues identified can be fully
explored through the submission of
evidence in written (including
electronic) form.
Warning: All comments received will
be included in the public record
without change and may 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 in the body of your
comment, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as a Social Security number or an
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 in the body of your
comment. If you send an email directly
to EBSA without going through https://
www.regulations.gov, your email
address will be automatically captured
and included as part of the comment
that is placed in the public record and
made available on the internet.
Proposed Exemption
The Department is considering
granting an exemption under the
authority of Section 408(a) of the
Employee Retirement Income Security
Act of 1974, as amended (ERISA), and
Section 4975(c)(2) of the Internal
Revenue Code of 1986, as amended (the
Code), and in accordance with the
procedures set forth in 29 CFR part
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2570, subpart B (75 FR 66637, 66644,
October 27, 2011).1 If the proposed
exemption is granted, certain asset
managers with specified relationships to
PIMCO (the PIMCO Affiliated QPAMs
and the PIMCO Related QPAMs) will
not be precluded from relying on the
exemptive relief provided by Prohibited
Transaction Class Exemption 84–14
(PTE 84–14 or the QPAM Exemption),2
notwithstanding the upcoming
judgment of conviction against Allianz
Global Investors US LLC (AGI US) for
one count of securities fraud.3
If granted, this proposed exemption
will be effective for a five-year period
beginning on the date a judgment of
conviction against AGI US (the AGI US
Conviction) is entered in the United
States District Court for the Southern
District of New York (the District Court)
in case number 1:22–cr–00279–CM.
Relief under this proposed exemption, if
granted, will remain effective provided
that the conditions set out below in
Section III are met.
This proposed exemption would
provide relief from certain of the
restrictions set forth in ERISA Sections
406 and 407. It would not, however,
provide relief from any other violation
of law. Furthermore, the Department
cautions that the relief under this
proposed exemption would terminate
immediately if, among other things, an
affiliate of PIMCO’s (as defined in
Section VI(d) of PTE 84–14) is convicted
of a crime described in Section I(g) of
PTE 84–14 (other than the AGI US
Conviction) during the Exemption
Period, as defined in Section I(c).
Although PIMCO could apply for a new
exemption in that circumstance, the
Department would not be obligated to
grant the exemption.
The terms of this proposed exemption
have been specifically designed to
permit plans to terminate their
relationships in an orderly and costeffective fashion in the event of an
1 For purposes of this proposed exemption: (1)
references to specific provisions of ERISA Title I,
unless otherwise specified, should be read to refer
as well to the corresponding provisions of Code
Section 4975; and (2) if granted, this proposed
exemption does not provide relief from the
requirements of any law not noted above.
Accordingly, the Applicant is responsible for
ensuring compliance with any other laws
applicable to the transactions described herein.
2 49 FR 9494 (March 13, 1984), as corrected at 50
FR 41430 (Oct. 10, 1985), as amended at 70 FR
49305 (Aug. 23, 2005), and as amended at 75 FR
38837 (July 6, 2010).
3 Section I(g) of PTE 84–14 generally provides
that ‘‘[n]either the QPAM nor any affiliate thereof
. . . nor any owner . . . of a 5 percent or more
interest in the QPAM is a person who within the
10 years immediately preceding the transaction has
been either convicted or released from
imprisonment, whichever is later, as a result of’’
certain felonies including securities fraud.
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additional conviction or a determination
that it is otherwise prudent for a plan to
terminate its relationship with an entity
covered by the exemption.
Summary of Facts and
Representations 4
Relevant ERISA Provisions and PTE 84–
14
1. The rules set forth in ERISA
Section 406 and Code Section 4975(c)(1)
proscribe certain ‘‘prohibited
transactions’’ between plans and certain
parties in interest with respect to those
plans.5 ERISA Section 3(14) defines
parties in interest with respect to a plan
to include, among others, the plan
fiduciary, a sponsoring employer of the
plan, a union whose members are
covered by the plan, service providers
with respect to the plan, and certain of
their affiliates.6 The prohibited
transaction provisions under ERISA
Section 406(a) and Code Section
4975(c)(1) prohibit, in relevant part, (1)
sales, leases, loans, or the provision of
services between a party in interest and
a plan (or an entity whose assets are
deemed to constitute the assets of a
plan), (2) the use of plan assets by or for
the benefit of a party in interest, or (3)
a transfer of plan assets to a party in
interest.7
2. Under the authority of ERISA
Section 408(a) and Code Section
4975(c)(2), the Department has the
authority to grant exemptions from such
‘‘prohibited transactions’’ in accordance
with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637,
66644, October 27, 2011) if the
Department finds an exemption is: (a)
administratively feasible, (b) in the
interests of the plan and of its
participants and beneficiaries, and (c)
4 The Summary of Facts and Representations is
based on the Applicant’s representations provided
in its exemption application and does not reflect
factual findings or opinions of the Department
unless indicated otherwise. The Department notes
that availability of this exemption, is subject to the
express condition that the material facts and
representations contained in application D–12075
are true and complete at all times, and accurately
describe all material terms of the transactions
covered by the exemption. If there is any material
change in a transaction covered by the exemption,
or in a material fact or representation described in
the application, the exemption will cease to apply
as of the date of the change.
5 For purposes of the Summary of Facts and
Representations, references to specific provisions of
Title I of ERISA, unless otherwise specified, refer
also to the corresponding provisions of the Code.
6 Under the Code, such parties, or similar parties,
are referred to as ‘‘disqualified persons.’’
7 The prohibited transaction provisions also
include certain fiduciary prohibited transactions
under ERISA Section 406(b). These include
transactions involving fiduciary self-dealing,
fiduciary conflicts of interest, and kickbacks to
fiduciaries.
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protective of the rights of participants
and beneficiaries of the plan.
4. The QPAM Exemption exempts
certain prohibited transactions between
a party in interest and an ‘‘investment
fund’’ (as defined in Section VI(b) of
PTE 84–14) in which a plan has an
interest if the investment manager
satisfies the definition of ‘‘qualified
professional asset manager’’ (QPAM)
and satisfies additional conditions of
the exemption. The Department
developed and granted the QPAM
Exemption based on the essential
premise that broad relief could be
afforded for all types of transactions in
which a plan engages only if the
commitments and investments of plan
assets, and the negotiations leading
thereto, are the sole responsibility of an
independent, discretionary manager.8
5. Section I(g) of PTE 84–14 prevents
an entity that may otherwise meet the
definition of QPAM from utilizing the
exemptive relief provided by the QPAM
exemption, for itself and its client plans,
if that entity, an ‘‘affiliate’’ thereof,9 or
any direct or indirect five percent or
more owner in the QPAM has been
either convicted or released from
imprisonment, whichever is later, as a
result of criminal activity described in
section I(g) within the 10 years
immediately preceding the transaction.
Section I(g) was included in PTE 84–14,
in part, based on the Department’s
expectation that a QPAM, and those
who may be in a position to influence
a QPAM’s policies, must maintain a
high standard of integrity.
Criminal Charge Against AGI US
6. On May 17, 2022, the Department
of Justice filed a criminal information in
the District Court for the Southern
District of New York charging AGI US
with one count of securities fraud (the
Information).10 AGI US resolved the
charges through a plea agreement (the
Plea Agreement) under which it agreed
to enter a guilty plea to the charge set
See 75 FR 38837, 38839 (July 6, 2010).
VI(d) of PTE 84–14 defines the term
‘‘affiliate’’ for purposes of Section I(g) as ‘‘(1) Any
person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under
common control with the person, (2) Any director
of, relative of, or partner in, any such person, (3)
Any corporation, partnership, trust or
unincorporated enterprise of which such person is
an officer, director, or a 5 percent or more partner
or owner, and (4) Any employee or officer of the
person who—(A) Is a highly compensated employee
(as defined in Section 4975(e)(2)(H) of the Code) or
officer (earning 10 percent or more of the yearly
wages of such person), or (B) Has direct or indirect
authority, responsibility or control regarding the
custody, management or disposition of plan assets.’’
10 In violation of Title 15, United States Code,
Sections 78j(b) and 78ff, Title 17, Code of Federal
Regulations, Section 240.10b–5, and Title 18,
United States Code, Section 2.
8
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9 Section
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out in the Information. The judgment of
the Conviction against AGI US is
scheduled to be entered in District Court
on May 17, 2023, in Case Number 1:22–
cr–00279–CM.11
The Misconduct Underlying the AGI US
Conviction
7. According to the Statement of Facts
that served as the basis for the Plea
Agreement (the Statement of Facts),
beginning in at least 2014 and
continuing through March 2020, AGI US
engaged in a scheme to defraud
investors in a series of private
investment funds (the Structured Alpha
Funds) that at their height had over $11
billion in assets under management (the
Misconduct). The investors that were
victims of the Misconduct included
ERISA-covered Plans. The fraudulent
scheme was carried out by the three
managers in AGI US’s Structured
Products Group who were primarily
responsible for managing the Structured
Alpha Funds (collectively, the Fund
Managers).12
8. According to the Statement of
Facts, AGI US made false and
misleading statements to investors that
substantially understated the risks being
taken by the Structured Alpha Funds
and failed to disclose, and sought to
affirmatively withhold, relevant risk
information. AGI US repeatedly
represented to investors that their
investments were low-risk and designed
to minimize the risk of large losses.
Despite these assurances, AGI US
deployed an investment strategy that
prioritized returns over effective risk
management by, among other things,
taking aggressive options bets and
devoting insufficient resources to hedge
positions. When investors sought to
obtain documentation to assess
investment risk, AGI responded with
manually altered data.
9. Beginning as early as 2015, AGI US
represented to investors that the
Structured Alpha Funds were
purchasing hedges 10 to 25% out-of-themoney when, in fact, the hedges
purchased were as much as 70% out-ofthe-money. These further out-of-themoney hedges were cheaper and less
protective in the event of a market
downturn.
10. According to the Statement of
Facts, AGI US altered over 75 risk
reports and Greeks 13 that it sent to
investors by manually changing ‘‘stress
test’’ results to make it appear that, in
11 The date the Conviction will be entered may
change, subject to judicial approval.
12 The three managers were Gregoire Tournant,
Trevor Taylor, and Stephen Bond-Nelson.
13 Greeks are a group of standard metrics for
evaluating a portfolio’s market exposure.
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18335
market downturns, the Structured
Alpha Funds would lose less money.
AGI US also altered: (a) daily
performance data that it sent to
investors by smoothing the Structured
Alpha Funds’ day-to-day response to
market downturns; (b) attribution data
to make it appear that more significant
hedging was in place; and (c) open
position data to bring hedge strike
distances closer to the money.
11. While the Misconduct was
perpetrated by the three Fund Managers
within AGI US’s Structured Products
Group, these individuals were able to
carry out the fraud, in part, because AGI
US lacked sufficient internal controls
and oversight for the Structured Alpha
Funds. AGI US failed to impose
sufficient internal controls even though
the Structured Products Group
contributed approximately one-quarter
of AGI US’s revenue from at least 2016
through 2019.
12. In communications with Investors,
AGI US described its internal controls
based on the following ‘‘three lines of
defense:’’ (a) the business, including
portfolio management and sales; (b)
Enterprise Risk Management (ERM),
Compliance, and Legal departments;
and (c) an Internal Audit function. AGI
US’s control functions however were
not designed and did not function to
ensure that risk for the Structured Alpha
Funds was being monitored in line with
the disclosures AGI US made to
investors. Specifically, no one in AGI
US’s control function sought to verify
that Tournant and the other Fund
Managers were adhering to the hedging
strategies communicated to investors.
This lack of oversight occurred despite
the fact that the materials containing
these representations to investors were
reviewed and approved by AGI US’s
Legal and Compliance departments.
13. Further, AGU US’s Compliance,
ERM, and Legal departments were
unaware that many of the reports
described above were being sent to
investors at all, with or without
alterations. The Fund Managers thus
were able to employ more aggressive
investment strategies than they had told
investors they would employ, thereby
exposing investors to undisclosed risk.
Additionally, neither ERM nor any other
independent function within AGI US
was tasked with monitoring whether
AGI US was adhering to the
representations it had made to investors
regarding the funds’ management.
14. As to audits, the third line of
defense, AGI US’s Internal Audit
department conducted an audit of the
Structured Products Group in 2017 that
identified certain red flags that, if
pursued, may have led to the discovery
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of at least certain aspects of the
fraudulent scheme. AGI US however did
not perform any meaningful follow-up.
And although the 2017 audit report
‘‘highlighted the need to thoroughly
review marketing materials to ensure
that the disclosure language accurately
reflects the ongoing investment
processes,’’ the audit did not trigger a
review by anyone outside the Structured
Products Group. Instead, Internal Audit
assigned that review to product
specialists within the Structured
Products Group whose compensation
was directly tied to the quarterly
performance of the Structured Alpha
Funds. Had an independent review
occurred, AGI US’s control function
could potentially have uncovered at
least the misrepresentations regarding
the hedging positions.
15. AGI US’s failure to address data
quality issues in back-office functions
allowed the Fund Managers’ fraudulent
scheme to continue undetected. In this
regard, multiple AGI US employees
within the Structured Products Group
who were not directly involved in the
fraudulent scheme were nonetheless
aware that Tournant and Bond-Nelson
were altering numbers on certain reports
before sending them to investors. To
cover up their wrongdoing, Tournant
and Bond-Nelson explained to their
Structured Products colleagues that they
were simply correcting ‘‘errors’’ in
reporting generated by back-office
functions. Because there were, in fact,
ongoing issues with the back office’s
data reporting, multiple members of the
Structured Products Group who might
otherwise have reported the fraudulent
scheme instead accepted this
explanation and carried on with their
work without reporting the Misconduct.
Misconduct Was Isolated Within the
Structured Products Group
16. In its Statement of Facts, the DOJ
states that ‘‘[t]he misconduct occurred
only within the small Structured
Products Group at AGI US. The
Government’s investigation has not
revealed evidence that anyone at AGI
US outside of the Structured Products
Group was aware of the misconduct
before March 2020. The investigation
also has not revealed that anyone at any
other organizations that fell within the
broader umbrella of the parent company
Allianz SE was aware of or participated
in the misconduct.’’
PIMCO and the PIMCO Affiliated
QPAMs
17. PIMCO is a global investment
management firm with $2.2 trillion in
total assets under management as of
December 31, 2021. PIMCO manages
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approximately $156 billion in assets for
ERISA plans, approximately $1.89
billion in pooled funds, and
approximately $9.58 billion in
collective investment trusts maintained
for ERISA and public pension plan
investors. PIMCO manages the assets of
ERISA-covered plans on a discretionary
basis and advises or subadvises pooled
funds.
18. PIMCO owns affiliated asset
managers that routinely rely upon the
QPAM Exemption to provide relief for
party-in-interest investment transactions
(the PIMCO Affiliated QPAMs). In
addition, PIMCO currently owns,
directly or indirectly, a 5% or greater
interest in certain investment managers
that are not affiliated with PIMCO in the
actual control sense (the PIMCO Related
QPAMs). The clients of the PIMCO
Affiliated and Related QPAMs include
plans subject to Part IV of Title I of
ERISA and plans subject to Code
Section 4975, with respect to which the
PIMCO QPAMs rely on the QPAM
Exemption or have expressly
represented that PIMCO managers
qualify as a QPAM or rely on the QPAM
Exemption. These plans are hereinafter
referred to as Covered Plans.
19. PIMCO represents that most of its
ERISA plan clients pursue fixed income
investment strategies that are composed
of long-term investment grade credit
fixed income securities. PIMCO states
that it uses derivatives as a means of
managing investment risk, capitalizing
on market inefficiencies, and executing
alpha-seeking strategies. Where PIMCO
has the authority to transact in
derivatives, its plan clients expect
PIMCO to deploy such instruments. In
this regard, PIMCO states that the
overwhelming majority of plan clients—
82.3%—have directed PIMCO to use
derivatives to manage their assets.
According to PIMCO, derivatives are an
essential component of PIMCO’s
investment toolkit, as they play a
number of important roles in managing
plan portfolios, including (i) serving as
a liquid means to manage credit risk
through the use of cleared credit default
index swaps (CDX) or credit default
swaps (CDS), (ii) managing duration
with potentially lower transaction costs
than alternative approaches, (iii)
managing currency exposure when
purchasing foreign denominated
securities, and (iv) sometimes serving as
a more attractive substitute for the
underlying security.
20. PIMCO represents that while cash
bonds can be traded using several
different exemptions, including PTE 75–
1, Part II and ERISA Section 408(b)(17),
CDS and CDX can only be traded using
the QPAM Exemption or the INHAM
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Class Exemption.14 Additionally, all
futures contracts traded under PIMCO’s
clearing contracts require a QPAM
representation.
PIMCO’s Affiliation With AGI US
21. PIMCO is a direct subsidiary of
the following three entities that are
indirectly wholly owned by Allianz SE
(Allianz): (1) Allianz Asset Management
of America L.P. (AAM) (77.9 percent
ownership of PIMCO); (2) Allianz Asset
Management of America LLC (11.4
percent ownership of PIMCO), and (3)
Allianz Asset Management Holding II
LLC (2.4 percent of PIMCO). PIMCO’s
parent and managing member is AAM,
which is generally responsible for
oversight of PIMCO on behalf of Allianz.
Allianz is PIMCO’s ultimate parent
company. Allianz also indirectly owns
100 percent of AGI US, the entity that
engaged in the fraudulent scheme. Thus,
PIMCO and AGI US are affiliates for the
purposes of Section I(g) of the QPAM
Exemption.
PIMCO’s QPAM Exemption Ineligibility
and Exemption Request
22. As affiliates of AGI US, the PIMCO
Affiliated QPAMs will no longer be able
to rely on the relief provided by the
QPAM Exemption once AGI US is
sentenced in connection with its
Conviction.
23. On May 17, 2022, PIMCO filed an
application with the Department
requesting an exemption that would
permit the PIMCO Affiliated QPAMs
and PIMCO Related QPAMs to continue
to rely on the QPAM Exemption,
notwithstanding the AGI US Conviction.
As noted above, Section I(g) of the
QPAM Exemption prevents an entity
that otherwise meets the definition of a
QPAM from utilizing the exemptive
relief provided by PTE 84–14 if that
entity or an affiliate thereof or any direct
or indirect owner of a 5 percent or more
interest in the QPAM has been either
convicted or released from
imprisonment, whichever is later, as a
result of criminal activity described in
that section within 10 years
immediately preceding the transaction.
In support of its exemption request,
PIMCO emphasizes that it operates
completely independently from AGI US
and that a denial of the exemption
would result in certain hardships to
Covered Plans.
14 PTE 96–23 is a class exemption that permits
various transactions involving employee benefit
plans whose assets are managed by in-house asset
managers (INHAMs). See 61 FR 15975 (April 10,
1996).
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Separation of PIMCO From AGI US
The Applicant made the following
representations regarding how PIMCO
acts independently from AGI US. These
representations are set forth below in
paragraphs 24 through 38.
24. PIMCO and the PIMCO Affiliated
QPAMs operate autonomously and
independently from both Allianz and
AGI US, and PIMCO has no directors,
officers, or employees in common with
Allianz, AAM, or any other Allianz
subsidiary. Allianz employees do not
have access to PIMCO’s systems and are
not involved in any way in the PIMCO
Affiliated QPAMs’ investment
processes. Since Allianz acquired
PIMCO in 2000, PIMCO’s investment
management processes have remained
separate from those of Allianz to avoid
restrictions that would result if PIMCO
and Allianz were operated as a single
coordinated entity. PIMCO and Allianz
in fact entered into agreements at the
time of the acquisition that provided
PIMCO with substantial autonomy and
independence in its management.
25. The PIMCO Affiliated QPAMs
operate as separate businesses from AGI
US. The PIMCO Affiliated QPAM’s
management of plan assets is conducted
separately from (a) the investment
management activities of AGI US; (b)
the non-investment management
business activities of Allianz, and (c) the
conduct underlying the AGI US
Conviction. Further, Allianz employees
are not involved in the portfolio
management of PIMCO accounts, nor do
they supervise or oversee the PIMCO
Affiliated QPAMs’ portfolio
management activities. Investment
decisions for PIMCO accounts,
including decisions regarding
investment strategy, are made by PIMCO
Affiliated QPAM personnel pursuant to
PIMCO policies, procedures, and
guidelines, without consultation with
Allianz or AGI US.
26. Allianz has delegated to the
PIMCO Management Board the
authority to manage all of PIMCO’s
business affairs, except for certain
extraordinary matters where Allianz
retains approval rights. The PIMCO
Management Board, which is comprised
solely of PIMCO’s Managing Directors,
relies upon the PIMCO Executive
Committee as the primary governance
body for review and approval of
significant matters. There are no
representatives of Allianz (or other nonPIMCO personnel) on the Management
Board. As described below, the
Management Board has delegated
substantially all of its operating
authority to the PIMCO Executive
Committee and, with respect to
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compensation matters, the PIMCO
Performance and Compensation
Committee (PCC). Certain key decisions
however are retained by the
Management Board, including the
power to: (a) elect existing employees to
Managing Director, (b) nominate and
elect PIMCO’s CEO and Group Chief
Investment Officer, and (c) determine
the composition of the Executive
Committee and the PCC.
27. The PIMCO Executive Committee
has authority for most significant
matters and is currently composed of
nine voting members and two nonvoting members, all of whom are PIMCO
Managing Directors. The Charter of the
Executive Committee provides
additional background regarding
‘‘matters of significance to the business
or operations’’ of PIMCO that are
required to be ‘‘escalated to the
[Executive] Committee for consideration
and (as applicable) approval.’’ 15
The Executive Committee has
established certain principal committees
to oversee key areas of PIMCO. These
committees are complemented by
formal departmental and organizational
lines of reporting and are typically
comprised of senior officers from a
cross-section of internal disciplines.
Further, the committees are designed to
serve as an additional control over
specific functional areas and are
generally separate and apart from the
first-line controls that are in place in the
form of clearly delineated departmental
responsibilities. They include, for
example, PIMCO’s Global Risk
Committee.
28. PIMCO’s Senior Executive Officers
are elected by the PIMCO Management
Board and may be removed by the
PIMCO Executive Committee and PCC.
The PIMCO CEO and the Group CIO are
the senior-most officers of PIMCO and
are responsible for day-to-day
leadership of PIMCO operations. They
are each elected by the Management
Board (2⁄3 majority) and remain in office
15 Matters include, among others, the annual
budget and business plan for PIMCO and its
subsidiaries; material deviations from the approved
budget or business plan; corporate transactions
involving PIMCO, including acquisitions of or
mergers with another business or company;
disposition of all or any significant portion of assets
of a PIMCO company and/or the exiting from a
material business area; significant reductions in
staff or layoffs; material out of the ordinary course
transactions or contracts; establishment or closure
of a PIMCO office, branch or subsidiary; initiation
of a new business area and development of new
products; determination of PIMCO’s risk appetite,
and material deviations from the same; material
changes to human resources, risk or compliance
policies; and approach to and resolution of
significant audit issues. Except for those key
decisions where AAM’s consultation or consent is
required, none of the foregoing matters are escalated
for approval or consent to AAM.
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18337
until they retire, resign, or are
terminated. While AAM has the right to
approve any person proposed to fill
such roles, neither AAM nor Allianz has
disapproved of any person selected for
a Senior Executive Officer role by the
PIMCO Management Board. In addition,
neither AAM nor Allianz has the
authority to remove any such person,
having delegated that authority to the
PIMCO Management Board.
29. AAM has reserved for itself
certain consent rights, including the
authority to approve PIMCO’s annual
budget, approval of the hiring of certain
senior officers, including the CEO and
Group Chief Investment Officer,
approval of changes to compensation
plans and arrangements, fundamental
changes to PIMCO’s business, and
significant financial transactions.
However, in practice, AAM has not
exercised these consent rights to
disapprove of any of PIMCO’s changes,
transactions, or proposed senior officers.
While AAM has retained the authority
to require PIMCO to meet certain
minimum corporate standards relating
to audit, accounting and reporting, legal
and compliance, and risk management,
PIMCO confirms its compliance with
those standards through an annual
statement of accountability and
quarterly statements of accountability
limited to financial controls.
Importantly, none of the AAM standards
covers investment-related decisions.
Moreover, decisions on how to allocate
resources to meet AAM’s minimum
standards and whether to implement
controls that go beyond such minimum
standards are left to the discretion of
PIMCO’s management.
30. Allianz and the other Allianz
subsidiaries do not have a role in the
governance of PIMCO’s global
subsidiaries. PIMCO’s global offices are
primarily organized as direct or indirect
subsidiaries of PIMCO, and each has its
own defined governance structure.
Nonetheless, PIMCO’s global affiliates
are subject to PIMCO’s oversight as the
direct or indirect parent entity. Except
as otherwise required by applicable
local law, PIMCO conducts oversight of
its global affiliates through the
application of PIMCO’s global policies.
31. Allianz employees are not
involved in the portfolio management of
PIMCO accounts, nor do they supervise
or oversee PIMCO’s portfolio
management activities. Investment
decisions for PIMCO accounts,
including decisions regarding
investment strategy, are made by PIMCO
personnel pursuant to PIMCO policies,
procedures, and guidelines, without
consulting with Allianz or AGI US’s
employees, and all investment
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management functions report to
PIMCO’s Group CIO. PIMCO’s
Investment Committee, which is
composed of PIMCO’s CIOs and most
senior investment professionals,
translates the firm’s macroeconomic
views into specific investment risk
targets which serve as parameters for
every PIMCO investment portfolio.
32. Portfolio Risk Management at
PIMCO is managed independently of
risk management functions at Allianz as
well as other Allianz asset management
subsidiaries. PIMCO’s Portfolio Risk
Management team is fully integrated
into PIMCO’s investment process and
sits alongside the Portfolio Management
team on the trading floor. Portfolio Risk
Management is headed by a Managing
Director (the most senior executive level
at PIMCO) who reports directly to both
PIMCO’s Group CIO and CEO and is a
permanent member of the firm’s
Investment Committee. Further, the
Portfolio Risk Management team
maintains close contact with the firm’s
leadership through regular updates to
the Investment Committee, weekly
reviews with the CIO, and monthly
reviews with the CEO.
33. PIMCO does not share information
or coordinate investment management
decisions with Allianz or other Allianz
asset management subsidiaries,
including AGI US. Among other things,
PIMCO does not share investment
research, portfolio holdings, client
information, or trade information, and
all trading decisions are made
independently. Further, PIMCO does
not coordinate proxy voting and makes
all decisions, including decisions with
respect to the valuation of securities,
independently and pursuant to its own
valuation policies and procedures.
Further, PIMCO’s products, including
funds for which PIMCO Investments is
the principal underwriter, are
distributed independently; and PIMCO’s
technology and proprietary trading
systems are not shared.
34. PIMCO does contract with Allianz
insurance subsidiaries for the
management of insurance portfolios,
and therefore PIMCO shares information
and holdings with respect to those
activities as they would with their other
clients. Regarding Allianz as a parent,
information flows are limited to those
necessary for appropriate prudent
oversight, supervision of controls, and
groupwide financial reporting and
regulatory requirements.
35. Allianz, as PIMCO’s parent, sets
certain minimum group-level standards
for control functions, including
compliance and risk management.
However, PIMCO’s compliance and risk
management programs are developed
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and administered independently of
AAM or Allianz. In this regard, these
programs do not use Allianz personnel
or resources, and their leaders report
directly to other senior executives at
PIMCO, not to AAM or Allianz.
36. PIMCO’s Global Head of
Compliance and Chief Compliance
Officer (Global Head of Compliance and
CCO) leads the firm’s global compliance
program and oversees the Compliance
staff responsible for formulating and
administering the firm’s policies and
procedures and reviewing the adequacy
of their effectiveness and
implementation. The Global Head of
Compliance and CCO reports to
PIMCO’s General Counsel for Global
Regulatory and Litigation, who leads the
firm’s integrated regulatory strategies.
That person in turn reports to PIMCO’s
Global General Counsel, who heads
PIMCO’s Legal and Compliance
Department.
37. PIMCO utilizes internal auditors,
employed by AAM, as an outsourced
internal function. Global audits of
PIMCO are managed by an individual at
AAM who is different from the person
who manages global audits for AGI US.
PIMCO believes that this arrangement
provides a useful layer of independence
and objectivity to audits of PIMCO. The
Internal Audit team begins its audits
with a launch discussion with the
business area being audited, together
with Compliance and Enterprise Risk
Management, followed by a kickoff
meeting with the head of that business
area, together with Compliance. At the
end of its fieldwork, Internal Audit
shares its draft report with the business
area and Compliance to ensure factual
accuracy. Thus, at the beginning and
end of an audit, PIMCO Compliance—
in addition to the relevant business
area—is aware of the purpose, scope,
and results of any audit. Further, audit
findings are escalated to PIMCO’s Audit
Committee, which is chaired by
PIMCO’s Global General Counsel, if the
audited business area does not complete
the required corrective actions by the
original target date.
38. Finally, hiring, termination, and
compensation decisions for the PIMCO
Affiliated QPAMs’ personnel and
executives are determined entirely
pursuant to the PIMCO Affiliated
QPAMs’ processes, independent of any
influence by Allianz and Allianz asset
management subsidiaries. Allianz (but
no other Allianz affiliate) retains the
right to approve the hiring of PIMCO’s
CEO, Group CIO, CFO, General Counsel,
and head of Compliance.
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Hardship to Covered Plans
The Applicant represents that
Covered Plans would suffer the
following hardships if PIMCO loses its
eligibility to rely on the QPAM
Exemption. The Applicant’s
representations are set forth below in
paragraphs 39 through 46.
39. Without the ability to rely upon
the QPAM exemption, PIMCO will be
unable to effectively implement the
investment strategies that Covered Plans
engaged PIMCO to pursue. As a
consequence, PIMCO assumes that
Covered Plans will terminate their
relationship with PIMCO and seek out
alternative asset managers. The
transaction costs to Covered Plans of
changing managers are significant,
especially in many of the strategies
employed by the PIMCO Affiliated
QPAMs. These costs, which include the
cost of liquidating assets, identifying
and selecting new managers, and then
reinvesting those assets, would be borne
by the Covered Plans and their
participants. Further, the process for
transitioning to a new manager is
typically lengthy and likely would
involve numerous steps, each of which
could last several months. These steps
could include retaining a consultant,
engaging in a request for proposals,
negotiating contracts, and ultimately
transitioning assets.
40. PIMCO currently manages 451
ERISA plan institutional separate
accounts, representing $170.35 billion
in assets under management. 82.3% of
these 451 plan accounts, representing
$155.15 billion in assets, invest in cash
bonds and derivatives, whereas 17.7%
of the accounts, representing $15.2
billion in assets, invest only in cash
bonds. Because of the critical role
played by derivatives, PIMCO believes
that a Covered Plan that selects PIMCO
to actively manage its fixed income
portfolio pursuant to a broad set of
guidelines, including derivatives, would
be unlikely to retain PIMCO to run a
cash bond strategy in the absence of the
QPAM Exemption. Based on its
understanding of the experience of other
asset managers who did not receive a
QPAM exemption, and who lost at least
some plan business, PIMCO believes
that it is likely that many of its plan
clients whose guidelines permit
derivatives would terminate their
relationship if PIMCO could no longer
trade in derivatives for those plans
because PIMCO would be limited in its
ability to manage a portfolio consistent
with such clients’ objectives. The
Department notes that PIMCO is unable
to give a precise estimate of the size or
significance of the plan assets affected
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and invites public comment on the
likely impacts.
41. Below is an assessment by PIMCO
of the potential harm to Covered Plans
if this exemption is not granted, both in
the aggregate and with respect to a
representative Covered Plan account,
under orderly, stressed, and expedited
scenarios in which all the Plans decide
to terminate their relationships with
PIMCO: (1) under an ‘‘orderly’’ scenario,
PIMCO would have one year to
liquidate client portfolios; (2) the
‘‘stressed’’ scenario is based on input
from PIMCO’s trading desks and
designed to be an estimate of stressed
market conditions based on the previous
six months of trading; (3) the
‘‘expedited’’ scenario applies a 4x factor
to the stressed scenario and
contemplates clients directing PIMCO to
liquidate under a very short time frame
(i.e., 30 days); 16 PIMCO views each of
these scenarios as plausible. While these
charts assume for estimation purposes
that all PIMCO’s Plan customers would
terminate their existing relationships
with PIMCO, the applicant does not
assert that it is likely that all PIMCO’s
plan customers, in fact, would terminate
their existing relationships.
Accordingly, the public and PIMCO are
invited to comment on the
reasonableness of the assumptions and
the estimates below, and on the likely
magnitude of termination decisions.
42. In the absence of an exemption,
PIMCO represents that Covered Plans
that choose to remain with PIMCO
would have a circumscribed set of
transactions available to them and could
be prohibited from engaging in certain
transactions that would be beneficial,
such as hedging transactions using overthe-counter options or derivatives.
Counterparties to such transactions are
far more comfortable with the QPAM
Exemption than any other existing
exemption, and the unavailability of the
QPAM Exemption could trigger a
default or early termination. Even if
other exemptions were acceptable to
such counterparties, the cost of the
transaction might well increase to
reflect any lack of comfort.
43. The PIMCO Affiliated QPAMs also
have entered, and could in the future
enter, into contracts for other
transactions such as swaps, forwards,
real estate financing and leasing on
behalf of their ERISA clients. The
Applicant represents that: (a) these and
other strategies and investments require
the PIMCO Affiliated QPAMs to meet
the conditions of the QPAM Exemption;
(b) the loss of the QPAM Exemption
could disrupt the plans using each of
these strategies, as counterparties to
those transactions could seek to
terminate their contracts, resulting in
significant losses to their Covered Plan
clients; and (c) certain derivatives
transactions and other contractual
agreements automatically and
immediately could be terminated,
without notice or action, or could
become subject to termination upon
notice from a counterparty in the event
the Applicant no longer qualifies for
relief under the QPAM Exemption.
44. The question of which applicable
exemption can be used is entirely in the
discretion of the counterparty; if the
counterparty is uncomfortable with the
risks presented by other exemptions, it
will simply terminate the ongoing
transaction based on the plan’s default
(considered to occur if its investment
manager is no longer able to use the
QPAM Exemption). While PIMCO could
argue that other exemptions apply,
whether to accept that exemption is the
decision of the counterparty, and the
strongest counterparties generally will
take the smallest legal risk on exemptive
relief. Because the Department has
never issued any guidance on the
applicability of other exemptions to
cleared and over-the-counter swaps,
PIMCO’s Covered Plan clients could be
at a disadvantage with respect to those
transactions.
Instrument
Total AUM
Loss
(orderly)
BPS loss
(stressed)
Cash Bonds ...............................................................................................................
(451 Plans) ................................................................................................................
Cleared Swaps ..........................................................................................................
(318 Plans) ................................................................................................................
Other Derivatives (365 Plans) ...................................................................................
$170.35B .....
16.21 bps ....
$276.14 mm
0.41 bps ......
$5.50 mm ....
0.38 bps ......
$5.71 mm. ...
41.70 bps ....
$710.36 mm
0.90 bps ......
$12.04 mm ..
1.07 bps. .....
$16.20 mm ..
16 Covered Plan clients could direct PIMCO to
promptly liquidate their portfolio(s) for a variety of
reasons, including to avoid selling into a distressed
market, separating from PIMCO in anticipation of
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$133.31B .....
$151.74B .....
mass departure of talent, or termination due to
breach of QPAM representation. In this
circumstance, brokers also may have some
awareness of PIMCO’s liquidation requirements and
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18339
45. PIMCO represents that the cost of
terminating an investment is the
difference between the bid and ask on
the instrument since, generally, these
investments are terminated earlier than
contemplated and on the counterparty’s
side of the market. Some investments,
however, are more liquid than others
(e.g., Treasury bonds generally are more
liquid than foreign sovereign bonds, and
equities generally are more liquid than
swaps). Some of the strategies followed
by the PIMCO Affiliated QPAMs tend to
be less liquid than certain other
strategies and, thus, the cost of a
transition would be significantly higher
than, for example, liquidating a large
cap equity portfolio. The Applicant
believes that, depending on the strategy,
the cost of liquidating assets in
connection with transitioning clients to
another manager could be significant.
The Applicant estimates that Covered
Plan clients following a core bond
strategy would be materially impacted if
the PIMCO Affiliated QPAMs were
required to liquidate assets on an
expedited basis. In this scenario, the
Applicant estimates that a core bond
strategy could incur liquidation costs of
approximately 15 to 45 basis points,
assuming normal market conditions,
and approximately 90 to 215 basis
points in stressed market conditions.
46. The Applicant represents that
substantial transaction costs would be
incurred if plan investors decided to
withdraw from funds that are not
deemed to hold plan assets. Regarding
private funds that do not hold ERISA
plan assets, but which may decide to
redeem if the PIMCO Affiliated QPAMs
are no longer able to rely on the QPAM
Exemption, those redemptions would be
harmful for the redeeming plans and
could adversely affect others in the
private fund as well.
Overall
BPS loss
(expedited)
166.80 bps.
$2.84B.
3.61 bps.
$48.06 mm.
4.27 bps.
$64.8 mm.
engage in predatory trading, knowing PIMCO is
required to sell, which could result in wider bidask spreads.
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Representative Plan Account With
AUM of $3.33B:
Instrument
Loss
(orderly)
BPS loss
(stressed)
BPS loss
(expedited)
Cash Bonds ........................................................................................................................................
22.5 bps ......
$7.514 mm ..
0.6 bps ........
$204,793 .....
0.2 bps ........
$63,513 .......
58.2 bps ......
$19.435 mm
1.4 bps ........
$456,722 .....
1.07 bps ......
$157,570 .....
232.84 bps.
$77.743 mm.
5.47 bps.
$1.826 mm.
1.89 bps.
$630,279.
Cleared Swaps ....................................................................................................................................
Other Derivatives ................................................................................................................................
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Partial Liquidation: PIMCO states that
it is also possible that certain Covered
Plan accounts would merely direct
PIMCO to cease using derivatives, in
which case PIMCO represents that their
portfolios would need to be
repositioned to align the portfolio with
the plan’s objectives. While PIMCO
acknowledges that it does not have the
ability to make a more precise estimate
of the probability that their clients
would seek to use other managers, it
represents that the inability to rely on
the QPAM exemption in connection
with certain derivatives would, among
other things, inhibit PIMCO’s ability to
manage a portfolio consistent with a
Plan client’s objectives and therefore it
is possible and, in many cases, likely
that such clients would seek to use
other managers. There would be certain
transaction costs associated with
liquidating the derivative positions and
separately reinvesting the cash into
bonds to reposition the portfolio. Using
the representative portfolio above, the
chart below reflects PIMCO’s best
estimates for liquidating the derivative
positions and reinvesting the portfolio
in cash bonds. For purposes of this
estimate, PIMCO assumed that the
repositioning must occur on an
expedited timeline. Additionally,
although not reflected below there
would likely be heightened transaction
costs in order to maintain and adjust the
positioning of the portfolio over time
due to PIMCO’s inability to use
derivatives.
Instrument
Bps loss
(expedited)
$ loss
(expedited)
Cash bond reinvestment.
Cleared
Swaps.
Other Derivatives.
50 bps .........
$16.7 mm.
5.47 bps ......
$1.826 mm.
1.89 bps ......
$630,279.
Proposed Exemption’s Protective
Conditions
47. The Department may grant
administrative exemptions under ERISA
Section 408(a) only if it finds that such
exemptions are administratively
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feasible, and protective of, and in the
interest of, affected Covered Plans. This
proposed exemption contains several
protective conditions that would allow
Covered Plans to continue to utilize the
services of the PIMCO Affiliated and
Related QPAMs.
48. If this proposed exemption is
granted as proposed, it would allow
Covered Plans to avoid costs and
disruption to investment strategies the
Applicant represents could arise if such
Covered Plans are forced, on short
notice, to hire a different QPAM or asset
manager because the PIMCO Affiliated
and Related QPAMs are no longer able
to rely on the relief provided by PTE
84–14. Covered Plan fiduciaries
however are cautioned that the
Department’s decision to propose this
exemption should not be taken, in any
way, as an indication that PIMCO asset
managers will be granted exemptive
relief in connection with this proposal
or receive additional exemptive relief in
the future.
49. The Department notes that
PIMCO’s high level of independence
from AGI US is critically important to
this exemption, and the relief hereunder
is premised on the Applicant’s
representations that PIMCO was
completely isolated from, and unaware
of, the Misconduct perpetrated within
AGI US and the Structured Products
Group. It is a material condition of this
exemption that the PIMCO Affiliated
and Related QPAMs (including their
officers, directors, agents, and
employees of such QPAMs), other than
Gregoire Tournant, Trevor Taylor, and
Stephen Bond-Nelson, did not know or
have reason to know of, and did not
participate in the Misconduct that is the
subject of the AGI US Conviction.
Further, no other party engaged on
behalf of the PIMCO Affiliated QPAMs
or the PIMCO Related QPAMs who was
responsible for or exercised authority in
connection with the management of
plan assets knew or had reason to know
of the Misconduct that is the subject of
the AGI US Conviction nor participated
in such Misconduct.
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50. The protective conditions in this
proposed exemption include a
requirement that the PIMCO Affiliated
QPAMs do not currently and may not in
the future employ or knowingly engage
any of the individuals who participated
in the Misconduct that is the subject of
the AGI US Conviction.
51. This proposed exemption
prohibits a PIMCO Affiliated QPAM
from using its authority or influence to
direct an ‘‘investment fund’’ (as defined
in Section VI(b) of PTE 84–14) that is
subject to ERISA or the Code to enter
into any transaction with AGI US, or to
engage AGI US to provide any service to
such investment fund, regardless of
whether such transaction or service may
otherwise be within the scope of relief
provided by an administrative or
statutory exemption. Further, other than
with respect to employee benefit plans
maintained or sponsored for its own
employees or the employees of an
affiliate, AGI US may not act as a
fiduciary within the meaning of ERISA
Section 3(21)(A)(i) or (iii), or Code
Section 4975(e)(3)(A) and (C), with
respect to Covered Plan assets.
52. This proposed exemption requires
each PIMCO Affiliated QPAM to
develop, maintain, and adjust, to the
extent necessary, implement, and follow
written policies and procedures (the
Policies) that are reasonably designed to
ensure that: (a) the asset management
decisions of the PIMCO Affiliated
QPAMs are conducted independently of
AGI US’s corporate management and
business activities; (b) the PIMCO
Affiliated QPAMs fully comply with
ERISA’s fiduciary duties and with
ERISA’s and the Code’s prohibited
transaction provisions; (c) the PIMCO
Affiliated QPAMs do not knowingly
participate in any other person’s
violation of ERISA or the Code with
respect to Covered Plans; (d) any filings
or statements made by the PIMCO
Affiliated QPAMs to regulators on
behalf of, or in relation to, Covered
Plans are materially accurate and
complete; (e) the PIMCO Affiliated
QPAMs do not make material
misrepresentations or omit material
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information in their communications
with such regulators, or in their
communications with Covered Plans;
and (f) that the PIMCO Affiliated
QPAMs comply with the terms of this
proposed exemption, if granted.
53. This proposed exemption requires
each PIMCO Affiliated QPAM to
develop, implement and maintain a
training program (the Training) that is
conducted at least annually for all
relevant asset/portfolio management,
trading, legal, compliance, and internal
audit personnel. This required Training
must, at a minimum, cover the Policies,
ERISA and Code compliance, ethical
conduct, the consequences for not
complying with the conditions
described in this proposed exemption,
and the requirement for prompt
reporting of wrongdoing.
54. This proposed exemption requires
that each PIMCO Affiliated QPAM
submit to biennial audits conducted by
an independent auditor to evaluate the
adequacy of and the PIMCO Affiliated
QPAM’s compliance with the Policies
and Training required by the exemption.
The independent auditor must be
prudently selected and have appropriate
technical training and proficiency with
ERISA and the Code to perform the
tasks required by the exemption.
Further, the PIMCO Affiliated QPAMs
must grant the auditor unconditional
access to their business, and the
auditor’s engagement must specifically
require the auditor to test each PIMCO
Affiliated QPAM’s operational
compliance with the Policies and
Training.
55. The independent auditor must
issue a written audit report (the Audit
Report) to PIMCO and the PIMCO
Affiliated QPAM to which the audit
applies describing the procedures
performed by the auditor in connection
with its examination. Further, the
PIMCO Affiliated QPAMs must
promptly address any identified
instance of noncompliance and must
promptly address, or prepare a written
plan of action to address, any
determination as to the adequacy of the
Policies and Training and the auditor’s
recommendations, if any, with respect
to strengthening the Policies and
Training of the respective PIMCO
Affiliated QPAM.
56. This proposed exemption further
requires the general counsel or one of
the three most senior executive officers
of the PIMCO Affiliated QPAM to which
the Audit Report applies to certify in
writing and under penalty of perjury
that the officer has reviewed the Audit
Report and the exemption, if granted,
and that the PIMCO Affiliated QPAM
has addressed, corrected, and remedied
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(or has an appropriate written plan to
address) any identified instance of
noncompliance or inadequacy regarding
the Policies and Training identified in
the Audit Report.
57. With respect to any arrangement,
agreement, or contract between a
PIMCO Affiliated QPAM and a Covered
Plan, this proposed exemption requires
the PIMCO Affiliated QPAMs to agree
and warrant to: (a) comply with ERISA
and the Code, including the standards of
prudence and loyalty set forth in ERISA
Section 404; (b) refrain from engaging in
prohibited transactions that are not
otherwise exempt; (c) indemnify and
hold harmless the Covered Plan for any
actual losses resulting directly from,
among other things, the PIMCO
Affiliated QPAM’s violation of ERISA’s
fiduciary duties; (d) with narrow
exceptions, not restrict the ability of the
Covered Plan to terminate or withdraw
from its arrangement with the PIMCO
Affiliated QPAM with respect to any
investment in a separately managed
account or pooled fund subject to ERISA
and managed by such QPAM; (e) with
narrow exceptions, not impose any fees,
penalties, or charges for such
termination or withdrawal; and (f) not
include exculpatory provisions
disclaiming or otherwise limiting the
liability of the PIMCO Affiliated QPAM
for a violation of such agreement’s
terms.
58. Each PIMCO Affiliated QPAM
must further provide a notice of its
obligations under this proposed
exemption to each Covered Plan and
each PIMCO Affiliated QPAM also must
provide a Federal Register copy of the
notice of the exemption, a separate
summary describing the facts that led to
the AGI US Conviction (the Summary),
and a prominently displayed statement
(the Statement) that the AGI US
Conviction results in a failure to meet a
condition in PTE 84–14 to each sponsor
and beneficial owner of a Covered Plan.
59. Finally, this proposed exemption
requires PIMCO to designate a senior
compliance officer (the Compliance
Officer) who will be responsible for the
PIMCO Affiliated QPAMs’ compliance
with the Policies and Training
requirements described in this
exemption. The Compliance Officer
must conduct five separate reviews
covering each of the five consecutive
twelve-month periods that comprise the
Exemption Period (the Exemption
Review). With respect to each
Exemption Review, the Compliance
Officer must determine the adequacy
and effectiveness of the implementation
of the Policies and Training and must
issue a written report (the Exemption
Report) summarizing their findings.
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Statutory Findings
60. Based on the conditions that are
included in this proposed exemption,
the Department has tentatively
determined that the relief sought by the
Applicant would satisfy the statutory
requirements for an exemption under
ERISA Section 408(a).
61. The Proposed Exemption is
‘‘Administratively Feasible.’’ The
Department has tentatively determined
that the proposed exemption is
administratively feasible since, among
other things, a qualified independent
auditor will be required to perform an
in-depth audit covering each PIMCO
Affiliated QPAM’s compliance with the
terms of the exemption, and a
corresponding written audit report will
be provided to the Department and be
made available to the public. The
Department notes that the independent
audit will provide an incentive for
compliance while reducing the
immediate need for review and
oversight by the Department.
62. The Proposed Exemption is ‘‘In
the Interest of the Plan.’’ The
Department has tentatively determined
that the proposed exemption is in the
interests of the participants and
beneficiaries of affected Covered Plans.
It is the Department’s understanding,
based on representations from the
Applicant, that if the requested
exemption is denied, Covered Plans
may be forced to find other managers at
a potentially significant cost. According
to the Applicant, ineligibility under
Section I(g) of the QPAM Exemption
would deprive the Covered Plans of the
investment management services that
these plans expected to receive when
they appointed the PIMCO Affiliated
QPAMs and could result in the
termination of relationships that the
fiduciaries of the Covered Plans have
determined to be in the best interests of
those plans.
63. The Proposed Exemption is
‘‘Protective of the Plan.’’ The
Department has tentatively determined
that the proposed exemption is
protective of the interests of the
participants and beneficiaries of affected
Covered Plans. As described above, the
proposed exemption is subject to a suite
of conditions that include, but are not
limited to: (a) the development and
maintenance of the Policies; (b) the
development and implementation of the
Training; (c) a robust audit conducted
by a qualified independent auditor; (d)
the provision of certain agreements and
warranties to Covered Plans by the
PIMCO Affiliated QPAMs; (e) specific
notices and disclosures to Covered
Plans concerning the circumstances
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necessitating the need for exemptive
relief and the PIMCO Affiliated QPAMs’
obligations under this exemption; and
(f) the designation of a Compliance
Officer who must ensure that the
PIMCO Affiliated QPAMs continue to
comply with the Policies and Training
requirements of this exemption.
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Summary
64. This exemption, if granted, will
provide relief from certain of the
restrictions set forth in ERISA Section
406 and Code Section 4975(c)(1). No
relief or waiver of a violation of any
other law is provided by the exemption.
The relief in this proposed exemption
would terminate immediately if, among
other things, an affiliate of PIMCO’s (as
defined in Section VI(d) of PTE 84–14)
is convicted of a crime described in
Section I(g) of PTE 84–14 (other than the
AGI US Conviction) during the
Exemption Period. While PIMCO could
request a new exemption in that event,
the Department would not be obligated
to grant the request. Consistent with this
proposed exemption, the Department’s
consideration of additional exemptive
relief is subject to the findings required
under ERISA Section 408(a) and Code
Section 4975(c)(2).67.
65. When interpreting and
implementing this exemption, the
Applicant and the PIMCO Affiliated
QPAMs should resolve any ambiguities
by considering the exemption’s
protective purposes. To the extent
additional clarification is necessary,
these persons or entities should contact
EBSA’s Office of Exemption
Determinations, at 202–693–8540.
66. Based on the conditions that are
included in this proposed exemption,
the Department has tentatively
determined that the relief sought by the
Applicant would satisfy the statutory
requirements for an individual
exemption under ERISA Section 408(a)
and Code Section 4975(c)(2).
Notice to Interested Persons
Notice of the proposed exemption
will be provided to all interested
persons within fifteen (15) days of the
publication of the notice of proposed
five-year exemption in the Federal
Register. The notice will be provided to
all interested persons in the manner
approved by the Department and will
contain the documents described
therein and a supplemental statement,
as required pursuant to 29 CFR
2570.43(a)(2). The supplemental
statement will inform interested persons
of their right to comment on and to
request a hearing with respect to the
pending exemption. All written
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must be received by the Department
within forty-five (45) days of the date of
publication of this proposed five-year
exemption in the Federal Register. All
comments will be made available to the
public.
Warning: If you submit a comment,
EBSA recommends that you include
your name and other contact
information in the body of your
comment, but DO NOT submit
information that you consider to be
confidential, or otherwise protected
(such as Social Security number or an
unlisted phone number) or confidential
business information that you do not
want publicly disclosed. All comments
may be posted on the internet and can
be retrieved by most internet search
engines.
General Information
The attention of interested persons is
directed to the following:
(1) The fact that a transaction is the
subject of an exemption under ERISA
Section 408(a) and/or Code Section
4975(c)(2) does not relieve a fiduciary or
other party in interest or disqualified
person from certain other provisions of
ERISA and/or the Code, including any
prohibited transaction provisions to
which the exemption does not apply
and the general fiduciary responsibility
provisions of ERISA Section 404, which,
among other things, require a fiduciary
to discharge their duties respecting the
plan solely in the interest of the
participants and beneficiaries of the
plan and in a prudent fashion in
accordance with ERISA Section
404(a)(1)(B); nor does it affect the
requirement of Code Section 401(a) that
the plan must operate for the exclusive
benefit of the employees of the
employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be
granted under ERISA Section 408(a)
and/or Code Section 4975(c)(2), the
Department must find that the
exemption is administratively feasible,
in the interests of the plan and of its
participants and beneficiaries, and
protective of the rights of participants
and beneficiaries of the plan;
(3) The proposed exemption would be
supplemental to, and not in derogation
of, any other provisions of ERISA and/
or the Code, including statutory or
administrative exemptions and
transitional rules. Furthermore, the fact
that a transaction is subject to an
administrative or statutory exemption is
not dispositive of whether the
transaction is, in fact, a prohibited
transaction; and
(4) The proposed exemption would be
subject to the express condition that the
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material facts and representations
contained in the application are true
and complete at all times and that the
application accurately describes all
material terms of the transactions which
are the subject of the exemption.
(5) The Department notes that all of
the material facts and representations
set forth in the Summary of Facts and
Representations must be true and
accurate at all times, and that the relief
provided herein is conditioned upon the
veracity of all material representations
made by the Applicant.
Proposed Exemption
The Department is considering
granting a five-year exemption under
the authority of ERISA Section 408(a)
and Internal Revenue Code (or Code)
section 4975(c)(2), and in accordance
with the exemption procedures
regulation.17 Effective December 31,
1978, section 102 of Reorganization Plan
No. 4 of 1978, 5 U.S.C. App. 1 (1996),
transferred the authority of the Secretary
of the Treasury to issue exemptions of
the type requested by the Applicant to
the Secretary of Labor. Therefore, this
notice of proposed exemption is issued
solely by the Department.
Section I. Definitions
(a) The term ‘‘AGI US’’ means Allianz
Global Investors U.S. LLC.
(b) The term ‘‘AGI US Conviction’’
means the judgment of conviction
against AGI US for one count of
securities fraud in violation of Title 15,
United States Code, Sections 78j(b) and
78ff, Title 17, Code of Federal
Regulations, Section 240.10b–5, and
Title 18, United States Code, Section 2,
entered in the District Court for the US
District Court Southern District of New
York (the District Court) case number
1:22–cr-00279–CM.
(c) The term ‘‘Covered Plan’’ means a
plan subject to Part IV of Title I of
ERISA (an ‘‘ERISA-covered plan’’) or a
plan subject to Code section 4975 (an
‘‘IRA’’), in each case, with respect to
which a PIMCO Affiliated QPAM or a
PIMCO Related QPAM relies on PTE
84–14, or with respect to which a
PIMCO Affiliated QPAM (or any PIMCO
affiliate) has expressly represented that
the manager qualifies as a QPAM or
relies on the QPAM class exemption
(PTE 84–14 or the QPAM Exemption).18
17 29 CFR part 2570, subpart B (76 FR 66637,
66644, October 27, 2011). For purposes of this
proposed five-year exemption, references to ERISA
section 406, unless otherwise specified, should be
read to refer as well to the corresponding provisions
of Code section 4975.
18 49 FR 9494 (March 13, 1984), as corrected at
50 FR 41430, (Oct. 10, 1985), as amended at 70 FR
49305 (Aug. 23, 2005), and as amended at 75 FR
38837 (July 6, 2010).
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A Covered Plan does not include an
ERISA-covered plan or IRA to the extent
the PIMCO Affiliated QPAM or the
PIMCO Related QPAM has expressly
disclaimed reliance on QPAM status or
PTE 84–14 in entering into a contract,
arrangement, or agreement with the
ERISA-covered plan or IRA.
(d) The term ‘‘Exemption Period’’
means May 17, 2023, through May 16,
2028.
(e) The term ‘‘Misconduct’’ means the
conduct described in the Statement of
Facts in case number 1:22–cr–00279–
CM which indicated that beginning in at
least 2014 and continuing through
March 2020, AGI US engaged in a
scheme to defraud investors in a series
of private investment funds (the
Structured Alpha Funds) that at their
height had over $11 billion in assets
under management.
(f) The term ‘‘PIMCO’’ means Pacific
Investment Management Company LLC.
(g) The term ‘‘PIMCO Affiliated
QPAM’’ means a ‘‘qualified professional
asset manager,’’ as defined in Section
VI(a) of PTE 84–14, that relies on the
relief provided by PTE 84–14 or
represents to ERISA-covered plans and/
or IRAs that it qualifies as a QPAM, and
with respect to which PIMCO is a
current or future ‘‘affiliate’’ (as defined
in Section VI(d)(1) of PTE 84–14). For
the purposes of this exemption, the term
‘‘PIMCO Affiliated QPAMs’’ does not
include AGI US, or entities that are
under the control of AGI US. The term
only includes entities that are 100
percent owned, directly or indirectly, by
PIMCO.
(h) The term ‘‘PIMCO Related QPAM’’
means any current or future ‘‘qualified
professional asset manager’’ (as defined
in section VI(a) of PTE 84–14) that relies
on the relief provided by PTE 84–14,
and with respect to which PIMCO owns
a direct or indirect five percent or more
interest, but with respect to which
PIMCO is not an ‘‘affiliate’’ (as defined
in Section VI(d)(1) of PTE 84–14).
Section II. Covered Transactions
The PIMCO Affiliated QPAMs, as
defined in Section I(g), and the PIMCO
Related QPAMs, as defined in Section
I(h), will not be precluded from relying
on the exemptive relief provided by the
QPAM Exemption during the
Exemption Period, notwithstanding the
AGI US Convictions (as defined in
Section I(a)) if the conditions in Section
III are satisfied.
Section III. Conditions
(a) The PIMCO Affiliated QPAMs and
the PIMCO Related QPAMs (including
their officers, directors, agents other
than AGI US, and employees of such
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QPAMs) did not know or have reason to
know of and did not participate in the
Misconduct that is the subject of the
AGI US Conviction. Further, any other
party engaged on behalf of the PIMCO
Affiliated QPAMs and PIMCO Related
QPAMs who had responsibility for, or
exercised authority in connection with
the management of plan assets did not
know nor have reason to know of and
did not participate in the Misconduct
that is the subject of the AGI Conviction.
For purposes of this proposed
exemption, ‘‘participate in’’ refers not
only to active participation in the
Misconduct of AGI US that is the
subject of the AGI US Conviction, but
also to knowing approval of the
Misconduct, or knowledge of such
Misconduct without taking active steps
to stop it, including reporting the
Misconduct to the individual’s
supervisors and to the Board of
Directors.
(b) The PIMCO Affiliated QPAMs and
the PIMCO Related QPAMs (including
their officers, directors, and agents other
than AGI US, and employees of such
PIMCO QPAMs who had responsibility
for, or exercised authority in connection
with the management of plan assets) did
not receive direct compensation or
knowingly receive indirect
compensation in connection with the
Misconduct that is the subject of the
AGI US Conviction. Further, any other
party engaged on behalf of the PIMCO
Affiliated QPAMs and the PIMCO
Related QPAMs who had responsibility
for or exercised authority in connection
with the management of plan assets did
not receive direct compensation nor
knowingly receive indirect
compensation in connection with the
Misconduct that is the subject of the
AGI US Conviction;
(c) The PIMCO Affiliated QPAMs do
not currently and will not in the future
employ or knowingly engage any of the
individuals who participated in any of
the Misconduct, or any individual who
was employed in AGI US’s Structured
Products Group from January 1, 2014,
through March 31, 2020;
(d) At all times during the Exemption
Period, no PIMCO Affiliated QPAM will
use its authority or influence to direct
an ‘‘investment fund’’ (as defined in
Section VI(b) of PTE 84–14) that is
subject to ERISA or the Code and
managed by such PIMCO Affiliated
QPAM in reliance on PTE 84–14 or with
respect to which a PIMCO Affiliated
QPAM has expressly represented to an
ERISA-covered plan or IRA with assets
invested in such ‘‘investment fund’’ that
it qualifies as a QPAM or relies on the
QPAM class exemption, to enter into
any transaction with AGI US or to
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engage AGI US to provide any service to
such investment fund for a direct or
indirect fee borne by such investment
fund regardless of whether such
transaction or service may otherwise be
within the scope of relief provided by
an administrative or statutory
exemption;
(e) Any failure of a PIMCO Affiliated
QPAM or a PIMCO Related QPAM to
satisfy Section I(g) of PTE 84–14 arose
solely from the AGI US Conviction;
(f) A PIMCO Affiliated QPAM or a
PIMCO Related QPAM did not exercise
authority over the assets of any plan
subject to Part 4 of Title I of ERISA (an
ERISA-covered plan) or Code Section
4975 (an IRA) in a manner that it knew
or should have known would: (i) further
the Misconduct that is the subject of the
AGI US Conviction; or (ii) cause the
PIMCO Affiliated QPAM, the PIMCO
Related QPAM, or their affiliates to
directly or indirectly profit from the
Misconduct that is the subject of the
AGI US Conviction;
(g) Other than with respect to
employee benefit plans maintained or
sponsored for its own employees or the
employees of an affiliate, AGI US will
not act as a fiduciary within the
meaning of ERISA Section 3(21)(A)(i) or
(iii) or Code Section 4975(e)(3)(A) and
(C) with respect to ERISA-covered plan
and IRA assets; provided, however, that
PIMCO will not be treated as violating
the conditions of this exemption solely
because AGI US acted as an investment
advice fiduciary within the meaning of
ERISA Section 3(21)(A)(ii) or Code
Section 4975(e)(3)(B);
(h)(1) Within 180 calendar days of the
effective date of this five-year
exemption, each PIMCO Affiliated
QPAM must immediately develop,
maintain, implement, and follow
written policies and procedures (the
Policies) that must require, and be
reasonably designed to ensure that:
(i) The asset management decisions of
the PIMCO Affiliated QPAM are
conducted independently of the
corporate management and business
activities of AGI US;
(ii) The PIMCO Affiliated QPAM fully
complies with ERISA’s fiduciary duties
and with ERISA and the Code’s
prohibited transaction provisions as
applicable with respect to each Covered
Plan, and does not knowingly
participate in any violation of these
duties and provisions with respect to
Covered Plans;
(iii) The PIMCO Affiliated QPAM
does not knowingly participate in any
other person’s violation of ERISA or the
Code with respect to Covered Plans;
(iv) Any filings or statements made by
the PIMCO Affiliated QPAM to
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regulators, including, but not limited to,
the Department, the Department of the
Treasury, the Department of Justice, and
the Pension Benefit Guaranty
Corporation on behalf of or in relation
to Covered Plans are materially accurate
and complete to the best of such
QPAM’s knowledge at that time;
(v) To the best of the PIMCO
Affiliated QPAM’s knowledge at the
time, the PIMCO Affiliated QPAM does
not make material misrepresentations or
omit material information in its
communications with such regulators
with respect to Covered Plans or make
material misrepresentations or omit
material information in its
communications with Covered Plans;
(vi) The PIMCO Affiliated QPAM
complies with the terms of this
exemption; and
(vii) Any violation of or failure to
comply with an item in subparagraphs
(ii) through (vi), is corrected as soon as
reasonably possible upon discovery, or
as soon after the QPAM reasonably
should have known of the
noncompliance (whichever is earlier),
and any such violation or compliance
failure not so corrected is reported,
upon the discovery of such failure to so
correct, in writing, to the head of
compliance and the General Counsel (or
their functional equivalent) of the
relevant line of business that engaged in
the violation or failure, and the
independent auditor responsible for
reviewing compliance with the Policies.
A PIMCO Affiliated QPAM will not be
treated as having failed to develop,
implement, maintain, or follow the
Policies if it corrects any instance of
noncompliance as soon as reasonably
possible upon discovery, or as soon as
reasonably possible after the QPAM
reasonably should have known of the
noncompliance (whichever is earlier),
and if it adheres to the reporting
requirements set forth in this
subparagraph (vii);
(2) Within 180 calendar days after the
effective date of the exemption, each
PIMCO Affiliated QPAM must develop,
maintain, adjust (to the extent
necessary), and implement a training
program during the Exemption Period
that will be conducted at least annually
for all relevant PIMCO Affiliated QPAM
asset/portfolio management, trading,
legal, compliance, and internal audit
personnel (the Training). The Training
required under this exemption may be
conducted electronically and must:
(i) At a minimum, cover the Policies,
ERISA and Code compliance (including
applicable fiduciary duties and the
prohibited transaction provisions),
ethical conduct, the consequences for
not complying with the conditions of
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this exemption (including any loss of
exemptive relief provided herein), and
prompt reporting of wrongdoing; and
(ii) Be conducted by a professional
who has been prudently selected and
has appropriate technical training and
proficiency with ERISA and the Code to
perform the tasks required by this
exemption;
(iii) Be verified through in-training
knowledge checks, ‘‘graduation’’ tests,
and/or other technological tools
designed to confirm that personnel fully
and in good faith participate in the
Training;
(i)(1) Each PIMCO Affiliated QPAM
must submit to an audit conducted
every two years by an independent
auditor who has been prudently
selected and has appropriate technical
training and proficiency with ERISA
and the Code to evaluate the adequacy
of the Policies and Training conditions
described herein and each PIMCO
Affiliated QPAM’s compliance with
them. The audit requirement must be
incorporated into the Policies. Each
audit must cover the preceding
consecutive twelve (12) month period.
The first audit under this exemption
must cover the period from May 17,
2023, through May 16, 2024, and must
be completed by November 16, 2024.
The second audit must cover the period
from May 17, 2025, through May 16,
2026, and must be completed by
November 16, 2026. The third audit
must cover the period from May 17,
2027, through May 16, 2028, and must
be completed by November 16, 2028.
(2) Within the scope of the audit and
to the extent necessary for the auditor,
in its sole opinion, to complete its audit
and comply with the conditions for
relief described herein, The PIMCO
Affiliated QPAMs will grant the auditor
unconditional access to their
businesses, including, but not limited
to: its computer systems; business
records; transactional data; workplace
locations; training materials; and
personnel. Such access will be provided
only to the extent that it is not
prevented by state or federal statute, or
involves communications subject to
attorney client privilege and may be
limited to information relevant to the
auditor’s objectives as specified by the
terms of this exemption;
(3) The auditor’s engagement must
specifically require the auditor to
determine whether each PIMCO
Affiliated QPAM has developed,
implemented, maintained, and followed
the Policies in accordance with the
conditions of this exemption, and has
developed and implemented the
Training as required herein;
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(4) The auditor’s engagement must
specifically require the auditor to test
each PIMCO Affiliated QPAM’s
operational compliance with the
Policies and Training conditions. In this
regard, the auditor must test, for each
QPAM, a sample of the QPAM’s
transactions involving Covered Plans
sufficient in size and nature to afford
the auditor a reasonable basis to
determine the QPAM’s operational
compliance with the Policies and
Training conditions;
(5) For each audit, on or before the
end of the relevant period described in
Section III(i)(1) for completing the audit,
the auditor must issue a written report
(the Audit Report) to PIMCO and the
PIMCO Affiliated QPAM to which the
audit applies that describes the
procedures performed by the auditor
during its examination. The auditor, at
its discretion, may issue a single
consolidated Audit Report that covers
all the PIMCO Affiliated QPAMs. The
Audit Report must include the auditor’s
specific determinations regarding:
(i) The adequacy of each PIMCO
Affiliated QPAM’s Policies and Training
and compliance with the Policies and
Training conditions; the need, if any, to
strengthen such Policies and Training;
and any instance of the respective
PIMCO Affiliated QPAM’s
noncompliance with the written
Policies and Training conditions
described in Section III(h) above. The
PIMCO Affiliated QPAM must promptly
address any identified noncompliance.
The PIMCO Affiliated QPAM must also
promptly address or prepare a written
plan of action to address any
determination by the auditor regarding
the adequacy of the Policies and
Training and the auditor’s
recommendations (if any) with respect
to strengthening the PIMCO Affiliated
QPAM Policies and Training. Any
action taken, or the plan of action to be
taken, by the respective PIMCO
Affiliated QPAM must be included in an
addendum to the Audit Report (and
such addendum must be completed
prior to the certification described in
Section III(i)(7) below). In the event
such a plan of action to address the
auditor’s recommendation regarding the
adequacy of the Policies and Training is
not completed by the time of
submission of the Audit Report, the
following period’s Audit Report must
state whether the plan was satisfactorily
completed. Any determination by the
auditor that the respective PIMCO
Affiliated QPAM has implemented,
maintained, and followed sufficient
Policies and a Training must not be
based solely or in substantial part on an
absence of evidence indicating
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noncompliance. In this last regard, any
finding that a PIMCO Affiliated QPAM
has complied with the requirements
under this subparagraph must be based
on evidence that such PIMCO Affiliated
QPAM has implemented, maintained,
and followed the Policies and Training
conditions required by this exemption.
Furthermore, the auditor must not
solely rely on the Annual Report created
by the compliance officer (the
Compliance Officer), as described in
Section III(m) below, as the basis for the
auditor’s conclusions in lieu of
independent determinations and testing
performed by the auditor, as required by
Section III(i)(3) and (4) above; and
(ii) The adequacy of the most recent
Annual Review described in Section
III(m);
(6) The auditor must notify the
respective PIMCO Affiliated QPAM of
any instance of noncompliance
identified by the auditor within five (5)
business days after such noncompliance
is identified by the auditor regardless of
whether the audit has been completed
as of that date;
(7) With respect to each Audit Report,
the general counsel or one of the three
most senior executive officers of PIMCO
or the Affiliated QPAM with respect to
which the Audit Report applies must
certify in writing and under penalty of
perjury that (a) the officer has reviewed
the Audit Report and this exemption;
and (b) the PIMCO Affiliated QPAM has
addressed, corrected or remedied any
instance of noncompliance or
inadequacy or has an appropriate
written plan in place to address any
instance of noncompliance or
inadequacy regarding the Policies and
Training identified in the Audit Report.
The certification must also include the
signatory’s determination that the
Policies and Training in effect at the
time of the certification are adequate to
ensure compliance with the exemption
conditions and with the applicable
provisions of ERISA and the Code;
(8) The PIMCO Board of Directors is
provided with a copy of each Audit
Report, and a senior executive officer
with a direct reporting line to the
highest-ranking legal compliance officer
of PIMCO must review the Audit Report
for each PIMCO Affiliated QPAM and
certify in writing under penalty of
perjury that such officer has reviewed
the Audit Report;
(9) Each PIMCO Affiliated QPAM
provides its certified Audit Report by
electronic mail to e-oed.gov. This
delivery must take place no later than
thirty (30) days following completion of
the Audit Report. This delivery must
take place no later than thirty (30)
calendar days following completion of
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the Audit Report. The Audit Report will
be made part of the public record
regarding this exemption. Furthermore,
each PIMCO Affiliated QPAM must
make its Audit Report unconditionally
available, electronically or otherwise,
for examination upon request by any
duly authorized employee or
representative of the Department, other
relevant regulators, and any fiduciary of
a Covered Plan;
(10) Each PIMCO Affiliated QPAM
and the auditor must submit to OED any
engagement agreement(s) entered into
pursuant to the engagement by the
auditor under this exemption no later
than sixty (60) calendar days after the
execution of any such engagement
agreement;
(11) The auditor must provide the
Department, upon request, for
inspection and review, access to all the
workpapers created and utilized during
the audit, provided such access and
inspection is otherwise permitted by
law; and
(12) PIMCO must notify the
Department of a change in the
independent auditor no later than sixty
(60) calendar days after the engagement
of a substitute or subsequent auditor
and must provide an explanation for the
substitution or change including a
description of any material disputes
between the terminated auditor and
PIMCO;
(j) Throughout the Exemption Period,
with respect to any arrangement,
agreement, or contract between a
PIMCO Affiliated QPAM and a Covered
Plan, the PIMCO Affiliated QPAM
agrees and warrants:
(1) To comply with ERISA and the
Code, as applicable with respect to such
Covered Plan; to refrain from engaging
in prohibited transactions that are not
otherwise exempt (and to promptly
correct any inadvertent prohibited
transactions); and to comply with the
standards of prudence and loyalty set
forth in ERISA Section 404, with respect
to each such ERISA-covered plan and
IRA (to the extent that ERISA Section
404 is applicable);
(2) To indemnify and hold harmless
the Covered Plan for any actual losses
resulting directly from the PIMCO
Affiliated QPAM’s violation of ERISA’s
fiduciary duties, as applicable, and of
the prohibited transaction provisions of
ERISA and the Code, as applicable; a
breach of contract by the QPAM; or any
claim arising out of the failure of such
PIMCO Affiliated QPAM to qualify for
the exemptive relief provided by PTE
84–14 as a result of a violation of
Section I(g) of PTE 84–14, other than the
Conviction. This condition applies only
to actual losses caused by the PIMCO
PO 00000
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18345
Affiliated QPAM’s violations. Actual
losses include losses and related costs
arising from unwinding transactions
with third parties and from transitioning
Plan assets to an alternative asset
manager as well as costs associated with
any exposure to excise taxes under Code
Section 4975 because of TTI’s inability
to rely upon the relief in the QPAM
Exemption;
(3) Not to require (or otherwise cause)
the Covered Plan to waive, limit, or
qualify the liability of the PIMCO
Affiliated QPAM for violating ERISA or
the Code or engaging in prohibited
transactions;
(4) Not to restrict the ability of the
Covered Plan to terminate or withdraw
from its arrangement with the PIMCO
Affiliated QPAM with respect to any
investment in a separately managed
account or pooled fund subject to ERISA
and managed by the QPAM, with the
exception of reasonable restrictions,
appropriately disclosed in advance, that
are specifically designed to ensure
equitable treatment of all investors in a
pooled fund in the event such
withdrawal or termination may have
adverse consequences for all other
investors. In connection with any of
these arrangements involving
investments in pooled funds subject to
ERISA entered into after the initial
effective date of this exemption, the
adverse consequences must relate to a
lack of liquidity of the underlying
assets, valuation issues, or regulatory
reasons that prevent the fund from
promptly redeeming an ERISA-covered
plan’s or IRA’s investment, and the
restrictions must be applicable to all
such investors and effective no longer
than reasonably necessary to avoid the
adverse consequences;
(5) Not to impose any fees, penalties,
or charges for such termination or
withdrawal with the exception of
reasonable fees, appropriately disclosed
in advance, that are specifically
designed to prevent generally
recognized abusive investment practices
or specifically designed to ensure the
equitable treatment of all investors in a
pooled fund in the event the withdrawal
or termination may have adverse
consequences for all other investors,
provided that such fees are applied
consistently and in like manner to all
such investors;
(6) Not to include exculpatory
provisions disclaiming or otherwise
limiting the liability of the PIMCO
Affiliated QPAM for a violation of such
agreement’s terms. To the extent
consistent with ERISA Section 410,
however, this provision does not
prohibit disclaimers for liability caused
by an error, misrepresentation, or
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misconduct of a plan fiduciary or other
party hired by the plan fiduciary who is
independent of PIMCO and its affiliates,
or damages arising from acts outside the
control of the PIMCO Affiliated QPAM;
and
(7) (a) Each PIMCO Affiliated QPAM
must provide a notice of its obligations
under this Section III(j) to each sponsor
or beneficial owner of a Covered Plan
which is a client as of the Effective Date
by a date that is 90 days after the
Effective Date. For all other Covered
Plans that become clients between the
Effective Date and a date that is 120
days after the Effective Date, each
sponsor or beneficial owner of such
Covered Plans must be provided with a
notice of the obligations under this
section by a date that is 180 days after
the Effective Date. All prospective
sponsors and beneficial owners of
Covered Plans that enter into a written
investment management agreement with
a PIMCO Affiliated QPAM after a date
that is 120 days after the Effective Date
must receive a copy of the notice of the
obligations under this Section III(j)
before, or contemporaneously with, the
Covered Plan’s receipt of a written
investment management or comparable
agreement from the PIMCO Affiliated
QPAM. The notices may be delivered
electronically (including by an email
that has a link to a website that contains
the documents required by this section).
Notwithstanding the above, a PIMCO
Affiliated QPAM will not violate this
condition solely because a Covered Plan
refuses to sign an updated investment
management agreement.
(k) Within 90 days after the effective
date of this exemption, each PIMCO
Affiliated QPAM provides notice of the
exemption as published in the Federal
Register, along with a separate summary
describing the facts that led to the
Conviction (the Summary), which has
been submitted to the Department, and
a prominently displayed statement (the
Statement) that the AGI US Conviction
results in a failure to meet a condition
in the QPAM Exemption to each
sponsor or beneficial owner of a
Covered Plan that has entered into a
written investment management
agreement with a PIMCO Affiliated
QPAM, or the sponsor of an investment
fund in any case where a PIMCO
Affiliated QPAM acts as a sub-adviser to
the investment fund in which such
Covered Plan invests. For all other
Covered Plans that become clients
between the Effective Date and a date
that is 120 days after the Effective Date,
each sponsor or beneficial owner of
such Covered Plans is provided the
documents described in this Section
III(k) by a date that is 180 days after the
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16:59 Mar 27, 2023
Jkt 259001
Effective Date. All sponsors or beneficial
owners of prospective Covered Plans
that enter into a written investment
management or comparable agreement
with a PIMCO Affiliated QPAM after a
date that is 120 days after the Effective
Date must receive a copy of the notice
of the exemption, the Summary, and the
Statement before, or contemporaneously
with, the Covered Plan’s receipt of a
written investment management
agreement from the PIMCO Affiliated
QPAM. The notices may be delivered
electronically (including by an email
that has a link to a website that contains
the documents required by this section).
Notwithstanding the above, a PIMCO
Affiliated QPAM will not violate the
condition solely because a Covered Plan
refuses to sign an updated investment
management agreement.
(l) The PIMCO Affiliated QPAM must
comply with each condition of PTE 84–
14, as amended, with the sole exception
of the violation of Section I(g) of PTE
84–14 that is attributable to the AGI US
Conviction. If an affiliate of PIMCO’s (as
defined in Section VI(d) of PTE 84–14)
is convicted of a crime described in
Section I(g) of PTE 84–14 (other than the
Conviction) during the Exemption
Period, relief in this exemption would
terminate immediately;
(m)(1) Within 60 calendar days after
the effective date of this exemption,
each PIMCO Affiliated QPAM must
designate a senior compliance officer
(the Compliance Officer) who will be
responsible for compliance with the
Policies and Training requirements
described herein. Notwithstanding the
above, no person, including any person
referenced in the Statement of Facts
underlying the AGI US Conviction, who
knew of, or should have known of, or
participated in, any of the Misconduct,
by any party, may be involved with the
designation or responsibilities required
by this condition, unless the person
took active documented steps to stop
the Misconduct. The Compliance
Officer must conduct a review of each
twelve-month period of the Exemption
Period (the Exemption Review), to
determine the adequacy and
effectiveness of the implementation of
the Policies and Training. The following
conditions must be met with respect to
the Compliance Officer:
(i) The Compliance Officer must be a
professional who has extensive
experience with, and knowledge of, the
regulation of financial services and
products, including under ERISA and
the Code; and
(ii) The Compliance Officer must have
a direct reporting line to the highestranking corporate officer in charge of
PO 00000
Frm 00055
Fmt 4703
Sfmt 4703
compliance for the applicable PIMCO
Affiliated QPAM.
(2) With respect to the Exemption
Review, the following conditions must
be met:
(i) The annual Exemption Review
includes a review by the Compliance
Officer of: (A) the PIMCO Affiliated
QPAM’s compliance with and
effectiveness of the Policies and
Training; (B) any compliance matter
related to the Policies or Training that
was identified by, or reported to, the
Compliance Officer or others within the
compliance and risk control function (or
its equivalent) during the previous year;
(C) the most recent Audit Report issued
pursuant to this exemption; (D) any
material change in the relevant business
activities of the PIMCO Affiliated
QPAMs; and (E) any change to ERISA,
the Code, or regulations related to
fiduciary duties and the prohibited
transaction provisions that may be
applicable to the activities of the PIMCO
Affiliated QPAMs;
(ii) The Compliance Officer must
prepare a written report for the
Exemption Review (an Exemption
Report) that: (A) summarizes the
Compliance Officer’s material activities
during the prior year; (B) sets forth any
instance of noncompliance discovered
during the prior year, and any related
corrective action; (C) details any change
to the Policies or Training to guard
against any similar instance of
noncompliance occurring again; and (D)
makes recommendations, as necessary,
for additional training, procedures,
monitoring, or additional and/or
changed processes or systems, and
management’s actions on such
recommendations;
(iii) In the Exemption Report, the
Compliance Officer must certify in
writing that to the best of their
knowledge at the time: (A) the report is
accurate; (B) the Policies and Training
are working in a manner that is
reasonably designed to ensure that the
Policies and Training requirements
described herein are met; (C) any known
instance of noncompliance during the
prior year and any related corrections
taken to date have been identified in the
Exemption Report; and (D) the PIMCO
Affiliated QPAMs have complied with
the Policies and Training, and/or
corrected (or are correcting) any known
instances of noncompliance in
accordance with Section III(h) above;
(iv) The Exemption Report must be
provided to appropriate corporate
officers of PIMCO and each PIMCO
Affiliated QPAM to which such report
relates, the head of compliance and the
general counsel (or their functional
equivalent) of the relevant PIMCO
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Affiliated QPAM. The Exemption
Report also must be made
unconditionally available to the
independent auditor described in
Section III(i) above;
(v) The annual Exemption Review,
including the Compliance Officer’s
written Report, must be completed
within 90 calendar days following the
end of the period to which it relates.
The annual Exemption Reviews under
this exemption must cover the following
periods: May 17, 2023, through May 16,
2024; May 17, 2024, through May 16,
2025; May 17, 2025, through May 16,
2026; May 17, 2026, through May 16,
2027; May 17, 2027, through May 16,
2028.
(n) AGI US complies in all material
respects with the requirements imposed
by a U.S. regulatory authority in
connection with the AGI US Conviction;
(o) Each PIMCO Affiliated QPAM will
maintain records necessary to
demonstrate that the conditions of this
exemption have been met for six (6)
years following the date of any
transaction for which the PIMCO
Affiliated QPAM relies upon the relief
in this exemption;
(p) During the Exemption Period,
PIMCO must: (1) immediately disclose
to the Department any Deferred
Prosecution Agreement (a DPA) or NonProsecution Agreement (an NPA) with
the U.S. Department of Justice, entered
into by PIMCO or any of its affiliates (as
defined in Section VI(d) of PTE 84–14)
in connection with the conduct
described in Section I(g) of PTE 84–14
or ERISA Section 411; and (2)
immediately provide any information
requested by the Department, as
permitted by law, regarding the
agreement and/or conduct and
allegations that led to the agreement;
(q) Within 60 calendar days after the
effective date of this exemption, each
PIMCO Affiliated QPAM, in its
agreements with, or in other written
disclosures provided to Covered Plans,
will clearly and prominently inform
Covered Plan clients of their right to
obtain a copy of the Policies or a
description (Summary Policies) which
accurately summarizes key components
of the PIMCO Affiliated QPAM’s written
Policies developed in connection with
this exemption. If the Policies are
thereafter changed, each Covered Plan
client must receive a new disclosure
within 180 calendar days following the
end of the calendar year during which
the Policies were changed.19 With
19 If the Applicant meets this disclosure
requirement through Summary Policies, changes to
the Policies shall not result in the requirement for
a new disclosure unless, as a result of changes to
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16:59 Mar 27, 2023
Jkt 259001
respect to this requirement, the
description may be continuously
maintained on a website, provided that
such website link to the Policies or
Summary Policies is clearly and
prominently disclosed to each Covered
Plan;
(r) A PIMCO Affiliated QPAM will not
fail to meet the conditions of this
exemption solely because a different
PIMCO Affiliated QPAM fails to satisfy
a condition for relief described in
Sections III(c), (d), (h), (i), (j), (k), (l), (o)
or (q); or if the independent auditor
described in Section III(i) fails to
comply with a provision of the
exemption other than the requirement
described in Section III(i)(11), provided
that such failure did not result from any
actions or inactions of PIMCO or its
affiliates; and
(s) All the material facts and
representations set forth in the
Summary of Facts and Representations
are true and accurate at all times.
(t) With respect to an asset manager
that becomes a PIMCO Affiliated QPAM
after the effective date of this exemption
by virtue of being acquired (in whole or
in part) by PIMCO or a subsidiary of
PIMCO (a ‘‘newly-acquired PIMCO
Affiliated QPAM’’), the newly-acquired
PIMCO Affiliated QPAM would not be
precluded from relying on the
exemptive relief provided by PTE 84–14
notwithstanding the Conviction as of
the closing date for the acquisition;
however, the operative terms of the
exemption shall not apply to the newlyacquired PIMCO Affiliated QPAM until
a date that is six (6) months after the
closing date for the acquisition. To that
end, the newly-acquired PIMCO
Affiliated QPAM will initially submit to
an audit pursuant to Section III(i) of this
exemption as of the first audit period
that begins following the closing date
for the acquisition. However, the first
audit to which a newly-acquired QPAM
submits may require the auditor to look
back into the previous year for that
particular QPAM. This will be the case
where the interval between the
acquisition date and the beginning of
the next audit period is greater than 6
months.
Exemption dates: If granted, the
exemption will be in effect for a period
of five years beginning on May 17, 2023,
and ending on May 16, 2028.
the Policies, the Summary Policies are no longer
accurate.
PO 00000
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18347
Signed at Washington, DC, this 22nd day
of March, 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2023–06346 Filed 3–24–23; 4:15 pm]
BILLING CODE 4510–29–P
DEPARTMENT OF LABOR
Agency Information Collection
Activities; Submission for OMB
Review; Comment Request; FederalState Unemployment Insurance
Program Data Exchange
Standardization
Notice of availability; request
for comments.
ACTION:
The Department of Labor
(DOL) is submitting this Employment
and Training Administration (ETA)sponsored information collection
request (ICR) to the Office of
Management and Budget (OMB) for
review and approval in accordance with
the Paperwork Reduction Act of 1995
(PRA). Public comments on the ICR are
invited.
DATES: The OMB will consider all
written comments that the agency
receives on or before April 27, 2023.
ADDRESSES: Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to www.reginfo.gov/public/do/
PRAMain. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function.
Comments are invited on: (1) whether
the collection of information is
necessary for the proper performance of
the functions of the Department,
including whether the information will
have practical utility; (2) if the
information will be processed and used
in a timely manner; (3) the accuracy of
the agency’s estimates of the burden and
cost of the collection of information,
including the validity of the
methodology and assumptions used; (4)
ways to enhance the quality, utility and
clarity of the information collection; and
(5) ways to minimize the burden of the
collection of information on those who
are to respond, including the use of
automated collection techniques or
other forms of information technology.
FOR FURTHER INFORMATION CONTACT:
Mara Blumenthal by telephone at 202–
693–8538, or by email at DOL_PRA_
PUBLIC@dol.gov.
SUMMARY:
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]]>Agencies
[Federal Register Volume 88, Number 59 (Tuesday, March 28, 2023)]
[Notices]
[Pages 18333-18347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06346]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-12075]
Proposed Exemption for Certain Prohibited Transaction
Restrictions Pacific Investment Management Company LLC, Newport Beach,
California
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
-----------------------------------------------------------------------
SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the
Internal Revenue Code of 1986 (the Code). If the proposed exemption is
granted, certain asset managers with specified relationships to the
Pacific Investment Management Company LLC (PIMCO or the Applicant) will
not be precluded from relying on the exemptive relief provided by
Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM
Exemption), notwithstanding the upcoming judgment of conviction against
Allianz Global Investors US LLC (AGI US) for one count of securities
fraud.
DATES:
Comments due: Written comments and requests for a public hearing on
the proposed exemption should be submitted to the Department by May 12,
2023.
Exemption dates: If granted, this proposed exemption will be in
effect for a period of five years beginning on May 17, 2023, and ending
on May 16, 2028.
ADDRESSES: All written comments and requests for a hearing should be
submitted to the Employee Benefits Security Administration (EBSA),
Office of Exemption Determinations, Attention: Application No. D-12075
via email to [email protected] or online through https://www.regulations.gov. Any such comments or requests should be sent by
the end of the scheduled comment period. The application for exemption
and the comments received will be available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1515, 200 Constitution
Avenue NW, Washington, DC 20210. See SUPPLEMENTARY INFORMATION below
for additional information regarding comments.
FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department
at (202) 693-8456. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
Comments: Persons are encouraged to submit all comments
electronically and not to follow with paper copies. Comments should
state the nature of the person's interest in the proposed exemption and
how the person would be adversely affected by the exemption, if
granted. Any person who may be adversely affected by an exemption can
request a hearing on the exemption. A request for a hearing must state:
(1) The name, address, telephone number, and email address of the
person making the request; (2) the nature of the person's interest in
the exemption and the manner in which the person would be adversely
affected by the exemption;
[[Page 18334]]
and (3) a statement of the issues to be addressed and a general
description of the evidence to be presented at the hearing. The
Department will grant a request for a hearing made in accordance with
the requirements above where a hearing is necessary to fully explore
material factual issues identified by the person requesting the
hearing. A notice of such hearing shall be published by the Department
in the Federal Register. The Department may decline to hold a hearing
if: (1) the request for the hearing does not meet the requirements
above; (2) the only issues identified for exploration at the hearing
are matters of law; or (3) the factual issues identified can be fully
explored through the submission of evidence in written (including
electronic) form.
Warning: All comments received will be included in the public
record without change and may 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 in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as a Social Security number or an 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 in the body of
your comment. If you send an email directly to EBSA without going
through https://www.regulations.gov, your email address will be
automatically captured and included as part of the comment that is
placed in the public record and made available on the internet.
Proposed Exemption
The Department is considering granting an exemption under the
authority of Section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and Section 4975(c)(2) of the Internal
Revenue Code of 1986, as amended (the Code), and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (75 FR 66637,
66644, October 27, 2011).\1\ If the proposed exemption is granted,
certain asset managers with specified relationships to PIMCO (the PIMCO
Affiliated QPAMs and the PIMCO Related QPAMs) will not be precluded
from relying on the exemptive relief provided by Prohibited Transaction
Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\2\
notwithstanding the upcoming judgment of conviction against Allianz
Global Investors US LLC (AGI US) for one count of securities fraud.\3\
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\1\ For purposes of this proposed exemption: (1) references to
specific provisions of ERISA Title I, unless otherwise specified,
should be read to refer as well to the corresponding provisions of
Code Section 4975; and (2) if granted, this proposed exemption does
not provide relief from the requirements of any law not noted above.
Accordingly, the Applicant is responsible for ensuring compliance
with any other laws applicable to the transactions described herein.
\2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as
amended at 75 FR 38837 (July 6, 2010).
\3\ Section I(g) of PTE 84-14 generally provides that
``[n]either the QPAM nor any affiliate thereof . . . nor any owner .
. . of a 5 percent or more interest in the QPAM is a person who
within the 10 years immediately preceding the transaction has been
either convicted or released from imprisonment, whichever is later,
as a result of'' certain felonies including securities fraud.
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If granted, this proposed exemption will be effective for a five-
year period beginning on the date a judgment of conviction against AGI
US (the AGI US Conviction) is entered in the United States District
Court for the Southern District of New York (the District Court) in
case number 1:22-cr-00279-CM. Relief under this proposed exemption, if
granted, will remain effective provided that the conditions set out
below in Section III are met.
This proposed exemption would provide relief from certain of the
restrictions set forth in ERISA Sections 406 and 407. It would not,
however, provide relief from any other violation of law. Furthermore,
the Department cautions that the relief under this proposed exemption
would terminate immediately if, among other things, an affiliate of
PIMCO's (as defined in Section VI(d) of PTE 84-14) is convicted of a
crime described in Section I(g) of PTE 84-14 (other than the AGI US
Conviction) during the Exemption Period, as defined in Section I(c).
Although PIMCO could apply for a new exemption in that circumstance,
the Department would not be obligated to grant the exemption.
The terms of this proposed exemption have been specifically
designed to permit plans to terminate their relationships in an orderly
and cost-effective fashion in the event of an additional conviction or
a determination that it is otherwise prudent for a plan to terminate
its relationship with an entity covered by the exemption.
Summary of Facts and Representations 4
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\4\ The Summary of Facts and Representations is based on the
Applicant's representations provided in its exemption application
and does not reflect factual findings or opinions of the Department
unless indicated otherwise. The Department notes that availability
of this exemption, is subject to the express condition that the
material facts and representations contained in application D-12075
are true and complete at all times, and accurately describe all
material terms of the transactions covered by the exemption. If
there is any material change in a transaction covered by the
exemption, or in a material fact or representation described in the
application, the exemption will cease to apply as of the date of the
change.
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Relevant ERISA Provisions and PTE 84-14
1. The rules set forth in ERISA Section 406 and Code Section
4975(c)(1) proscribe certain ``prohibited transactions'' between plans
and certain parties in interest with respect to those plans.\5\ ERISA
Section 3(14) defines parties in interest with respect to a plan to
include, among others, the plan fiduciary, a sponsoring employer of the
plan, a union whose members are covered by the plan, service providers
with respect to the plan, and certain of their affiliates.\6\ The
prohibited transaction provisions under ERISA Section 406(a) and Code
Section 4975(c)(1) prohibit, in relevant part, (1) sales, leases,
loans, or the provision of services between a party in interest and a
plan (or an entity whose assets are deemed to constitute the assets of
a plan), (2) the use of plan assets by or for the benefit of a party in
interest, or (3) a transfer of plan assets to a party in interest.\7\
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\5\ For purposes of the Summary of Facts and Representations,
references to specific provisions of Title I of ERISA, unless
otherwise specified, refer also to the corresponding provisions of
the Code.
\6\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
\7\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under ERISA Section 406(b). These
include transactions involving fiduciary self-dealing, fiduciary
conflicts of interest, and kickbacks to fiduciaries.
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2. Under the authority of ERISA Section 408(a) and Code Section
4975(c)(2), the Department has the authority to grant exemptions from
such ``prohibited transactions'' in accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27,
2011) if the Department finds an exemption is: (a) administratively
feasible, (b) in the interests of the plan and of its participants and
beneficiaries, and (c)
[[Page 18335]]
protective of the rights of participants and beneficiaries of the plan.
4. The QPAM Exemption exempts certain prohibited transactions
between a party in interest and an ``investment fund'' (as defined in
Section VI(b) of PTE 84-14) in which a plan has an interest if the
investment manager satisfies the definition of ``qualified professional
asset manager'' (QPAM) and satisfies additional conditions of the
exemption. The Department developed and granted the QPAM Exemption
based on the essential premise that broad relief could be afforded for
all types of transactions in which a plan engages only if the
commitments and investments of plan assets, and the negotiations
leading thereto, are the sole responsibility of an independent,
discretionary manager.\8\
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\8\ See 75 FR 38837, 38839 (July 6, 2010).
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5. Section I(g) of PTE 84-14 prevents an entity that may otherwise
meet the definition of QPAM from utilizing the exemptive relief
provided by the QPAM exemption, for itself and its client plans, if
that entity, an ``affiliate'' thereof,\9\ or any direct or indirect
five percent or more owner in the QPAM has been either convicted or
released from imprisonment, whichever is later, as a result of criminal
activity described in section I(g) within the 10 years immediately
preceding the transaction. Section I(g) was included in PTE 84-14, in
part, based on the Department's expectation that a QPAM, and those who
may be in a position to influence a QPAM's policies, must maintain a
high standard of integrity.
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\9\ Section VI(d) of PTE 84-14 defines the term ``affiliate''
for purposes of Section I(g) as ``(1) Any person directly or
indirectly through one or more intermediaries, controlling,
controlled by, or under common control with the person, (2) Any
director of, relative of, or partner in, any such person, (3) Any
corporation, partnership, trust or unincorporated enterprise of
which such person is an officer, director, or a 5 percent or more
partner or owner, and (4) Any employee or officer of the person
who--(A) Is a highly compensated employee (as defined in Section
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of
the yearly wages of such person), or (B) Has direct or indirect
authority, responsibility or control regarding the custody,
management or disposition of plan assets.''
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Criminal Charge Against AGI US
6. On May 17, 2022, the Department of Justice filed a criminal
information in the District Court for the Southern District of New York
charging AGI US with one count of securities fraud (the
Information).\10\ AGI US resolved the charges through a plea agreement
(the Plea Agreement) under which it agreed to enter a guilty plea to
the charge set out in the Information. The judgment of the Conviction
against AGI US is scheduled to be entered in District Court on May 17,
2023, in Case Number 1:22-cr-00279-CM.\11\
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\10\ In violation of Title 15, United States Code, Sections
78j(b) and 78ff, Title 17, Code of Federal Regulations, Section
240.10b-5, and Title 18, United States Code, Section 2.
\11\ The date the Conviction will be entered may change, subject
to judicial approval.
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The Misconduct Underlying the AGI US Conviction
7. According to the Statement of Facts that served as the basis for
the Plea Agreement (the Statement of Facts), beginning in at least 2014
and continuing through March 2020, AGI US engaged in a scheme to
defraud investors in a series of private investment funds (the
Structured Alpha Funds) that at their height had over $11 billion in
assets under management (the Misconduct). The investors that were
victims of the Misconduct included ERISA-covered Plans. The fraudulent
scheme was carried out by the three managers in AGI US's Structured
Products Group who were primarily responsible for managing the
Structured Alpha Funds (collectively, the Fund Managers).\12\
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\12\ The three managers were Gregoire Tournant, Trevor Taylor,
and Stephen Bond-Nelson.
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8. According to the Statement of Facts, AGI US made false and
misleading statements to investors that substantially understated the
risks being taken by the Structured Alpha Funds and failed to disclose,
and sought to affirmatively withhold, relevant risk information. AGI US
repeatedly represented to investors that their investments were low-
risk and designed to minimize the risk of large losses. Despite these
assurances, AGI US deployed an investment strategy that prioritized
returns over effective risk management by, among other things, taking
aggressive options bets and devoting insufficient resources to hedge
positions. When investors sought to obtain documentation to assess
investment risk, AGI responded with manually altered data.
9. Beginning as early as 2015, AGI US represented to investors that
the Structured Alpha Funds were purchasing hedges 10 to 25% out-of-the-
money when, in fact, the hedges purchased were as much as 70% out-of-
the-money. These further out-of-the-money hedges were cheaper and less
protective in the event of a market downturn.
10. According to the Statement of Facts, AGI US altered over 75
risk reports and Greeks \13\ that it sent to investors by manually
changing ``stress test'' results to make it appear that, in market
downturns, the Structured Alpha Funds would lose less money. AGI US
also altered: (a) daily performance data that it sent to investors by
smoothing the Structured Alpha Funds' day-to-day response to market
downturns; (b) attribution data to make it appear that more significant
hedging was in place; and (c) open position data to bring hedge strike
distances closer to the money.
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\13\ Greeks are a group of standard metrics for evaluating a
portfolio's market exposure.
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11. While the Misconduct was perpetrated by the three Fund Managers
within AGI US's Structured Products Group, these individuals were able
to carry out the fraud, in part, because AGI US lacked sufficient
internal controls and oversight for the Structured Alpha Funds. AGI US
failed to impose sufficient internal controls even though the
Structured Products Group contributed approximately one-quarter of AGI
US's revenue from at least 2016 through 2019.
12. In communications with Investors, AGI US described its internal
controls based on the following ``three lines of defense:'' (a) the
business, including portfolio management and sales; (b) Enterprise Risk
Management (ERM), Compliance, and Legal departments; and (c) an
Internal Audit function. AGI US's control functions however were not
designed and did not function to ensure that risk for the Structured
Alpha Funds was being monitored in line with the disclosures AGI US
made to investors. Specifically, no one in AGI US's control function
sought to verify that Tournant and the other Fund Managers were
adhering to the hedging strategies communicated to investors. This lack
of oversight occurred despite the fact that the materials containing
these representations to investors were reviewed and approved by AGI
US's Legal and Compliance departments.
13. Further, AGU US's Compliance, ERM, and Legal departments were
unaware that many of the reports described above were being sent to
investors at all, with or without alterations. The Fund Managers thus
were able to employ more aggressive investment strategies than they had
told investors they would employ, thereby exposing investors to
undisclosed risk. Additionally, neither ERM nor any other independent
function within AGI US was tasked with monitoring whether AGI US was
adhering to the representations it had made to investors regarding the
funds' management.
14. As to audits, the third line of defense, AGI US's Internal
Audit department conducted an audit of the Structured Products Group in
2017 that identified certain red flags that, if pursued, may have led
to the discovery
[[Page 18336]]
of at least certain aspects of the fraudulent scheme. AGI US however
did not perform any meaningful follow-up. And although the 2017 audit
report ``highlighted the need to thoroughly review marketing materials
to ensure that the disclosure language accurately reflects the ongoing
investment processes,'' the audit did not trigger a review by anyone
outside the Structured Products Group. Instead, Internal Audit assigned
that review to product specialists within the Structured Products Group
whose compensation was directly tied to the quarterly performance of
the Structured Alpha Funds. Had an independent review occurred, AGI
US's control function could potentially have uncovered at least the
misrepresentations regarding the hedging positions.
15. AGI US's failure to address data quality issues in back-office
functions allowed the Fund Managers' fraudulent scheme to continue
undetected. In this regard, multiple AGI US employees within the
Structured Products Group who were not directly involved in the
fraudulent scheme were nonetheless aware that Tournant and Bond-Nelson
were altering numbers on certain reports before sending them to
investors. To cover up their wrongdoing, Tournant and Bond-Nelson
explained to their Structured Products colleagues that they were simply
correcting ``errors'' in reporting generated by back-office functions.
Because there were, in fact, ongoing issues with the back office's data
reporting, multiple members of the Structured Products Group who might
otherwise have reported the fraudulent scheme instead accepted this
explanation and carried on with their work without reporting the
Misconduct.
Misconduct Was Isolated Within the Structured Products Group
16. In its Statement of Facts, the DOJ states that ``[t]he
misconduct occurred only within the small Structured Products Group at
AGI US. The Government's investigation has not revealed evidence that
anyone at AGI US outside of the Structured Products Group was aware of
the misconduct before March 2020. The investigation also has not
revealed that anyone at any other organizations that fell within the
broader umbrella of the parent company Allianz SE was aware of or
participated in the misconduct.''
PIMCO and the PIMCO Affiliated QPAMs
17. PIMCO is a global investment management firm with $2.2 trillion
in total assets under management as of December 31, 2021. PIMCO manages
approximately $156 billion in assets for ERISA plans, approximately
$1.89 billion in pooled funds, and approximately $9.58 billion in
collective investment trusts maintained for ERISA and public pension
plan investors. PIMCO manages the assets of ERISA-covered plans on a
discretionary basis and advises or subadvises pooled funds.
18. PIMCO owns affiliated asset managers that routinely rely upon
the QPAM Exemption to provide relief for party-in-interest investment
transactions (the PIMCO Affiliated QPAMs). In addition, PIMCO currently
owns, directly or indirectly, a 5% or greater interest in certain
investment managers that are not affiliated with PIMCO in the actual
control sense (the PIMCO Related QPAMs). The clients of the PIMCO
Affiliated and Related QPAMs include plans subject to Part IV of Title
I of ERISA and plans subject to Code Section 4975, with respect to
which the PIMCO QPAMs rely on the QPAM Exemption or have expressly
represented that PIMCO managers qualify as a QPAM or rely on the QPAM
Exemption. These plans are hereinafter referred to as Covered Plans.
19. PIMCO represents that most of its ERISA plan clients pursue
fixed income investment strategies that are composed of long-term
investment grade credit fixed income securities. PIMCO states that it
uses derivatives as a means of managing investment risk, capitalizing
on market inefficiencies, and executing alpha-seeking strategies. Where
PIMCO has the authority to transact in derivatives, its plan clients
expect PIMCO to deploy such instruments. In this regard, PIMCO states
that the overwhelming majority of plan clients--82.3%--have directed
PIMCO to use derivatives to manage their assets. According to PIMCO,
derivatives are an essential component of PIMCO's investment toolkit,
as they play a number of important roles in managing plan portfolios,
including (i) serving as a liquid means to manage credit risk through
the use of cleared credit default index swaps (CDX) or credit default
swaps (CDS), (ii) managing duration with potentially lower transaction
costs than alternative approaches, (iii) managing currency exposure
when purchasing foreign denominated securities, and (iv) sometimes
serving as a more attractive substitute for the underlying security.
20. PIMCO represents that while cash bonds can be traded using
several different exemptions, including PTE 75-1, Part II and ERISA
Section 408(b)(17), CDS and CDX can only be traded using the QPAM
Exemption or the INHAM Class Exemption.\14\ Additionally, all futures
contracts traded under PIMCO's clearing contracts require a QPAM
representation.
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\14\ PTE 96-23 is a class exemption that permits various
transactions involving employee benefit plans whose assets are
managed by in-house asset managers (INHAMs). See 61 FR 15975 (April
10, 1996).
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PIMCO's Affiliation With AGI US
21. PIMCO is a direct subsidiary of the following three entities
that are indirectly wholly owned by Allianz SE (Allianz): (1) Allianz
Asset Management of America L.P. (AAM) (77.9 percent ownership of
PIMCO); (2) Allianz Asset Management of America LLC (11.4 percent
ownership of PIMCO), and (3) Allianz Asset Management Holding II LLC
(2.4 percent of PIMCO). PIMCO's parent and managing member is AAM,
which is generally responsible for oversight of PIMCO on behalf of
Allianz. Allianz is PIMCO's ultimate parent company. Allianz also
indirectly owns 100 percent of AGI US, the entity that engaged in the
fraudulent scheme. Thus, PIMCO and AGI US are affiliates for the
purposes of Section I(g) of the QPAM Exemption.
PIMCO's QPAM Exemption Ineligibility and Exemption Request
22. As affiliates of AGI US, the PIMCO Affiliated QPAMs will no
longer be able to rely on the relief provided by the QPAM Exemption
once AGI US is sentenced in connection with its Conviction.
23. On May 17, 2022, PIMCO filed an application with the Department
requesting an exemption that would permit the PIMCO Affiliated QPAMs
and PIMCO Related QPAMs to continue to rely on the QPAM Exemption,
notwithstanding the AGI US Conviction. As noted above, Section I(g) of
the QPAM Exemption prevents an entity that otherwise meets the
definition of a QPAM from utilizing the exemptive relief provided by
PTE 84-14 if that entity or an affiliate thereof or any direct or
indirect owner of a 5 percent or more interest in the QPAM has been
either convicted or released from imprisonment, whichever is later, as
a result of criminal activity described in that section within 10 years
immediately preceding the transaction. In support of its exemption
request, PIMCO emphasizes that it operates completely independently
from AGI US and that a denial of the exemption would result in certain
hardships to Covered Plans.
[[Page 18337]]
Separation of PIMCO From AGI US
The Applicant made the following representations regarding how
PIMCO acts independently from AGI US. These representations are set
forth below in paragraphs 24 through 38.
24. PIMCO and the PIMCO Affiliated QPAMs operate autonomously and
independently from both Allianz and AGI US, and PIMCO has no directors,
officers, or employees in common with Allianz, AAM, or any other
Allianz subsidiary. Allianz employees do not have access to PIMCO's
systems and are not involved in any way in the PIMCO Affiliated QPAMs'
investment processes. Since Allianz acquired PIMCO in 2000, PIMCO's
investment management processes have remained separate from those of
Allianz to avoid restrictions that would result if PIMCO and Allianz
were operated as a single coordinated entity. PIMCO and Allianz in fact
entered into agreements at the time of the acquisition that provided
PIMCO with substantial autonomy and independence in its management.
25. The PIMCO Affiliated QPAMs operate as separate businesses from
AGI US. The PIMCO Affiliated QPAM's management of plan assets is
conducted separately from (a) the investment management activities of
AGI US; (b) the non-investment management business activities of
Allianz, and (c) the conduct underlying the AGI US Conviction. Further,
Allianz employees are not involved in the portfolio management of PIMCO
accounts, nor do they supervise or oversee the PIMCO Affiliated QPAMs'
portfolio management activities. Investment decisions for PIMCO
accounts, including decisions regarding investment strategy, are made
by PIMCO Affiliated QPAM personnel pursuant to PIMCO policies,
procedures, and guidelines, without consultation with Allianz or AGI
US.
26. Allianz has delegated to the PIMCO Management Board the
authority to manage all of PIMCO's business affairs, except for certain
extraordinary matters where Allianz retains approval rights. The PIMCO
Management Board, which is comprised solely of PIMCO's Managing
Directors, relies upon the PIMCO Executive Committee as the primary
governance body for review and approval of significant matters. There
are no representatives of Allianz (or other non-PIMCO personnel) on the
Management Board. As described below, the Management Board has
delegated substantially all of its operating authority to the PIMCO
Executive Committee and, with respect to compensation matters, the
PIMCO Performance and Compensation Committee (PCC). Certain key
decisions however are retained by the Management Board, including the
power to: (a) elect existing employees to Managing Director, (b)
nominate and elect PIMCO's CEO and Group Chief Investment Officer, and
(c) determine the composition of the Executive Committee and the PCC.
27. The PIMCO Executive Committee has authority for most
significant matters and is currently composed of nine voting members
and two non-voting members, all of whom are PIMCO Managing Directors.
The Charter of the Executive Committee provides additional background
regarding ``matters of significance to the business or operations'' of
PIMCO that are required to be ``escalated to the [Executive] Committee
for consideration and (as applicable) approval.'' \15\
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\15\ Matters include, among others, the annual budget and
business plan for PIMCO and its subsidiaries; material deviations
from the approved budget or business plan; corporate transactions
involving PIMCO, including acquisitions of or mergers with another
business or company; disposition of all or any significant portion
of assets of a PIMCO company and/or the exiting from a material
business area; significant reductions in staff or layoffs; material
out of the ordinary course transactions or contracts; establishment
or closure of a PIMCO office, branch or subsidiary; initiation of a
new business area and development of new products; determination of
PIMCO's risk appetite, and material deviations from the same;
material changes to human resources, risk or compliance policies;
and approach to and resolution of significant audit issues. Except
for those key decisions where AAM's consultation or consent is
required, none of the foregoing matters are escalated for approval
or consent to AAM.
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The Executive Committee has established certain principal
committees to oversee key areas of PIMCO. These committees are
complemented by formal departmental and organizational lines of
reporting and are typically comprised of senior officers from a cross-
section of internal disciplines. Further, the committees are designed
to serve as an additional control over specific functional areas and
are generally separate and apart from the first-line controls that are
in place in the form of clearly delineated departmental
responsibilities. They include, for example, PIMCO's Global Risk
Committee.
28. PIMCO's Senior Executive Officers are elected by the PIMCO
Management Board and may be removed by the PIMCO Executive Committee
and PCC. The PIMCO CEO and the Group CIO are the senior-most officers
of PIMCO and are responsible for day-to-day leadership of PIMCO
operations. They are each elected by the Management Board (\2/3\
majority) and remain in office until they retire, resign, or are
terminated. While AAM has the right to approve any person proposed to
fill such roles, neither AAM nor Allianz has disapproved of any person
selected for a Senior Executive Officer role by the PIMCO Management
Board. In addition, neither AAM nor Allianz has the authority to remove
any such person, having delegated that authority to the PIMCO
Management Board.
29. AAM has reserved for itself certain consent rights, including
the authority to approve PIMCO's annual budget, approval of the hiring
of certain senior officers, including the CEO and Group Chief
Investment Officer, approval of changes to compensation plans and
arrangements, fundamental changes to PIMCO's business, and significant
financial transactions. However, in practice, AAM has not exercised
these consent rights to disapprove of any of PIMCO's changes,
transactions, or proposed senior officers.
While AAM has retained the authority to require PIMCO to meet
certain minimum corporate standards relating to audit, accounting and
reporting, legal and compliance, and risk management, PIMCO confirms
its compliance with those standards through an annual statement of
accountability and quarterly statements of accountability limited to
financial controls. Importantly, none of the AAM standards covers
investment-related decisions. Moreover, decisions on how to allocate
resources to meet AAM's minimum standards and whether to implement
controls that go beyond such minimum standards are left to the
discretion of PIMCO's management.
30. Allianz and the other Allianz subsidiaries do not have a role
in the governance of PIMCO's global subsidiaries. PIMCO's global
offices are primarily organized as direct or indirect subsidiaries of
PIMCO, and each has its own defined governance structure. Nonetheless,
PIMCO's global affiliates are subject to PIMCO's oversight as the
direct or indirect parent entity. Except as otherwise required by
applicable local law, PIMCO conducts oversight of its global affiliates
through the application of PIMCO's global policies.
31. Allianz employees are not involved in the portfolio management
of PIMCO accounts, nor do they supervise or oversee PIMCO's portfolio
management activities. Investment decisions for PIMCO accounts,
including decisions regarding investment strategy, are made by PIMCO
personnel pursuant to PIMCO policies, procedures, and guidelines,
without consulting with Allianz or AGI US's employees, and all
investment
[[Page 18338]]
management functions report to PIMCO's Group CIO. PIMCO's Investment
Committee, which is composed of PIMCO's CIOs and most senior investment
professionals, translates the firm's macroeconomic views into specific
investment risk targets which serve as parameters for every PIMCO
investment portfolio.
32. Portfolio Risk Management at PIMCO is managed independently of
risk management functions at Allianz as well as other Allianz asset
management subsidiaries. PIMCO's Portfolio Risk Management team is
fully integrated into PIMCO's investment process and sits alongside the
Portfolio Management team on the trading floor. Portfolio Risk
Management is headed by a Managing Director (the most senior executive
level at PIMCO) who reports directly to both PIMCO's Group CIO and CEO
and is a permanent member of the firm's Investment Committee. Further,
the Portfolio Risk Management team maintains close contact with the
firm's leadership through regular updates to the Investment Committee,
weekly reviews with the CIO, and monthly reviews with the CEO.
33. PIMCO does not share information or coordinate investment
management decisions with Allianz or other Allianz asset management
subsidiaries, including AGI US. Among other things, PIMCO does not
share investment research, portfolio holdings, client information, or
trade information, and all trading decisions are made independently.
Further, PIMCO does not coordinate proxy voting and makes all
decisions, including decisions with respect to the valuation of
securities, independently and pursuant to its own valuation policies
and procedures. Further, PIMCO's products, including funds for which
PIMCO Investments is the principal underwriter, are distributed
independently; and PIMCO's technology and proprietary trading systems
are not shared.
34. PIMCO does contract with Allianz insurance subsidiaries for the
management of insurance portfolios, and therefore PIMCO shares
information and holdings with respect to those activities as they would
with their other clients. Regarding Allianz as a parent, information
flows are limited to those necessary for appropriate prudent oversight,
supervision of controls, and groupwide financial reporting and
regulatory requirements.
35. Allianz, as PIMCO's parent, sets certain minimum group-level
standards for control functions, including compliance and risk
management. However, PIMCO's compliance and risk management programs
are developed and administered independently of AAM or Allianz. In this
regard, these programs do not use Allianz personnel or resources, and
their leaders report directly to other senior executives at PIMCO, not
to AAM or Allianz.
36. PIMCO's Global Head of Compliance and Chief Compliance Officer
(Global Head of Compliance and CCO) leads the firm's global compliance
program and oversees the Compliance staff responsible for formulating
and administering the firm's policies and procedures and reviewing the
adequacy of their effectiveness and implementation. The Global Head of
Compliance and CCO reports to PIMCO's General Counsel for Global
Regulatory and Litigation, who leads the firm's integrated regulatory
strategies. That person in turn reports to PIMCO's Global General
Counsel, who heads PIMCO's Legal and Compliance Department.
37. PIMCO utilizes internal auditors, employed by AAM, as an
outsourced internal function. Global audits of PIMCO are managed by an
individual at AAM who is different from the person who manages global
audits for AGI US. PIMCO believes that this arrangement provides a
useful layer of independence and objectivity to audits of PIMCO. The
Internal Audit team begins its audits with a launch discussion with the
business area being audited, together with Compliance and Enterprise
Risk Management, followed by a kickoff meeting with the head of that
business area, together with Compliance. At the end of its fieldwork,
Internal Audit shares its draft report with the business area and
Compliance to ensure factual accuracy. Thus, at the beginning and end
of an audit, PIMCO Compliance--in addition to the relevant business
area--is aware of the purpose, scope, and results of any audit.
Further, audit findings are escalated to PIMCO's Audit Committee, which
is chaired by PIMCO's Global General Counsel, if the audited business
area does not complete the required corrective actions by the original
target date.
38. Finally, hiring, termination, and compensation decisions for
the PIMCO Affiliated QPAMs' personnel and executives are determined
entirely pursuant to the PIMCO Affiliated QPAMs' processes, independent
of any influence by Allianz and Allianz asset management subsidiaries.
Allianz (but no other Allianz affiliate) retains the right to approve
the hiring of PIMCO's CEO, Group CIO, CFO, General Counsel, and head of
Compliance.
Hardship to Covered Plans
The Applicant represents that Covered Plans would suffer the
following hardships if PIMCO loses its eligibility to rely on the QPAM
Exemption. The Applicant's representations are set forth below in
paragraphs 39 through 46.
39. Without the ability to rely upon the QPAM exemption, PIMCO will
be unable to effectively implement the investment strategies that
Covered Plans engaged PIMCO to pursue. As a consequence, PIMCO assumes
that Covered Plans will terminate their relationship with PIMCO and
seek out alternative asset managers. The transaction costs to Covered
Plans of changing managers are significant, especially in many of the
strategies employed by the PIMCO Affiliated QPAMs. These costs, which
include the cost of liquidating assets, identifying and selecting new
managers, and then reinvesting those assets, would be borne by the
Covered Plans and their participants. Further, the process for
transitioning to a new manager is typically lengthy and likely would
involve numerous steps, each of which could last several months. These
steps could include retaining a consultant, engaging in a request for
proposals, negotiating contracts, and ultimately transitioning assets.
40. PIMCO currently manages 451 ERISA plan institutional separate
accounts, representing $170.35 billion in assets under management.
82.3% of these 451 plan accounts, representing $155.15 billion in
assets, invest in cash bonds and derivatives, whereas 17.7% of the
accounts, representing $15.2 billion in assets, invest only in cash
bonds. Because of the critical role played by derivatives, PIMCO
believes that a Covered Plan that selects PIMCO to actively manage its
fixed income portfolio pursuant to a broad set of guidelines, including
derivatives, would be unlikely to retain PIMCO to run a cash bond
strategy in the absence of the QPAM Exemption. Based on its
understanding of the experience of other asset managers who did not
receive a QPAM exemption, and who lost at least some plan business,
PIMCO believes that it is likely that many of its plan clients whose
guidelines permit derivatives would terminate their relationship if
PIMCO could no longer trade in derivatives for those plans because
PIMCO would be limited in its ability to manage a portfolio consistent
with such clients' objectives. The Department notes that PIMCO is
unable to give a precise estimate of the size or significance of the
plan assets affected
[[Page 18339]]
and invites public comment on the likely impacts.
41. Below is an assessment by PIMCO of the potential harm to
Covered Plans if this exemption is not granted, both in the aggregate
and with respect to a representative Covered Plan account, under
orderly, stressed, and expedited scenarios in which all the Plans
decide to terminate their relationships with PIMCO: (1) under an
``orderly'' scenario, PIMCO would have one year to liquidate client
portfolios; (2) the ``stressed'' scenario is based on input from
PIMCO's trading desks and designed to be an estimate of stressed market
conditions based on the previous six months of trading; (3) the
``expedited'' scenario applies a 4x factor to the stressed scenario and
contemplates clients directing PIMCO to liquidate under a very short
time frame (i.e., 30 days); \16\ PIMCO views each of these scenarios as
plausible. While these charts assume for estimation purposes that all
PIMCO's Plan customers would terminate their existing relationships
with PIMCO, the applicant does not assert that it is likely that all
PIMCO's plan customers, in fact, would terminate their existing
relationships. Accordingly, the public and PIMCO are invited to comment
on the reasonableness of the assumptions and the estimates below, and
on the likely magnitude of termination decisions.
---------------------------------------------------------------------------
\16\ Covered Plan clients could direct PIMCO to promptly
liquidate their portfolio(s) for a variety of reasons, including to
avoid selling into a distressed market, separating from PIMCO in
anticipation of mass departure of talent, or termination due to
breach of QPAM representation. In this circumstance, brokers also
may have some awareness of PIMCO's liquidation requirements and
engage in predatory trading, knowing PIMCO is required to sell,
which could result in wider bid-ask spreads.
---------------------------------------------------------------------------
42. In the absence of an exemption, PIMCO represents that Covered
Plans that choose to remain with PIMCO would have a circumscribed set
of transactions available to them and could be prohibited from engaging
in certain transactions that would be beneficial, such as hedging
transactions using over-the-counter options or derivatives.
Counterparties to such transactions are far more comfortable with the
QPAM Exemption than any other existing exemption, and the
unavailability of the QPAM Exemption could trigger a default or early
termination. Even if other exemptions were acceptable to such
counterparties, the cost of the transaction might well increase to
reflect any lack of comfort.
43. The PIMCO Affiliated QPAMs also have entered, and could in the
future enter, into contracts for other transactions such as swaps,
forwards, real estate financing and leasing on behalf of their ERISA
clients. The Applicant represents that: (a) these and other strategies
and investments require the PIMCO Affiliated QPAMs to meet the
conditions of the QPAM Exemption; (b) the loss of the QPAM Exemption
could disrupt the plans using each of these strategies, as
counterparties to those transactions could seek to terminate their
contracts, resulting in significant losses to their Covered Plan
clients; and (c) certain derivatives transactions and other contractual
agreements automatically and immediately could be terminated, without
notice or action, or could become subject to termination upon notice
from a counterparty in the event the Applicant no longer qualifies for
relief under the QPAM Exemption.
44. The question of which applicable exemption can be used is
entirely in the discretion of the counterparty; if the counterparty is
uncomfortable with the risks presented by other exemptions, it will
simply terminate the ongoing transaction based on the plan's default
(considered to occur if its investment manager is no longer able to use
the QPAM Exemption). While PIMCO could argue that other exemptions
apply, whether to accept that exemption is the decision of the
counterparty, and the strongest counterparties generally will take the
smallest legal risk on exemptive relief. Because the Department has
never issued any guidance on the applicability of other exemptions to
cleared and over-the-counter swaps, PIMCO's Covered Plan clients could
be at a disadvantage with respect to those transactions.
45. PIMCO represents that the cost of terminating an investment is
the difference between the bid and ask on the instrument since,
generally, these investments are terminated earlier than contemplated
and on the counterparty's side of the market. Some investments,
however, are more liquid than others (e.g., Treasury bonds generally
are more liquid than foreign sovereign bonds, and equities generally
are more liquid than swaps). Some of the strategies followed by the
PIMCO Affiliated QPAMs tend to be less liquid than certain other
strategies and, thus, the cost of a transition would be significantly
higher than, for example, liquidating a large cap equity portfolio. The
Applicant believes that, depending on the strategy, the cost of
liquidating assets in connection with transitioning clients to another
manager could be significant.
The Applicant estimates that Covered Plan clients following a core
bond strategy would be materially impacted if the PIMCO Affiliated
QPAMs were required to liquidate assets on an expedited basis. In this
scenario, the Applicant estimates that a core bond strategy could incur
liquidation costs of approximately 15 to 45 basis points, assuming
normal market conditions, and approximately 90 to 215 basis points in
stressed market conditions.
46. The Applicant represents that substantial transaction costs
would be incurred if plan investors decided to withdraw from funds that
are not deemed to hold plan assets. Regarding private funds that do not
hold ERISA plan assets, but which may decide to redeem if the PIMCO
Affiliated QPAMs are no longer able to rely on the QPAM Exemption,
those redemptions would be harmful for the redeeming plans and could
adversely affect others in the private fund as well.
Overall
----------------------------------------------------------------------------------------------------------------
BPS loss BPS loss
Instrument Total AUM Loss (orderly) (stressed) (expedited)
----------------------------------------------------------------------------------------------------------------
Cash Bonds..................... $170.35B........... 16.21 bps......... 41.70 bps......... 166.80 bps.
(451 Plans).................... $276.14 mm........ $710.36 mm........ $2.84B.
Cleared Swaps.................. $133.31B........... 0.41 bps.......... 0.90 bps.......... 3.61 bps.
(318 Plans).................... $5.50 mm.......... $12.04 mm......... $48.06 mm.
Other Derivatives (365 Plans).. $151.74B........... 0.38 bps.......... 1.07 bps.......... 4.27 bps.
$5.71 mm.......... $16.20 mm......... $64.8 mm.
----------------------------------------------------------------------------------------------------------------
[[Page 18340]]
Representative Plan Account With AUM of $3.33B:
----------------------------------------------------------------------------------------------------------------
Instrument Loss (orderly) BPS loss (stressed) BPS loss (expedited)
----------------------------------------------------------------------------------------------------------------
Cash Bonds.......................... 22.5 bps................ 58.2 bps............... 232.84 bps.
$7.514 mm............... $19.435 mm............. $77.743 mm.
Cleared Swaps....................... 0.6 bps................. 1.4 bps................ 5.47 bps.
$204,793................ $456,722............... $1.826 mm.
Other Derivatives................... 0.2 bps................. 1.07 bps............... 1.89 bps.
$63,513................. $157,570............... $630,279.
----------------------------------------------------------------------------------------------------------------
Partial Liquidation: PIMCO states that it is also possible that
certain Covered Plan accounts would merely direct PIMCO to cease using
derivatives, in which case PIMCO represents that their portfolios would
need to be repositioned to align the portfolio with the plan's
objectives. While PIMCO acknowledges that it does not have the ability
to make a more precise estimate of the probability that their clients
would seek to use other managers, it represents that the inability to
rely on the QPAM exemption in connection with certain derivatives
would, among other things, inhibit PIMCO's ability to manage a
portfolio consistent with a Plan client's objectives and therefore it
is possible and, in many cases, likely that such clients would seek to
use other managers. There would be certain transaction costs associated
with liquidating the derivative positions and separately reinvesting
the cash into bonds to reposition the portfolio. Using the
representative portfolio above, the chart below reflects PIMCO's best
estimates for liquidating the derivative positions and reinvesting the
portfolio in cash bonds. For purposes of this estimate, PIMCO assumed
that the repositioning must occur on an expedited timeline.
Additionally, although not reflected below there would likely be
heightened transaction costs in order to maintain and adjust the
positioning of the portfolio over time due to PIMCO's inability to use
derivatives.
------------------------------------------------------------------------
Bps loss $ loss
Instrument (expedited) (expedited)
------------------------------------------------------------------------
Cash bond reinvestment......... 50 bps............. $16.7 mm.
Cleared Swaps.................. 5.47 bps........... $1.826 mm.
Other Derivatives.............. 1.89 bps........... $630,279.
------------------------------------------------------------------------
Proposed Exemption's Protective Conditions
47. The Department may grant administrative exemptions under ERISA
Section 408(a) only if it finds that such exemptions are
administratively feasible, and protective of, and in the interest of,
affected Covered Plans. This proposed exemption contains several
protective conditions that would allow Covered Plans to continue to
utilize the services of the PIMCO Affiliated and Related QPAMs.
48. If this proposed exemption is granted as proposed, it would
allow Covered Plans to avoid costs and disruption to investment
strategies the Applicant represents could arise if such Covered Plans
are forced, on short notice, to hire a different QPAM or asset manager
because the PIMCO Affiliated and Related QPAMs are no longer able to
rely on the relief provided by PTE 84-14. Covered Plan fiduciaries
however are cautioned that the Department's decision to propose this
exemption should not be taken, in any way, as an indication that PIMCO
asset managers will be granted exemptive relief in connection with this
proposal or receive additional exemptive relief in the future.
49. The Department notes that PIMCO's high level of independence
from AGI US is critically important to this exemption, and the relief
hereunder is premised on the Applicant's representations that PIMCO was
completely isolated from, and unaware of, the Misconduct perpetrated
within AGI US and the Structured Products Group. It is a material
condition of this exemption that the PIMCO Affiliated and Related QPAMs
(including their officers, directors, agents, and employees of such
QPAMs), other than Gregoire Tournant, Trevor Taylor, and Stephen Bond-
Nelson, did not know or have reason to know of, and did not participate
in the Misconduct that is the subject of the AGI US Conviction.
Further, no other party engaged on behalf of the PIMCO Affiliated
QPAMs or the PIMCO Related QPAMs who was responsible for or exercised
authority in connection with the management of plan assets knew or had
reason to know of the Misconduct that is the subject of the AGI US
Conviction nor participated in such Misconduct.
50. The protective conditions in this proposed exemption include a
requirement that the PIMCO Affiliated QPAMs do not currently and may
not in the future employ or knowingly engage any of the individuals who
participated in the Misconduct that is the subject of the AGI US
Conviction.
51. This proposed exemption prohibits a PIMCO Affiliated QPAM from
using its authority or influence to direct an ``investment fund'' (as
defined in Section VI(b) of PTE 84-14) that is subject to ERISA or the
Code to enter into any transaction with AGI US, or to engage AGI US to
provide any service to such investment fund, regardless of whether such
transaction or service may otherwise be within the scope of relief
provided by an administrative or statutory exemption. Further, other
than with respect to employee benefit plans maintained or sponsored for
its own employees or the employees of an affiliate, AGI US may not act
as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or
(iii), or Code Section 4975(e)(3)(A) and (C), with respect to Covered
Plan assets.
52. This proposed exemption requires each PIMCO Affiliated QPAM to
develop, maintain, and adjust, to the extent necessary, implement, and
follow written policies and procedures (the Policies) that are
reasonably designed to ensure that: (a) the asset management decisions
of the PIMCO Affiliated QPAMs are conducted independently of AGI US's
corporate management and business activities; (b) the PIMCO Affiliated
QPAMs fully comply with ERISA's fiduciary duties and with ERISA's and
the Code's prohibited transaction provisions; (c) the PIMCO Affiliated
QPAMs do not knowingly participate in any other person's violation of
ERISA or the Code with respect to Covered Plans; (d) any filings or
statements made by the PIMCO Affiliated QPAMs to regulators on behalf
of, or in relation to, Covered Plans are materially accurate and
complete; (e) the PIMCO Affiliated QPAMs do not make material
misrepresentations or omit material
[[Page 18341]]
information in their communications with such regulators, or in their
communications with Covered Plans; and (f) that the PIMCO Affiliated
QPAMs comply with the terms of this proposed exemption, if granted.
53. This proposed exemption requires each PIMCO Affiliated QPAM to
develop, implement and maintain a training program (the Training) that
is conducted at least annually for all relevant asset/portfolio
management, trading, legal, compliance, and internal audit personnel.
This required Training must, at a minimum, cover the Policies, ERISA
and Code compliance, ethical conduct, the consequences for not
complying with the conditions described in this proposed exemption, and
the requirement for prompt reporting of wrongdoing.
54. This proposed exemption requires that each PIMCO Affiliated
QPAM submit to biennial audits conducted by an independent auditor to
evaluate the adequacy of and the PIMCO Affiliated QPAM's compliance
with the Policies and Training required by the exemption. The
independent auditor must be prudently selected and have appropriate
technical training and proficiency with ERISA and the Code to perform
the tasks required by the exemption. Further, the PIMCO Affiliated
QPAMs must grant the auditor unconditional access to their business,
and the auditor's engagement must specifically require the auditor to
test each PIMCO Affiliated QPAM's operational compliance with the
Policies and Training.
55. The independent auditor must issue a written audit report (the
Audit Report) to PIMCO and the PIMCO Affiliated QPAM to which the audit
applies describing the procedures performed by the auditor in
connection with its examination. Further, the PIMCO Affiliated QPAMs
must promptly address any identified instance of noncompliance and must
promptly address, or prepare a written plan of action to address, any
determination as to the adequacy of the Policies and Training and the
auditor's recommendations, if any, with respect to strengthening the
Policies and Training of the respective PIMCO Affiliated QPAM.
56. This proposed exemption further requires the general counsel or
one of the three most senior executive officers of the PIMCO Affiliated
QPAM to which the Audit Report applies to certify in writing and under
penalty of perjury that the officer has reviewed the Audit Report and
the exemption, if granted, and that the PIMCO Affiliated QPAM has
addressed, corrected, and remedied (or has an appropriate written plan
to address) any identified instance of noncompliance or inadequacy
regarding the Policies and Training identified in the Audit Report.
57. With respect to any arrangement, agreement, or contract between
a PIMCO Affiliated QPAM and a Covered Plan, this proposed exemption
requires the PIMCO Affiliated QPAMs to agree and warrant to: (a) comply
with ERISA and the Code, including the standards of prudence and
loyalty set forth in ERISA Section 404; (b) refrain from engaging in
prohibited transactions that are not otherwise exempt; (c) indemnify
and hold harmless the Covered Plan for any actual losses resulting
directly from, among other things, the PIMCO Affiliated QPAM's
violation of ERISA's fiduciary duties; (d) with narrow exceptions, not
restrict the ability of the Covered Plan to terminate or withdraw from
its arrangement with the PIMCO Affiliated QPAM with respect to any
investment in a separately managed account or pooled fund subject to
ERISA and managed by such QPAM; (e) with narrow exceptions, not impose
any fees, penalties, or charges for such termination or withdrawal; and
(f) not include exculpatory provisions disclaiming or otherwise
limiting the liability of the PIMCO Affiliated QPAM for a violation of
such agreement's terms.
58. Each PIMCO Affiliated QPAM must further provide a notice of its
obligations under this proposed exemption to each Covered Plan and each
PIMCO Affiliated QPAM also must provide a Federal Register copy of the
notice of the exemption, a separate summary describing the facts that
led to the AGI US Conviction (the Summary), and a prominently displayed
statement (the Statement) that the AGI US Conviction results in a
failure to meet a condition in PTE 84-14 to each sponsor and beneficial
owner of a Covered Plan.
59. Finally, this proposed exemption requires PIMCO to designate a
senior compliance officer (the Compliance Officer) who will be
responsible for the PIMCO Affiliated QPAMs' compliance with the
Policies and Training requirements described in this exemption. The
Compliance Officer must conduct five separate reviews covering each of
the five consecutive twelve-month periods that comprise the Exemption
Period (the Exemption Review). With respect to each Exemption Review,
the Compliance Officer must determine the adequacy and effectiveness of
the implementation of the Policies and Training and must issue a
written report (the Exemption Report) summarizing their findings.
Statutory Findings
60. Based on the conditions that are included in this proposed
exemption, the Department has tentatively determined that the relief
sought by the Applicant would satisfy the statutory requirements for an
exemption under ERISA Section 408(a).
61. The Proposed Exemption is ``Administratively Feasible.'' The
Department has tentatively determined that the proposed exemption is
administratively feasible since, among other things, a qualified
independent auditor will be required to perform an in-depth audit
covering each PIMCO Affiliated QPAM's compliance with the terms of the
exemption, and a corresponding written audit report will be provided to
the Department and be made available to the public. The Department
notes that the independent audit will provide an incentive for
compliance while reducing the immediate need for review and oversight
by the Department.
62. The Proposed Exemption is ``In the Interest of the Plan.'' The
Department has tentatively determined that the proposed exemption is in
the interests of the participants and beneficiaries of affected Covered
Plans. It is the Department's understanding, based on representations
from the Applicant, that if the requested exemption is denied, Covered
Plans may be forced to find other managers at a potentially significant
cost. According to the Applicant, ineligibility under Section I(g) of
the QPAM Exemption would deprive the Covered Plans of the investment
management services that these plans expected to receive when they
appointed the PIMCO Affiliated QPAMs and could result in the
termination of relationships that the fiduciaries of the Covered Plans
have determined to be in the best interests of those plans.
63. The Proposed Exemption is ``Protective of the Plan.'' The
Department has tentatively determined that the proposed exemption is
protective of the interests of the participants and beneficiaries of
affected Covered Plans. As described above, the proposed exemption is
subject to a suite of conditions that include, but are not limited to:
(a) the development and maintenance of the Policies; (b) the
development and implementation of the Training; (c) a robust audit
conducted by a qualified independent auditor; (d) the provision of
certain agreements and warranties to Covered Plans by the PIMCO
Affiliated QPAMs; (e) specific notices and disclosures to Covered Plans
concerning the circumstances
[[Page 18342]]
necessitating the need for exemptive relief and the PIMCO Affiliated
QPAMs' obligations under this exemption; and (f) the designation of a
Compliance Officer who must ensure that the PIMCO Affiliated QPAMs
continue to comply with the Policies and Training requirements of this
exemption.
Summary
64. This exemption, if granted, will provide relief from certain of
the restrictions set forth in ERISA Section 406 and Code Section
4975(c)(1). No relief or waiver of a violation of any other law is
provided by the exemption. The relief in this proposed exemption would
terminate immediately if, among other things, an affiliate of PIMCO's
(as defined in Section VI(d) of PTE 84-14) is convicted of a crime
described in Section I(g) of PTE 84-14 (other than the AGI US
Conviction) during the Exemption Period. While PIMCO could request a
new exemption in that event, the Department would not be obligated to
grant the request. Consistent with this proposed exemption, the
Department's consideration of additional exemptive relief is subject to
the findings required under ERISA Section 408(a) and Code Section
4975(c)(2).67.
65. When interpreting and implementing this exemption, the
Applicant and the PIMCO Affiliated QPAMs should resolve any ambiguities
by considering the exemption's protective purposes. To the extent
additional clarification is necessary, these persons or entities should
contact EBSA's Office of Exemption Determinations, at 202-693-8540.
66. Based on the conditions that are included in this proposed
exemption, the Department has tentatively determined that the relief
sought by the Applicant would satisfy the statutory requirements for an
individual exemption under ERISA Section 408(a) and Code Section
4975(c)(2).
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within fifteen (15) days of the publication of the notice of
proposed five-year exemption in the Federal Register. The notice will
be provided to all interested persons in the manner approved by the
Department and will contain the documents described therein and a
supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2).
The supplemental statement will inform interested persons of their
right to comment on and to request a hearing with respect to the
pending exemption. All written comments and/or requests for a hearing
must be received by the Department within forty-five (45) days of the
date of publication of this proposed five-year exemption in the Federal
Register. All comments will be made available to the public.
Warning: If you submit a comment, EBSA recommends that you include
your name and other contact information in the body of your comment,
but DO NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number) or confidential business information that you do not want
publicly disclosed. All comments may be posted on the internet and can
be retrieved by most internet search engines.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA Section 408(a) and/or Code Section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of ERISA and/or the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of ERISA Section
404, which, among other things, require a fiduciary to discharge their
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with ERISA Section 404(a)(1)(B); nor does it affect the requirement of
Code Section 401(a) that the plan must operate for the exclusive
benefit of the employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under ERISA Section 408(a)
and/or Code Section 4975(c)(2), the Department must find that the
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) The proposed exemption would be supplemental to, and not in
derogation of, any other provisions of ERISA and/or the Code, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is, in fact, a prohibited transaction; and
(4) The proposed exemption would be subject to the express
condition that the material facts and representations contained in the
application are true and complete at all times and that the application
accurately describes all material terms of the transactions which are
the subject of the exemption.
(5) The Department notes that all of the material facts and
representations set forth in the Summary of Facts and Representations
must be true and accurate at all times, and that the relief provided
herein is conditioned upon the veracity of all material representations
made by the Applicant.
Proposed Exemption
The Department is considering granting a five-year exemption under
the authority of ERISA Section 408(a) and Internal Revenue Code (or
Code) section 4975(c)(2), and in accordance with the exemption
procedures regulation.\17\ Effective December 31, 1978, section 102 of
Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred
the authority of the Secretary of the Treasury to issue exemptions of
the type requested by the Applicant to the Secretary of Labor.
Therefore, this notice of proposed exemption is issued solely by the
Department.
---------------------------------------------------------------------------
\17\ 29 CFR part 2570, subpart B (76 FR 66637, 66644, October
27, 2011). For purposes of this proposed five-year exemption,
references to ERISA section 406, unless otherwise specified, should
be read to refer as well to the corresponding provisions of Code
section 4975.
---------------------------------------------------------------------------
Section I. Definitions
(a) The term ``AGI US'' means Allianz Global Investors U.S. LLC.
(b) The term ``AGI US Conviction'' means the judgment of conviction
against AGI US for one count of securities fraud in violation of Title
15, United States Code, Sections 78j(b) and 78ff, Title 17, Code of
Federal Regulations, Section 240.10b-5, and Title 18, United States
Code, Section 2, entered in the District Court for the US District
Court Southern District of New York (the District Court) case number
1:22-cr-00279-CM.
(c) The term ``Covered Plan'' means a plan subject to Part IV of
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to Code
section 4975 (an ``IRA''), in each case, with respect to which a PIMCO
Affiliated QPAM or a PIMCO Related QPAM relies on PTE 84-14, or with
respect to which a PIMCO Affiliated QPAM (or any PIMCO affiliate) has
expressly represented that the manager qualifies as a QPAM or relies on
the QPAM class exemption (PTE 84-14 or the QPAM Exemption).\18\
[[Page 18343]]
A Covered Plan does not include an ERISA-covered plan or IRA to the
extent the PIMCO Affiliated QPAM or the PIMCO Related QPAM has
expressly disclaimed reliance on QPAM status or PTE 84-14 in entering
into a contract, arrangement, or agreement with the ERISA-covered plan
or IRA.
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\18\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as
amended at 75 FR 38837 (July 6, 2010).
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(d) The term ``Exemption Period'' means May 17, 2023, through May
16, 2028.
(e) The term ``Misconduct'' means the conduct described in the
Statement of Facts in case number 1:22-cr-00279-CM which indicated that
beginning in at least 2014 and continuing through March 2020, AGI US
engaged in a scheme to defraud investors in a series of private
investment funds (the Structured Alpha Funds) that at their height had
over $11 billion in assets under management.
(f) The term ``PIMCO'' means Pacific Investment Management Company
LLC.
(g) The term ``PIMCO Affiliated QPAM'' means a ``qualified
professional asset manager,'' as defined in Section VI(a) of PTE 84-14,
that relies on the relief provided by PTE 84-14 or represents to ERISA-
covered plans and/or IRAs that it qualifies as a QPAM, and with respect
to which PIMCO is a current or future ``affiliate'' (as defined in
Section VI(d)(1) of PTE 84-14). For the purposes of this exemption, the
term ``PIMCO Affiliated QPAMs'' does not include AGI US, or entities
that are under the control of AGI US. The term only includes entities
that are 100 percent owned, directly or indirectly, by PIMCO.
(h) The term ``PIMCO Related QPAM'' means any current or future
``qualified professional asset manager'' (as defined in section VI(a)
of PTE 84-14) that relies on the relief provided by PTE 84-14, and with
respect to which PIMCO owns a direct or indirect five percent or more
interest, but with respect to which PIMCO is not an ``affiliate'' (as
defined in Section VI(d)(1) of PTE 84-14).
Section II. Covered Transactions
The PIMCO Affiliated QPAMs, as defined in Section I(g), and the
PIMCO Related QPAMs, as defined in Section I(h), will not be precluded
from relying on the exemptive relief provided by the QPAM Exemption
during the Exemption Period, notwithstanding the AGI US Convictions (as
defined in Section I(a)) if the conditions in Section III are
satisfied.
Section III. Conditions
(a) The PIMCO Affiliated QPAMs and the PIMCO Related QPAMs
(including their officers, directors, agents other than AGI US, and
employees of such QPAMs) did not know or have reason to know of and did
not participate in the Misconduct that is the subject of the AGI US
Conviction. Further, any other party engaged on behalf of the PIMCO
Affiliated QPAMs and PIMCO Related QPAMs who had responsibility for, or
exercised authority in connection with the management of plan assets
did not know nor have reason to know of and did not participate in the
Misconduct that is the subject of the AGI Conviction. For purposes of
this proposed exemption, ``participate in'' refers not only to active
participation in the Misconduct of AGI US that is the subject of the
AGI US Conviction, but also to knowing approval of the Misconduct, or
knowledge of such Misconduct without taking active steps to stop it,
including reporting the Misconduct to the individual's supervisors and
to the Board of Directors.
(b) The PIMCO Affiliated QPAMs and the PIMCO Related QPAMs
(including their officers, directors, and agents other than AGI US, and
employees of such PIMCO QPAMs who had responsibility for, or exercised
authority in connection with the management of plan assets) did not
receive direct compensation or knowingly receive indirect compensation
in connection with the Misconduct that is the subject of the AGI US
Conviction. Further, any other party engaged on behalf of the PIMCO
Affiliated QPAMs and the PIMCO Related QPAMs who had responsibility for
or exercised authority in connection with the management of plan assets
did not receive direct compensation nor knowingly receive indirect
compensation in connection with the Misconduct that is the subject of
the AGI US Conviction;
(c) The PIMCO Affiliated QPAMs do not currently and will not in the
future employ or knowingly engage any of the individuals who
participated in any of the Misconduct, or any individual who was
employed in AGI US's Structured Products Group from January 1, 2014,
through March 31, 2020;
(d) At all times during the Exemption Period, no PIMCO Affiliated
QPAM will use its authority or influence to direct an ``investment
fund'' (as defined in Section VI(b) of PTE 84-14) that is subject to
ERISA or the Code and managed by such PIMCO Affiliated QPAM in reliance
on PTE 84-14 or with respect to which a PIMCO Affiliated QPAM has
expressly represented to an ERISA-covered plan or IRA with assets
invested in such ``investment fund'' that it qualifies as a QPAM or
relies on the QPAM class exemption, to enter into any transaction with
AGI US or to engage AGI US to provide any service to such investment
fund for a direct or indirect fee borne by such investment fund
regardless of whether such transaction or service may otherwise be
within the scope of relief provided by an administrative or statutory
exemption;
(e) Any failure of a PIMCO Affiliated QPAM or a PIMCO Related QPAM
to satisfy Section I(g) of PTE 84-14 arose solely from the AGI US
Conviction;
(f) A PIMCO Affiliated QPAM or a PIMCO Related QPAM did not
exercise authority over the assets of any plan subject to Part 4 of
Title I of ERISA (an ERISA-covered plan) or Code Section 4975 (an IRA)
in a manner that it knew or should have known would: (i) further the
Misconduct that is the subject of the AGI US Conviction; or (ii) cause
the PIMCO Affiliated QPAM, the PIMCO Related QPAM, or their affiliates
to directly or indirectly profit from the Misconduct that is the
subject of the AGI US Conviction;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, AGI
US will not act as a fiduciary within the meaning of ERISA Section
3(21)(A)(i) or (iii) or Code Section 4975(e)(3)(A) and (C) with respect
to ERISA-covered plan and IRA assets; provided, however, that PIMCO
will not be treated as violating the conditions of this exemption
solely because AGI US acted as an investment advice fiduciary within
the meaning of ERISA Section 3(21)(A)(ii) or Code Section
4975(e)(3)(B);
(h)(1) Within 180 calendar days of the effective date of this five-
year exemption, each PIMCO Affiliated QPAM must immediately develop,
maintain, implement, and follow written policies and procedures (the
Policies) that must require, and be reasonably designed to ensure that:
(i) The asset management decisions of the PIMCO Affiliated QPAM are
conducted independently of the corporate management and business
activities of AGI US;
(ii) The PIMCO Affiliated QPAM fully complies with ERISA's
fiduciary duties and with ERISA and the Code's prohibited transaction
provisions as applicable with respect to each Covered Plan, and does
not knowingly participate in any violation of these duties and
provisions with respect to Covered Plans;
(iii) The PIMCO Affiliated QPAM does not knowingly participate in
any other person's violation of ERISA or the Code with respect to
Covered Plans;
(iv) Any filings or statements made by the PIMCO Affiliated QPAM to
[[Page 18344]]
regulators, including, but not limited to, the Department, the
Department of the Treasury, the Department of Justice, and the Pension
Benefit Guaranty Corporation on behalf of or in relation to Covered
Plans are materially accurate and complete to the best of such QPAM's
knowledge at that time;
(v) To the best of the PIMCO Affiliated QPAM's knowledge at the
time, the PIMCO Affiliated QPAM does not make material
misrepresentations or omit material information in its communications
with such regulators with respect to Covered Plans or make material
misrepresentations or omit material information in its communications
with Covered Plans;
(vi) The PIMCO Affiliated QPAM complies with the terms of this
exemption; and
(vii) Any violation of or failure to comply with an item in
subparagraphs (ii) through (vi), is corrected as soon as reasonably
possible upon discovery, or as soon after the QPAM reasonably should
have known of the noncompliance (whichever is earlier), and any such
violation or compliance failure not so corrected is reported, upon the
discovery of such failure to so correct, in writing, to the head of
compliance and the General Counsel (or their functional equivalent) of
the relevant line of business that engaged in the violation or failure,
and the independent auditor responsible for reviewing compliance with
the Policies. A PIMCO Affiliated QPAM will not be treated as having
failed to develop, implement, maintain, or follow the Policies if it
corrects any instance of noncompliance as soon as reasonably possible
upon discovery, or as soon as reasonably possible after the QPAM
reasonably should have known of the noncompliance (whichever is
earlier), and if it adheres to the reporting requirements set forth in
this subparagraph (vii);
(2) Within 180 calendar days after the effective date of the
exemption, each PIMCO Affiliated QPAM must develop, maintain, adjust
(to the extent necessary), and implement a training program during the
Exemption Period that will be conducted at least annually for all
relevant PIMCO Affiliated QPAM asset/portfolio management, trading,
legal, compliance, and internal audit personnel (the Training). The
Training required under this exemption may be conducted electronically
and must:
(i) At a minimum, cover the Policies, ERISA and Code compliance
(including applicable fiduciary duties and the prohibited transaction
provisions), ethical conduct, the consequences for not complying with
the conditions of this exemption (including any loss of exemptive
relief provided herein), and prompt reporting of wrongdoing; and
(ii) Be conducted by a professional who has been prudently selected
and has appropriate technical training and proficiency with ERISA and
the Code to perform the tasks required by this exemption;
(iii) Be verified through in-training knowledge checks,
``graduation'' tests, and/or other technological tools designed to
confirm that personnel fully and in good faith participate in the
Training;
(i)(1) Each PIMCO Affiliated QPAM must submit to an audit conducted
every two years by an independent auditor who has been prudently
selected and has appropriate technical training and proficiency with
ERISA and the Code to evaluate the adequacy of the Policies and
Training conditions described herein and each PIMCO Affiliated QPAM's
compliance with them. The audit requirement must be incorporated into
the Policies. Each audit must cover the preceding consecutive twelve
(12) month period. The first audit under this exemption must cover the
period from May 17, 2023, through May 16, 2024, and must be completed
by November 16, 2024. The second audit must cover the period from May
17, 2025, through May 16, 2026, and must be completed by November 16,
2026. The third audit must cover the period from May 17, 2027, through
May 16, 2028, and must be completed by November 16, 2028.
(2) Within the scope of the audit and to the extent necessary for
the auditor, in its sole opinion, to complete its audit and comply with
the conditions for relief described herein, The PIMCO Affiliated QPAMs
will grant the auditor unconditional access to their businesses,
including, but not limited to: its computer systems; business records;
transactional data; workplace locations; training materials; and
personnel. Such access will be provided only to the extent that it is
not prevented by state or federal statute, or involves communications
subject to attorney client privilege and may be limited to information
relevant to the auditor's objectives as specified by the terms of this
exemption;
(3) The auditor's engagement must specifically require the auditor
to determine whether each PIMCO Affiliated QPAM has developed,
implemented, maintained, and followed the Policies in accordance with
the conditions of this exemption, and has developed and implemented the
Training as required herein;
(4) The auditor's engagement must specifically require the auditor
to test each PIMCO Affiliated QPAM's operational compliance with the
Policies and Training conditions. In this regard, the auditor must
test, for each QPAM, a sample of the QPAM's transactions involving
Covered Plans sufficient in size and nature to afford the auditor a
reasonable basis to determine the QPAM's operational compliance with
the Policies and Training conditions;
(5) For each audit, on or before the end of the relevant period
described in Section III(i)(1) for completing the audit, the auditor
must issue a written report (the Audit Report) to PIMCO and the PIMCO
Affiliated QPAM to which the audit applies that describes the
procedures performed by the auditor during its examination. The
auditor, at its discretion, may issue a single consolidated Audit
Report that covers all the PIMCO Affiliated QPAMs. The Audit Report
must include the auditor's specific determinations regarding:
(i) The adequacy of each PIMCO Affiliated QPAM's Policies and
Training and compliance with the Policies and Training conditions; the
need, if any, to strengthen such Policies and Training; and any
instance of the respective PIMCO Affiliated QPAM's noncompliance with
the written Policies and Training conditions described in Section
III(h) above. The PIMCO Affiliated QPAM must promptly address any
identified noncompliance. The PIMCO Affiliated QPAM must also promptly
address or prepare a written plan of action to address any
determination by the auditor regarding the adequacy of the Policies and
Training and the auditor's recommendations (if any) with respect to
strengthening the PIMCO Affiliated QPAM Policies and Training. Any
action taken, or the plan of action to be taken, by the respective
PIMCO Affiliated QPAM must be included in an addendum to the Audit
Report (and such addendum must be completed prior to the certification
described in Section III(i)(7) below). In the event such a plan of
action to address the auditor's recommendation regarding the adequacy
of the Policies and Training is not completed by the time of submission
of the Audit Report, the following period's Audit Report must state
whether the plan was satisfactorily completed. Any determination by the
auditor that the respective PIMCO Affiliated QPAM has implemented,
maintained, and followed sufficient Policies and a Training must not be
based solely or in substantial part on an absence of evidence
indicating
[[Page 18345]]
noncompliance. In this last regard, any finding that a PIMCO Affiliated
QPAM has complied with the requirements under this subparagraph must be
based on evidence that such PIMCO Affiliated QPAM has implemented,
maintained, and followed the Policies and Training conditions required
by this exemption. Furthermore, the auditor must not solely rely on the
Annual Report created by the compliance officer (the Compliance
Officer), as described in Section III(m) below, as the basis for the
auditor's conclusions in lieu of independent determinations and testing
performed by the auditor, as required by Section III(i)(3) and (4)
above; and
(ii) The adequacy of the most recent Annual Review described in
Section III(m);
(6) The auditor must notify the respective PIMCO Affiliated QPAM of
any instance of noncompliance identified by the auditor within five (5)
business days after such noncompliance is identified by the auditor
regardless of whether the audit has been completed as of that date;
(7) With respect to each Audit Report, the general counsel or one
of the three most senior executive officers of PIMCO or the Affiliated
QPAM with respect to which the Audit Report applies must certify in
writing and under penalty of perjury that (a) the officer has reviewed
the Audit Report and this exemption; and (b) the PIMCO Affiliated QPAM
has addressed, corrected or remedied any instance of noncompliance or
inadequacy or has an appropriate written plan in place to address any
instance of noncompliance or inadequacy regarding the Policies and
Training identified in the Audit Report. The certification must also
include the signatory's determination that the Policies and Training in
effect at the time of the certification are adequate to ensure
compliance with the exemption conditions and with the applicable
provisions of ERISA and the Code;
(8) The PIMCO Board of Directors is provided with a copy of each
Audit Report, and a senior executive officer with a direct reporting
line to the highest-ranking legal compliance officer of PIMCO must
review the Audit Report for each PIMCO Affiliated QPAM and certify in
writing under penalty of perjury that such officer has reviewed the
Audit Report;
(9) Each PIMCO Affiliated QPAM provides its certified Audit Report
by electronic mail to e-oed.gov. This delivery must take place no later
than thirty (30) days following completion of the Audit Report. This
delivery must take place no later than thirty (30) calendar days
following completion of the Audit Report. The Audit Report will be made
part of the public record regarding this exemption. Furthermore, each
PIMCO Affiliated QPAM must make its Audit Report unconditionally
available, electronically or otherwise, for examination upon request by
any duly authorized employee or representative of the Department, other
relevant regulators, and any fiduciary of a Covered Plan;
(10) Each PIMCO Affiliated QPAM and the auditor must submit to OED
any engagement agreement(s) entered into pursuant to the engagement by
the auditor under this exemption no later than sixty (60) calendar days
after the execution of any such engagement agreement;
(11) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and
utilized during the audit, provided such access and inspection is
otherwise permitted by law; and
(12) PIMCO must notify the Department of a change in the
independent auditor no later than sixty (60) calendar days after the
engagement of a substitute or subsequent auditor and must provide an
explanation for the substitution or change including a description of
any material disputes between the terminated auditor and PIMCO;
(j) Throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between a PIMCO Affiliated QPAM and
a Covered Plan, the PIMCO Affiliated QPAM agrees and warrants:
(1) To comply with ERISA and the Code, as applicable with respect
to such Covered Plan; to refrain from engaging in prohibited
transactions that are not otherwise exempt (and to promptly correct any
inadvertent prohibited transactions); and to comply with the standards
of prudence and loyalty set forth in ERISA Section 404, with respect to
each such ERISA-covered plan and IRA (to the extent that ERISA Section
404 is applicable);
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from the PIMCO Affiliated QPAM's violation of
ERISA's fiduciary duties, as applicable, and of the prohibited
transaction provisions of ERISA and the Code, as applicable; a breach
of contract by the QPAM; or any claim arising out of the failure of
such PIMCO Affiliated QPAM to qualify for the exemptive relief provided
by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14,
other than the Conviction. This condition applies only to actual losses
caused by the PIMCO Affiliated QPAM's violations. Actual losses include
losses and related costs arising from unwinding transactions with third
parties and from transitioning Plan assets to an alternative asset
manager as well as costs associated with any exposure to excise taxes
under Code Section 4975 because of TTI's inability to rely upon the
relief in the QPAM Exemption;
(3) Not to require (or otherwise cause) the Covered Plan to waive,
limit, or qualify the liability of the PIMCO Affiliated QPAM for
violating ERISA or the Code or engaging in prohibited transactions;
(4) Not to restrict the ability of the Covered Plan to terminate or
withdraw from its arrangement with the PIMCO Affiliated QPAM with
respect to any investment in a separately managed account or pooled
fund subject to ERISA and managed by the QPAM, with the exception of
reasonable restrictions, appropriately disclosed in advance, that are
specifically designed to ensure equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors. In connection with any of
these arrangements involving investments in pooled funds subject to
ERISA entered into after the initial effective date of this exemption,
the adverse consequences must relate to a lack of liquidity of the
underlying assets, valuation issues, or regulatory reasons that prevent
the fund from promptly redeeming an ERISA-covered plan's or IRA's
investment, and the restrictions must be applicable to all such
investors and effective no longer than reasonably necessary to avoid
the adverse consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally recognized abusive investment practices or
specifically designed to ensure the equitable treatment of all
investors in a pooled fund in the event the withdrawal or termination
may have adverse consequences for all other investors, provided that
such fees are applied consistently and in like manner to all such
investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting the liability of the PIMCO Affiliated QPAM for a violation of
such agreement's terms. To the extent consistent with ERISA Section
410, however, this provision does not prohibit disclaimers for
liability caused by an error, misrepresentation, or
[[Page 18346]]
misconduct of a plan fiduciary or other party hired by the plan
fiduciary who is independent of PIMCO and its affiliates, or damages
arising from acts outside the control of the PIMCO Affiliated QPAM; and
(7) (a) Each PIMCO Affiliated QPAM must provide a notice of its
obligations under this Section III(j) to each sponsor or beneficial
owner of a Covered Plan which is a client as of the Effective Date by a
date that is 90 days after the Effective Date. For all other Covered
Plans that become clients between the Effective Date and a date that is
120 days after the Effective Date, each sponsor or beneficial owner of
such Covered Plans must be provided with a notice of the obligations
under this section by a date that is 180 days after the Effective Date.
All prospective sponsors and beneficial owners of Covered Plans that
enter into a written investment management agreement with a PIMCO
Affiliated QPAM after a date that is 120 days after the Effective Date
must receive a copy of the notice of the obligations under this Section
III(j) before, or contemporaneously with, the Covered Plan's receipt of
a written investment management or comparable agreement from the PIMCO
Affiliated QPAM. The notices may be delivered electronically (including
by an email that has a link to a website that contains the documents
required by this section). Notwithstanding the above, a PIMCO
Affiliated QPAM will not violate this condition solely because a
Covered Plan refuses to sign an updated investment management
agreement.
(k) Within 90 days after the effective date of this exemption, each
PIMCO Affiliated QPAM provides notice of the exemption as published in
the Federal Register, along with a separate summary describing the
facts that led to the Conviction (the Summary), which has been
submitted to the Department, and a prominently displayed statement (the
Statement) that the AGI US Conviction results in a failure to meet a
condition in the QPAM Exemption to each sponsor or beneficial owner of
a Covered Plan that has entered into a written investment management
agreement with a PIMCO Affiliated QPAM, or the sponsor of an investment
fund in any case where a PIMCO Affiliated QPAM acts as a sub-adviser to
the investment fund in which such Covered Plan invests. For all other
Covered Plans that become clients between the Effective Date and a date
that is 120 days after the Effective Date, each sponsor or beneficial
owner of such Covered Plans is provided the documents described in this
Section III(k) by a date that is 180 days after the Effective Date. All
sponsors or beneficial owners of prospective Covered Plans that enter
into a written investment management or comparable agreement with a
PIMCO Affiliated QPAM after a date that is 120 days after the Effective
Date must receive a copy of the notice of the exemption, the Summary,
and the Statement before, or contemporaneously with, the Covered Plan's
receipt of a written investment management agreement from the PIMCO
Affiliated QPAM. The notices may be delivered electronically (including
by an email that has a link to a website that contains the documents
required by this section). Notwithstanding the above, a PIMCO
Affiliated QPAM will not violate the condition solely because a Covered
Plan refuses to sign an updated investment management agreement.
(l) The PIMCO Affiliated QPAM must comply with each condition of
PTE 84-14, as amended, with the sole exception of the violation of
Section I(g) of PTE 84-14 that is attributable to the AGI US
Conviction. If an affiliate of PIMCO's (as defined in Section VI(d) of
PTE 84-14) is convicted of a crime described in Section I(g) of PTE 84-
14 (other than the Conviction) during the Exemption Period, relief in
this exemption would terminate immediately;
(m)(1) Within 60 calendar days after the effective date of this
exemption, each PIMCO Affiliated QPAM must designate a senior
compliance officer (the Compliance Officer) who will be responsible for
compliance with the Policies and Training requirements described
herein. Notwithstanding the above, no person, including any person
referenced in the Statement of Facts underlying the AGI US Conviction,
who knew of, or should have known of, or participated in, any of the
Misconduct, by any party, may be involved with the designation or
responsibilities required by this condition, unless the person took
active documented steps to stop the Misconduct. The Compliance Officer
must conduct a review of each twelve-month period of the Exemption
Period (the Exemption Review), to determine the adequacy and
effectiveness of the implementation of the Policies and Training. The
following conditions must be met with respect to the Compliance
Officer:
(i) The Compliance Officer must be a professional who has extensive
experience with, and knowledge of, the regulation of financial services
and products, including under ERISA and the Code; and
(ii) The Compliance Officer must have a direct reporting line to
the highest-ranking corporate officer in charge of compliance for the
applicable PIMCO Affiliated QPAM.
(2) With respect to the Exemption Review, the following conditions
must be met:
(i) The annual Exemption Review includes a review by the Compliance
Officer of: (A) the PIMCO Affiliated QPAM's compliance with and
effectiveness of the Policies and Training; (B) any compliance matter
related to the Policies or Training that was identified by, or reported
to, the Compliance Officer or others within the compliance and risk
control function (or its equivalent) during the previous year; (C) the
most recent Audit Report issued pursuant to this exemption; (D) any
material change in the relevant business activities of the PIMCO
Affiliated QPAMs; and (E) any change to ERISA, the Code, or regulations
related to fiduciary duties and the prohibited transaction provisions
that may be applicable to the activities of the PIMCO Affiliated QPAMs;
(ii) The Compliance Officer must prepare a written report for the
Exemption Review (an Exemption Report) that: (A) summarizes the
Compliance Officer's material activities during the prior year; (B)
sets forth any instance of noncompliance discovered during the prior
year, and any related corrective action; (C) details any change to the
Policies or Training to guard against any similar instance of
noncompliance occurring again; and (D) makes recommendations, as
necessary, for additional training, procedures, monitoring, or
additional and/or changed processes or systems, and management's
actions on such recommendations;
(iii) In the Exemption Report, the Compliance Officer must certify
in writing that to the best of their knowledge at the time: (A) the
report is accurate; (B) the Policies and Training are working in a
manner that is reasonably designed to ensure that the Policies and
Training requirements described herein are met; (C) any known instance
of noncompliance during the prior year and any related corrections
taken to date have been identified in the Exemption Report; and (D) the
PIMCO Affiliated QPAMs have complied with the Policies and Training,
and/or corrected (or are correcting) any known instances of
noncompliance in accordance with Section III(h) above;
(iv) The Exemption Report must be provided to appropriate corporate
officers of PIMCO and each PIMCO Affiliated QPAM to which such report
relates, the head of compliance and the general counsel (or their
functional equivalent) of the relevant PIMCO
[[Page 18347]]
Affiliated QPAM. The Exemption Report also must be made unconditionally
available to the independent auditor described in Section III(i) above;
(v) The annual Exemption Review, including the Compliance Officer's
written Report, must be completed within 90 calendar days following the
end of the period to which it relates. The annual Exemption Reviews
under this exemption must cover the following periods: May 17, 2023,
through May 16, 2024; May 17, 2024, through May 16, 2025; May 17, 2025,
through May 16, 2026; May 17, 2026, through May 16, 2027; May 17, 2027,
through May 16, 2028.
(n) AGI US complies in all material respects with the requirements
imposed by a U.S. regulatory authority in connection with the AGI US
Conviction;
(o) Each PIMCO Affiliated QPAM will maintain records necessary to
demonstrate that the conditions of this exemption have been met for six
(6) years following the date of any transaction for which the PIMCO
Affiliated QPAM relies upon the relief in this exemption;
(p) During the Exemption Period, PIMCO must: (1) immediately
disclose to the Department any Deferred Prosecution Agreement (a DPA)
or Non-Prosecution Agreement (an NPA) with the U.S. Department of
Justice, entered into by PIMCO or any of its affiliates (as defined in
Section VI(d) of PTE 84-14) in connection with the conduct described in
Section I(g) of PTE 84-14 or ERISA Section 411; and (2) immediately
provide any information requested by the Department, as permitted by
law, regarding the agreement and/or conduct and allegations that led to
the agreement;
(q) Within 60 calendar days after the effective date of this
exemption, each PIMCO Affiliated QPAM, in its agreements with, or in
other written disclosures provided to Covered Plans, will clearly and
prominently inform Covered Plan clients of their right to obtain a copy
of the Policies or a description (Summary Policies) which accurately
summarizes key components of the PIMCO Affiliated QPAM's written
Policies developed in connection with this exemption. If the Policies
are thereafter changed, each Covered Plan client must receive a new
disclosure within 180 calendar days following the end of the calendar
year during which the Policies were changed.\19\ With respect to this
requirement, the description may be continuously maintained on a
website, provided that such website link to the Policies or Summary
Policies is clearly and prominently disclosed to each Covered Plan;
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\19\ If the Applicant meets this disclosure requirement through
Summary Policies, changes to the Policies shall not result in the
requirement for a new disclosure unless, as a result of changes to
the Policies, the Summary Policies are no longer accurate.
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(r) A PIMCO Affiliated QPAM will not fail to meet the conditions of
this exemption solely because a different PIMCO Affiliated QPAM fails
to satisfy a condition for relief described in Sections III(c), (d),
(h), (i), (j), (k), (l), (o) or (q); or if the independent auditor
described in Section III(i) fails to comply with a provision of the
exemption other than the requirement described in Section III(i)(11),
provided that such failure did not result from any actions or inactions
of PIMCO or its affiliates; and
(s) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate at all
times.
(t) With respect to an asset manager that becomes a PIMCO
Affiliated QPAM after the effective date of this exemption by virtue of
being acquired (in whole or in part) by PIMCO or a subsidiary of PIMCO
(a ``newly-acquired PIMCO Affiliated QPAM''), the newly-acquired PIMCO
Affiliated QPAM would not be precluded from relying on the exemptive
relief provided by PTE 84-14 notwithstanding the Conviction as of the
closing date for the acquisition; however, the operative terms of the
exemption shall not apply to the newly-acquired PIMCO Affiliated QPAM
until a date that is six (6) months after the closing date for the
acquisition. To that end, the newly-acquired PIMCO Affiliated QPAM will
initially submit to an audit pursuant to Section III(i) of this
exemption as of the first audit period that begins following the
closing date for the acquisition. However, the first audit to which a
newly-acquired QPAM submits may require the auditor to look back into
the previous year for that particular QPAM. This will be the case where
the interval between the acquisition date and the beginning of the next
audit period is greater than 6 months.
Exemption dates: If granted, the exemption will be in effect for a
period of five years beginning on May 17, 2023, and ending on May 16,
2028.
Signed at Washington, DC, this 22nd day of March, 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-06346 Filed 3-24-23; 4:15 pm]
BILLING CODE 4510-29-P
