Compliance April 2, 2024

DOL Finalizes QPAM Rule

Qualified professional asset managers can now be disqualified for foreign convictions and domestic non-prosecution agreements.

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The Department of Labor has finalized a new rule governing the qualified professional asset manager exemption. The final rule adds new types of misconduct that can result in a disqualification and makes it easier for retirement plans to leave a QPAM. The rule was initially proposed in July 2022.

A QPAM is an investment manager—often a bank or insurance company—that facilitates transactions between a qualified plan and parties in interest. A plan normally cannot transact with a party in interest, which can include service providers and the sponsor itself, unless they are relying on an exemption from the DOL.

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The exemption allows a QPAM to facilitate these transactions between the plan and interested parties. The QPAM must be financially independent from the transacting parties. The new rule maintains the provision that a QPAM can be disqualified for 10 years if the QPAM, an affiliate or “five percent or more owners” of the QPAM engage in conduct leading to a criminal conviction. It also adds foreign convictions and domestic non-prosecution agreements to the sorts of misconduct that can lead to a disqualification. The proposal included foreign non-prosecution agreements, but that was removed by the final rule.

The final rule also does not consider criminal convictions to be disqualifying if they are from the foreign adversary list maintained by the Department of Commerce. That list currently includes: China, Cuba, Iran, North Korea, Russia and Venezuela. This change from the proposal was inspired by commenters concerned about due process issues and malicious prosecutions by actors in authoritarian states.

If a QPAM is disqualified, it enters a one-year transition period and continue to execute new and old transactions for the plan; the proposal only permitted new transactions to be executed. The QPAM must also indemnify the plan for the costs of finding a new QPAM.

The release on the final rule states, “When QPAMs breached their obligations and faced the loss of QPAM status, they commonly argued that the Department should grant relief, notwithstanding their misconduct, lest the Plans and IRA owners sustained the collateral costs and injury associated with the loss of QPAM status. The express obligation to indemnify and restore losses caused by the QPAM’s own misconduct mitigates this danger.”

Kendra Isaacson, a principal in public policy consultancy Mindset, says many will be happy that plans will not have to update their contracts with QPAMs to include indemnification provisions. Under the new rule, QPAMs already convicted will be required by DOL to indemnify any plans they work with.

Isaacson says the PTE 2020-02 updates in the retirement security proposal contained similar disqualification provisions as the final QPAM rule. PTE 2020-02 is a class exemption that permits an adviser to receive compensation from plan assets for giving advice in the best interest of the plan for a reasonable fee. She says the DOL might have held onto the QPAM proposal until after sending the retirement security proposal to the Office of Management and Budget so the disqualification provisions between the two could be harmonized.

Benefits April 2, 2024

Washington State Auto-IRA Law Signed

Washington Saves is scheduled to debut in 2027, with the state joining 18 others that have created retirement programs for private sector workers, while Rhode Island lawmakers debate creating their own program.

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Washington and Rhode Island are on different coasts, but both states are working to address the issue of access to retirement plans for private sector workers whose employers do not offer plans.

Washington Governor Jay Inslee last week signed legislation creating a state-facilitated program, Washington Saves, to provide coverage for those private sector employees. The program will launch by January 1, 2027, according to the announcement.

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Washington Saves creates an automatic-enrollment individual retirement account program. Enrolled participants will make retirement contributions to an IRA through payroll deduction from their pay, similar to a 401(k) plan.

“Washington Saves will be a cornerstone for wealth building and the long-term financial health for generations of Washingtonians to come,” said Washington State Treasurer Mike Pellicciotti in a statement.

The program will enroll workers at a default contribution rate of between 3% and 7% of wages. A 15-member governing board will design, develop, implement, maintain and oversee Washington Saves.

Additional details include:

  • The program uses automatic escalation, restricting yearly contribution rate increases to 1% per year up to 10% of wages;
  • Covered Washington employers are businesses located in the state for at least two years where employees work a combined minimum of 10,400 hours during the previous calendar year that do not already offer employees a qualified retirement plan;
  • State employers that meet criteria will be required to enroll employees who have had continuous employment for one year or more; and
  • Employees may opt out of the program.

The Washington House of Representatives passed the bill authorizing Washington Saves on March 1, and the Washington State Senate followed suite on March 7.

Washington Saves is intended to help 1.2 million workers save for retirement, according to a fact sheet from the Pew Charitable Trusts.

Washington became the 19th U.S. state to enact legislation expanding retirement coverage. State-facilitated retirement savings programs have accumulated more than $1.26 billion in retirement assets, as of the latest data available from the Georgetown University Center for Retirement Initiatives.

 

Rhode Island Retirement Program

In Rhode Island, the Rhode Island House of Representatives’ finance committee held a hearing March 28 and received testimony on two state bills—H.B. 7127 and S.B 2045—that would create the Rhode Island Secure Choice Retirement Savings Program.

Rhode Island’s retirement program would be structured as an auto-IRA, allowing workers to contribute via payroll deduction but also to opt out or change their contributions at any time. The program would be administered by the by the office of the general treasurer.

More than half of Rhode Island’s private sector workforce (51.2%)—172,000 workers—do not have access to retirement savings through their employer, according to a fact sheet from Pew.

The bill in the Rhode Island House of Representatives is sponsored by State Representative Evan Shanley, who has sponsored similar legislation for the last several years.

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