In Advisory Opinion 2011-07A, the Department of Labor (“DOL”) faced a question pertaining to Prohibited Transaction Exemption 84-14 (the “QPAM Exemption”). The QPAM Exemption provides relief from ERISA’s prohibited transactions rules for dealings between an investment fund, which is managed by a qualified professional asset manager (a “QPAM”), and a party in interest with respect to employee benefit plans invested in that fund. Section I(a) of the QPAM Exemption provides, as a condition to receiving this relief, that the party in interest dealing with the fund may not have the authority to appoint or terminate, or to negotiate the investment management agreement of, the QPAM as a manager of the plan assets involved in the dealings.
The Advisory Opinion involves a stable value program, under which fixed income assets are managed by a QPAM. As a part of this program, a stable value manager (an “SVM”) is responsible for negotiating stable value wrap contracts with various banks or insurance companies (the “Wrappers”). These negotiations relate to the parameters for investing the assets. The SVM may, or may not, also act as the QPAM. The issue is whether these negotiations between the Wrapper and the SVM will violate Section I(a) of the QPAM Exemption-by reason of the Wrapper and SVM, as parties in interest, having authority to negotiate the management agreement of the QPAM -thereby causing the QPAM to be unable to enter into subsequent dealings with the Wrapper and the SVM (where the SVM is separate from the fixed income manager) for the program.
Subject to various assumptions and representations, the DOL concluded that neither the Wrapper’s nor the SVM’s negotiation of the investment parameters gives them the authority to negotiate, on behalf of any plan, the terms of the QPAM’s investment management agreement. The Wrapper is not negotiating on behalf of any plan. Instead the Wrapper is negotiating the terms of the investment parameters to reduce its own exposure under the wrap contract. While the SVM is negotiating on behalf of a plan, in the DOL’s opinion, negotiating the investment parameters does not amount to negotiating the terms of the QPAM’s investment management agreement. The plans investing in the program and the QPAM retain broad authority to negotiate these terms. Thus, Section I(a) of the QPAM Exemption is not violated, and the QPAM Exemption remains applicable to the program.