Consolidation in the Financial Industry and the QPAM Exemption’s 10% Limitation

October 3, 2008

The past couple of weeks have witnessed unprecedented consolidation in the financial industry resulting in an increased number of entities that are now affiliated with broker-dealers, credit providers and ISDA counterparties.

As many of you will recall, the Department of Labor’s Prohibited Transaction Class Exemption 84-14 (the “QPAM Exemption”) is not available with respect to transactions with a party in interest that is, or is affiliated with, a fiduciary with the authority to invest in or redeem from a plan asset fund (a “Fund”). There is, however, an exception to the above limitation if the investment of the plan (aggregated with investments of other plans of the same or affiliated employer or employee organization) in the Fund represents less than 10% of the assets of the Fund. The QPAM Exemption broadly defines an “affiliate” to include any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the person.

Because of the recent consolidation in the financial industry, the term “affiliate” now likely aggregates a larger array of business entities that provide services to plans. Additionally, the number and amount of a Fund’s redemptions may have increased the holdings of specific plan investors to 10% or more of a Fund’s total assets (“10% Plan Investors”). To address these developments, we suggest that Fund managers review the 10% Plan Investor calculations for their Funds. Should a Fund subject to ERISA determine that there are 10% Plan Investors, the Fund manager should obtain additional representations regarding the investing fiduciary’s relationship with the Fund’s prime broker, credit providers, ISDA counterparties and their respective affiliates.


If you have any questions about this memorandum, please contact John Ryan or Michael O’Brien.