DOL Updates Procedures for Prohibited Transaction Exemption Applications

January 31, 2024

On January 24, 2024, the U.S. Department of Labor (DOL) published the final rule amending the procedures for filing an individual prohibited transaction exemption application.  The amended regulation (the “Procedures”) updates information, documentation and timing requirements for applications for individual prohibited transaction exemptions.  The Procedures become effective on April 8, 2024.  The DOL recommends that any application submitted in the interim consider the requirements set forth in the Procedures; however, any application filed prior to April 8th will be governed by the existing regulation.

The Procedures provide the requirements for making an initial application for an individual exemption under Section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  The DOL explained that making its expectations clearer should streamline and expedite the application process.  Among other things, the amended rules require the inclusion of statements regarding:

  1. any material benefit that may be received by a party in interest or its affiliates;
  2. the costs and benefits to affected plans, participants and beneficiaries;
  3. alternatives to the requested exemption that were considered, and why they were not pursued;
  4. any conflict of interest or self-dealing that would be permitted by the exemption;
  5. that (x) the transaction will be in the best interest of the plan, participants and beneficiaries and (y) compensation received by the party in interest and its affiliates will not exceed reasonable compensation, or otherwise an explanation as to why those standards are not applicable to the requested exemption;
  6. any foreign conviction substantially equivalent to the types of convictions of U.S. courts listed in the QPAM Exemption in respect of the applicant or any party in interest; and
  7. any lawsuits or criminal charges in the past five years, including any against affiliates of the party in interest.

The Procedures also require more disclosure and requirements in connection with the use of any “qualified independent appraiser” or “qualified independent fiduciary.”  The Procedures continue to include a presumption of independence for entities with less than 2% of their revenue from the party in interest.  A qualified independent appraiser, qualified independent fiduciary, auditor or accountant may not be indemnified, nor may any rights, claims and remedies of the plan and its participants and beneficiaries be waived, in respect of such party’s failure to adhere to their legal or contractual obligations in their work related to the exemption application.

Unlike the current procedures, which permit certain non-material information to be submitted confidentiality and not be subject to public disclosure, the Procedures instead provide that the DOL will not process any application with any claim of confidentially unless the information is designated as confidential by a governmental entity.  Furthermore, all communications and discussions with the DOL in connection with the application, including those that occur prior to the application, will be publicly available once the application is submitted.

If you are considering applying for an individual prohibited transaction exemption, or if you have any questions on this memorandum, please contact S. John Ryan at (212) 574-1679, Bradley Fay at (212) 574-1429, Michael O’Brien at (212) 574-1505, or Shayna Roth at (212) 574-1309.


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