On November 3, 2020, the U.S. Department of Labor’s Office of the Solicitor of Labor (the “DOL”) issued an opinion letter (the “2020 Letter”) to the Securities Industry and Financial Markets Association (“SIFMA”) stating that it would not view a conviction under foreign law as a disqualifying event under Prohibited Transaction Class Exemption 84-14 (the “QPAM Exemption”).  The 2020 Letter represented a reversal of the DOL’s then longstanding position that a conviction under foreign law would disqualify a manager from being able to rely on the QPAM Exemption for a period of ten years.

However, on March 23, 2021, the DOL issued a follow-up opinion letter (the “2021 Letter”) to SIFMA withdrawing the Trump Administration DOL’s 2020 Letter because it was “issued through a flawed process and was based on a legal analysis that was inadequate to support abandoning the Department’s long standing position.”

The QPAM Exemption provides broad exemptive relief from the prohibited transaction restrictions of Section 406(a) of ERISA for transactions between a “party in interest” with respect to an ERISA plan and an investment fund or separate account holding “plan assets” of such ERISA plan (a “Plan Asset Account”), where the Plan Asset Account is managed by a “qualified professional asset manager” (a “QPAM”) and the other conditions of the QPAM Exemption are met.

At issue in the DOL’s guidance is the condition set forth in Section I(g) of the QPAM Exemption that prohibits a QPAM from relying on the exemption for a period of ten years if the QPAM (or a five percent or more owner or affiliate of the QPAM) is convicted of certain enumerated crimes that involve abuse or misuse of a position of trust or felonies described in Section 411 of ERISA[1], and whether or not a conviction under foreign law would prevent the QPAM from being able to satisfy such condition.

In the 2020 Letter, the DOL cited the plain language of Section 411 of ERISA, applicable legislative history, and persuasive Supreme Court case law, in stating its view that a conviction under foreign law would not prohibit a QPAM from relying on the QPAM Exemption if the other conditions of the exemption were satisfied.  In particular, the DOL noted that Section 411 of ERISA refers to Federal, State and local offenses, courts and prosecuting officials, but that nothing therein indicates that its listed crimes include foreign equivalents.  The DOL further noted that neither the language of the QPAM Exemption nor any associated guidance indicates that Section I(g) was intended to include foreign equivalents; in fact, the plain language of the QPAM Exemption expressly references concepts (e.g., “felonies,” “judgments” and “appeals”) that are generally only applicable to U.S. court systems.  The DOL was also not deterred by the fact that it previously took the position that convictions under foreign law would be a disqualifying event and, in light thereof, had granted administrative exemptions to Plan Asset Account managers allowing the QPAM Exemption to be available notwithstanding a conviction under foreign law.

However, in withdrawing the 2020 Letter, the DOL stated that the legal conclusions therein “were based on an inadequate analysis of the relevant issues and legal authorities as they pertain to prohibited transaction exemptions.”  In particular, the DOL stated that the 2020 Letter focused too heavily on an analysis of the reach of Section 411 of ERISA without acknowledging the differences between such provision and Section I(g) of the QPAM Exemption and their contexts.  Furthermore, the 2020 Letter “glossed over issues of substantial concern” and improperly bypassed and disregarded the Employee Benefits Security Administration’s (“EBSA”) role and expertise in administering the DOL’s prohibited transaction exemption program.  The 2020 Letter was issued directly to SIFMA and was not posted to the DOL’s website for over two months, which apparently bypassed a number of the DOL’s procedural requirements for issuing binding guidance, including EBSA’s advisory opinion process.

*           *          *

The DOL noted that it would engage in a thorough analysis of these rules while it considers additional guidance.  In the interim, Plan Asset Account managers should assume that the DOL will treat convictions under foreign law as disqualifying events under the QPAM Exemption, and be prepared to have to rely on another exemption to the extent necessary.  The 2020 Letter and the 2021 Letter do not have any impact on QPAM-related individual exemptions previously granted by the DOL.

For ERISA plan fiduciaries, it is important to recognize that ERISA’s fiduciary duties of prudence and loyalty apply in the context of hiring, monitoring and retaining/firing a Plan Asset Account manager regardless of whether the Plan Asset Account manager may utilize the QPAM Exemption.  Accordingly, in making such decisions, ERISA plan fiduciaries should continue to diligence and take into account as appropriate whether a Plan Asset Account manager has a foreign law conviction and the possibility that Congress or the DOL could in the future revise the QPAM Exemption in a manner that would allow a Plan Asset Account manager with a foreign law conviction to utilize the QPAM Exemption.

[1] Section 411 of ERISA includes references to the following crimes: robbery, bribery, extortion, embezzlement, fraud, grand larceny, burglary, arson, murder, rape, kidnapping, perjury, and assault with intent to kill.

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Photo of Ira G. Bogner Ira G. Bogner

Ira G. Bogner is Managing Partner of the Firm. He is the immediate former chair of the Firm’s Tax Department. He is a member of the Employee Benefits & Executive Compensation Group and the Firm’s Executive Committee. Ira represents a varied list of…

Ira G. Bogner is Managing Partner of the Firm. He is the immediate former chair of the Firm’s Tax Department. He is a member of the Employee Benefits & Executive Compensation Group and the Firm’s Executive Committee. Ira represents a varied list of clients, including financial service companies, entertainment industry clients, and tax-exempt organizations, and also actively represents individual executives in executive compensation matters.

Ira counsels clients with respect to the tax, securities law disclosure, corporate governance, stock exchange and other requirements relevant to executive compensation arrangements. Ira also provides advice regarding equity arrangements, employment agreements, change in control agreements and all other types of executive compensation arrangements, including guidance regarding “409A,” “162m,” “457A,” and “280G.”

Ira frequently is called on to structure and analyze alternative investments for pension trusts and other exempt organizations. He also works with the Firm’s corporate and real estate lawyers in structuring and maintaining investment funds that include participation by pension plans. Through his work in the investment fund area Ira has obtained substantial experience in applying the rules provided under the “plan asset” regulations, including the operation of venture capital operating companies and real estate operating companies. He has assisted in the formation of private equity, real estate, infrastructure and hedge funds, including “fund of funds.” Ira also has advised clients on both avoiding ERISA “plan asset” status and operating an investment fund in accordance with ERISA.

Areas of Concentration

Ira has provided guidance to clients on a wide variety of matters in the areas of employee benefits and executive compensation, including:

  • investment of plan assets
  • implementation of employee benefit plans

  • employee benefit issues in mergers and acquisitions

  • awarding of equity-based compensation

  • negotiation and drafting of employment agreements and severance arrangements

  • structuring, analyzing and maintaining investment funds that are suitable for plan investors

Thought Leadership

Ira has published a number of articles in publications such as The New York Law Journal, The New Jersey Law Journal, The Daily Deal, The Journal of Pension Planning and Compliance, Mergers and Acquisitions (The Monthly Tax Journal), The Journal of Taxation and Regulation of Financial Institutions, The Metropolitan Corporate Counsel, European Private Equity & Venture Capital Associations, The LPA Anatomised and Private Equity International and has been named to the Board of Advisors of the Journal of Taxation and Regulation of Financial Institutions. He also has lectured on topics such as the classification of workers, drafting employment agreements, equity alternatives for senior executives, investing IRA assets, the plan asset regulations, shareholder approval of equity plans, Code Section 409A, and key provisions for ERISA investors investing in a private equity fund.

Recognition

Ira has been recognized and ranked by various directories. US Legal 500 has carried the following comments: “Ira Bogner is ‘available, responsive and knowledgeable;” “Ira Bogner ‘provides a level of comfort with respect to business issues that is rare in the world of ERISA;” “Ira Bogner is the ‘go-to guy for fund sponsors needing help with ERISA.’”

Photo of Robert Projansky Robert Projansky

Robert M. Projansky is a partner in the Employee Benefits & Executive Compensation Group and is currently a member of the Firm’s Executive Committee.

Rob has a broad practice advising both multiemployer and single employer clients on all issues related to the legal…

Robert M. Projansky is a partner in the Employee Benefits & Executive Compensation Group and is currently a member of the Firm’s Executive Committee.

Rob has a broad practice advising both multiemployer and single employer clients on all issues related to the legal compliance and tax-qualification of ERISA-covered pension and welfare plans. Rob’s clients include the largest and highest-profile U.S. media and entertainment industry clients, as well as a broad range of Fortune 500 companies.

In the multiemployer context, he serves as counsel to the boards of trustees of a number of large and small funds and frequently assists clients in addressing issues related to the funding of defined benefit pension plans, including zone status, benefit suspensions, special financial assistance and withdrawal liability. He also advises these clients on healthcare compliance, cybersecurity and government investigations. In addition, his practice includes advising corporate clients on their responsibilities related to multiemployer plans, with particular expertise on the impact of multiemployer and collectively bargained plans in corporate transactions.

Rob has extensive experience advising corporate clients regarding general compliance issues and fiduciary compliance matters, including plan asset and prohibited transaction issues. He also has addressed a myriad of issues related to complex plan investments, including negotiation of separately managed and collective investment vehicles for both traditional and alternative investments such as hedge funds, private equity funds and fund-of-funds vehicles.

Rob is described in Chambers USA as “incredibly smart and creative, and a really effective, zealous advocate” who “adroitly communicates complicated ERISA matters to clients in understandable language and well-timed levity.”  He is a widely sought after speaker on topics related to employee benefits, fiduciary, cybersecurity and government investigations and speaks each year at the annual conference and various other conferences sponsored by the International Foundation of Employee Benefit Plans, the largest educational organization in the employee benefits industry. Rob currently serves as one of the nine Advisory Directors on the Board of Directors of the International Foundation.

Photo of Seth Safra Seth Safra

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined…

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined benefit to cash balance and floor-offset arrangements, ESOPs and 401(k) plans—often coordinating qualified and non-qualified arrangements. He also advises tax-exempt and governmental employers on 403(b) and 457 arrangements, as well as innovative new plan designs; and he advises on ERISA compliance for investments.

On the health and welfare side, Seth helps employers provide benefits that are cost-effective and competitive. He advises on plan design, including consumer-driven health plans with HSAs, retiree medical, fringe benefits, and severance programs, ERISA preemption, and tax and other compliance issues, such as nondiscrimination and cafeteria plan rules.

Seth also advises for-profit and non-profit employers, compensation committees, and boards on executive employment, deferred compensation, change in control, and equity and other incentive arrangements. In addition, he advises on compensation and benefits in corporate transactions.

Seth represents clients before the Department of Labor, IRS and other government agencies.

Seth has been recognized by Chambers USA, The Legal 500, Best Lawyers, Law360, Human Resource Executive, Lawdragon and Super Lawyers.

Photo of Steven Weinstein Steven Weinstein

Steven D. Weinstein is a partner in the Employee Benefits & Executive Compensation Group and co-head of the Strategic Corporate Planning Group. He has been practicing in the employee benefits field since 1984, representing clients sponsoring single employer and Taft-Hartley pension and welfare…

Steven D. Weinstein is a partner in the Employee Benefits & Executive Compensation Group and co-head of the Strategic Corporate Planning Group. He has been practicing in the employee benefits field since 1984, representing clients sponsoring single employer and Taft-Hartley pension and welfare plans.

Steven advises clients in all aspects of pension plan tax qualification and plan administration, including drafting of plan documents and employee communications; providing advice relating to corporate acquisitions and mergers; and negotiating investment management agreements, trust agreements, recordkeeping and custodial contracts, and other plan-related contracts.

In the tax-qualified plan area, Steven assists clients concerning the rules relating to discrimination testing, participation, vesting, cash or deferred arrangements, plan limitations and plan distributions. He also counsels clients regarding voluntary correction programs offered by the Internal Revenue Service and Department of Labor.

In addition, he counsels a wide array of clients on issues relating to fiduciary responsibility in connection with the administration and operation of employee benefit programs, particularly with respect to advice relating to the investment of plan assets. The latter advice includes the rules governing investment diversification, determination of plan assets, foreign indicia of ownership, prohibited transactions, and exclusive benefit and prudence. He also advises employers in connection with the implementation of all phases of reduction-in-force programs, including the drafting of severance plans and related documents, as well as employee communications required to effect these programs.

Steven has wide-ranging experience with health and welfare plans, particularly regarding the new rules issued under the Affordable Care Act (ACA). As a member of Proskauer’s interdisciplinary Health Care Reform Task Force, he assists clients and other Firm lawyers in preparing for the numerous changes resulting from ACA.

His experience is extensive in advising Fortune 500 companies with respect to the structure of their benefit plans and how such plans may be affected by corporate transactions. He also regularly counsels plan fiduciary committees as to best procedural practices to reduce potential exposure to fiduciary breach claims. His clients are most frequently in the manufacturing, financial services and entertainment sectors.

Steven has significant experience in assisting clients with the implementation and ongoing operation of non-qualified retirement plans and other types of executive compensation, including issues relating to ERISA coverage, and Section 409A and Section 457A compliance. He also advises clients in connection with executive employment agreements and change-in-control or severance arrangements.

Photo of Adam Scoll Adam Scoll

Adam Scoll is a partner in the Firm’s Tax Department and Private Funds Group.

He specializes in the area of Title I of ERISA and the investment of ERISA “plan assets,” advising both pension trusts and their investment managers and advisers with regard…

Adam Scoll is a partner in the Firm’s Tax Department and Private Funds Group.

He specializes in the area of Title I of ERISA and the investment of ERISA “plan assets,” advising both pension trusts and their investment managers and advisers with regard to compliance with ERISA’s complex fiduciary duty and prohibited transaction rules.

Adam regularly advises private investment fund sponsors regarding the structuring of their funds in order to accept investments from ERISA-covered pension trusts, including compliance with the ERISA “plan asset” regulations and the operation of venture capital operating companies (VCOCs) and real estate operating companies (REOCs).

Adam also represents both employers and senior executives in the negotiation and drafting of employment and separation agreements, deferred compensation plans, and equity and “phantom equity” arrangements, including compliance with the nonqualified deferred compensation rules under Sections 409A and 457A of the Internal Revenue Code.