For the first time in over a decade, the Department of Labor (DOL) is proposing updates to its procedures for handling requests for prohibited transaction exemptions (PTEs). The proposal would increase DOL’s scrutiny of PTE applications, require expanded disclosures, and impose stringent conditions for standards of conduct and avoidance of conflicts. Applying for an exemption would likely involve increased time and costs. The comment deadline is May 29.
ERISA allows DOL to issue administrative PTEs on a class or an individual basis. Employers sometimes apply for individual PTEs for transactions not covered by existing exemptions — for instance, to make an in-kind contribution or allow the plan to receive warrants (or other rights) associated with employer stock. Plan service providers may also seek PTEs, but this article focuses on aspects of the DOL proposal most relevant to employers.
The proposal aims to provide a more formal framework for presubmission communications to connect them more closely to the actual PTE application. Prospective applicants could no longer maintain anonymity when asking for DOL’s preliminary views about the viability of a potential PTE request. Presubmission communications would now have to identify the plan, applicant, and relevant parties involved; identify and fully describe the transaction; and specify the prohibited transactions at issue.
These communications, including oral statements, would become part of the administrative record and subject to public disclosure. Employers considering whether to pursue an exemption may have concerns about this change, particularly since the proposal states that previously granted PTEs don’t guarantee DOL will issue similar ones — or require the same conditions — in the future.
Many PTEs require the involvement of an independent fiduciary and appraiser. Several aspects of the proposal would enhance the standards for identifying potential conflicts of interest among the parties involved in a PTE request, their affiliates and service providers.
PTE applications would have to include information on the process for selecting and vetting any independent fiduciaries and appraisers (see next section).
The proposal would increase the information included in a PTE application and clarify the confidentiality and public availability of the administrative record. Applicants would have to promptly notify DOL of material changes to facts or representations during the agency’s consideration of an application and after a PTE is granted.
The proposal would clarify DOL’s ability to issue a final denial of a PTE application without first issuing a tentative denial, including if an applicant doesn’t include required information or respond in a timely manner. An applicant’s withdrawal of a PTE application would also result in a final denial to document the ultimate disposition. In addition, DOL would have discretion to revoke or modify a PTE — but only prospectively — for material changes in facts, circumstances or representations. Material changes would include an independent fiduciary’s resignation, termination or criminal conviction — events about which the applicant must notify DOL within 30 days.
DOL requests comments on all aspects of the proposal, including whether the proposed changes would clarify the PTE procedures and reflect the ways entities interact with ERISA plans and their participants. DOL also is interested in whether it should consider other types of information in PTE applications. In response to requests from interested parties, DOL has extended the original April 14 comment deadline until May 29.