|
Dear Ms. Nussdorf:
This is in response to your request for guidance concerning Prohibited
Transaction Exemption (PTE) 84-14 (49 FR 9494, March 13, 1984, as
corrected, 50 FR 41430, October 10, 1985, and as amended, 70 FR 49305,
August 23, 2005). Your request concerns the proper application of section
I(a) of PTE 84-14 to certain pooled investment funds that are deemed to
hold plan assets within the meaning of 29 CFR 2510.3-101(f)(the Plan Asset
Regulation).
You write on behalf of The Goldman Sachs Group, Inc. (Goldman Sachs), a
provider of global investment banking, asset management and other
financial services. Goldman Sachs seeks the Department’s opinion
concerning the application of section I(a) of PTE 84-14 in instances where
a pooled investment fund (the First Fund) that is deemed to hold plan
assets under the Plan Asset Regulation invests in another pooled
investment fund (the Second Fund) that also is deemed under the Plan Asset
Regulation to hold plan assets. Specifically, you request guidance as to
whether, under section I(a), the Second Fund is required to look through
to (and thus count separately) the assets of any plan invested in the
First Fund.
PTE 84-14 generally provides relief from the prohibited transaction
restrictions of section 406(a)(1)(A)-(D) for transactions between a plan
and a party in interest provided that the plan is invested in an
investment fund managed by a qualified professional asset manager (QPAM).
Section I(a) of PTE 84-14 requires that, at the time of the transaction,
the party in interest or its affiliate does not have the authority to
either appoint or terminate the QPAM as manager of the plan assets
involved in the transaction, or negotiate on behalf of the plan the terms
of the QPAM’s management agreement with respect to the plan assets
involved in the transaction. Section I(a) contains an exception to this
requirement in the case of two or more unrelated plans invested in an
investment fund in instances where the assets of a plan, when combined
with assets of other plans established or maintained by the same employer
or employee organization, and managed in the same investment fund
represent less than 10% of the assets of the investment fund.
As noted above, you have asked for clarification of this requirement in
the situation in which the First Fund invests in the Second Fund. You
provide the following example:
Assume that Plan X is a 50% investor in the First Fund and also a 4%
investor in the Second Fund. The First Fund purchases a 30% interest in
the Second Fund. The underlying assets of both Funds contain plans assets.
You have offered your view that, consistent with the language of
section I(a), the manager of the Second Fund need not inquire concerning
the presence of plan investors in the First Fund, nor aggregate a plan’s
interest in the First Fund with its direct investment in the Second Fund
for the purpose of determining if the plan holds 10% or more of the assets
of the Second Fund. In the example you have provided, the manager would
only count Plan X’s direct 4% investment in the Second Fund and not the
indirect interest held by Plan X as a result of its investment in the
First Fund.
You have asked the Department to assume, for purposes of your request,
that the two investment funds are not managed by the same manager or an
affiliate. Under these circumstances, it is the Department’s view that
the 10 percent exception contained in section 1(a) of PTE 84-14 does not
require the consideration by a QPAM of the ownership interests of any plan
investors in an investment fund which is investing in a second fund
managed by such QPAM.
The Department cautions, however, that, Part I of PTE 84-14, does not
provide any relief from the prohibitions of section 406(b). In addition,
section I(c) of the exemption provides, in part, that the transaction not
be part of an agreement, arrangement, or understanding designed to benefit
a party in interest. Thus, for example, if the investment manager of the
First Fund invested in the Second Fund pursuant to an agreement or
understanding that the manager of the Second Fund would engage in
transactions that benefit the manager of the First Fund or its affiliate,
the QPAM exemption would not be available for those transactions. In
addition, the investment of plan assets by the First Fund in the Second
Fund would violate 406(b) of ERISA.
This letter constitutes an Advisory Opinion under ERISA Procedure 76-1
and is issued subject to the provisions of that procedure, including
section 10, relating to the effect of Advisory Opinions. This opinion
relates only to the specific issue addressed herein.
Sincerely,
Ivan L. Strasfeld
Director , Office of Exemption Determinations
|
