January 2024 Compliance Article

PTE Application Process Final Rule

On January 23, 2024, the Department of Labor (DOL) published a final rule that amends the procedures around filing and processing prohibited transaction exemption (PTE) applications under the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code of 1986 (IRC). The final rule will be effective April 8, 2024.

Background

ERISA plan fiduciaries are prohibited from causing a retirement plan to engage in a variety of transactions with certain related parties who may be in a position to exercise improper influence. Statutory exemptions, commonly known as PTEs, have been in place since 1978 for certain services necessary for plan operation, investment advice transactions, as well as certain administrative exemptions.

The process to apply for a PTE has been cumbersome, so over the years, changes have been introduced to assist with that process. The latest was proposed on March 15, 2022; however, after review of the comments submitted, the DOL made several changes in this final rule.

Final Rule Highlights

Expands the definition of qualified independent appraiser and qualified independent fiduciary to include a facts-and-circumstances test.
Requires more information up-front that was most commonly requested later in the process.
Clarifies the documentation that will be part of the administrative record, which will include all information the DOL deems is material to the final PTE decision.
Requires applicants to include statements in their application that:
- The exemption transaction will be in the best interest of the plans, participants, and beneficiaries;
- All direct or indirect compensation received by a party involved in the exemption transaction will be reasonable;
- All statements about the exemption transaction and other relevant matters will not be materially misleading.
Updates various timing requirements.
Allows for electronic submission.
Emphasizes that the issuance of an exemption does not affect the requirements of IRC section 401(a).
States that by submitting an exemption application, an applicant consents to public disclosure of the entire administrative record, leading to a fully transparent exemption process.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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