Notice2023-14121
Exemption From Certain Prohibited Transaction Restrictions Involving Pacific Investment Management Company LLC (PIMCO or the Applicant) Located in Newport Beach, California
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 5, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains a notice of exemption issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). This exemption allows certain asset managers with specified relationships to PIMCO (the PIMCO Affiliated QPAMs) to continue to rely on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of conviction against Allianz Global Investors US LLC (AGI US) for one count of securities fraud (the AGI US Conviction), as described below. This exemption does not grant any relief to AGI US. AGI US submitted an exemption request to the Department (D-12074), which it subsequently withdrew. The Department did not grant any relief to AGI US pursuant to its application or as part of this exemption.
Full Text
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<title>Federal Register, Volume 88 Issue 127 (Wednesday, July 5, 2023)</title>
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[Federal Register Volume 88, Number 127 (Wednesday, July 5, 2023)]
[Notices]
[Pages 42953-42966]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14121]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2023-15; Exemption Application No. D-
12075]
Exemption From Certain Prohibited Transaction Restrictions
Involving Pacific Investment Management Company LLC (PIMCO or the
Applicant) Located in Newport Beach, California
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document contains a notice of exemption issued by the
Department of Labor (the Department) from certain of the prohibited
transaction restrictions of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986
(the Code). This exemption allows certain asset managers with specified
relationships to PIMCO (the PIMCO Affiliated QPAMs) to continue to rely
on the exemptive relief provided by Prohibited Transaction Class
Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the
judgment of conviction against Allianz Global Investors US LLC (AGI US)
for one count of securities fraud (the AGI US Conviction), as described
below. This exemption does not grant any relief to AGI US. AGI US
submitted an exemption request to the Department (D-12074), which it
subsequently withdrew. The Department did not grant any relief to AGI
US pursuant to its application or as part of this exemption.
DATES: The exemption will be in effect for a period of five years
beginning on the date of the AGI US Conviction, as defined below.
FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department
at (202) 693-8456. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On March 28, 2023, the Department published
a notice of proposed exemption in the Federal Register \1\ permitting
the PIMCO Affiliated QPAMs to continue to rely on the exemptive relief
provided by the QPAM Exemption \2\ for a period of five years,
notwithstanding the judgment of conviction against PIMCO's affiliate,
AGI US, for one count of securities fraud.\3\ The Department is
granting this exemption to ensure that the participants and
beneficiaries of ERISA-covered Plans and IRAs managed by the PIMCO
Affiliated QPAMs (together, Covered Plans) are protected. This
exemption provides only the relief specified in the text of the
exemption and does not provide relief from violations of any law other
than the prohibited transaction provisions of
[[Page 42954]]
Title I of ERISA and the Code expressly stated herein.
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\1\ 88 FR 18333 (March 28, 2023).
\2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
\3\ Section I(g) of PTE 84-14 generally provides that
``[n]either the QPAM nor any affiliate thereof . . . nor any owner .
. . of a 5 percent or more interest in the QPAM is a person who
within the 10 years immediately preceding the transaction has been
either convicted or released from imprisonment, whichever is later,
as a result of'' certain crimes.
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The Department intends for the terms of this exemption to promote
adherence by the PIMCO Affiliated QPAMs to basic fiduciary standards
under Title I of ERISA and the Code. An important objective in granting
this exemption is to ensure that Covered Plans can terminate their
relationships with a PIMCO Affiliated QPAM in an orderly and cost-
effective fashion in the event the fiduciary of a Covered Plan
determines that it is prudent to do so.
Based on the Applicant's adherence to all the conditions of the
exemption, the Department makes the requisite findings under ERISA
Section 408(a) that the exemption is: (1) administratively feasible,
(2) in the interest of Covered Plans and their participants and
beneficiaries, and (3) protective of the rights of the participants and
beneficiaries of Covered Plans. Accordingly, affected parties should be
aware that the conditions incorporated in this exemption are,
individually and taken as a whole, necessary for the Department to
grant the relief requested by the Applicant. Absent these or similar
conditions, the Department would not have granted this exemption.
The Applicant requested an individual exemption pursuant to ERISA
Section 408(a) in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
Background
PIMCO is a global investment management firm that manages the
assets of ERISA-covered plans on a discretionary basis and advises or
sub-advises pooled funds. PIMCO manages approximately $156 billion in
assets for ERISA plans, approximately $1.89 billion in pooled funds,
and approximately $9.58 billion in collective investment trusts
maintained for ERISA and public pension plan investors.
PIMCO routinely relies upon the QPAM Exemption to provide relief
for party-in-interest investment transactions. The clients of PIMCO
include the Covered Plans, which are plans subject to Part 4 of Title I
of ERISA and plans subject to Code Section 4975, with respect to which
PIMCO relies on the QPAM Exemption or has expressly represented that it
qualifies as a QPAM or relies on the QPAM Exemption. PIMCO also may in
the future acquire other asset managers that rely upon the QPAM
exemption. This exemption applies to PIMCO and other asset managers
that are affiliated with PIMCO and that are 100 percent owned, directly
or indirectly, by PIMCO (the PIMCO Affiliated QPAMs).
Relevant ERISA Provisions and PTE 84-14
The QPAM Exemption exempts certain prohibited transactions between
a party in interest and an ``investment fund'' (as defined in Section
VI(b) of PTE 84-14) in which a plan has an interest if the investment
manager meets the definition of ``qualified professional asset
manager'' (QPAM) and satisfies additional conditions of the exemption.
The Department developed and granted the QPAM Exemption based on the
essential premise that broad relief could be afforded for all types of
transactions in which a plan engages with parties in interest only if
the commitments and investments of plan assets and the negotiations
leading thereto are the sole responsibility of an independent,
discretionary investment manager.\4\
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\4\ See 75 FR 38837, 38839 (July 6, 2010).
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Section I(g) of the QPAM Exemption prevents an entity that may
otherwise meet the definition of QPAM from utilizing the exemptive
relief provided by the QPAM exemption, for itself and its client plans,
if that entity, an ``affiliate'' thereof,\5\ or any direct or indirect
five percent or more owner of the QPAM has been either convicted or
released from imprisonment, whichever is later, as a result of criminal
activity described in section I(g) within the 10 years immediately
preceding the transaction. The Department included Section I(g) in the
QPAM Exemption, in part, based on its expectation that a QPAM, and
those who may be in a position to influence a QPAM's policies, must
maintain a high standard of integrity.
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\5\ Section VI(d) of PTE 84-14 defines the term ``affiliate''
for purposes of Section I(g) as ``(1) Any person directly or
indirectly through one or more intermediaries, controlling,
controlled by, or under common control with the person, (2) Any
director of, relative of, or partner in, any such person, (3) Any
corporation, partnership, trust or unincorporated enterprise of
which such person is an officer, director, or a 5 percent or more
partner or owner, and (4) Any employee or officer of the person
who--(A) Is a highly compensated employee (as defined in Section
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of
the yearly wages of such person), or (B) Has direct or indirect
authority, responsibility or control regarding the custody,
management or disposition of plan assets.''
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Criminal Charges Against AGI US
On May 17, 2022, the Department of Justice filed a criminal
information in the District Court for the Southern District of New York
charging AGI US with one count of securities fraud (the
Information).\6\ AGI US resolved the charges through a plea agreement
(the Plea Agreement) under which it agreed to enter a guilty plea to
the charge set out in the Information. The judgment of the Conviction
against AGI US is scheduled to be entered in District Court on July 12,
2023, in Case Number 1:22-cr-00279-CM.\7\
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\6\ In violation of title 15, United States Code, sections
78j(b) and 78ff, title 17, Code of Federal Regulations, section
240.10b-5, and title 18, United States Code, section 2.
\7\ The date the Conviction will be entered may change, subject
to judicial approval.
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According to the Statement of Facts that served as the basis for
the Plea Agreement (the Statement of Facts), beginning in at least 2014
and continuing through March 2020, AGI US engaged in a scheme to
defraud investors in a series of private investment funds (the
Structured Alpha Funds) that at their height held over $11 billion in
assets under management (the Misconduct). The investors that were
victims of the Misconduct included ERISA-covered Plans. The fraudulent
scheme was carried out by the three managers in AGI US's Structured
Products Group who were primarily responsible for managing the
Structured Alpha Funds (collectively, the Fund Managers).\8\
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\8\ The three managers were Gregoire Tournant, Trevor Taylor,
and Stephen Bond-Nelson.
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According to the Statement of Facts, AGI US made false and
misleading statements to investors that substantially understated the
risks being taken by the Structured Alpha Funds and failed to disclose
and sought to affirmatively withhold relevant risk information. AGI US
repeatedly represented to investors that their investments were low-
risk and designed to minimize the risk of large losses. Despite these
assurances, AGI US deployed an investment strategy that prioritized
returns over effective risk management by, among other things, taking
aggressive options bets and devoting insufficient resources to hedge
positions. When investors sought to obtain documentation to assess
investment risk, AGI responded by providing manually altered data.
According to the Statement of Facts, while the Misconduct was
perpetrated by the Fund Managers within AGI US's Structured Products
Group, these individuals were able to carry out the fraud, in part,
because AGI US lacked sufficient internal controls and oversight for
the Structured Alpha Funds. AGI US's control functions were not
designed and did not function to ensure that risk for the Structured
Alpha Funds was being monitored in line with the disclosures AGI US
made to investors. Further, AGI US's Compliance, Enterprise Risk
[[Page 42955]]
Management, and Legal departments were unaware that many of the
misleading disclosures described above were being sent to investors at
all, with or without alterations. The Fund Managers thus were able to
employ more aggressive investment strategies than they disclosed they
would employ, thereby exposing investors to undisclosed risk.
AGI US's failure to address data quality issues in back-office
functions allowed the Fund Managers' fraudulent scheme to continue
undetected. In this regard, multiple AGI US employees within the
Structured Products Group who were not directly involved in the
fraudulent scheme were nonetheless aware that the Fund Managers were
altering numbers on certain disclosures before sending them to
investors. To cover up their wrongdoing, the Fund Managers explained to
their Structured Products colleagues that they were simply correcting
``errors'' in disclosures generated by back-office functions.
The Limited Scope of the Misconduct
In its Statement of Facts, the Department of Justice states the
following: ``The misconduct occurred only within the small Structured
Products Group at AGI US. The Government's investigation has not
revealed evidence that anyone at AGI US outside of the Structured
Products Group was aware of the misconduct before March 2020. The
investigation also has not revealed that anyone at any other
organizations that fell within the broader umbrella of the parent
company Allianz SE was aware of or participated in the misconduct.''
PIMCO's Affiliation With AGI US
PIMCO is a direct subsidiary of the following three entities that
are indirectly wholly owned by Allianz SE (Allianz): (1) Allianz Asset
Management of America L.P. (AAM) (77.9 percent ownership of PIMCO); (2)
Allianz Asset Management of America LLC (11.4 percent ownership of
PIMCO); and (3) Allianz Asset Management Holding II LLC (2.4 percent of
PIMCO). PIMCO's parent and managing member is AAM, which is generally
responsible for oversight of PIMCO on behalf of Allianz. Allianz is
PIMCO's ultimate parent company. Allianz also indirectly owns 100
percent of AGI US, the entity that engaged in the fraudulent scheme.
Thus, PIMCO and AGI US are affiliates for the purposes of Section I(g)
of the QPAM Exemption. As affiliates of AGI US, the PIMCO Affiliated
QPAMs would no longer be able to rely on the relief provided by the
QPAM Exemption once AGI US is sentenced in connection with its
conviction, absent this exemption.
Separation of PIMCO From AGI US
The Applicant made the following representations regarding how
PIMCO acts independently from AGI US.
PIMCO operates autonomously and independently from both Allianz and
AGI US, and PIMCO has no directors, officers, or employees in common
with Allianz, AAM, or any other Allianz subsidiary. PIMCO asserts that
Allianz employees do not have access to PIMCO's systems and are not
involved in any way in the PIMCO Affiliated QPAMs' investment
processes. PIMCO's management of plan assets is conducted separately
from (a) the investment management activities of AGI US; (b) the non-
investment management business activities of Allianz; and (c) the
conduct underlying the AGI US Conviction. Further, Allianz employees
are not involved in the portfolio management of PIMCO accounts, nor do
they supervise or oversee PIMCO's portfolio management activities.
Investment decisions for PIMCO accounts, including decisions regarding
investment strategy, are made by PIMCO personnel pursuant to PIMCO
policies, procedures, and guidelines, without consultation with Allianz
or AGI US.
Allianz has delegated to the PIMCO Management Board the authority
to manage all of PIMCO's business affairs, except for certain
extraordinary matters where Allianz retains approval rights. The PIMCO
Management Board, which is comprised solely of PIMCO's Managing
Directors, relies upon the PIMCO Executive Committee as the primary
governance body for review and approval of significant matters. There
are no representatives of Allianz (or other non-PIMCO personnel) on the
Management Board.
The Applicant represents that the PIMCO Executive Committee has
authority for most significant matters and is currently composed of
nine voting members and two non-voting members, all of whom are PIMCO
Managing Directors. PIMCO's Senior Executive Officers are elected by
the PIMCO Management Board and may be removed by the PIMCO Executive
Committee and the PIMCO Performance and Compensation Committee.
PIMCO states that Allianz and the other Allianz subsidiaries do not
have a role in the governance of PIMCO's global subsidiaries. PIMCO's
global offices are primarily organized as direct or indirect
subsidiaries of PIMCO, and each has its own defined governance
structure. Nonetheless, PIMCO's global affiliates are subject to
PIMCO's oversight as the direct or indirect parent entity. Except as
otherwise required by applicable local law, PIMCO conducts oversight of
its global affiliates through the application of PIMCO's global
policies.
PIMCO states that it does not share information or coordinate
investment management decisions with Allianz or other Allianz asset
management subsidiaries, including AGI US. Among other things, PIMCO
does not share investment research, portfolio holdings, client
information, or trade information, and all trading decisions are made
independently. Also, PIMCO does not coordinate proxy voting and makes
all decisions, including decisions with respect to the valuation of
securities, independently and pursuant to its own valuation policies
and procedures. Further, PIMCO's products, including funds for which
PIMCO Investments is the principal underwriter, are distributed
independently; and PIMCO's technology and proprietary trading systems
are not shared.
PIMCO does contract with Allianz insurance subsidiaries for the
management of insurance portfolios, and therefore PIMCO shares
information and holdings with respect to those activities as they would
with their other clients. Regarding Allianz as a parent, information
flows are limited to those necessary for appropriate prudent oversight,
supervision of controls, and groupwide financial reporting and
regulatory requirements.
Finally, hiring, termination, and compensation decisions for PIMCO
personnel and executives are determined entirely pursuant to PIMCO's
processes, independent of any influence by Allianz and Allianz asset
management subsidiaries. Allianz (but no other Allianz affiliate)
retains the right to approve the hiring of PIMCO's CEO, Group CIO, CFO,
General Counsel, and head of Compliance.
Hardship to Covered Plans
The Applicant represents that Covered Plans would suffer the
following hardships if PIMCO loses its eligibility to rely on the QPAM
Exemption.
Without the ability to rely upon the QPAM exemption, PIMCO asserts
that it will be unable to effectively implement the investment
strategies that Covered Plans engaged PIMCO to pursue. Consequently,
PIMCO assumes that Covered Plans will terminate their relationship with
PIMCO and seek out alternative asset managers. According to PIMCO, the
transaction costs to Covered Plans of changing managers are
significant, especially in many of the
[[Page 42956]]
strategies employed by the PIMCO. These costs, which include the cost
of liquidating assets, identifying and selecting new managers, and then
reinvesting those assets, would be borne by the Covered Plans and their
participants. Further, the process for transitioning to a new manager
is typically lengthy and likely would involve numerous steps, each of
which could last several months. These steps could include retaining a
consultant, engaging in a request for proposals, negotiating contracts,
and ultimately transitioning assets. For a more complete description of
PIMCO's representations regarding the harm to Covered Plans if the
exemption is not granted, please refer to the proposed exemption.
PIMCO currently manages 451 ERISA plan institutional separate
accounts, representing $170.35 billion in assets under management.
82.3% of these 451 plan accounts, representing $155.15 billion in
assets, invest in cash bonds and derivatives, whereas 17.7% of the
accounts, representing $15.2 billion in assets, invest only in cash
bonds. Because of the critical role played by derivatives, PIMCO
believes that a Covered Plan that selects PIMCO to actively manage its
fixed income portfolio pursuant to a broad set of guidelines, including
derivatives, would be unlikely to retain PIMCO to run a cash bond
strategy in the absence of the QPAM Exemption.
Based on its understanding of the experience of other asset
managers who did not receive a QPAM exemption, and who lost at least
some plan business, PIMCO believes that it is likely that many of its
plan clients whose guidelines permit derivatives would terminate their
relationship if PIMCO could no longer trade in derivatives for those
plans because PIMCO would be limited in its ability to manage a
portfolio consistent with such clients' objectives. The Department
notes that PIMCO was unable to provide a precise estimate of the size
or significance of the plan assets affected.
In the absence of an exemption, PIMCO represents that Covered Plans
that choose to remain with PIMCO would have a circumscribed set of
transactions available to them and could be prohibited from engaging in
certain transactions that would be beneficial, such as hedging
transactions using over-the-counter options or derivatives.
Counterparties to such transactions are far more comfortable with the
QPAM Exemption than any other existing exemption, and the
unavailability of the QPAM Exemption could trigger a default or early
termination. Even if other exemptions were acceptable to such
counterparties, the associated transaction costs might well increase to
reflect any lack of comfort with relying on another exemption.
The PIMCO Affiliated QPAMs also have entered, and could in the
future enter, into contracts for other transactions such as swaps,
forwards, real estate financing and leasing on behalf of their ERISA
clients. The Applicant represents that: (a) these and other strategies
and investments require the PIMCO Affiliated QPAMs to meet the
conditions of the QPAM Exemption; (b) the loss of the QPAM Exemption
could disrupt the plans using each of these strategies, as
counterparties to those transactions could seek to terminate their
contracts, resulting in significant losses to their Covered Plan
clients; and (c) certain derivatives transactions and other contractual
agreements automatically and immediately could be terminated, without
notice or action, or could become subject to termination upon notice
from a counterparty in the event PIMCO no longer qualifies for relief
under the QPAM Exemption.
The Applicant submits that the question of which applicable
exemption can be used is entirely at the discretion of the
counterparty; if the counterparty is uncomfortable with the risks
presented by other exemptions, it will simply terminate the ongoing
transaction based on the plan's default (considered to occur if its
investment manager is no longer able to use the QPAM Exemption). While
PIMCO could argue that other exemptions apply, whether to accept that
exemption is the decision of the counterparty, and the strongest
counterparties generally will take the smallest legal risk on exemptive
relief. PIMCO states that because the Department has never issued any
guidance on the applicability of other exemptions to transactions
involving cleared and over-the-counter swaps, PIMCO's Covered Plan
clients could be at a disadvantage with respect to those transactions.
PIMCO represents that the cost of terminating an investment is the
difference between the bid and ask price on the instrument since,
generally, these investments are terminated earlier than contemplated
and on the counterparty's side of the market. Some investments,
however, are more liquid than others (e.g., Treasury bonds generally
are more liquid than foreign sovereign bonds, and equities generally
are more liquid than swaps). Some of the strategies followed by PIMCO
tend to be less liquid than certain other strategies and, thus, the
transition costs would be significantly higher than, for example,
liquidating a large cap equity portfolio. The Applicant believes that,
depending on the strategy, the cost of liquidating assets in connection
with transitioning clients to another manager could be significant.
In the proposed exemption, PIMCO provided an assessment of the
potential harm to Covered Plans if this exemption is not granted, both
in the aggregate and with respect to a representative Covered Plan
account, under orderly, stressed, and expedited scenarios in which all
the Covered Plans decide to terminate their relationships with PIMCO.
The Department refers readers to the proposed exemption for more detail
regarding these harms.\9\
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\9\ See 88 FR 18339-18340 (March 28, 2023).
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Department Note
The Department notes that this exemption includes protective
conditions that allow Covered Plans to continue to utilize the services
of a PIMCO Affiliated QPAM if they determine that it is prudent to do
so. The Department's primary objective in granting this exemption is to
allow Covered Plans to avoid cost and disruption to investment
strategies that may arise if such Covered Plans are forced, on short
notice, to hire a different QPAM or asset manager because the PIMCO
Affiliated QPAM is no longer able to rely on the relief provided by the
QPAM Exemption due to the Conviction.
Written Comments
In the proposed exemption, the Department invited all interested
persons to submit written comments and/or requests for a public hearing
with respect to the notice of proposed exemption by May 12, 2023. The
Department received one written comment from the Applicant and no
requests for a public hearing. The Department discusses the Applicant's
comments below.
I. Comments From the Applicant
Comment 1: Exemption Period
Section I(d) of the proposed exemption states: The term ``Exemption
Period'' means May 17, 2023, through May 16, 2028.
The Applicant requests that the Department extend the term of the
exemption to ten years, which would cover the entire period of
disqualification. As support for this request, the Applicant asserts
that the PIMCO Affiliated QPAMs operate their business separately and
autonomously from Allianz and its subsidiaries and
[[Page 42957]]
that Allianz and its subsidiaries, including AGI US, are not involved
in any way in the PIMCO Affiliated QPAMs' investment processes.
According to the Applicant, PIMCO's independence is embedded in PIMCO's
governance and documented in written agreements between the PIMCO
Affiliated QPAMs and Allianz that contemplate explicitly that the PIMCO
Affiliated QPAMs will operate independently from any other Allianz
asset management subsidiaries and, accordingly, function as competitors
in the asset management marketplace. The Applicant maintains that the
PIMCO Affiliated QPAMs' autonomy is demonstrated by the separation of
all business functions, including investment management activities and
control functions, and legal and compliance functions.
The Applicant submits that a truncated period of relief would
penalize PIMCO's Covered Plan clients for the isolated misconduct of
three individuals employed by AGI US and that withholding exemptive
relief under the circumstances would not render such conduct less
likely, nor would a five-year initial term serve any administrative
purpose. Put differently, even if the Department were to re-evaluate
the propriety of exemptive relief after five years, the key
requirements of the exemption could not provide any additional
assurance, beyond that already provided by the complete separation
between PIMCO and AGI US, that the Applicant's plan clients would be
unaffected by future misconduct at AGI US.
Regardless of the length of the term, the Applicant requests that
the proposed exemption define the ``Exemption Period'' as a period
beginning on the date of the AGI US Conviction. The Applicant states
that because the AGI US Conviction will not occur on May 17, 2023, as
originally scheduled, the definition of ``Exemption Period'' would not
accurately reflect the date of the AGI US Conviction.
Department's Response: The Department declines to extend the term
of the exemption to ten years. The misconduct perpetrated within the
Structured Products Group at AGI US was serious and directly involved
ERISA-covered plan assets. The Department disagrees with the
Applicant's characterization that the misconduct was ``the isolated
acts of three individuals.'' As alleged in the Department of Justice's
May 17, 2022 release and discussed earlier in this preamble, ``Much of
this historic fraud was made possible because AGI's control environment
was not designed to verify that [the three individuals] were telling
the truth. Because AGI, a registered investment adviser, failed to
provide meaningful oversight, [the three fund managers] were able to
deceive investigators about the risks they were taking with their
money.'' This exemption's five-year term and protective conditions
reflect the Department's intent to protect Covered Plans that entrust
retirement assets to a PIMCO Affiliated QPAM, despite the serious
misconduct and supervisory failures of PIMCO's affiliate. Further, the
limited term of this exemption provides the Department the opportunity
to review the adherence by the PIMCO Affiliated QPAMs to the conditions
established in this exemption before determining whether to extend the
relief provided in this exemption for an additional term.
The Department agrees with the Applicant's second requested change
and accordingly has modified this exemption to provide that the
exemption period begins on the date of the AGI US Conviction.
Comment 2: PIMCO Related QPAMs
The Applicant requests the deletion of Section I(h), which defines
the term ``PIMCO Related QPAMs'' and all references to PIMCO Related
QPAMs throughout the exemption. The Applicant represents that no such
entities exist or are expected to exist in the future, and, as such, no
relief is necessary for PIMCO Related QPAMs.
Department's Response: The Department agrees with the Applicant's
requested change and has updated the exemption to remove all references
to PIMCO Related QPAMs accordingly.
Comment 3: Participation in Misconduct
Section III(a) of the proposed exemption states: The PIMCO
Affiliated QPAMs and the PIMCO Related QPAMs (including their officers,
directors, agents other than AGI US, and employees of such QPAMs) did
not know or have reason to know of and did not participate in the
Misconduct that is the subject of the AGI US Conviction. Further, any
other party engaged on behalf of the PIMCO Affiliated QPAMs and PIMCO
Related QPAMs who had responsibility for, or exercised authority in
connection with the management of plan assets did not know nor have
reason to know of and did not participate in the Misconduct that is the
subject of the AGI Conviction. For purposes of this proposed exemption,
``participate in'' refers not only to active participation in the
Misconduct of AGI US that is the subject of the AGI US Conviction, but
also to knowing approval of the Misconduct, or knowledge of such
Misconduct without taking active steps to stop it, including reporting
the Misconduct to the individual's supervisors and to the Board of
Directors.
The Applicant requests that this condition require reporting to the
PIMCO Executive Committee because PIMCO does not have a formal Board of
Directors. The Applicant states that the PIMCO Executive Committee
determines PIMCO's strategic direction and oversees the broad scope of
its operations. As such, requiring reporting to the Executive Committee
would better reflect PIMCO's organizational structure.
Department's Response: The Department agrees with the Applicant's
request and has modified Section (III)(a) accordingly.
Comment 4: Compensation
Section III(b) of the proposed exemption states: The PIMCO
Affiliated QPAMs and the PIMCO Related QPAMs (including their officers,
directors, and agents other than AGI US, and employees of such PIMCO
QPAMs who had responsibility for, or exercised authority in connection
with the management of plan assets) did not receive direct compensation
or knowingly receive indirect compensation in connection with the
Misconduct that is the subject of the AGI US Conviction. Further, any
other party engaged on behalf of the PIMCO Affiliated QPAMs and the
PIMCO Related QPAMs who had responsibility for or exercised authority
in connection with the management of plan assets did not receive direct
compensation nor knowingly receive indirect compensation in connection
with the Misconduct that is the subject of the AGI US Conviction.
The Applicant requests that the prohibition on receiving direct
compensation be limited to knowingly doing so. The Applicant states
that, as the Department recognized by narrowing the prohibition on
receipt of indirect compensation to knowing receipt, inadvertent
receipt of compensation, whether direct or indirect, should not
disqualify PIMCO from exemptive relief.
Department's Response: The Department declines to make the
Applicant's requested change. Throughout its application and comment
letter, PIMCO emphasized the complete separation and independence
between PIMCO and AGI US--not only organizationally but also with
respect to their investment processes. Before submitting this comment,
the Applicant
[[Page 42958]]
had not mentioned that the PIMCO Affiliated QPAMs may have received
direct compensation in connection with the criminal misconduct of AGI
US. Further, this comment does not provide any detail on the type of
direct compensation that may have been received. For these reasons, the
Department declines to make the requested change.
Comment 5: Employment of Individuals Who Participated in the Misconduct
Section III(c) of the proposed exemption states: The PIMCO
Affiliated QPAMs do not currently and will not in the future employ or
knowingly engage any of the individuals who participated in any of the
Misconduct, or any individual who was employed in AGI US's Structured
Products Group from January 1, 2014, through March 31, 2020.
The Applicant requests that there be no prohibition on the
employment of any individual who was employed by AGI US's Structured
Products Group, other than the three individuals who participated in
the misconduct. The Applicant states that the Department of Justice
made clear that only three individuals were involved in the misconduct
that was the subject of the AGI US Conviction and the wrongdoing of
these three individuals should not be imputed to the entire Structured
Products Group, including, for example, support staff, secretaries, and
information technology specialists. As a practical matter, PIMCO does
not have and cannot gain access to employment records for AGI US and,
therefore, is not able to verify compliance with this condition unless
the former AGI US employee indicates such employment on his or her
resume.
The Applicant submits that prohibiting employment by the PIMCO
Affiliated QPAMs of the three individuals identified by the Department
of Justice as having participated in the misconduct adequately protects
Covered Plans and their participants from any influence by the
wrongdoers, and a far broader prohibition affects a hardship on
innocent employees.
Department's Response: The Department declines to make the
Applicant's requested change in part. The Department will modify
Section III(c) by deleting the reference to ``any individual who was
employed in AGI US's Structured Products Group from January 1, 2014,
through March 31, 2020.'' The condition now states: The PIMCO
Affiliated QPAMs do not currently and will not in the future employ or
knowingly engage any of the individuals who participated in any of the
Misconduct, or any of the individuals who were referenced in the DOJ
Statement of Facts as having known about the Misconduct without
reporting the Misconduct. The PIMCO QPAMs should make every effort to
ensure that no employees who participated in the Misconduct, including
anyone who knew about the Misconduct and failed to report it, is
employed by a PIMCO Affiliated QPAM and use every reasonably available
resource to identify these employees, including during PIMCO's hiring
processes.
Comment 6: Direction of Investment Fund
Section III(d) of the proposed exemption states: At all times
during the Exemption Period, no PIMCO Affiliated QPAM will use its
authority or influence to direct an ``investment fund'' (as defined in
Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and
managed by such PIMCO Affiliated QPAM in reliance on PTE 84-14 or with
respect to which a PIMCO Affiliated QPAM has expressly represented to
an ERISA-covered plan or IRA with assets invested in such ``investment
fund'' that it qualifies as a QPAM or relies on the QPAM class
exemption, to enter into any transaction with AGI US or to engage AGI
US to provide any service to such investment fund for a direct or
indirect fee borne by such investment fund regardless of whether such
transaction or service may otherwise be within the scope of relief
provided by an administrative or statutory exemption.
The Applicant requests that the term ``investment fund'' be
replaced with the term ``Covered Plan'' because the description of
``investment fund'' in the proposed exemption duplicates the definition
of Covered Plan, and the use of the term Covered Plan would be clearer
and less ambiguous while achieving the same result.
Department's Response: The Department does not agree that the
requested change provides any additional clarity and, therefore, is not
making the requested change.
Comment 7: Conditions Relating to AGI US
Section III(g) of the proposed exemption states: Other than with
respect to employee benefit plans maintained or sponsored for its own
employees or the employees of an affiliate, AGI US will not act as a
fiduciary within the meaning of ERISA Section 3(21)(A)(i) or (iii) or
Code Section 4975(e)(3)(A) and (C) with respect to ERISA-covered plan
and IRA assets; provided, however, that PIMCO will not be treated as
violating the conditions of this exemption solely because AGI US acted
as an investment advice fiduciary within the meaning of ERISA Section
3(21)(A)(ii) or Code Section 4975(e)(3)(B).
Section III(n) of the proposed exemption provides: AGI US complies
in all material respects with the requirements imposed by a U.S.
regulatory authority in connection with the AGI US Conviction.
The Applicant requests that these provisions be deleted because
PIMCO is entirely separate from the Allianz entities and, as such,
PIMCO has no control whatsoever over AGI US and could do nothing to
ensure these conditions are met. The Applicant submits that imposing
conditions upon PIMCO over which PIMCO has no control is not protective
of Covered Plans and their participants, nor does it further their
interests. Conversely, imposing a condition that is entirely outside of
PIMCO's control could potentially harm plans if AGI US does not comply,
as PIMCO would have no way to remedy the breach but would lose
advantageous exemptive relief, nonetheless.
If the Department declines to delete the conditions, the Applicant
requests that they be narrowed to actions within PIMCO's control--i.e.,
that PIMCO will not contribute to any actions by AGI US as a fiduciary
or to any failure by AGI US to comply with regulatory requirements.
Department's Response: The Department declines to make the
Applicant's requested changes. The Department notes that Allianz is the
parent entity of both PIMCO and AGI US and should ensure that AGI US
complies with the requirements imposed by a U.S. regulatory authority
in connection with the AGI US Conviction.
Comment 8: Timing of Policies
Section III(h)(1) of the proposed exemption states: Within 180
calendar days of the effective date of this five-year exemption, each
PIMCO Affiliated QPAM must immediately develop, maintain, implement,
and follow written policies and procedures (the Policies).
The Applicant requests the deletion of the term ``immediately.''
Because the Proposal expressly allows 180 days for the development and
implementation of the Policies, the Applicant assumes the contradictory
requirement to do so immediately was inadvertent.
Department's Response: The Department agrees with the Applicant's
request and has modified Section III(h)(1) accordingly.
[[Page 42959]]
Comment 9: Misrepresentation to Regulators
Section III(h)(1)(v) of the proposed exemption states: To the best
of the PIMCO Affiliated QPAM's knowledge at the time, the PIMCO
Affiliated QPAM does not make material misrepresentations or omit
material information in its communications with such regulators with
respect to Covered Plans or make material misrepresentations or omit
material information in its communications with Covered Plans.
The Applicant submits that the clause prohibiting material
misrepresentations and omission of material information in
communications with regulators is duplicative of the immediately
preceding condition, which requires all filings and statements to
regulators to be ``materially accurate and complete.'' While Section
III(h)(1)(iv) concerns communications with regulators, Section
III(h)(1)(v) should be devoted solely to communications with Covered
Plans.
The Applicant requests that Section III(h)(1)(v) be modified to
read: To the best of the PIMCO Affiliated QPAM's knowledge at the time,
the PIMCO Affiliated QPAM does not make material misrepresentations or
omit material information in its communications with Covered Plans.
Department's Response: The Department declines to make the
requested change. Mandating that the PIMCO Affiliated QPAMs not make
material misrepresentations or omit material information in their
communications to regulators is an important protection for Covered
Plans and the Department is not persuaded that the PIMCO Affiliated
QPAMs will be unable to comply with Sections III(h)(1)(iv) and (v) as
they are currently written.
Comment 10: Violations and Failures To Comply
Section III(h)(1)(vii) of the proposed exemption states, in
pertinent part: Any violation of or failure to comply with an item in
subparagraphs (ii) through (vi), is corrected as soon as reasonably
possible upon discovery, or as soon after the QPAM reasonably should
have known of the noncompliance (whichever is earlier), and any such
violation or compliance failure not so corrected is reported, upon the
discovery of such failure to so correct, in writing, to the head of
compliance and the General Counsel (or their functional equivalent) of
the relevant line of business that engaged in the violation or failure,
and the independent auditor responsible for reviewing compliance with
the Policies.
The Applicant requests clarification that any violation or failure
to comply must be reported to the head of compliance and the General
Counsel of the relevant PIMCO Affiliated QPAM, rather than the relevant
line of business. Currently, these are the Chief Compliance Officer and
General Counsel of PIMCO LLC. The Applicant states that this change
would better reflect PIMCO's organizational structure, which generally
does not have separate general counsels or chief compliance officers
for different lines of business.
Department's Response: The Department agrees with the Applicant's
requested change and has modified Section III(h)(1)(vii) accordingly.
Comment 11: Audit Periods
Section III(i)(1) of the proposed exemption states: Each PIMCO
Affiliated QPAM must submit to an audit conducted every two years by an
independent auditor who has been prudently selected and has appropriate
technical training and proficiency with ERISA and the Code to evaluate
the adequacy of the Policies and Training conditions described herein
and each PIMCO Affiliated QPAM's compliance with them. The audit
requirement must be incorporated into the Policies. Each audit must
cover the preceding consecutive twelve (12) month period. The first
audit under this exemption must cover the period from May 17, 2023,
through May 16, 2024, and must be completed by November 16, 2024. The
second audit must cover the period from May 17, 2025, through May 16,
2026, and must be completed by November 16, 2026. The third audit must
cover the period from May 17, 2027, through May 16, 2028, and must be
completed by November 16, 2028.
The Applicant submits that the dates for the audit cycles should be
calculated from the date of the AGI US Conviction, rather than from May
17, 2023.
Department's Response: The Department agrees with the Applicant's
requested change and has modified Section III(i)(1) accordingly.
Comment 12: Audit Report
Section III(i)(5) and Section III(i)(7) of the proposed exemption
state, in pertinent part:
(5) For each audit, on or before the end of the relevant period
described in Section III(i)(1) for completing the audit, the auditor
must issue a written report (the Audit Report) to PIMCO and the PIMCO
Affiliated QPAM to which the audit applies that describes the
procedures performed by the auditor during its examination. . . .
(7) With respect to each Audit Report, the general counsel or one
of the three most senior executive officers of PIMCO or the Affiliated
QPAM with respect to which the Audit Report applies must certify in
writing and under penalty of perjury that (a) the officer has reviewed
the Audit Report and this exemption; and (b) the PIMCO Affiliated QPAM
has addressed, corrected or remedied any instance of noncompliance or
inadequacy or has an appropriate written plan in place to address any
instance of noncompliance or inadequacy regarding the Policies and
Training identified in the Audit Report. The certification must also
include the signatory's determination that the Policies and Training in
effect at the time of the certification are adequate to ensure
compliance with the exemption conditions and with the applicable
provisions of ERISA and the Code.
The Applicant requests clarification to reflect that the PIMCO
Affiliated QPAMs comprise the universe of managers that would utilize
this exemption. By their terms, these conditions assume that PIMCO is a
separate entity from the Affiliated QPAMs, which is not factually
accurate because PIMCO is currently the sole Affiliated QPAM. Thus, the
Applicant requests that the Department revise the phrases ``PIMCO and
the PIMCO Affiliated QPAM'' and ``PIMCO or the PIMCO Affiliated QPAM''
to ``the PIMCO Affiliated QPAM.''
Department's Response: The Department accepts the Applicant's
clarification and affirms that the PIMCO Affiliated QPAMs comprise the
universe of managers that would utilize this exemption.
Comment 13: Certification of Audit Report
Section III(i)(8) of the proposed exemption states: The PIMCO Board
of Directors is provided with a copy of each Audit Report, and a senior
executive officer with a direct reporting line to the highest-ranking
legal compliance officer of PIMCO must review the Audit Report for each
PIMCO Affiliated QPAM and certify in writing under penalty of perjury
that such officer has reviewed the Audit Report.
The Applicant requests that this condition require reporting to the
PIMCO Executive Committee, rather than the Board of Directors. In
addition, the Applicant requests that this condition require
certification of the Audit Report by a senior executive officer,
without the requirement that the senior executive officer report to the
[[Page 42960]]
highest-ranking legal compliance officer of PIMCO. The Applicant states
that the term ``senior executive officer'' in this condition is
undefined and, while there are many experienced personnel who report to
PIMCO's Chief Compliance Officer, they are not necessarily the most
senior executive officers at the firm in terms of overall managerial
responsibility.
Department's Response: The Department declines to make the
Applicant's requested change, in part. The Department agrees that the
audit report should be provided to the PIMCO Executive Committee,
rather than the Board of Directors. The Department, however, disagrees
with the Applicant's other requested change. While this condition
requires that the designated audit-certifying senior executive officer
must have a direct reporting line to the highest-ranking legal
compliance officer of PIMCO, such designated officer does not need to
be one of the most senior executive officers at the firm in terms of
overall managerial responsibility.
Comment 14: Compliance With ERISA and the Code
Section III(j)(1) of the proposed exemption states that the PIMCO
Affiliated QPAMs will agree and warrant: To comply with ERISA and the
Code, as applicable with respect to such Covered Plan; to refrain from
engaging in prohibited transactions that are not otherwise exempt (and
to promptly correct any inadvertent prohibited transactions); and to
comply with the standards of prudence and loyalty set forth in ERISA
Section 404, with respect to each such ERISA-covered plan and IRA (to
the extent that ERISA Section 404 is applicable).
The Applicant requests the deletion of the term ``inadvertent''
with respect to the correction of prohibited transactions, claiming
that limiting the obligation to correct prohibited transactions to only
those that are inadvertent would not serve the interest of plans. The
Applicant states that the PIMCO Affiliated QPAMs would endeavor to
promptly correct any prohibited transaction, whether or not
inadvertent, and are prepared to agree and warrant to that effect to
Covered Plans.
Department's Response: The Department accepts the Applicant's
requested change and has modified Section III(j)(1) accordingly.
Comment 15: Indemnification
Section III(j)(2) of the proposed exemption states that the PIMCO
Affiliated QPAMs will agree and warrant: To indemnify and hold harmless
the Covered Plan for any actual losses resulting directly from the
PIMCO Affiliated QPAM's violation of ERISA's fiduciary duties, as
applicable, and of the prohibited transaction provisions of ERISA and
the Code, as applicable; a breach of contract by the QPAM; or any claim
arising out of the failure of such PIMCO Affiliated QPAM to qualify for
the exemptive relief provided by PTE 84-14 as a result of a violation
of Section I(g) of PTE 84-14, other than the Conviction. This condition
applies only to actual losses caused by the PIMCO Affiliated QPAM's
violations. Actual losses include losses and related costs arising from
unwinding transactions with third parties and from transitioning Plan
assets to an alternative asset manager as well as costs associated with
any exposure to excise taxes under Code Section 4975 because of PIMCO's
inability to rely upon the relief in the QPAM Exemption.
The Applicant requests that the Department modify this condition so
that only a material breach of contract by a PIMCO Affiliated QPAM will
trigger the indemnification provision. The Applicant states that a
nonmaterial breach of a contract, such as an ancillary provision that
does not affect the fundamental aspects of the contract, typically does
not provide a basis for contractual remedies. Mandating indemnification
for nonmaterial breaches by a QPAM would invite myriad claims arising
over minor or technical aspects of the contract, including claims for
consequential or punitive damages, which are commonly excluded from
most agreements, but which the QPAMs nonetheless would be obligated to
defend, and which would expend valuable resources that would be better
utilized in serving plans. The Applicant urges the Department to limit
the meaning of actual losses to losses and related costs directly
arising from unwinding and excise tax exposure. The Applicant argues
that expanding the definition of ``actual losses'' beyond direct costs
could encourage plans to seek indemnification for indirect and
incidental losses only tenuously or remotely arising from the QPAM's
actions.
Department's Response: The Department declines to make the
Applicant's requested change. The Department notes that this condition
has been included in several previously granted QPAM individual
exemptions, and the Department is not aware of any instances of the
harm that has been identified by the Applicant in this comment.
Comment 16: Exemption Review
Section III(m)(2)(i) of the proposed exemption states: The annual
Exemption Review includes a review by the Compliance Officer of: (A)
the PIMCO Affiliated QPAM's compliance with and effectiveness of the
Policies and Training; (B) any compliance matter related to the
Policies or Training that was identified by, or reported to, the
Compliance Officer or others within the compliance and risk control
function (or its equivalent) during the previous year; (C) the most
recent Audit Report issued pursuant to this exemption; (D) any material
change in the relevant business activities of the PIMCO Affiliated
QPAMs; and (E) any change to ERISA, the Code, or regulations related to
fiduciary duties and the prohibited transaction provisions that may be
applicable to the activities of the PIMCO Affiliated QPAMs.
The Applicant requests that the above description be modified to
reflect that the Compliance Officer must review ``any material error,
recommendation, and compliance failure identified in the'' Audit
Report. The Applicant submits that this modification would be helpful
to clarify that the focus of the Compliance Officer's review of the
Audit Report should be the correction of errors and compliance failures
and the implementation of recommendations, rather than the entirety of
the Audit Report generally.
Department's Response: The Department agrees with the Applicant's
request and has modified Section III(m)(2)(i) accordingly.
Comment 17: Timing of Exemption Review
Section III(m)(2)(iii) of the proposed exemption states, in
relevant part: The annual Exemption Review, including the Compliance
Officer's written Report, must be completed within 90 calendar days
following the end of the period to which it relates. The annual
Exemption Reviews under this exemption must cover the following
periods: May 17, 2023, through May 16, 2024; May 17, 2024, through May
16, 2025; May 17, 2025, through May 16, 2026; May 17, 2026, through May
16, 2027; May 17, 2027, through May 16, 2028.
The Applicant requests that the dates for the Exemption Review
cycles be calculated from the date of the AGI US Conviction, rather
than from May 17, 2023.
Department's Response: The Department accepts the Applicant's
requested change and has modified Section III(m)(2)(iii) to calculate
the
[[Page 42961]]
Exemption Review periods from the date of the AGI US Conviction.
Comment 18: Summary Policies
Section III(q) of the proposed exemption states: Within 60 calendar
days after the effective date of this exemption, each PIMCO Affiliated
QPAM, in its agreements with, or in other written disclosures provided
to Covered Plans, will clearly and prominently inform Covered Plan
clients of their right to obtain a copy of the Policies or a
description (Summary Policies) which accurately summarizes key
components of the PIMCO Affiliated QPAM's written Policies developed in
connection with this exemption. If the Policies are thereafter changed,
each Covered Plan client must receive a new disclosure within 180
calendar days following the end of the calendar year during which the
Policies were changed. With respect to this requirement, the
description may be continuously maintained on a website, provided that
such website link to the Policies or Summary Policies is clearly and
prominently disclosed to each Covered Plan.
The Applicant requests that this condition allow 240 days after the
effective date of the exemption to notify Covered Plans of their right
to Policies or Summary Policies. Pursuant to Section III(h), the PIMCO
Affiliated QPAMs have 180 days to develop and implement the Policies.
The Applicant states that the notification deadline should occur after
the development period for the Policies because notifying plans of
their right to Policies that do not yet exist would serve only to
confuse them. The Applicant requests an additional 60 days after the
Policies have been drafted to prepare and send notices.
Department's Response: The Department declines to make the
Applicant's requested change and notes that this condition only
requires the PIMCO Affiliated QPAMs to inform Covered Plans that they
have the right to request and receive a copy of the Policies or Summary
Policies. The Department believes that the PIMCO Affiliated QPAMs can
accomplish this task within the timeframe set out in this condition.
Comment 19: Typographical Issues
The Applicant also requests the correction of certain typographical
issues in the proposed exemption.
Department's Response: The Department agrees with all of the
Applicant's typographical correction requests and has incorporated them
into this exemption.
The complete application file (D-12075) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210. For a more complete
statement of the facts and representations supporting the Department's
decision to grant this exemption, please refer to the notice of
proposed exemption that the Department published in the Federal
Register on March 28, 2023 (88 FR 18333).
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA Section 408(a) does not relieve a fiduciary or other party
in interest from certain requirements of other ERISA provisions,
including but not limited to any prohibited transaction provisions to
which the exemption does not apply and the general fiduciary
responsibility provisions of ERISA Section 404, which, among other
things, require a fiduciary to discharge their duties respecting the
plan solely in the interest of the plan's participants and
beneficiaries and in a prudent fashion in accordance with ERISA Section
404(a)(1)(B).
(2) As required by ERISA Section 408(a), the Department hereby
finds that the exemption is: (a) administratively feasible; (b) in the
interests of Covered Plans and their participants and beneficiaries;
and (c) protective of the rights of the Covered Plan's participants and
beneficiaries.
(3) This exemption is supplemental to, and not in derogation of,
any other ERISA provisions, including statutory or administrative
exemptions and transitional rules. Furthermore, the fact that a
transaction is subject to an administrative or statutory exemption is
not dispositive for determining whether the transaction is in fact a
prohibited transaction.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transactions
that are the subject of the exemption and are true at all times.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application and the
Applicant's comments on the proposed exemption, the Department has
determined to grant the following exemption under the authority of
ERISA Section 408(a) in accordance with the Department's exemption
procedures set forth in 29 CFR part 2570, subpart B: \10\
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\10\ 76 FR 66637, 66644 (October 27, 2011).
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Exemption
Section I. Definitions
(a) The term ``AGI US'' means Allianz Global Investors U.S. LLC.
(b) The term ``AGI US Conviction'' means the judgment of conviction
against AGI US for one count of securities fraud in violation of Title
15, United States Code, Sections 78j(b) and 78ff, Title 17, Code of
Federal Regulations, Section 240.10b-5, and Title 18, United States
Code, Section 2, entered in the District Court for the U.S. District
Court Southern District of New York (the District Court) case number
1:22-cr-00279-CM.
(c) The term ``Covered Plan'' means a plan subject to Part IV of
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to Code
section 4975 (an ``IRA''), in each case, with respect to which a PIMCO
Affiliated QPAM relies on PTE 84-14, or with respect to which a PIMCO
Affiliated QPAM (or any PIMCO affiliate) has expressly represented that
the manager qualifies as a QPAM or relies on the QPAM class exemption
(PTE 84-14 or the QPAM Exemption).\11\ A Covered Plan does not include
an ERISA-covered plan or IRA to the extent the PIMCO Affiliated QPAM
has expressly disclaimed reliance on QPAM status or PTE 84-14 in
entering into a contract, arrangement, or agreement with the ERISA-
covered plan or IRA.
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\11\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as
amended at 75 FR 38837 (July 6, 2010).
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(d) The term ``Exemption Period'' means the period of five years
that begins on the date of the AGI US Conviction.
(e) The term ``Misconduct'' means the conduct described in the
Statement of Facts in case number 1:22-cr-00279-CM which indicated that
beginning in at least 2014 and continuing through March 2020, AGI US
engaged in a scheme to defraud investors in a series of private
investment funds (the Structured Alpha Funds) that at their height had
over $11 billion in assets under management.
(f) The term ``PIMCO'' means Pacific Investment Management Company
LLC.
(g) The term ``PIMCO Affiliated QPAM'' means a ``qualified
professional asset manager,'' as defined in Section VI(a) of PTE 84-14,
that relies on the relief provided by PTE 84-14 or represents to ERISA-
covered plans and/or IRAs that it qualifies as a QPAM, and
[[Page 42962]]
with respect to which PIMCO is a current or future ``affiliate'' (as
defined in Section VI(d)(1) of PTE 84-14). For the purposes of this
exemption, the term ``PIMCO Affiliated QPAMs'' does not include AGI US,
or entities that are under the control of AGI US. The term only
includes entities that are 100 percent owned, directly or indirectly,
by PIMCO.
Section II. Covered Transactions
Under this exemption, the PIMCO Affiliated QPAMs will not be
precluded from relying on the exemptive relief provided by Prohibited
Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption)
notwithstanding the Conviction, as defined in Section I(b), during the
Exemption Period, as defined in Section I(c) provided that the
conditions set forth in Section III below are satisfied.
Section III. Conditions
(a) The PIMCO Affiliated QPAMs (including their officers,
directors, agents other than AGI US, and employees of such QPAMs) did
not know or have reason to know of and did not participate in the
Misconduct that is the subject of the AGI US Conviction. Further, any
other party engaged on behalf of the PIMCO Affiliated QPAMs who had
responsibility for, or exercised authority in connection with the
management of plan assets did not know nor have reason to know of and
did not participate in the Misconduct that is the subject of the AGI
Conviction. For purposes of this proposed exemption, ``participate in''
refers not only to active participation in the Misconduct of AGI US
that is the subject of the AGI US Conviction, but also to knowing
approval of the Misconduct, or knowledge of such Misconduct without
taking active steps to stop it, including reporting the Misconduct to
the PIMCO Executive Committee.
(b) The PIMCO Affiliated QPAMs (including their officers,
directors, and agents other than AGI US, and employees of such PIMCO
QPAMs who had responsibility for, or exercised authority in connection
with the management of plan assets) did not receive direct compensation
or knowingly receive indirect compensation in connection with the
Misconduct that is the subject of the AGI US Conviction. Further, any
other party engaged on behalf of the PIMCO Affiliated QPAMs who had
responsibility for or exercised authority in connection with the
management of plan assets did not receive direct compensation nor
knowingly receive indirect compensation in connection with the
Misconduct that is the subject of the AGI US Conviction;
(c) The PIMCO Affiliated QPAMs do not currently and will not in the
future employ or knowingly engage any of the individuals who
participated in any of the Misconduct, or any of the individuals who
were referenced in the DOJ Statement of Facts as having known about the
Misconduct without reporting the Misconduct. The PIMCO QPAMs must make
every reasonable effort to ensure that no employees who participated in
the Misconduct, including any employees who knew about the Misconduct
and failed to report it, are employed by a PIMCO Affiliated QPAM. This
involves using every reasonably available resource to identify these
employees;
(d) At all times during the Exemption Period, no PIMCO Affiliated
QPAM will use its authority or influence to direct an ``investment
fund'' (as defined in Section VI(b) of PTE 84-14) that is subject to
ERISA or the Code and managed by such PIMCO Affiliated QPAM in reliance
on PTE 84-14 or with respect to which a PIMCO Affiliated QPAM has
expressly represented to an ERISA-covered plan or IRA with assets
invested in such ``investment fund'' that it qualifies as a QPAM or
relies on the QPAM class exemption, to enter into any transaction with
AGI US or to engage AGI US to provide any service to such investment
fund for a direct or indirect fee borne by such investment fund
regardless of whether such transaction or service may otherwise be
within the scope of relief provided by an administrative or statutory
exemption;
(e) Any failure of a PIMCO Affiliated QPAM to satisfy Section I(g)
of PTE 84-14 arose solely from the AGI US Conviction;
(f) A PIMCO Affiliated QPAM did not exercise authority over the
assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-
covered plan) or Code Section 4975 (an IRA) in a manner that it knew or
should have known would: (i) further the Misconduct that is the subject
of the AGI US Conviction; or (ii) cause the PIMCO Affiliated QPAM or
its affiliates to directly or indirectly profit from the Misconduct
that is the subject of the AGI US Conviction;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, AGI
US will not act as a fiduciary within the meaning of ERISA Section
3(21)(A)(i) or (iii) or Code Section 4975(e)(3)(A) and (C) with respect
to ERISA-covered plan and IRA assets; provided, however, that PIMCO
will not be treated as violating the conditions of this exemption
solely because AGI US acted as an investment advice fiduciary within
the meaning of ERISA Section 3(21)(A)(ii) or Code Section
4975(e)(3)(B);
(h)(1) Within 180 calendar days after the effective date of this
five-year exemption, each PIMCO Affiliated QPAM must develop, maintain,
implement, and follow written policies and procedures (the Policies)
that must require, and be reasonably designed to ensure that:
(i) The asset management decisions of the PIMCO Affiliated QPAM are
conducted independently of the corporate management and business
activities of AGI US;
(ii) The PIMCO Affiliated QPAM fully complies with ERISA's
fiduciary duties and with ERISA and the Code's prohibited transaction
provisions as applicable with respect to each Covered Plan, and does
not knowingly participate in any violation of these duties and
provisions with respect to Covered Plans;
(iii) The PIMCO Affiliated QPAM does not knowingly participate in
any other person's violation of ERISA or the Code with respect to
Covered Plans;
(iv) Any filings or statements made by the PIMCO Affiliated QPAM to
regulators, including, but not limited to, the Department, the
Department of the Treasury, the Department of Justice, and the Pension
Benefit Guaranty Corporation on behalf of or in relation to Covered
Plans are materially accurate and complete to the best of such QPAM's
knowledge at the time they are made;
(v) To the best of the PIMCO Affiliated QPAM's knowledge at the
time, the PIMCO Affiliated QPAM does not make material
misrepresentations or omit material information in its communications
with such regulators with respect to Covered Plans or make material
misrepresentations or omit material information in its communications
with Covered Plans;
(vi) The PIMCO Affiliated QPAM complies with the terms of this
exemption; and
(vii) Any violation of or failure to comply with an item in
subparagraphs (ii) through (vi), is corrected by the PIMCO Affiliated
QPAM as soon as reasonably possible upon discovery, or as soon after
the PIMCO Affiliated QPAM reasonably should have known of the
noncompliance (whichever is earlier), and any such violation or
compliance failure not so corrected is reported, upon the discovery of
such failure to so correct, in writing, to the head of compliance and
the General
[[Page 42963]]
Counsel (or their functional equivalent) of the PIMCO Affiliated QPAM
that engaged in the violation or failure, and the independent auditor
responsible for reviewing compliance with the Policies. A PIMCO
Affiliated QPAM will not be treated as having failed to develop,
implement, maintain, or follow the Policies if it corrects any instance
of noncompliance as soon as reasonably possible upon discovery, or as
soon as reasonably possible after the PIMCO Affiliated QPAM reasonably
should have known of the noncompliance (whichever is earlier), and if
it adheres to the reporting requirements set forth in this subparagraph
(vii);
(2) Within 180 calendar days after the effective date of the
exemption, each PIMCO Affiliated QPAM must develop, maintain, adjust
(to the extent necessary), and implement a training program during the
Exemption Period that will be conducted at least annually for all
relevant PIMCO Affiliated QPAM's asset/portfolio management, trading,
legal, compliance, and internal audit personnel (the Training). The
Training required under this exemption may be conducted electronically
and must:
(i) At a minimum, cover the Policies, ERISA and Code compliance
(including applicable fiduciary duties and the prohibited transaction
provisions), ethical conduct, the consequences for not complying with
the conditions of this exemption (including any loss of exemptive
relief provided herein), and prompt reporting of wrongdoing; and
(ii) Be conducted by a professional who has been prudently selected
and has appropriate technical training and proficiency with ERISA and
the Code to perform the tasks required by this exemption;
(iii) Be verified through in-training knowledge checks,
``graduation'' tests, and/or other technological tools designed to
confirm that personnel fully and in good faith participate in the
Training;
(i)(1) Each PIMCO Affiliated QPAM must submit to an audit conducted
every two years by an independent auditor who has been prudently
selected and has appropriate technical training and proficiency with
ERISA and the Code to evaluate the adequacy of the Policies and
Training conditions described herein and each PIMCO Affiliated QPAM's
compliance with them. The audit requirement must be incorporated into
the Policies. Each audit must cover the preceding consecutive twelve
(12) month period. The first audit under this exemption must cover the
twelve-month period beginning on the date of the AGI US Conviction The
second audit must cover the twelve-month period beginning two years
from the date of the AGI US Conviction The third audit must cover the
twelve-month period beginning four years from the date of the AGI US
Conviction. Each audit must be completed no later than six (6) months
after the conclusion of the period to which the audit relates.
(2) Within the scope of the audit and to the extent necessary for
the auditor, in its sole opinion, to complete its audit and comply with
the conditions for relief described herein, the PIMCO Affiliated QPAMs
will grant the auditor unconditional access to their businesses,
including, but not limited to: its computer systems; business records;
transactional data; workplace locations; training materials; and
personnel. Such access will be provided only to the extent that it is
not prevented by state or federal statute, or involves communications
subject to attorney client privilege and may be limited to information
relevant to the auditor's objectives as specified by the terms of this
exemption;
(3) The auditor's engagement must specifically require the auditor
to determine whether each PIMCO Affiliated QPAM has developed,
implemented, maintained, and followed the Policies in accordance with
the conditions of this exemption, and has developed and implemented the
Training as required herein;
(4) The auditor's engagement must specifically require the auditor
to test each PIMCO Affiliated QPAM's operational compliance with the
Policies and Training conditions. In this regard, the auditor must
test, a sample of each PIMCO Affiliated QPAMs' transactions involving
Covered Plans that is sufficient in size and nature to afford the
auditor a reasonable basis to determine the PIMCO Affiliated QPAM's
operational compliance with the Policies and Training conditions;
(5) For each audit, on or before the end of the relevant period
described in Section III(i)(1) for completing the audit, the auditor
must issue a written report (the Audit Report) to the PIMCO Affiliated
QPAM to which the audit applies that describes the procedures performed
by the auditor during its examination. The auditor, at its discretion,
may issue a single consolidated Audit Report that covers all of the
PIMCO Affiliated QPAMs. The Audit Report must include the auditor's
specific determinations regarding: (i) the adequacy of each PIMCO
Affiliated QPAM's Policies and Training and compliance with the
Policies and Training conditions; the need, if any, to strengthen such
Policies and Training; and any instance of each PIMCO Affiliated QPAM's
noncompliance with the written Policies and Training conditions
described in Section III(h) above. The PIMCO Affiliated QPAM must
promptly address any identified noncompliance or prepare a written plan
of action to address any determination by the auditor regarding the
adequacy of the Policies and Training and the auditor's recommendations
(if any) with respect to strengthening the PIMCO Affiliated QPAM's
Policies and Training. Any action taken, or the plan of action to be
taken, by the respective PIMCO Affiliated QPAM must be included in an
addendum to the Audit Report (and such addendum must be completed
before the certification described in Section III(i)(7) below). In the
event the plan of action that is developed to address the auditor's
recommendation regarding the adequacy of the Policies and Training is
not completed by the time of submission of the Audit Report, the
following period's Audit Report must state whether the plan was
satisfactorily completed. Any determination by the auditor that the
respective PIMCO Affiliated QPAM has implemented, maintained, and
followed sufficient Policies and a Training must not be based solely or
in substantial part on an absence of evidence indicating noncompliance.
In this last regard, any finding that a PIMCO Affiliated QPAM has
complied with the requirements under this subparagraph must be based on
evidence that such PIMCO Affiliated QPAM has implemented, maintained,
and followed the Policies and Training conditions required by this
exemption. Furthermore, the auditor must not solely rely on the Annual
Report created by the compliance officer (the Compliance Officer),
described in Section III(m) below, as the basis for the auditor's
conclusions in lieu of independent determinations and testing performed
by the auditor, as required by Section III(i)(3) and (4) above; and
(ii) The adequacy of the most recent Annual Review described in Section
III(m);
(6) The auditor must notify the respective PIMCO Affiliated QPAM of
any instance of noncompliance identified by the auditor within five (5)
business days after such noncompliance is identified by the auditor
regardless of whether the audit has been completed as of that date;
(7) With respect to each Audit Report, the general counsel or one
of the three most senior executive officers of the PIMCO Affiliated
QPAM with respect to which the Audit Report applies must certify in
writing and under penalty of
[[Page 42964]]
perjury that (a) the officer has reviewed the Audit Report and this
exemption; and (b) the PIMCO Affiliated QPAM has addressed, corrected
or remedied any instance of noncompliance or inadequacy or has an
appropriate written plan in place to address any instance of
noncompliance or inadequacy regarding the Policies and Training
identified in the Audit Report. The certification must also include the
signatory's determination that the Policies and Training in effect at
the time of the certification are adequate to ensure compliance with
the exemption conditions and with the applicable provisions of ERISA
and the Code;
(8) The PIMCO Executive Committee is provided with a copy of each
Audit Report, and a senior executive officer with a direct reporting
line to the highest-ranking legal compliance officer of PIMCO must
review the Audit Report for each PIMCO Affiliated QPAM and certify in
writing under penalty of perjury that such officer has reviewed the
Audit Report;
(9) Each PIMCO Affiliated QPAM provides its certified Audit Report
by electronic mail to the Department by submitting it to <a href="/cdn-cgi/l/email-protection#a9cc84c6cccde9cdc6c587cec6df"><span class="__cf_email__" data-cfemail="b2d79fddd7d6f2d6ddde9cd5ddc4">[email protected]</span></a>.
This submission must take place no later than thirty (30) days after
completion of the Audit Report. The Audit Report will be made part of
the public record regarding this exemption, which is available for
publication inspection and copying. Furthermore, each PIMCO Affiliated
QPAM must make its Audit Report unconditionally available for
examination by electronic means or otherwise upon request by any duly
authorized employee or representative of the Department, other relevant
regulators, and any fiduciary of a Covered Plan;
(10) Each PIMCO Affiliated QPAM and the auditor must submit to OED
any engagement agreement(s) entered into pursuant to the engagement by
the auditor under this exemption no later than sixty (60) calendar days
after the execution of any such engagement agreement;
(11) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and
utilized during the audit, provided such access and inspection is
otherwise permitted by law; and
(12) PIMCO must notify the Department of a change in the
independent auditor no later than sixty (60) calendar days after the
engagement of a substitute or subsequent auditor and must provide an
explanation for the substitution or change including a description of
any material disputes between the terminated auditor and PIMCO;
(j) Throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between a PIMCO Affiliated QPAM and
a Covered Plan, the PIMCO Affiliated QPAM agrees and warrants:
(1) To comply with ERISA and the Code, as applicable with respect
to such Covered Plan; to refrain from engaging in prohibited
transactions that are not otherwise exempt (and to promptly correct any
prohibited transactions); and to comply with the standards of prudence
and loyalty set forth in ERISA Section 404 with respect to each such
ERISA-covered plan and IRA (to the extent that ERISA Section 404 is
applicable);
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from the PIMCO Affiliated QPAM's violation of
ERISA's fiduciary duties, as applicable, and the prohibited transaction
provisions of ERISA and the Code, as applicable; a breach of contract
by the QPAM; or any claim arising out of the failure of such PIMCO
Affiliated QPAM to qualify for the exemptive relief provided by PTE 84-
14 as a result of a violation of Section I(g) of PTE 84-14, other than
the Conviction. This condition applies only to actual losses caused by
the PIMCO Affiliated QPAM's violations, which include: (i) actual
losses include losses and related costs arising from unwinding
transactions with third parties and from transitioning Plan assets to
an alternative asset manager; and (ii) costs associated with any
exposure to excise taxes under Code Section 4975 because of the PIMCO
Affiliated QPAM's inability to rely upon the relief in the QPAM
Exemption;
(3) Not to require (or otherwise cause) the Covered Plan to waive,
limit, or qualify the liability of the PIMCO Affiliated QPAM for
violating ERISA or the Code or engaging in prohibited transactions;
(4) Not to restrict the ability of the Covered Plan to terminate or
withdraw from its arrangement with the PIMCO Affiliated QPAM with
respect to any investment in a separately managed account or pooled
fund subject to ERISA and managed by the PIMCO Affiliated QPAM, with
the exception of reasonable restrictions, appropriately disclosed in
advance, that are specifically designed to ensure equitable treatment
of all investors in a pooled fund in the event such withdrawal or
termination may have adverse consequences for all other investors. In
connection with any of these arrangements involving investments in
pooled funds subject to ERISA entered into after the initial effective
date of this exemption, the adverse consequences must relate to a lack
of liquidity of the underlying assets, valuation issues, or regulatory
reasons that prevent the fund from promptly redeeming an ERISA-covered
plan's or IRA's investment, and the restrictions must be applicable to
all such investors and effective no longer than reasonably necessary to
avoid the adverse consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally recognized abusive investment practices or
specifically designed to ensure the equitable treatment of all
investors in a pooled fund in the event the withdrawal or termination
may have adverse consequences for all other investors, provided that
such fees are applied consistently and in like manner to all such
investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting the liability of the PIMCO Affiliated QPAM for a violation of
such agreement's terms. To the extent consistent with ERISA Section
410, however, this provision does not prohibit disclaimers for
liability caused by an error, misrepresentation, or misconduct of a
plan fiduciary or other party hired by the plan fiduciary who is
independent of PIMCO and its affiliates, or damages arising from acts
outside the control of the PIMCO Affiliated QPAM; and
(7)(a) Each PIMCO Affiliated QPAM must provide a notice of its
obligations under this Section III(j) to each sponsor or beneficial
owner of a Covered Plan which is a client as of the Effective Date by a
date that is 90 days after the Effective Date. For all other Covered
Plans that become clients between the Effective Date and a date that is
120 days after the Effective Date, each sponsor or beneficial owner of
such Covered Plans must be provided with a notice of the obligations
under this section by a date that is 180 days after the Effective Date.
All prospective sponsors and beneficial owners of Covered Plans that
enter into a written investment management agreement with a PIMCO
Affiliated QPAM after a date that is 120 days after the Effective Date
must receive a copy of the notice of the obligations under this Section
III(j) before, or contemporaneously with, the Covered Plan's receipt of
a written investment management or comparable agreement from the PIMCO
Affiliated QPAM. The notices may be delivered
[[Page 42965]]
electronically (including by an email that has a link to a website that
contains the documents required by this section). Notwithstanding the
above, a PIMCO Affiliated QPAM will not violate this condition solely
because a Covered Plan refuses to sign an updated investment management
agreement.
(k) Within 90 days after the effective date of this exemption, each
PIMCO Affiliated QPAM provides notice of the exemption as published in
the Federal Register, along with a separate summary describing the
facts that led to the Conviction (the Summary), which has been
submitted to the Department, and a prominently displayed statement (the
Statement) that the AGI US Conviction results in a failure to meet a
condition in the QPAM Exemption to each sponsor or beneficial owner of
a Covered Plan that has entered into a written investment management
agreement with a PIMCO Affiliated QPAM, or the sponsor of an investment
fund in any case where a PIMCO Affiliated QPAM acts as a sub-adviser to
the investment fund in which such Covered Plan invests. For all other
Covered Plans that become clients between the Effective Date and a date
that is 120 days after the Effective Date, each sponsor or beneficial
owner of such Covered Plans is provided the documents described in this
Section III(k) by a date that is 180 days after the Effective Date. All
sponsors or beneficial owners of prospective Covered Plans that enter
into a written investment management or comparable agreement with a
PIMCO Affiliated QPAM after a date that is 120 days after the Effective
Date must receive a copy of the notice of the exemption, the Summary,
and the Statement before, or contemporaneously with, the Covered Plan's
receipt of a written investment management agreement from the PIMCO
Affiliated QPAM. The notices may be delivered electronically (including
by an email that has a link to a website that contains the documents
required by this section). Notwithstanding the above, a PIMCO
Affiliated QPAM will not violate the condition solely because a Covered
Plan refuses to sign an updated investment management agreement.
(l) The PIMCO Affiliated QPAM must comply with each condition of
PTE 84-14, as amended, with the sole exception of the violation of
Section I(g) of PTE 84-14 that is attributable to the AGI US
Conviction. If an affiliate of PIMCO's (as defined in Section VI(d) of
PTE 84-14) is convicted of a crime described in Section I(g) of PTE 84-
14 (other than the Conviction) during the Exemption Period, relief in
this exemption would terminate immediately;
(m)(1) Within 60 calendar days after the effective date of this
exemption, each PIMCO Affiliated QPAM must designate a senior
compliance officer (the Compliance Officer) who will be responsible for
compliance with the Policies and Training requirements described
herein. Notwithstanding the above, no person, including any person
referenced in the Statement of Facts underlying the AGI US Conviction,
who knew of, or should have known of, or participated in, any of the
Misconduct, by any party, may be involved with the designation or
responsibilities required by this condition, unless the person took
active documented steps to stop the Misconduct. The Compliance Officer
must conduct a review of each twelve-month period of the Exemption
Period (the Exemption Review), to determine the adequacy and
effectiveness of the implementation of the Policies and Training. The
following conditions must be met with respect to the Compliance
Officer:
(i) The Compliance Officer must be a professional who has extensive
experience with and knowledge of the regulation of financial services
and products, including under ERISA and the Code; and
(ii) The Compliance Officer must have a direct reporting line to
the highest-ranking corporate officer in charge of compliance for the
applicable PIMCO Affiliated QPAM.
(2) With respect to the Exemption Review, the following conditions
must be met:
(i) The annual Exemption Review includes a review by the Compliance
Officer of: (A) the PIMCO Affiliated QPAM's compliance with and
effectiveness of the Policies and Training; (B) any compliance matter
related to the Policies or Training that was identified by or reported
to the Compliance Officer or others within the compliance and risk
control function (or its equivalent) during the previous year; (C) any
material error, recommendation, and compliance failure identified in
the most recent Audit Report issued pursuant to this exemption; (D) any
material change in the relevant business activities of the PIMCO
Affiliated QPAMs; and (E) any change to ERISA, the Code, or regulations
related to fiduciary duties and the prohibited transaction provisions
that may be applicable to the activities of the PIMCO Affiliated QPAMs;
(ii) The Compliance Officer must prepare a written report for the
Exemption Review (an Exemption Report) that: (A) summarizes the
Compliance Officer's material activities during the prior year; (B)
sets forth any instance of noncompliance discovered during the prior
year, and any related corrective action; (C) details any change to the
Policies or Training to guard against any similar instance of
noncompliance occurring again; and (D) makes recommendations, as
necessary, for additional training, procedures, monitoring, or
additional and/or changed processes or systems, and management's
actions on such recommendations;
(iii) In the Exemption Report, the Compliance Officer must certify
in writing that to the best of their knowledge at the time: (A) the
report is accurate; (B) the Policies and Training are working in a
manner that is reasonably designed to ensure that the Policies and
Training requirements described herein are met; (C) any known instance
of noncompliance during the prior year and any related corrections
taken to date have been identified in the Exemption Report; and (D) the
PIMCO Affiliated QPAMs have complied with the Policies and Training,
and/or corrected (or are correcting) any known instances of
noncompliance in accordance with Section III(h) above; (iv) The
Exemption Report must be provided to appropriate corporate officers of
PIMCO and each PIMCO Affiliated QPAM to which such report relates, the
head of compliance and the general counsel (or their functional
equivalent) of the relevant PIMCO Affiliated QPAM. The Exemption Report
also must be made unconditionally available to the independent auditor
described in Section III(i) above; (v) The annual Exemption Review,
including the Compliance Officer's written Report, must be completed
within 90 calendar days after the end of the period to which it
relates. The annual Exemption Review, including the Compliance
Officer's written Report, must be completed within 90 calendar days
after the end of the period to which it relates. The annual Exemption
Reviews under this exemption must cover the five consecutive twelve-
month periods beginning on the date of the Conviction.
(n) AGI US complies in all material respects with the requirements
imposed by a U.S. regulatory authority in connection with the
Conviction;
(o) Each PIMCO Affiliated QPAM will maintain records necessary to
demonstrate that it has met the conditions of this exemption for six
(6) years after the date of any transaction for which the PIMCO
Affiliated QPAM relies upon the relief in this exemption;
(p) During the Exemption Period, PIMCO must: (1) immediately
disclose to the Department any Deferred
[[Page 42966]]
Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA)
with the U.S. Department of Justice, entered into by PIMCO or any of
its affiliates (as defined in Section VI(d) of PTE 84-14) in connection
with the conduct described in Section I(g) of PTE 84-14 or ERISA
Section 411; and (2) immediately provide any information requested by
the Department, as permitted by law, regarding the DPA or NPA and/or
conduct and allegations that led to the DPA or NPA;
(q) Within 60 calendar days after the effective date of this
exemption, each PIMCO Affiliated QPAM will clearly and prominently
inform Covered Plan clients of their right to obtain a copy of the
Policies or a description (Summary Policies) which accurately
summarizes key components of the PIMCO Affiliated QPAM's written
Policies developed in connection with this exemption in its agreements
with or in other written disclosures provided to Covered Plans. If the
Policies are thereafter changed, each Covered Plan client must receive
a new disclosure within 180 calendar days after the end of the calendar
year during which the Policies were changed.\12\ With respect to this
requirement, the description may be continuously maintained on a
website, provided that such website link to the Policies or Summary
Policies must be clearly and prominently disclosed to each Covered
Plan;
---------------------------------------------------------------------------
\12\ If the Applicant meets this disclosure requirement through
Summary Policies, changes to the Policies shall not result in the
requirement for a new disclosure unless, as a result of changes to
the Policies, the Summary Policies are no longer accurate.
---------------------------------------------------------------------------
(r) A PIMCO Affiliated QPAM will not fail to meet the conditions of
this exemption solely because a different PIMCO Affiliated QPAM fails
to satisfy a condition for relief described in Sections III(c), (d),
(h), (i), (j), (k), (l), (o) or (q); or if the independent auditor
described in Section III(i) fails to comply with a provision of the
exemption other than the requirement described in Section III(i)(11),
provided that such failure did not result from any actions or inactions
of PIMCO or its affiliates; and
(s) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate at all
times.
(t) With respect to an asset manager that becomes a PIMCO
Affiliated QPAM after the effective date of this exemption by virtue of
being acquired (in whole or in part) by PIMCO or a subsidiary of PIMCO
(a ``newly-acquired PIMCO Affiliated QPAM''), the newly-acquired PIMCO
Affiliated QPAM would not be precluded from relying on the exemptive
relief provided by PTE 84-14 notwithstanding the Conviction as of the
closing date for the acquisition; however, the operative terms of the
exemption shall not apply to the newly-acquired PIMCO Affiliated QPAM
until a date that is six (6) months after the closing date for the
acquisition. To that end, the newly-acquired PIMCO Affiliated QPAM will
initially submit to an audit pursuant to Section III(i) of this
exemption as of the first audit period that begins following the
closing date for the acquisition. However, the first audit to which a
newly-acquired QPAM submits may require the auditor to look back into
the previous year for that particular QPAM. This will be the case where
the interval between the acquisition date and the beginning of the next
audit period is greater than 6 months.
Exemption Date: This exemption is in effect for a period of five
years, beginning on the date of the AGI US Conviction.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-14121 Filed 7-3-23; 8:45 am]
BILLING CODE 4510-29-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on July 5, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.