Notice2025-00812
Exemption From Certain Prohibited Transaction Restrictions Involving UBS AG (UBS), Located in Zurich, Switzerland
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
January 15, 2025
Effective
June 12, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This exemption provides conditional prospective relief that allows current and future asset managers under the UBS corporate umbrella (UBS QPAMs) to continue to rely on PTE 84-14 for the five-year period from June 12, 2024, through June 11, 2029, notwithstanding four judgments of conviction involving entities within the UBS and CSAG (Credit Suisse AG) corporate umbrellas. The exemption also provides conditional retroactive relief to UBS QPAMs covering their reliance on PTE 84-14 during the one-year period from June 12, 2023, through June 11, 2024.
Full Text
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<title>Federal Register, Volume 90 Issue 9 (Wednesday, January 15, 2025)</title>
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[Federal Register Volume 90, Number 9 (Wednesday, January 15, 2025)]
[Notices]
[Pages 3929-3947]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-00812]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2025-03; Exemption Application No. D-
12098]
Exemption From Certain Prohibited Transaction Restrictions
Involving UBS AG (UBS), Located in Zurich, Switzerland
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Notice of exemption.
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SUMMARY: This exemption provides conditional prospective relief that
allows current and future asset managers under the UBS corporate
umbrella (UBS QPAMs) to continue to rely on PTE 84-14 for the five-year
period from June 12, 2024, through June 11, 2029, notwithstanding four
judgments of conviction involving entities within the UBS and CSAG
(Credit Suisse AG) corporate umbrellas. The exemption also provides
conditional retroactive relief to UBS QPAMs covering their reliance on
PTE 84-14 during the one-year period from June 12, 2023, through June
11, 2024.
DATES: The exemption is in effect from June 12, 2023, through June 11,
2029.
FOR FURTHER INFORMATION CONTACT: Nicholas Schroth of the Department at
(202) 693-8571 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION: On June 11, 2024, the Department published a
notice of proposed exemption in the Federal Register,\1\ (the Proposal)
that would permit UBS' Affiliated QPAMs and/or the Related QPAMs
(referred to herein individually or collectively as the UBS QPAMs) \2\
to continue to rely on the exemptive relief provided by PTE 84-14,
notwithstanding several judgments of conviction involving entities
within the UBS and CSAG corporate umbrellas that are described
below.\3\ The Department is hereby granting this exemption to ensure
that participants and beneficiaries of ERISA-covered plans and
Individual Retirement Accounts managed by UBS QPAMs (collectively
referred to as Covered Plans) \4\ do not suffer harm that UBS
represented would occur if the UBS QPAMs can no longer rely on PTE 84-
14. This exemption provides only the relief expressly specified herein
and does not provide relief from violations of any law other than the
prohibited transaction provisions of Title I of the Employee Retirement
Income Security Act of 1974, as amended (ERISA), and the Internal
Revenue Code of 1986, as amended (the Code).
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\1\ 88 FR 30785 (May 12, 2023).
\2\ For purposes of this exemption, the term ``Affiliated QPAM''
and ``Related QPAM'' mean, respectively: (1) UBS Americas, UBS Hedge
Fund Solutions LLC, Credit Suisse Asset Management, LLC, and any
future separate legal entity within the Asset Management or the
Global Wealth Management Americas U.S. divisions of UBS that
qualifies as a ``qualified professional asset manager'' (as defined
in Section VI(a) of PTE 84-14) and that relies on the relief
provided by PTE 84-14, and with respect to which UBS is an
``affiliate'' (as defined in Part VI(d) of PTE 84-14) and (2) any
current or future ``qualified professional asset manager'' (as
defined in Section VI(a) of PTE 84-14) that relies on the relief
provided by PTE 84-14, and with respect to which UBS owns a direct
or indirect five (5) percent or more interest. The terms
``Affiliated QPAM'' and ``Related QPAM'' exclude any Misconduct
Entity, and the term ``Related QPAM'' excludes any entity with
respect to which a Misconduct Entity is an ``affiliate'' (as defined
in section VI(d)(1) of PTE 84-14).
\3\ 89 FR 65, 23090 (April 3, 2024).
\4\ 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 an
Affiliated QPAM relies on PTE 84-14 or with respect to which an
Affiliated QPAM (or any UBS affiliate) has expressly represented
that the manager qualifies as a QPAM or relies on PTE 84-14. A
Covered Plan does not include an ERISA-covered plan or IRA to the
extent the 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. Notwithstanding the
above, an Affiliated QPAM may disclaim reliance on QPAM status or
PTE 84-14 in a written modification of a contract, arrangement, or
agreement with an ERISA-covered plan or IRA, where: the modification
is made in a bilateral document signed by the client; the client's
attention is specifically directed toward the disclaimer; and the
client is advised in writing that, with respect to any transaction
involving the client's assets, the Affiliated QPAM will not
represent that it is a QPAM, and will not rely on the relief
described in PTE 84-14.
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As discussed below, based on the administration record, the
Department makes the requisite findings under ERISA section 408(a) that
this 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. Effective December 31, 1978, section 102 of the
Reorganization Plan No. 4 of 1978, (5 U.S.C. App. 1 (1996)) transferred
the authority of the Secretary of the Treasury to issue exemptions of
the type requested to the Secretary of Labor. Accordingly, this final
individual exemption is being issued solely by the Department. Affected
parties should be aware that the exemption's conditions are,
individually and collectively, necessary for the Department to grant
the requested relief. Absent these conditions, the Department would not
have granted this exemption.
Benefits of the Exemption:
The Department's objective in granting this exemption is to protect
Covered Plans from the harms and costs UBS represents would be imposed
on them if the UBS QPAMs no longer could rely on the relief provided in
PTE 84-14. Among other important conditions, this exemption ensures
that Covered Plans can terminate their relationships with one of the
UBS QPAMs in an orderly and cost-effective fashion when the fiduciary
of a Covered Plan determines that it is prudent to do so. This
exemption promotes adherence to basic fiduciary standards and
responsibilities required by Title I of ERISA and the Code by the UBS
QPAMs and reinforces their obligation to act with a high degree of
integrity on behalf of their Covered Plan clients as required by PTE
84-14.
Background
1. UBS is a Swiss-based global financial services company organized
under the laws of Switzerland. On June 12, 2023, UBS acquired CSAG,
another Swiss-based global financial services firm. This acquisition
brought Credit Suisse Asset Management, LLC, a subsidiary of CSAG and a
QPAM, under the UBS corporate umbrella. UBS represents that on May 1,
2024, Credit Suisse Asset Management, LLC was merged into UBS Asset
Management (Americas) LLC. (UBS Americas), and UBS Americas is the
surviving entity after the merger. As of November 5, 2024, UBS
represents that UBS Americas is the only current Affiliated QPAM.
PTE 84-14
2. PTE 84-14 reflects the Department's conclusion that it could
provide broad relief from the prohibited transaction provisions of
ERISA section 406(a) and Code section 4975(c)(1) only if the
commitments and the investments of plan assets and the negotiations
leading thereto are the sole responsibility of an independent
discretionary manager called a Qualified
[[Page 3930]]
Plan Asset Manager or ``QPAM'' that meets the exemption's
conditions.\5\
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\5\ ``Qualified Plan Asset Manager'' or ``QPAM'' is defined in
Section VI(a) of PTE 84-14. (See 89 FR 65, 23090, 23141 (April 3,
2024)).
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3. Section I(g) of PTE 84-14 provides that a QPAM becomes
ineligible to rely on the relief provided by PTE 84-14 for ten years
following: (1) a Criminal Conviction, as such term is defined in
Section VI(s) of PTE 84-14, of the QPAM or an ``affiliate'' thereof,\6\
or any direct or indirect owner of a five percent or more interest in
the QPAM; or (2) on or after June 17, 2024, the date on which the QPAM,
an ``affiliate'' thereof, or any direct or indirect owner of a five
percent or more interest in the QPAM is found or determined in a final
judgment or court-approved settlement by a Federal or State criminal or
civil court to have engaged in Prohibited Misconduct, as such term is
defined in Section VI(t) of amended PTE 84-14.\7\
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\6\ 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 five 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.'' (See 89 FR 23090, 23141
(April 3, 2024)).
\7\ The prohibited misconduct provision was effective on June
17, 2024 (89 FR 65, 23090 (April. 3, 2024)).
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4. The Department included Section I(g) in PTE 84-14 based on its
expectation that QPAMs will maintain a high standard of integrity in
order to remain eligible to receive the broad prohibited transaction
relief provided in PTE 84-14. This expectation extends not only to the
QPAM itself, but also to those who may be in a position to influence
the QPAM's policies.
Relevant Convictions
5. UBS-related entities are currently the subject of four criminal
convictions that violate Section I(g) of PTE 84-14 (the Convictions).
To protect Covered Plans from the costs and harms that UBS represents
could arise if the UBS QPAMs suddenly lost their ability to engage in
potentially beneficial transactions on behalf of their Covered Plan
clients under PTE 84-14 due to these Convictions, the Department issued
several temporary individual prohibited transaction exemptions over
several years with protective conditions that are discussed below.\8\
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\8\ In connection with the Credit Suisse-related convictions,
the Department issued the following exemptions: PTE 2022-01 (87 FR
1186 (Jan. 10, 2022)); PTE 2019-07 (84 FR 61928 (Nov. 14, 2019));
PTE 2015-14 (80 FR 59817 (Oct. 2, 2015)); PTE 2014-11 (79 FR 68716
(Nov. 18, 2014)). In connection with the UBS-related convictions,
the Department issued: PTE 2020-01 (85 FR 8020 (Feb. 12, 2020)); PTE
2019-01 (84 FR 6163 (Feb. 26, 2019)); PTE 2017-07 (82 FR 61903 (Dec.
29, 2017)); PTE 2016-17 (81 FR 94049 (Dec. 22, 2016)); PTE 2013-09
(78 FR 56740 (Sep. 13, 2013)).
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6. The 2017 UBS Conviction. In 2013, UBS Securities Japan Co. Ltd.
(UBS Securities Japan) pled guilty to a crime arising out of its
fraudulent submission of Yen London Interbank Offer (Yen LIBOR) rates
between 2006 and 2009, and its participation in a scheme to defraud
counterparties to interest rate derivatives trades executed on its
behalf by secretly manipulating certain benchmark interest rates to
which the profitability of those trades was tied (the 2013 UBS
Conviction).\9\
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\9\ The UBS QPAMs received exemptive relief to continue to rely
on PTE 84-14 notwithstanding the 2013 Conviction. However, the
Section I(g) disqualification period for the 2013 Conviction expired
on or about February 19, 2023; therefore, the UBS QPAMs no longer
require exemptive relief from the Department to continue their
reliance on PTE 84-14 with respect to the 2013 conviction.
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7. In connection with misconduct related to the 2013 UBS
Conviction, UBS and the United States Department of Justice (DOJ)
entered into a Non-Prosecution Agreement (the LIBOR NPA) wherein the
DOJ agreed not to criminally prosecute UBS for any crimes related to
UBS's misconduct involving its submission of Yen LIBOR rates and other
benchmark rates between 2001 and 2010 (LIBOR Manipulation). A provision
of DOJ's LIBOR NPA required UBS to avoid engaging in additional
criminal activity for two years from the date of the LIBOR NPA.
8. Separately from the LIBOR Manipulation and after entering into
the LIBOR NPA, UBS also was determined by DOJ to have participated in
deceptive currency trading and sales practices with respect to certain
foreign exchange (FX) market transactions and collusive conduct in
certain FX markets (FX Misconduct). DOJ determined that by engaging in
the FX Misconduct, UBS had breached the terms of the LIBOR NPA. As a
result, UBS entered a guilty plea and was convicted on January 10, 2017
of engaging in the LIBOR Manipulation that was the subject of the LIBOR
NPA. Specifically, UBS pled guilty to a scheme to defraud
counterparties to interest rate derivatives transactions by secretly
manipulating benchmark interest rates to which the profitability of
those transactions was tied. This conviction is referred to as the
``2017 UBS Conviction,'' \10\ which disqualifies UBS-related QPAMs from
relying on the relief set forth in PTE 84-14 for a ten-year period from
January 10, 2017, through January 9, 2027.
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\10\ In PTE 2023-14, the Department erroneously referred to this
conviction as the 2018 Conviction. The conviction actually occurred
on January 10, 2017 (as described in PTE 2020-01, the prior UBS
exemption).
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9. The 2014 CSAG Conviction. On May 19, 2014, the Tax Division of
DOJ and the U.S. Attorney's Office for the Eastern District of Virginia
filed a one-count criminal information in the District Court for the
Eastern District of Virginia charging CSAG with a conspiracy to violate
Code section 7206(2) in contravention of Title 18, United States Code,
Section 371. According to the Statement of Facts, for decades before
and through approximately 2009, CSAG operated an illegal cross-border
banking business that knowingly and willfully aided and assisted
thousands of U.S. clients in opening and maintaining undeclared
accounts that concealed offshore assets and income from the Internal
Revenue Service. On May 19, 2014, pursuant to a plea agreement (the
Plea Agreement), CSAG pleaded guilty to a charge of assisting U.S.
citizens in federal income tax evasion. The District Court entered a
judgment of conviction against CSAG on November 21, 2014, which
disqualified CSAG-related (and, thus, UBS-related QPAMs due to the
merger) from the relief set forth in PTE 84-14 from November 21, 2014,
through November 20, 2024.
10. The 2019 UBS France Conviction. In 2013, France opened an
investigation into UBS, UBS France, and certain former employees of UBS
France S.A. The investigation centered on the maintenance of foreign
(``cross-border'') UBS bank accounts held for private citizens.
Following a trial in the French First Instance Court, the French court
convicted UBS and UBS France on February 20, 2019, of illegally
soliciting clients from 2004 to 2012 and laundering the proceeds of tax
fraud from 2004 to 2012. Based on this conviction, the UBS-related
QPAMs were disqualified from relying on the relief provided in PTE 84-
14 from February 20, 2019, through February 19, 2029.
11. The 2022 Credit Suisse Securities (Europe) Limited (CSSEL)
Conviction.
On October 19, 2021, DOJ's, Criminal Division, Money Laundering and
Asset Recovery Section and Fraud Section and the United States
Attorney's Office for the Eastern District of New York, filed a
criminal information in the District Court for the Eastern District of
New
[[Page 3931]]
York charging CSSEL with one count of conspiracy to commit wire fraud
in violation of 18 U.S.C. 1349. CSSEL agreed to resolve the action
through a plea agreement presented to the New York District Court on
October 19, 2021 (the CSSEL Plea Agreement). Under the CSSEL Plea
Agreement, CSSEL agreed to enter a guilty plea to the charge set out in
the CSSEL information (the CSSEL Plea).
The District Court entered a judgment of conviction against CSSEL
on July 22, 2022. Due to the judgement of conviction, the CSAG-related
QPAMs (and, thus, UBS-related QPAMs due to the merger) are ineligible
from relying on the relief set forth in PTE 84-14 from July 22, 2022
through July 21, 2032.
Requests for Relief and Additional Information
12. On April 17, 2023, UBS and CSAG (and their affiliated QPAMs)
submitted an exemption application to the Department that requested
modifications to their existing exemptions due to their imminent
merger. On June 2, 2023, the Department published PTE 2023-14, which
allowed UBS-related and Credit Suisse-related QPAMs to continue to rely
on PTE 84-14, notwithstanding the Convictions, for one year following
the date of the merger, which UBS represents occurred on June 12, 2023
(the Merger). PTE 2023-14 had an audit requirement tailored to the
unique circumstances of the one-year exemption, which is referred to as
the Stub Period Audit.\11\
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\11\ Before the merger of UBS and CSAG, PTE 2020-01 required
that the UBS QPAMs submit to annual audits covering periods from
March 20 through March 19 of the following year (the CS QPAMs were
on a different audit schedule). Upon the merger of UBS and CSAG on
June 12, 2023, a one-year temporary exemption provided in PTE 2023-
14 became effective. PTE 2023-14 provided that the combined UBS-CSAG
entity would resume audits on a unified schedule from June 12, 2023,
through June 11, 2024. Thus, the last audit to occur under PTE 2020-
01, originally scheduled from March 20, 2023 through March 19, 2024,
was modified to run from March 20, 2023, through June 11, 2023 and
became known as the Stub Period Audit.
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13. On February 22, 2024, UBS filed an exemption application with
the Department that requested a five-year extension of PTE 2023-14 from
June 12, 2024, through June 11, 2029. During the Department's review
process for UBS' exemption application, the Department requested
additional information from UBS regarding the auditor's findings for
each audit that was performed before its application was submitted. In
response, UBS' counsel notified the Department on May 3, 2024, that UBS
failed to complete the Stub Period Audit report, and UBS did not submit
the certified audit report to the Department until May 10, 2024.\12\ In
fact, the record currently before the Department indicates that UBS did
not engage the independent auditor, Fiduciary Counselors Inc, to
complete the Stub Period Audit until March 18, 2024, notwithstanding
the fact that PTE 2023-14 required the audit to be completed by
December 9, 2023, and for the audit report to be certified and
submitted to the Department by January 23, 2024. The Department stated
in the proposed exemption that UBS should have engaged an independent
auditor well in advance of the dates set forth in Section III(j) of the
exemption for the audit to be timely completed and for the audit report
to be timely certified and submitted to the Department.
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\12\ In a supplemental letter to the Department dated May 29,
2024, UBS' counsel informed the Department that the auditor notified
UBS about the failure to complete the stub audit in January 2024,
and the auditor sent a draft of the engagement letter to perform the
audit to UBS on February 12, 2024. These events occurred before the
Department received UBS' exemption application on February 23, 2024,
and UBS should have disclosed them in its exemption application.
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14. On June 11, 2024, the Department published a proposed exemption
in the Federal Register with an effective period from June 12, 2024,
through June 11, 2029. The Proposal alerted UBS that its failure to
timely comply with the Stub Period Audit requirement violated an
important condition of the relief the Department provided in PTE 2023-
14. UBS itself pointed out the importance of the audit requirement in
its exemption application where it stated that, ``[t]he purpose of the
independent audit is to give [Covered Plan] clients and the Department
the confidence that the asset manager is complying with ERISA, and that
continued exemptive relief is warranted.'' In the Proposal, the
Department reiterated this point by stating that it included the
independent audit requirements in the exemption to ensure that the UBS
QPAMs remain insulated from the convicted UBS and Credit Suisse
entities and could be trusted to safeguard plan assets, notwithstanding
the convictions.
15. Because the UBS QPAMs failed to comply with the audit
conditions of the exemption, the Department determined that they were
ineligible to rely on the relief provided by PTE 2023-14, and the
Department indicated in the proposed exemption that it is considering
whether it should grant retroactive relief extending back to June 12,
2023 as part of this exemption, which would otherwise provide relief
only from June 12, 2024 through June 11, 2029. The Department requested
comments from UBS, the public, and interested parties on whether
retroactive relief is appropriately including in this exemption, which
would extend exemptive coverage to include the period from June 12,
2023, through June 11, 2024, as well as June 12, 2024, through June 11,
2029. The Department also requested UBS provide a detailed statement
regarding how a grant of retroactive relief would be consistent with
the requirements for such relief set forth in the Department's
exemption procedure regulation.\13\
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\13\ 29 CFR 2570.35(d).
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16. In connection with the Department's request for comment on
retroactive relief, in the Proposal, the Department also requested UBS
to describe how Covered Plans were safeguarded in light of this failure
to satisfy the Stub Audit condition and whether UBS acted in good faith
despite its failure. UBS's comments and the Department's responses to
those comments are discussed below.
Retroactive Relief Periods
17. The exemption provides retroactive relief to UBS for two
periods. The first period covers June 12, 2023, through June 11, 2024,
and allows UBS QPAMs to rely on PTE 84-14 despite UBS' failure to
comply with the Stub Period Audit requirement in Section III(j)(1) of
PTE 2023-14. The second period of retroactive relief applies from June
12, 2024, through January 15, 2025, and is needed because UBS failed to
submit a complete exemption application with sufficient information
(including a description of its failure to meet the Stub Period Audit
Requirement) and enough lead time for the Department to develop a
complete administrative record, publish a proposed exemption with an
adequate public notice and comment period, consider the public comments
received, and publish this grant notice exemption before the relief
provided under PTE 2023-14 expired.
Department's Note:
18. The Department notes that this individual exemption would
solely provide relief from the ineligibility under PTE 84-14 Section
I(g) that occurred with respect to the four criminal convictions of
entities within the UBS corporate family that are described above. The
conditions of this exemption require the UBS QPAMs to adhere to every
other specific condition for relief that is required under PTE 84-14,
as amended, including the ineligibility provision in the amended
version of PTE 84-14, which became effective on June 17, 2024. If any
UBS-
[[Page 3932]]
Affiliated QPAMs violate any conditions of amended PTE 84-14 in the
future, they would fail to comply with the requirements of the
exemption, and the relief provided under this exemption would become
unavailable.
Written Comments
19. In the Proposal, the Department invited all interested persons
to submit written comments and/or requests for a public hearing with
respect to the notice of the Proposal by July 29, 2024.\14\ The
Department received written comments from the following commenter: (1)
UBS; (2) an anonymous commenter; (3) the ERISA Industry Committee; (4)
SIFMA; and (5) a group of individuals referring to themselves as the
``QPAM Coalition.'' \15\
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\14\ PTE 2024-03's original deadline for the comment period was
July 15, 2024. The Department extended the comment period to July
29, 2024, based on two requests from commentors. (See 89 FR 137,
58189).
\15\ The Department also received comments three months after
the end of the comment period, as extended, which the Department did
not consider.
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20. In granting this exemption, the Department has considered the
public comments noted above, as well as representations by UBS. If any
material statement or representation by UBS to the Department that is
included in its application or its comment is not or has not remained
completely and factually accurate, UBS must immediately alert the
Department.\16\
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\16\ The representations stated herein that are attributable to
UBS or any commenter do not reflect factual findings or opinions of
the Department. The Department notes that the availability of this
exemption is subject to the express condition that the material
facts and representations contained in the are true and complete at
all times, and accurately describe all material terms of the
transactions covered by the exemption. If there is any material
change in a transaction covered by the exemption, or in a material
fact or representation described in the application, the exemption
will cease to apply as of the date of the change.
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Comments From UBS
Comment 1: Department's Request for Justification of Retroactive Relief
for Failure To Perform Audit
21. As stated above, in the Proposal, the Department requested that
UBS demonstrate whether retroactive relief is appropriate, and that the
UBS QPAMs at a minimum: (a) ensured that appropriate safeguards were
established during the period of exemptive relief provided under PTE
2023-14 from June 12, 2023 to June 11, 2024, to protect the interests
of Covered Plan clients (the First Retroactive Period); (b) Covered
Plan clients were not harmed by non-exempt transactions during the
First Retroactive Period; (c) a responsible plan fiduciary acted in
good faith and took appropriate steps that were necessary to protect
the Covered Plans from abuse, loss, and risk during the First
Retroactive Period; and (d) the UBS QPAMs have adjusted their policies
and procedures in light of past failures to comply with PTE 2023-14 to
ensure that such failures will not reoccur.
22. Comment #1(a): UBS Ensured and will ensure that appropriate
safeguards were established during the First Retroactive Period to
protect the interests of Covered Plan. UBS stated that appropriate
safeguards were established during the First Retroactive Period despite
its failure to properly perform the required audit. Specifically, UBS
represents that the UBS official responsible for overseeing the audits
failed to meet the deadline, in part, because they mistakenly believed
that the Stub Period Audit's findings would be rolled into the
following year's audit report. UBS represents that, upon realizing the
mistake, it engaged an independent auditor who completed the Stub
Period Audit. The Auditor concluded that it found no deficiencies on
behalf of UBS or the UBS QPAMs during the Stub Audit period, and the
Auditor provided no recommendations for improvement. In its comment
letter, UBS asserted that the successful completion of the Stub Period
Audit, albeit late, evidences that UBS established adequate safeguards
to protect Covered Plans during the First Retroactive Period.
23. Comment #1(b): Covered Plan clients were not harmed by non-
exempt transactions during the First Retroactive Period. UBS
represented that Covered Plans were not harmed by non-exempt
transactions. To make that determination, UBS reviewed all Client Plan
transactions that UBS conducted from June 2023 to June 2024, which
encompassed more than 16,000 transactions. UBS' review determined that
there were, in fact, no non-exempt prohibited transactions. In this
regard, UBS determined that potentially implicated Client Plan
transactions for which UBS QPAMs would otherwise rely on PTE 84-14 were
either (1) covered, in the alternative, by other prohibited transaction
exemptions or (2) were not, in fact, prohibited transactions.
24. The transactions that UBS determined were not prohibited
transactions in need of exemptive relief consisted of approximately
three to four hundred loans held during the relevant period in which
one component of the investment--a service fee paid to an
administrative agent by the borrower, rather than the plan--was not
covered by an alternative exemption and very likely involved a party in
interest for many of the transactions. UBS confirmed to the Department,
however, that the fee was not paid from plan assets. UBS provided that
the fee was paid by the counterparty to the loans, not the plan or UBS,
and the fee was not incorporated in the plan's payment for the loans'
overarching investment because, as the lender, the plan's investment
was in the form of lending money to the counterparty. UBS further
stated that the borrower of these loans also selects the administrative
agent on its own accord without direction from plans or UBS.
Furthermore, the fees are usually negotiated between the administrative
service agent and the borrower before the identity of the plan lender
is even known.\17\
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\17\ The Department is not opining on UBS' determination as to
whether the transactions it has described are prohibited
transactions as that is outside the scope of this prohibited
transaction exemption.
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25. Comment 1(c): A responsible plan fiduciary acted (and is
acting) in good faith and took (and will take) appropriate steps that
are necessary to protect the Covered Plans from abuse, loss, and risk
during the Relief Period. UBS maintains that the UBS QPAMs acted in
good faith to protect Covered Plans because they maintained extensive
protocols to ensure it upheld its fiduciary responsibilities and no
Covered Plans were harmed during the Relief Period. For example, UBS
represents that its protocols required the UBS QPAMs to seek the best
possible trade execution for each and every transaction regardless of
the identity of the counterparty, and in accordance with each of the
written investment guidelines approved by each Covered Plan. Further,
UBS addressed the failure to perform the Stub Audit and proposed
changes to its protocols, as discussed immediately below, to ensure
that such a failure does not reoccur.
26. Comment 1(d): The UBS QPAMs have adjusted their policies and
procedures in light of past failures to comply with PTE 2023-14 to
ensure that such failures will not reoccur. To prevent the reoccurrence
of a missed Stub Period Audit, UBS proposed to take the following
steps: (1) designate a second Compliance Officer both to facilitate the
timely completion of exemption reviews and audits and check to ensure
that exemption deadlines are correctly identified and completed; (2)
inform the Auditor in writing within 45 days after receiving the
Auditor's engagement agreement of the target dates for the Auditor to
send UBS the initial document requests and for UBS to respond to those
requests; (3)
[[Page 3933]]
require the Compliance Officers to provide the Auditor with the
Exemption Report created pursuant to Section III(m)(4)(ii) of the
exemption within seven days after the Exemption Report's completion;
(4) allow the Department to receive audit updates from UBS and the
Auditor upon request; and (5) provide the Department with a copy of the
Auditor's engagement agreement within 15 days after its execution.
27. The Department is persuaded that adding these conditions to the
exemption's existing protective conditions will be beneficial to
Covered Plans and has included them in this final exemption.
Comment 2: UBS' Materiality Argument
28. UBS contends that failing to adhere to a condition of PTE 2023-
14 relating to the due date of the Stub Period Audit should not cause
it to forfeit the exemptive relief provided in PTE 2023-14 because its
failure to comply with the condition was not a ``material failure.''
29. The Department strongly disagrees with UBS's materiality
argument. First, each condition in an exemption is material to the
Department's findings and must be adhered to in order for an ERISA-
covered plan, IRA, a party in interest, or disqualified person to rely
on the exemption. Second, the independent audits required by PTE 2023-
14 and similar exemptions are particularly vital to the Department's
findings, because they help ensure that, among other things: the QPAMs
adhere to their basic fiduciary obligations under ERISA; transactions
prohibited under ERISA section 406 are implemented in accordance with
the requirements of PTE 84-14 and monitored in a way that protects
participants; the Policies and Training requirements of the exemption
are maintained; and violations of the Policies and Training
requirements are promptly reported and remedied. The purpose of the
audit requirement is not merely to ascertain possible past violations,
but rather to promote and encourage an ongoing culture of compliance
for personnel subject to the audit. The latter goal is ill-served when
the QPAMs disregard their obligation to perform timely audits,
irrespective of whether any particular audit would have found serious
past violations of the exemption's conditions. Lastly, in contradiction
of UBS' contention that the failure to comply with the condition was
not a ``material failure,'' UBS acknowledged the importance of the
independent audit requirement in its exemption application, which
stated that, ``[t]he purpose of the independent audit is to give
[Covered Plans] clients and the Department the confidence that the
asset manager is complying with ERISA, and that continued exemptive
relief is warranted.''
Comment 3: Covered Plans Would Be Harmed Without an Exemption
30. UBS asserts that Covered Plans would incur harm if relief is
not granted, because Covered Plans would likely terminate their
relationships with the UBS QPAMs and hire new asset managers. UBS
contends that Covered Plans would switch because the Covered Plan's
fiduciaries would be uncertain as to which transactions would have
prohibited transaction relief, and as to the specific conditions and
limitations that would be imposed upon those transactions. UBS argues
that Covered Plans that switch asset managers would be harmed because
they would lose access to UBS's unique services and strategies.
Further, the Covered Plans would spend additional fees and incur lost
opportunities costs as a result of an asset manager switch, and the
additional fees would include costs incurred to solicit and hire a new
asset manager. UBS estimates Covered Plans would incur $90 million in
liquidation and reinvestment costs as a result of liquidating all of
the Covered Plan positions.\18\ In support of this estimate, UBS
provided a report from an institutional investment consultant
concluding that UBS' assumptions and methodology in calculating these
liquidation costs were reasonable and the estimation of $90 million in
liquidation costs was also reasonable.\19\
---------------------------------------------------------------------------
\18\ UBS submitted a report by an independent consultant in
support of the estimated liquidation cost.
\19\ The report was provided by John Minihan, Ph.D., a former
Senior Lecturer of finance at MIT Sloan School of Management, a
former associate editor of the Journal of Investing, and currently
an investment management industry consultant with 30 years of
experience in institutional investment consulting. Dr. Minahan
provided, in summary, that UBS's estimates and assumptions were
reasonable as expected values but with two minor caveats. First,
asset managers can take several years to transition assets and if
market conditions deteriorate during that time transitions could
cause additional risk to ERISA clients. Second, new asset managers
may decide that not all assets need to be liquidated and, if so, an
assumption that all assets need to be liquidated would overstate
transition costs. Dr. Minahan believes that these two caveats do not
undermine the reasonableness of the estimated expected values ``as
long as they do not overwhelm each other.'' He also provides that
these caveats are difficult to quantify and work in opposite
directions.
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31. Department's Note: While the Department recognizes that Covered
Plans may incur certain liquidation and reinvestment costs as a result
of liquidating their positions, UBS QPAMs are cautioned that if UBS
engages in future conduct prohibited by PTE 84-14, the Department may
not be able to make its required findings in order to grant future
exemptive relief. UBS QPAMs must take all prudent steps pursuant to its
obligations under ERISA section 404 to mitigate risks of losses to, and
to defray the reasonable expenses related to the investment of, Covered
Plan assets if UBS engages in future conduct prohibited by PTE 84-14.
The Department believes that the failure to take such basic steps, in
the event that the UBS QPAMs become ineligible for their exemptive
relief under PTE 84-14, would likely constitute a violation of the
QPAMs' fiduciary duties to act in the best interest of their Covered
Plan clients.
Comment 4: Nonquantifiable Harms Should Be Considered
32. UBS argues that the Department should include nonquantifiable
harms in the Department's findings. UBS suggests that the Department
has foreclosed including information about potential harms in its
findings unless the harm is estimated in dollar amounts.\20\ The
Department has no objection to considering any nonquantifiable harms
identified by UBS. However, information concerning the dollar value of
harms, including the methodology and assumptions made in reaching such
dollar values, are important to the Department's analysis. The
Department will consider representations about nonquantifiable harm to
Covered Plans to the extent the Department is able to determine that
the information presented is relevant, reliable, and necessary to the
Department's findings. The Department notes, however, that depending on
context and the type of harm that the applicant represents may occur,
the Department will request to see additional, quantifiable data in
order appropriately consider such representations.
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\20\ In footnote 24 of the Proposal, ``[t]he Department notes
that UBS provided information not mentioned in this proposal
regarding the potential losses to ERISA clients, but without clearly
identifying the dollar amount of losses to plans in concrete terms.
In such cases, the Department does not have enough information to
include such representations in its findings. However, the
information that UBS provided that the Department can rely on is
described below.'' 89 FR 49219 n.24
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Comment 5: Denying Exemptive Relief Would Negatively Impact the QPAM
Program as a Whole
33. UBS argues that denying prospective or retroactive relief would
result in wide-ranging consequences for all retirement accounts within
the
[[Page 3934]]
financial industry. UBS contends, for example, that denying relief
would make it more difficult for counterparties to transact with any
industry QPAMs because counterparties would be unsure if new
convictions or later-discovered issues would result in crippling
financial penalties for those counterparties. UBS argues that this
increased risk would be priced into the market for all retirement
plans, whether or not a QPAM is compliant with PTE 84-14 or an
individual exemption with respect to a failure to comply with PTE 84-14
I(g).
34. The Department agrees that a denial of UBS' exemption request
could have consequences for Covered Plans. However, these consequences
would be due to the widespread UBS-related criminal behavior that
occurred over long periods of time, involved massive amounts of client
assets, and UBS' inability to comply with the terms of PTE 2023-14 that
are described above. The Department does not believe that UBS' history
of criminal sanctions is representative of the industry as a whole, or
is likely to result in the sorts of consequences suggested by UBS with
respect to entities that have far different compliance histories.
35. Additionally, the Department notes that it is aware that UBS
and/or its affiliates are the subject of additional investigations that
could result in future violations of Section I(g) of PTE 84-14.\21\
While the Department cannot opine on the likelihood that UBS asset
managers will receive additional exemptive relief if it engages in
additional violations of Section I(g) of PTE 84-14, the Department may
take a proactive approach to protecting Covered Plans in light of the
uncertainty created by these additional investigations. Especially
given the history and extent of criminal conduct at issue, the
Department is considering proposing an individual exemption that would,
in certain circumstances, permit UBS asset managers to continue to
engage in the same covered transactions described in Section I of PTE
84-14, if the UBS QPAMs become ineligible again to rely on PTE 84-14
due to another violation of Section I(g) of PTE 84-14.\22\
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\21\ See, for example, the following publicly available news
articles describing inquiries into possible UBS/Credit Suisse-
related misconduct: UBS's French unit placed under formal
investigation at <a href="https://www.fnlondon.com/articles/ubs-french-division-placed-under-formal-investigation-20160304">https://www.fnlondon.com/articles/ubs-french-division-placed-under-formal-investigation-20160304</a>; Credit Suisse
has violated US tax evasion deal, Senate Committee finds [verbar]
The Business Standard, at <a href="https://www.tbsnews.net/world/global-economy/credit-suisse-has-violated-us-tax-evasion-deal-senate-committee-finds-607578">https://www.tbsnews.net/world/global-economy/credit-suisse-has-violated-us-tax-evasion-deal-senate-committee-finds-607578</a>.
\22\ It is expected that a number of conditions would apply,
including that no QPAM or its personnel were involved in the
Prohibited Misconduct.
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36. As currently contemplated, the relief that would be provided in
the individual exemption would not be linked to PTE 84-14, and the
asset managers that rely on the individual exemption would not be
referred to as QPAMs.\23\ If the Department takes this approach, the
proposed individual exemption would be subject to a full notice and
comment period, and UBS, plan fiduciaries and plan counterparties would
have ample opportunity to comment.
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\23\ The Department notes that, should UBS QPAMs become
disqualified from the relief in this exemption due to additional
UBS-related prohibited misconduct described in Section I(g) of PTE
84-14, Section I(i) of PTE 84-14 may permit UBS QPAMs to continue to
rely on the class exemption for one year, if the terms and
conditions of the class exemption are met. In that instance, the
effective date of the above-described individual exemption, if
granted, would begin following the period covered by Section I(i) of
PTE 84-14.
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37. The Department previously raised the possibility of this type
of individual exemption in the preamble to the PTE 2023-14 proposal and
requested comment from UBS. UBS responded that current QPAMs have
existing contracts that expressly rely on the QPAM exemption or include
representations that the asset manager is a QPAM, and those contracts
do not account for an alternative individual exemption such as the one
the Department described in the preamble to the proposal for PTE 2023-
14. Moreover, UBS asserted that the QPAM exemption is widely accepted
and understood by sophisticated clients; therefore, the Department's
withdrawal of the availability of the relief provided in PTE 84-14 for
a particular asset manager and substituting an alternative individual
exemption would put that asset manager at a competitive disadvantage.
UBS claimed that this result is directly contrary to the financial
strength and stability that regulators intended to be achieved by the
Merger, and that if the Department is interested in creating an
alternative individual exemption to the QPAM exemption, it should make
the alternative available to all asset managers concurrently with the
QPAM exemption, so that the alternative can gain broad market adoption.
38. The Department is not persuaded by UBS' response. The fact that
UBS QPAMs may have existing contracts with the provisions and
limitations described above, is not dispositive to the Department's
determination whether UBS QPAMs should be permitted to continue to rely
on PTE 84-14, especially considering UBS' multiple violations of
Section I(g) of the class exemption that call its integrity and
compliance culture into question. The Department is also skeptical of
assertions that it should rely on the parties' contract provisions as a
basis for disregarding exemption conditions or limiting the
consequences of violating those provisions. A QPAM cannot simply
contract with a client in a manner that ensures the QPAM will always be
able to remain a QPAM, regardless of the QPAM's or its affiliates'
behavior.
39. Further, the fact that the QPAM exemption is widely accepted
and understood by sophisticated clients suggests to the Department that
these counterparties would not be confused by an individual exemption
that clearly states it has the same scope of relief as Section I of PTE
84-14. UBS' ``competitive disadvantage'' arguments also do not support
a finding under ERISA Section 408(a) that UBS QPAMs should be permitted
to rely on PTE 84-14; particularly where to the Department's knowledge,
none of UBS' ``competitors'' have as many disqualifying convictions as
UBS.
40. Regarding UBS's suggestion that the Department should make the
individual exemption approach ``available to all asset managers
concurrently with the QPAM exemption, so that the alternative can gain
broad market adoption,'' the Department notes that the scope,
seriousness, and recurrent nature of UBS' prohibited misconduct are
unique. Therefore, the Department is not persuaded that making such an
individual exemption available for broad market adoption is presently
warranted.
Comment 6: Indemnification
41. Section III(k) of PTE 2023-14 requires UBS to ``indemnify and
hold harmless the Covered Plans for any actual losses resulting
directly from UBS QPAM's violation of fiduciary duties, prohibited
transactions, breach of contract, or any claim arising out of the
failure of such QPAM to qualify for the exemptive relief provided by
PTE 84-14 as a result of violation of Section I(g) of PTE 84-14.'' \24\
Given this
[[Page 3935]]
requirement, the Department requested in the Proposal that UBS comment
on why Covered Plans would incur the liquidation and other costs
identified by UBS if the Department does not grant relief.
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\24\ PTE 2023-14, Section III(k)(2) requires UBS QPAMs ``[t]o
indemnify and hold harmless the Covered Plan for any actual losses
resulting directly from the 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 QP
AM; or any claim arising out of the failure of such 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 a Conviction
covered under this exemption. This condition applies only to actual
losses caused by the QPAM's violations.''
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42. In its response, UBS argues that liquidation and additional
costs do not result ``directly'' from UBS's criminal convictions and
failures to comply with exemptive conditions. UBS argues instead that a
Covered Plan fiduciary and new asset manager's decision to liquidate
and reinvest plan assets is an intervening decision by a separate
agent, which is inconsistent with one of many definitions of
``directly'' contained in the Oxford Dictionary.
43. The Department disagrees with UBS's analysis. The condition
requires indemnification for costs that result ``directly'' from, among
other things, ``the failure of such QPAM to qualify for the exemptive
relief provided by PTE 84-14 as a result of violation of Section I(g)
of PTE 84-14.'' As UBS itself noted in a letter to the Department,
dated July 29, 2024, ``[i]n fact, Dr. Minahan, an expert in the field
of ERISA plan transitions, projects that if the Department does not
grant UBS a new exemption, ``then most, and likely all, UBS ERISA
Clients would feel forced to replace UBS as their asset manager.''
Certainly, to the extent Covered Plans ``feel forced'' to transition to
new asset managers because the UBS QPAMs could no longer rely on PTE
84-14, the liquidation and additional costs arising from the transition
constitute actual losses resulting directly from the failure of such
QPAM to qualify for the exemptive relief provided by PTE 84-14 as a
result of violation of Section I(g) of PTE 84-14. If a plan's fiduciary
is compelled to replace a UBS asset manager as a result of a violation
of Section I(g) and the asset manager's loss of QPAM status, the
affected plan is entitled to indemnification of its associated losses,
including the transitional expenses necessary to effectuate the switch
to a qualified QPAM.
Comment 7. Violation Notice
44. Section III(t) of the Proposal includes a condition that would
require UBS to send a Violation Notice, as defined therein, to Covered
Plans if UBS fails to comply with an exemption condition. UBS commented
that this proposed condition would be too difficult to administer and
would not materially increase protection for Covered Plans.
45. The Department disagrees. Providing timely information to
Covered Plans will allow their fiduciaries to take prudent and timely
steps, as necessary to protect themselves from loss of the exemption's
protections. This Violation Notice is particularly relevant to UBS due
to its history of recidivism.
46. However, the Department understands UBS' position that certain
aspects of the Violation Notice requirement may be difficult to
administer. In particular, UBS raised concerns regarding the difficulty
it would confront to determine whether a Violation Notice must be
issued. In response to this concern, and as a recognition that UBS may
need more time to make its required determination that sending a
violations notice is required, the Department has revised the deadline
in Section III to extend the time a Violation Notice must be provided
to Covered Plans as a result of a breach of an exemption condition,
from 14 to 30 days after the violation is discovered. In situations
where the auditor discovers a violation that the UBS QPAM had not
previously detected, the UBS QPAM may comply with the Violation Notice
condition by sending the Violation Notice to all affected Covered Plans
and the Department within 30-days after the completion of the audit, if
the notice includes an addendum describing the reason for the UBS
QPAM's failure to send the Violation Notice. This last provision is not
a substitute for UBS' own responsibility to take reasonable steps to
determine whether a violation has occurred.
Comment 8: Written Processes Related to Indemnification
47. Section III(v) of the Proposal would require all UBS QPAMs to
develop written processes that clearly describe: (a) how the QPAM
identifies and quantifies ``actual losses'' for purposes of Section
III(j)(2) of the exemption; and (b) how Covered Plans may recover or
avoid incurring the losses that the UBS QPAM must indemnify or hold
Covered Plans harmless from incurring pursuant to Section III(j)(2) of
the exemption. UBS commented that losses are too specific to each
Covered Plan for it to develop an effective written indemnification
process. Additionally, UBS asserted that it would be unable to develop
written processes for indemnification because the party seeking
indemnification would have to identify the specific covered losses or
expenses.
48. The Department disagrees with UBS' interpretation of this
condition. The condition simply requires UBS to establish a process
that would apply when Covered Plans submit indemnification claims, not
to identify all the specific losses or expenses that could conceivably
be covered in advance of violation. The process should, at a minimum,
inform Covered Plans of how to initiate a claim for indemnification
with a UBS QPAM (including a description of the information required to
be submitted) and provide reasonable time frames for the resolution of
claims. The process should also ensure that substantially similar
claims are treated alike, and Covered Plans are equitably treated based
on the merits of the claim rather than type or size of client. The
process also should require the UBS QPAM to fully and fairly notify
Covered Plans of the indemnification requirement and inform them that
they can submit questions relating to the final indemnification
provision to the Department's email inbox (<a href="/cdn-cgi/l/email-protection#42276f2d272602262d2e6c252d34"><span class="__cf_email__" data-cfemail="dcb9f1b3b9b89cb8b3b0f2bbb3aa">[email protected]</span></a>). The
Department believes that these clarifications address the concerns
raised by UBS.
49. Further, the Department has revised the provision in the final
exemption to require each UBS QPAM to complete the development of the
indemnification claims process and deliver a copy of the process to
each Covered Plan within 90 days after January 15, 2025, rather than
within 30 days as originally proposed. The extended timelines give the
UBS QPAMs enough time to specify appropriate processes and make any
required internal changes to operationalize such processes. The
exemption requires the UBS QPAMs to notify Covered Plans of any
subsequent material changes to the processes within 30 days after the
effective date of such changes.
Comment 9: Seconded Employee Definition
50. UBS commented that it has no fundamental objection to the
Department's proposed definition of ``UBS Seconded Employee'' in
Section I(l) of the Proposal.\25\ However, UBS
[[Page 3936]]
believes that the definition should reflect the language in the recent
Deutsche Bank exemption (PTE 2024-02), which does not contain this new
definition of Seconded Employee, to promote greater consistency across
individual QPAM exemptions.\26\
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\25\ The Proposal added a new definition of the term ``UBS
Seconded Employee'' that means, an individual nominally employed by
a Misconduct Entity who performs work on behalf of a qualified UBS
QPAM, provided that such UBS QPAM is solely responsible for the
management and control of the employee's job activities performed on
behalf of such QPAM. The UBS QPAM must be solely responsible for the
establishment of the employee's job duties and terms of employment
(including compensation, promotions, and benefits), and must have
supervisory responsibility with respect to, among other things, the
employee's performance, training, and disciplinary actions. The
definition of UBS Seconded Employee is used in Sections III(d) to
clarify that an employee of a Misconduct Entity may provide services
to a UBS QPAM, as long as the individual is a ``Seconded Employee.''
Sections III(a) and (b) require that Seconded Employees did not
participate in the conduct underlying the Criminal Activity or
receive compensation in connection therewith.
\26\ See 89 FR 76, 27789 (April 18, 2024).
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51. The Department has decided to retain the proposed language in
the final exemption. Conditions in the Department's individual
exemptions may evolve over time as it becomes clear that additional
clarity or substantive improvements are appropriate. The Department
notes that prior QPAM Section I(g) exemptions relied on the term
``seconded employee'' to permit certain employees to perform services
for QPAMs notwithstanding the fact that such employees were nominally
employed by a corporate entity that had been involved in
misconduct.\27\ In the recent Deutsche Bank exemption, PTE 2024-02,
that the Applicant points out, the Department declined to use the term
``seconded employee'' and instead included a description of the type of
employees permitted to perform services under these circumstances.\28\
In the Proposal, the Department created a defined term ``UBS Seconded
Employee'' in order to further streamline the operative language of the
exemption. The defined term also slightly modified the language from
that which was in the Deutsche Bank exemption to more clearly set forth
the requirement that the QPAMs have control over the seconded employee.
For example, the term ``oversight'' was changed to ``control'' and the
term ``day to day activities'' was changed to ``job activities.''
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\27\ These employees were required not to have participated in,
been aware of, and received compensation in respect of, any of the
misconduct.
\28\ Section III(g) of PTE 2024-02 provides that, ``Other than
with respect to employee benefit plans maintained or sponsored for
its own employees or the employees of an affiliate, DB Group
Services will not act as a fiduciary within the meaning of ERISA
Sections 3(21)(A)(i) or (iii) or Code Sections 4975(e)(3)(A) and (C)
with respect to ERISA-covered plan and IRA assets; provided,
however, that DB Group Services will not be treated as violating the
conditions of this exemption solely because . . . . (2) DB Group
Services' employees perform work on behalf of a DB QPAM that is
solely responsible for the management and oversight of the DB Group
Services' employee's day to day activities performed on behalf of
such QPAM, including the employee's performance, training, and terms
of employment (including compensation, promotions, and benefits),
including any such employees acting in a discretionary fiduciary
capacity with respect to the DB QPAM.'' See also 89 FR 76, 27795-96.
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Comment 10: Other Edits
52. UBS requested that the Department make the following edits to
the Proposal's operative text, which it characterizes as clarification
of facts or technical corrections:
(a) The definition of ``CSAG'' in Section I(a)(1) should be revised
to clarify that CSAG merged into UBS AG on May 31, 2024, with UBS AG as
the surviving entity.
Department Response: The Department concurs and has made the
change.
(b) The definition of ``UBS Americas'' in Section I(a)(5) should be
revised to reflect that UBS AM Americas no longer is wholly owned by
UBS Americas, Inc.
Department Response: The Department concurs and has revised Section
I(a)(5) to reflect that UBS AM is majority-owned by UBS Americas, Inc.
(c) The definition of ``UBS Hedge Fund Solutions LLC'' in Section
I(a)(7) should be deleted because UBS Hedge Fund Solutions LLC merged
with UBS Asset Management (Americas) LLC, on April 1, 2024.
Department's Response: The Department has not made the requested
change, because the definition in the Proposal provides clarity that
the retroactive relief covers the subject entity as well.
(d) The definition of ``Affiliated QPAM'' should be modified to
reflect that UBS AM Americas is the only current UBS QPAM, and a future
additional QPAM may sit within a successor of the Asset Management or
Global Wealth Management Americas U.S. divisions of UBS.
Department's Response: The Department has not made UBS' requested
changes, because the retrospective nature of this exemption warrants
defining the term ``Affiliated QPAM'' consistent with PTE 2023-14, and
UBS' requested change would allow an entity to qualify as an Affiliated
QPAM notwithstanding that it also fits within the definition of
Misconduct Entity.
(e) The footnote in Section I(b) should be deleted.\29\ This
footnote is unnecessary. Moreover, UBS O'Connor LLC no longer exists;
it merged with UBS AM Americas on April 1, 2024, with UBS AM Americas
as the surviving entity.
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\29\ This footnote states that ``UBS represents that UBS
O'Connor LLC and UBS Realty Investors LLC are entities under the UBS
corporate umbrella that currently offer investment products which
are accessible by ERISA-covered plans, but do not currently rely on
Class PTE 84-14 when managing those products.''
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Department's Response: The Department concurs and has made the
change.
(f) The definition of ``Misconduct Entity'' in Section I(i) should
be revised to remove ``CSAG,'' as CSAG no longer exists.
Department's Response: The Department has not made the requested
change, because the proposed definition provides clarity that
retroactive relief covers periods of time that CSAG existed.
(g) The reference to ``CS Affiliated QPAM[s]'' in the footnote in
Section III(h)(1) should be deleted.\30\
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\30\ The referenced footnote states that ``[t]he exemption does
not preclude the UBSQPAMs and CS Affiliated QPAM from maintaining
separate Policies provided that the Policies comply with this
exemption.''
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Department's Response: The Department concurs and has made the
change.
(h) Section III(i) should be revised to require provision of a copy
of the audit report to the Risk Committee of UBS Group AG's Board of
Directors and to a senior executive officer of UBS Group AG's
Compliance and Operational Risk Control function.
Department's Response: The Department concurs and has made the
requested change.
(i) The phrase ``one-year exemption'' should be revised to ``five-
year exemption'' in Sections III(i)(3) and III(k).
Department's Response: The Department concurs that the operative
language in Sections III(i)(3) and III(k) should not read ``one-year
exemption'' and has modified the provisions to read ``exemption.''
(j) Section III(m)(1)(ii) should be revised to require that the
compliance officer (or officers) have a direct reporting line to either
the highest-ranking corporate officer in charge of compliance for the
applicable Affiliated QPAM or the highest-ranking corporate officer in
charge of the applicable Affiliated QPAM. This would allow the QPAM to
designate the highest-ranking corporate compliance officer as a
``compliance officer'' under the exemption.
Department's Response: The Department concurs and has made the
requested change.
(k) Section III(l) should be included in the list in the first
clause of Section III(s), and the reference in the second clause of
Section III(s) should be to Section III(i)(10), not Section III(i)(11).
[[Page 3937]]
Department's Response: The Department concurs and has made UBS'
requested changes, although due to changes to Section III(i) described
above, the latter change was made to Section III(i)(12) not Section
III(i)(11).
(l) The phrase ``at all times'' should be deleted from Section
III(u),\31\ because that phrase is inconsistent with the Proposed
Exemption's statement that only ``material change[s]'' in ``material
fact[s] or representation[s]'' would affect the status of the
exemption.
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\31\ Section III(u) provides that, ``All the material facts and
representations set forth in the Summary of Facts and
Representations are true and accurate at all times.''
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Department's Response: The Department disagrees with this revision.
If, at any time, a material representation UBS made to the Department
is no longer accurate, UBS must immediately inform the Department. If
UBS has questions regarding the materiality of a representation, it
should contact the Office of Exemption Determinations immediately.
Industry Comments
SIFMA (Securities Industry and Financial Markets Association) and the
ERISA Industry Committee (ERIC)
53. SIFMA and ERIC's comment letters argue that if the Department
does not grant UBS retroactive relief, it will cause wide ranging
disruption to the securities markets.
54. The Department notes that it has addressed these broad concerns
in its response to Comment 5, above. The Department reiterates that it
must make the findings required by ERISA section 408(a) in order to
grant an exemption with respect to the particular applicant seeking
relief and for the transactions described in the application. If a QPAM
or related party's behavior precludes such a finding, any wide-ranging
disruption to the securities markets that results would be solely
attributable to behavior of such QPAM or related party. As such, many
of the concerns raised in SIFMA and ERIC's comments are outside the
scope of this exemption.
Anonymous
55. An anonymous commenter stated without specificity that the
Department should not grant the proposed exemption in order to better
protect the financial industry from corruption. Since the comment
offered no further reasoning or substance, the Department cannot
respond with specificity to this comment. This exemption, however, has
taken the commenter's position into account by ensuring that Covered
Plans are insulated from UBS' malfeasance.
The QPAM Coalition Comment 1: Hearing Request
56. A commenter entitled the ``QPAM Coalition,'' is comprised of,
at various times, Mr. James S. Henry; Mr. John Christensen; Dr. Paul J.
Morganoff; Mr. Ralph Nader; Mr. Khadija Sharife; Mr. Ke Francis Karugu;
and Mr. and Mrs. Andreas and Dagmar Frank. The coalition made two
separate submissions during the comment period, which are considered
together for purposes of this granted notice. As a preliminary matter,
the QPAM Coalition requested a public hearing to provide a ``more
thorough examination and interrogation.'' In the view of the QPAM
Coalition, the Application omitted critical data required by the
Department's exemption procedure regulation, and a public hearing is
needed to fully air the universe of relevant lawsuits and criminal
investigations concerning UBS' and Credit Suisse's conduct as a
fiduciary . . . .\32\ The QPAM Coalition states that ``extraordinary
new details about UBS/CS misconduct [discussed below] really do deserve
to be aired in public.'' The QPAM Coalition states that its members
``would be available to present even more [i]mportant evidence directly
related to the question of whether UBS/CS deserve to have their
(collectively) 14th QPAM Exemption since 1994, despite serial criminal
convictions.''
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\32\ 29 CFR 2570.35(a)(5). The QPAM Coalition also takes issue
with UBS' representation that the ``number of plans and IRAs to
which the exemption will apply are too numerous to identify.''
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57. The Department notes that most of the exemptions identified by
the QPAM Coalition were either extensions of existing exemptions or
necessitated by the merger of UBS and Credit Suisse. Such extensions do
not involve new instances of misconduct, and it is inappropriate to
treat them as if they were the result of new, distinct, and separate
violations of exemption conditions. To the contrary, the grants of
extensions generally reflected the Department's view that the QPAMs had
complied with the conditions of the initial exemptions. Similarly, it
is inappropriate to penalize the UBS QPAMs solely because they received
exemptions (including this one) that arose from the merger of Credit
Suisse and UBS; particularly when considering that these exemptions did
not arise from any additional criminal misconduct or failure to
supervise by UBS or its affiliates.
58. As the Department notes in its exemption procedure regulation
(the Procedures),\33\ ``[t]he Department will grant a request for a
hearing . . . where a hearing is necessary to fully explore material
factual issues identified by the person requesting the hearing.'' \34\
The QPAM Coalition provided an expansive and detailed description of
the ``extraordinary new details'' that needed to be discussed at a
public hearing in their comment letter. Although the QPAM Coalition
suggests that it could provide more evidence at a hearing, the
Department's regulations provide that it may decline to hold a hearing
if, among other things, ``the factual issues identified can be fully
explored through the submission of evidence in written (including
electronic) form.'' \35\
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\33\ 29 CFR part 2570 (76 FR 66637 (Oct. 27, 2011)).
\34\ See Section 2570.46(b).
\35\ See Section 2570.46(b)(3).
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59. In the Department's view, the ``factual issues'' identified by
the QPAM Coalition could be and have been fully explored through the
submission of its written and electronically provided evidence. The
Department also notes that its Procedures provide that hearing
requestors must state, among other things, ``the nature of the person's
interest in the exemption and the manner in which the person would be
adversely affected by the exemption.'' \36\ The QPAM Coalition did not
state in their comment letters how they would be ``materially affected
by the exemption.''
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\36\ See Section 2570.46(a)(2).
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60. The Department notes that in processing UBS' exemption request,
it thoroughly reviewed UBS' application. The Department relied on
public comments and a robust exchange of information with UBS and
external stakeholders to fill in factual gaps in the public record. The
QPAM Coalition's own comment provided information concerning a number
of past and current investigations and prosecutions that form part of
the public record that the Department has reviewed in making its
requisite findings under ERISA section 408(a) Among other materials
provided in their comments, the QPAM Coalition provided the text of a
decision of the French Court of Cassation, Criminal Division, dated
November 15, 2023 dealing with UBS' participation in a cross-border tax
evasion via French and Swiss branches of UBS; a copy of the criminal
complaint filed by the U.S. Department of Justice against UBS
Securities LLC, et al. on November 08, 2018 in Case No. 1:18-cv-06369-
RPK-PK; a comment letter describing additional lawsuits and criminal
trials that they believe should be taken into
[[Page 3938]]
consideration by the Department; \37\ copies of letters written by
members of the QPAM Coalition to the UBS General Counsel \38\
describing shortcomings in the compliance and controls of Credit
Suisse' banking systems and generally detailing efforts to inform UBS
and Credit Suisse of ``entrenched criminal structures'' within Credit
Suisse; a transcript of comments at the Department's November 2022
hearing regarding amendments to the QPAM Exemption; and a copy of a
letter to the Department \39\ advocating for the denial of Credit
Suisse's exemption application No. D-11819.\40\
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\37\ The comment letter provides information about: United
States v. UBS Securities, LLC, et al. (generally, UBS' conduct in
the mortgage crisis); Murray v. UBS Securities, LLC 601 U.S. 23
(2024) (regarding an employee's claim that UBS forced him to
fraudulently certify his analyst reports); U.S. v. Birkenfeld, Case
No. 08-60099-CR-ZLOCH (concerning offshore bank accounts and
suppression of whistleblower activity); and links to various French
and German tax fraud matters involving UBS.
\38\ Letter from Dr. Paul Morjanoff, Financial Recovery and
Consulting Services Pty Ltd to Ms. Barbara Levi, UBS Group General
Counsel, dated July 11, 2023.
\39\ Letter from Dr. Paul Morjanoff, Financial Recovery and
Consulting Services Pty Ltd to Thomas Perez, U.S. Secretary of
Labor, dated June 23, 2014.
\40\ Credit Suisse was granted PTE 2014-11 on November 18, 2014
(79 FR 68716).
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61. The QPAM Coalition's comment further supplemented the record
with articles written by its members that describe, among other things:
the role of Swiss banks in money laundering and corrupt banking
practices in Kenya; how, in the QPAM Coalition's view, Swiss bank
secrecy laws facilitate participation by UBS and Credit Suisse in
various criminal and political activities, including Swiss banks' past
involvement in South Africa's ``apartheid machinery''; political
activities in Yemen, the Democratic Republic of Congo, and Mozambique;
circumvention of European Union sanctions on various governments; the
facilitation of corrupt finance and banking activities in various
developing countries; and UBS' leveraging of the British Channel
Island's legal jurisdiction to avoid criminal prosecution for various
acts.
62. Finally, the QPAM Coalition submitted a brief article
advocating for an ``institutional grey list'' similar to ones
established by various inter-governmental organizations, such as the
Organization for Economic Co-operation and Development, that would
assist the Department in evaluating financial institutions that
repeatedly find themselves in violation of applicable law. Even though
the information provided by the QPAM Coalition does not lead the
Department to conclude that a hearing is necessary to further explore
any of the issues presented in its comment, the information provided by
the QPAM Coalition validates the importance of one of the exemption's
critical conditions: an in-depth annual audit of each UBS QPAM by a
qualified, independent auditor. In this regard, the scope of ongoing
investigations and potential misconduct identified by the QPAM
Coalition in its comments illustrates the need for an independent audit
to verify on an annual basis that the UBS QPAMs continue to adhere to
applicable fiduciary provisions and the terms of this exemption and
maintain a strong culture of compliance.
63. Based on the record developed by the Department, it does not
appear to the Department that UBS QPAM personnel participated in the
conduct described by the QPAM Coalition. In fact, the Department is
able to make its findings that the UBS QPAMs may continue to rely on
PTE 84-14 in part because the QPAMs and their personnel are insulated
from the corporate management and business activities of UBS entities
that were involved in criminal activity described above. In this
regard, the independent auditor must continue to validate, among other
things, that the asset management decisions of the QPAM are conducted
independently of the corporate and management and business activities
of each Misconduct Entity, and any failures of the QPAMs to maintain or
follow the Policies must be corrected and reported to the QPAM's head
of compliance and general counsel.
The QPAM Coalition Comment 2: Rebutting UBS
64. The QPAM Coalition's comment focuses on rebutting UBS' five
``principal reasons'' justifying the Department's grant of a five-year
exemption. As described by the QPAM Coalition, UBS argues that (1) the
convictions and the pending French charge do not relate to the UBS
QPAMs, which are operated as separate businesses from the entities
involved in the underlying conduct; (2) the disqualifying conduct
described in the convictions and the pending French charge is
historical in nature; (3) the UBS QPAMs have documented proof that
ERISA plan assets have been safeguarded, as evidenced by their ERISA
audit results for many years; (4) it is in the best interest of plans
and their participants and beneficiaries for plan fiduciaries, well
versed in their obligations to protect plan assets, to be able to
select the asset managers they judge best, particularly when DOL-
supervised audits confirm the managers' capability; and (5) UBS and the
UBS QPAMs should not be punished, in effect, for the acquisition of
Credit Suisse AG by UBS Group AG at the strong encouragement of the
Swiss government.\41\
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\41\ See UBS Exemption Application, dated February 22, 2024, pp.
1-2.
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65. In response to these arguments, the QPAM Coalition states that
(1) is irrelevant because the QPAM Exemption's required standard of
integrity relates to the ``corporate family's culture of compliance,''
and the exemption is a privilege to execute transactions which would
otherwise be illegal; (2) is irrelevant because ``UBS and Credit Suisse
repeatedly engaged in stonewalling and obstruction of investigations,
as well as legal tactics of interminable delays, even when they knew of
their own guilt;'' (3) the UBS and Credit Suisse audit reports are not
``proof'' because they did not assess all relevant factors, ``including
if financial instruments were being illegitimately laundered through
pension funds;'' (4) UBS and Credit Suisse should have taken its
responsibility more seriously before engaging in criminal activity;
moreover, according to the QPAM Coalition, the UBS entities are still
engaging in some of these behaviors; and (5) UBS benefitted greatly
from taking over Credit Suisse AG. The QPAM Coalition also points out
in their comment that the UBS QPAMs violated various conditions of the
exemption, including the requirement for the stub audit.
66. The Department has considered and rejected the QPAM Coalition's
request to deny the UBS QPAMs' exemption application. The QPAM
Coalition's points are addressed in turn:
(1) The Department agrees with the principle that the required
standard of integrity in PTE 84-14 relates not just to the QPAM's
compliance culture, but also to its ``corporate family's culture of
compliance.'' Therefore, an important aspect of the Proposal is that
the UBS QPAMs are operated separately from the parts of the UBS
organization that engaged in criminal misconduct underlying the
Convictions (Criminal Misconduct). The record in this case demonstrates
that the UBS QPAMs have been insulated from UBS' corporate and business
decisions, and from the parts of UBS that were involved in the Criminal
Misconduct. Furthermore, the Department designed the Proposal's first
six conditions for relief to ensure that the UBS QPAMs: (1) had no
involvement with the Criminal
[[Page 3939]]
Misconduct; and (2) continue to have no relationship with any entity or
individual that was involved in the Criminal Misconduct. In order to
further support the UBS QPAMs' insulation from the rest of UBS and to
strengthen their own culture of compliance, the Department included
other conditions in the Proposal that would require the UBS QPAMs to
maintain their own policies, procedures, and training program, perform
internal compliance reporting, and submit to a publicly available
independent audit;
(2) The Department agrees that it is important that the Department
consider the Criminal Misconduct irrespective of the applicant's
suggestion that it is ``historical in nature,'' and the Department has,
accordingly, considered all the Criminal Misconduct in connection with
this exemption. The Department considered the numerous convictions, and
the extent of UBS' cooperation (or non-cooperation) with investigators,
as well as the information provided by UBS, commenters (including the
QPAM Coalition), and other internal and external stakeholders, in
formulating the conditions for relief described in this exemption and
making its findings under ERISA section 408(a);
(3) The Department notes that the independent audits are meant to
verify that the assets of Covered Plans are managed in accordance with
the requirements of Title I of ERISA and the Code, as applicable, and
that the requirements of the individual exemptions from Section I(g) of
PTE 84-14 are met. The Department determined in this exemption and in
others that an independent audit with the requirements described
herein, provides a sufficient mechanism for the Department to make its
findings that the Proposal is protective of the rights of participants
and beneficiaries of Covered Plans; \42\
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\42\ The Department notes that the record does not contain any
information that the UBS QPAMs illegally laundered financial
instruments through pension plans, and this has not been a specific
target of the independent audits required by the Department in
numerous individual exemptions. If the QPAM Coalition or any other
commenter has evidence demonstrating that the UBS QPAMs had used or
permitted money laundering through pension funds, this would be of
great import to the Department, and likely also to a number of other
Federal and international regulators.
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(4) The QPAM Coalition is not clear which responsibilities it is
referring to in its statement that UBS should have taken its
responsibilities more seriously before engaging in criminal activity.
In this regard, the Department notes that the Proposal is focused on
the actions of the UBS QPAMS and is not aware that the UBS QPAMs failed
to take their responsibilities under ERISA seriously prior to the
criminal activity engaged in by other UBS entities. However, the
conditions for relief in this grant notice require the UBS QPAMs to
adhere to Policies and Training designed to promote adherence to basic
fiduciary standards under Title I of ERISA and the Code and reinforce
their obligation to act with a high degree of integrity on behalf of
their Covered Plan clients as required by PTE 84-14. The Department
acknowledges the QPAM Coalition's statement that certain UBS entities
continue to be investigated for their participation in various forms of
misconduct, but it has not seen evidence of wrongdoing sufficient to
warrant a different approach to the exemption than that taken by the
Department. Also, when considering past and continuing Criminal
Misconduct by other corporate entities, the Department must consider
the potential harms to Covered Plans that may result from a denial of
the exemption. The final exemption reflects the Department's primary
focus on protecting Covered Plans and their participants and
beneficiaries from the costs that they may incur if the UBS QPAMs
become ineligible to rely on PTE 84-14, subject to the QPAMs' adherence
to protective conditions that insulate UBS QPAMs, and by extension
Covered Plans, from potential concerns based on the compliance culture
in other parts of the organization; and
(5) Lastly, the QPAM Coalition states that UBS benefitted greatly
from taking over Credit Suisse, thus undercutting the Applicant's
argument that UBS should not be punished, in effect for acquiring
Credit Suisse AG at the behest of the Swiss government. The Department
notes that its primary concern is to ensure that an exemption is in the
interest and protective of the rights of Covered Plans and their
participants and beneficiaries--not whether UBS benefitted from the
acquisition of Credit Suisse AG.
67. In sum, in response to the QPAM Coalition's rebuttal of UBS,
the Department acknowledges the severity of the misconduct at issue,
but also notes that none of the specific entities responsible for the
wrongdoing are granted relief under the terms of this exemption. In
addition to considering past misconduct, the Department must consider
the potential harms to Covered Plans that may result from a denial of
the exemption. Based on the written administrative record for this
exemption, the Department has concluded that the exemption's conditions
will appropriately ensure that Covered Plans are protected from future
violations, and insulated from the injury they could experience from
denial of the requested exemption. The Department also has determined
that a hearing is not necessary to further explore the issues raised in
the commenter's written submission.
The QPAM Coalition Comment 3: Request for Changes to the Exemption
68. The QPAM Coalition made a series of requests if the Department
determines to grant exemptive relief for the UBS QPAMs. Generally, the
QPAM Coalition requested that the Department: (1) require UBS to
provide additional information regarding the plans for which it
provides services; prohibit UBS from managing plan assets due to a
self-perception that it is ``above the law''; (2) limit the exemption's
effective period to two-years; (3) require UBS to pay monetary
penalties (presumably in order to rely on the QPAM Exemption);
implement a regime for monitoring UBS compliance with the exemption's
conditions that includes a panel of independent auditors; (4) establish
a public registry for all financial actors involved in working with
QPAMs; and (5)collaborate with financial regulators from around the
world in making its determinations regarding UBS' exemption request,
and other financial entities that on the relief provided in PTE 84-14.
69. The Department carefully considered the QPAM Coalition's
comments and determined not to make their requested changes for the
following reasons. First, the Department does not have the authority to
make some of the requested changes. For example, in connection with the
exemption process, the Department does not have the authority to
prohibit the UBS QPAMs from managing plan assets if the UBS QPAMs rely
on other available prohibited transaction exemptions or to require the
UBS QPAMs to pay additional monetary penalties based on the Covered
Convictions.
70. Second, in the Department's view, several of the QPAM
Coalition's recommendations would not provide meaningful protections to
Covered Plans. For example, limiting relief in the exemption to two
years as suggested by coalition would not provide much additional
protection to Covered Plans especially considering the exemption
condition requiring the UBS QPAMs to undergo an in-depth annual audit
by an independent auditor. The audit reports are publicly available and
could form the basis for the Department to revise or revoke this
exemption, if warranted or lead to a referral of the UBS QPAMs to
[[Page 3940]]
EBSA's Office of Enforcement in the event that violations of ERISA were
revealed through the audit. UBS QPAMs are well aware of these potential
consequences, which makes the audit an effective means to ensure
compliance with the provisions of Title I of ERISA and the terms of
this exemption. The Department also is not persuaded that a panel of
auditors would provide significant additional protection to Covered
Plans as compared to a single independent auditor experienced and
knowledgeable about ERISA and the terms of this exemption.\43\ The
Department reviews each audit and is empowered to seek additional
information from the auditor if the audit appears lacking in any
respect. The Department notes that Covered Plans already receive a copy
of the proposed exemption, the final exemption, the Summary and the
Statement. Further, the annual independent audit is available to all
Covered Plan fiduciaries through EBSA's Public Disclosure Room (see
above). This final exemption also adds two additional disclosure
requirements (the Violation Notice, and disclosure of the QPAMs'
indemnification procedures). The Department is skeptical that, under
the circumstances, more disclosure of the kind suggested by the QPAM
Coalition \44\ will benefit Covered Plans, and the QPAM Commenters
Coalition has not made a showing to the contrary.
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\43\ The ERISA Coalition also failed to provide any detail
regarding how the ``panel of auditors'' could be operationalized as
a condition for relief. Important unanswered questions include how a
panel of auditors would be chosen, how they would coordinate their
audit findings, and how any conflicts in their findings would be
resolved.
\44\ The QPAM Coalition, suggests, among other things, that
``foreign banks should provide information on why they wish to open
branches in the E.U. financial market, including submission of all
possible convictions, deferred prosecution agreements, and
equivalent measures, transparently and publicly.''
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71. Regarding the comment that the Department should coordinate
with regulators around the world, the Department notes that it has
communicated with other regulators in the past during its consideration
of exemption requests and will continue to do so in the future when
appropriate to protect affected plans.
The conditions of this exemption are not intended to punish UBS or
burden the UBS QPAMs in a manner that will not provide meaningful
protections to Covered Plans. Instead, the Department's objective in
granting this exemption is to (i) insulate UBS QPAMs from the business
and corporate decision making of UBS and its affiliates and any
Criminal Misconduct or potential future misconduct of UBS and its
affiliates; (ii) allow Covered Plans to terminate their relationship
with the UBS QPAMs with minimal disruption to the Covered Plans; (iii)
create an annual reliable and independent public record that documents
the UBS QPAMs' level of compliance with the terms of this exemption and
adherence to their basic fiduciary duties; and (iv) provide the
Department with the flexibility to revise or revoke the relief in this
exemption in a manner most protective of Covered Plans if UBS engages
in future criminal activity.
Modifications to the Proposal the Department Is Making on Its Own
Motion
72. The Department has decided to make several minor changes to the
Proposal in the final exemption to correct scrivener's errors in the
operative text, renumber sections of the operative text, and make
certain updates to the factual record.
73. The Department also revised Section III(l) of the Proposal by
replacing text referencing the exemption's termination if a UBS entity
is convicted of a crime described in Section I(g) of PTE 84-14 and
replacing this text with the exemption's termination if a UBS entity
engages in conduct prohibited by Section I(g) of PTE 84-14 (see Section
III (l) in this exemption). The Department made this modification to
ensure consistency with the ineligibility requirements of the recently
amended PTE 84-14.
74. Section III(o) of the Proposal reads: ``Relief in this
exemption will terminate on the date that is six months following the
date that a U.S. regulatory authority makes a final decision that UBS
or an affiliate of either failed to comply in all material respects
with any requirement imposed by such regulatory authority in connection
with the Covered Convictions.'' The Department inadvertently omitted
the words ``or CSAG'' following ``UBS.'' Further, the Department has
determined to extend the relief period to one year to make the
provision consistent with the one-year transition period requirement in
Section I(i) of amended PTE 84-14. After these edits, Condition (o) of
this final exemption reads: ``this exemption will terminate on the date
that is one year following the date that a U.S. regulatory authority
makes a final decision that UBS or CSAG or an affiliate of either
failed to comply in all material respects with any requirement imposed
by such regulatory authority in connection with the Covered Convictions
[emphasis added].''
75. Finally, the Department modified Section III(s) of the Proposal
by adding language that an Affiliated QPAM will not fail to meet the
terms of this exemption if a different Affiliated QPAM failed to
provide Covered Plans with a Violation Notice required by Section
III(t) of this exemption. The Department is making this revision
because it did not intend for a QPAM to lose exemptive relief under the
exemption solely when a different QPAM fails to provide a Violation
Notice.
Publicly Available Information:
76. The complete application file (D-12098) 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, reachable by phone at
(202) 693-8673. 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 published
on June 11, 2024 (89 FR 49213).
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) and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest from certain
requirements of other provisions of ERISA or the Code, 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); nor does it
affect the requirement of Code section 401(a) that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries.
(2) As required by ERISA section 408(a) and/or Code section
4975(c)(2), the Department finds that the exemption is: (a)
administratively feasible for the Department; (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 provisions of ERISA and/or the Code, including statutory or
administrative
[[Page 3941]]
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 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 UBS's exemption application, the Department has
determined to grant the following exemption under the authority of
ERISA section 408(a) and Code section 4975(c)(2) and in accordance with
the Department's exemption procedures set forth in 29 CFR part 2570,
subpart B.\45\
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\45\ 76 FR 66637, 66644, October 27, 2011.
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Exemption
Section I. Definitions
(a) Names of Certain Corporate Entities:
(1) The term ``CSAG'' means Credit Suisse AG, which was 100% owned
by Credit Suisse Group AG, before UBS acquired Credit Suisse Group AG
on June 12, 2024, and became the sole surviving entity.
(2) The term ``CSAM LLC'' means Credit Suisse Asset Management,
LLC. On May 1, 2024, CSAM LLC was merged into UBS Americas, with UBS
Americas as the surviving entity.
(3) The term ``CSSEL'' means Credit Suisse Securities (Europe)
Limited an indirectly a wholly owned subsidiary of UBS Group AG.
(4) The term ``UBS'' means UBS AG which is a wholly owned
subsidiary of UBS Group AG.
(5) The term ``UBS Americas'' means UBS Asset Management (Americas)
LLC, which is majority owned by UBS Americas, Inc., a wholly owned
subsidiary of UBS AG.
(6) The term ``UBS Europe'' means UBS Europe SE. UBS Europe is the
successor to UBS (France) S.A. UBS (France) S.A. was a wholly owned
subsidiary of UBS under the laws of France until 2023. In July of 2023,
UBS France S.A. merged into UBS Europe and set up a branch in France
called UBS Europe SE France Branch.
(7) The term ``UBS Hedge Fund Solutions LLC'' was formerly known as
UBS Alternative and Quantitative Investments, LLC and is wholly owned
by UBS Americas Holding LLC, a wholly owned subsidiary of UBS. UBS
Hedge Fund Solutions merged into UBS Americas on April 1, 2024.
(8) The term ``UBS Securities Japan'' means UBS Securities Japan
Co. Ltd, a wholly owned subsidiary of UBS incorporated under the laws
of Japan.
(b) The term ``Affiliated QPAM'' means: UBS Americas, UBS Hedge
Fund Solutions LLC, Credit Suisse Asset Management, LLC, and any future
separate legal entity within the Asset Management or the Global Wealth
Management Americas U.S. divisions of UBS that qualifies as a
``qualified professional asset manager'' (as defined in Section VI(a)
of PTE 84-14) and that relies on the relief provided by PTE 84-14, and
with respect to which UBS is an ``affiliate'' (as defined in Part VI(d)
of PTE 84-14). The term Affiliated QPAM excludes a Misconduct Entity.
(c) The term ``Criminal Activity'' means the Covered Convictions,
the 2013 UBS Conviction, and the FX Misconduct.
(d) The term ``Covered Convictions'' means (1) the judgment of
conviction against CSAG for one count of conspiracy to violate section
7206(2) of the Internal Revenue Code in violation of Title 18, United
States Code, Section 371, that was entered in the District Court for
the Eastern District of Virginia in Case Number 1:14-cr-188-RBS, on
November 21, 2014 (the ``2014 CSAG Conviction''); (2) the judgment of
conviction against CSSEL in Case Number 1:21-cr-00520-WFK (the ``2022
CSSEL Conviction''); (3) the judgment of conviction against UBS in case
number 3:15-cr-00076-RNC in the U.S. District Court for the District of
Connecticut for one count of wire fraud in violation of Title 18,
United States Code, Sections 1343 and 2 in connection with UBS's
submission of Yen London Interbank Offered Rates and other benchmark
interest rates between 2001 and 2010; and (4) the judgment of
conviction on February 20, 2019, against UBS and UBS France in case
Number 1105592033 in the French First Instance Court (the ``2019 UBS
France Conviction'').
(e) The term ``2013 UBS Conviction'' means the judgment of
conviction against UBS Securities Japan Co. Ltd. in case number 3:12 cr
00268 RNC in the U.S. District Court of the District of Connecticut for
one count of wire fraud in violation of Title 18, United States Code,
sections 1343 and 2 in connection with submission of YEN London
Interbank Offered Rates and other benchmark interest rates.
(f) The term ``FX Misconduct'' means the conduct engaged in by UBS
personnel described in Exhibit 1 of the Plea Agreement (Factual Basis
for Breach) entered into between UBS and the Department of Justice
Criminal Division, on May 20, 2015, in connection with Case Number
3:15-cr-00076-RNC filed in the US District Court for the District of
Connecticut.
(g) 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 an
Affiliated QPAM relies on PTE 84-14, or with respect to which an
Affiliated QPAM (or any UBS affiliate) has expressly represented that
the manager qualifies as a QPAM or relies on PTE 84-14. A Covered Plan
does not include an ERISA-covered plan or IRA to the extent the
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. Notwithstanding the above, an Affiliated
QPAM may disclaim reliance on QPAM status or PTE 84-14 in a written
modification of a contract, arrangement, or agreement with an ERISA-
covered plan or IRA, where: the modification is made in a bilateral
document signed by the client; the client's attention is specifically
directed toward the disclaimer; and the client is advised in writing
that, with respect to any transaction involving the client's assets,
the Affiliated QPAM will not represent that it is a QPAM, and will not
rely on the relief described in PTE 84-14.
(h) The term ``Exemption Period'' means the period beginning on
June 12, 2024, and ending on June 11, 2029.
(i) The term ``Misconduct Entity'' means any one of the following:
an entity subject to one of the Covered Convictions, i.e., UBS, UBS
France (recently merged into UBS Europe), CSAG and CSSEL; the entity
subject to the 2013 UBS Conviction, i.e., UBS Securities Japan; or an
entity that was the subject of the FX Misconduct, i.e., UBS.
(j) The term ``Related QPAM'' means any current or future
``qualified professional asset manager'' (as defined in Section VI(a)
of PTE 84-14) that relies on the relief provided by PTE 84-14, and with
respect to which UBS owns a direct or indirect five (5) percent or more
interest, but with respect to which a Misconduct Entity is not an
``affiliate'' (as defined in section VI(d)(1) of PTE 84-14). The term
``Related QPAM'' excludes a Misconduct Entity.
(k) The term ``best knowledge,'' ``to the best of one's
knowledge,'' ``best knowledge at that time,'' and other similar ``best
knowledge'' terms shall include matters that are known to the
[[Page 3942]]
applicable individual or should be known to such individual upon the
exercise of such individual's due diligence required under the
circumstances, and, with respect to an entity other than a natural
person, such term includes matters that are known to the directors and
officers of the entity or should be known to such individuals upon the
exercise of such individuals' due diligence required under the
circumstances.
(l) The term ``UBS Seconded Employee'' means, an individual
nominally employed by a Misconduct Entity who performs work on behalf
of a UBS QPAM; provided that such UBS QPAM is solely responsible for
the management and control of the employee's job activities performed
on behalf of such QPAM. Notwithstanding the preceding sentence, the UBS
QPAM must be solely responsible for the establishment of the employee's
job duties and terms of employment (including compensation, promotions,
and benefits); and must have supervisory responsibility with respect
to, among other things, the employee's performance, training, and
disciplinary actions.
(m) The term ``UBS QPAMs'' means, individually or collectively, the
Affiliated QPAMs and/or the Related QPAMs.
(n) The ``conduct'' of any person or entity that is the ``subject
of'' the Criminal Activity encompasses any misconduct of CSAG, CSSEL,
UBS, UBS France (later merged with UBS Europe), UBS Securities Japan,
and/or their personnel: (i) that is described in Exhibit 3 to the Plea
Agreement entered into between UBS and the Department of Justice
Criminal Division, on May 20, 2015, in connection with case number
3:15-cr-00076-RNC; (ii) that is described in Exhibits 3 and 4 to the
Plea Agreement entered into between UBS Securities Japan and the
Department of Justice Criminal Division, on December 19, 2012, in
connection with case number 3:12-cr-00268-RNC; (iii) that is described
in Exhibit 1 of the Plea Agreement (Factual Basis for Breach) entered
into between UBS and the Department of Justice Criminal Division, on
May 20, 2015, in connection with Case Number 3:15-cr-00076-RNC filed in
the US District Court for the District of Connecticut; (iv) that is the
basis of the 2019 UBS France Conviction; and (v) that is the subject of
the 2014 CSAG Conviction and the 2022 CSSEL Conviction described in
Section I(c)(1) and (c)(2).
(o) The term ``participate in'' when used to describe an individual
or entity's participation in the Criminal Activity refers not only to
active participation in the Criminal Activity but also includes an
individual or entity's knowledge or approval of the Criminal Activity,
without taking active steps to prohibit such conduct, such as reporting
the conduct to the individual's supervisors, and to the Board of
Directors.
Section II. Covered Transactions
(a) UBS QPAMs are not precluded from relying on the exemptive
relief provided by Prohibited Transaction Exemption 84-14 (PTE 84-14)
\46\ during the Exemption Period, notwithstanding the ``Covered
Convictions,'' provided that the definitions in Section I and the
conditions in Section III are satisfied.
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\46\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), as
amended at 75 FR 38837 (July 6, 2010), and as amended at 89 FR 23090
(April 3, 2024).
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(b) UBS QPAMS are not precluded from relying on the exemptive
relief provided by PTE 84-14 during the period from June 12, 2023, to
June 11, 2024, notwithstanding UBS's failure to comply with Section
III(j)(1) of PTE 2023-14.
Section III. Conditions
(a) The UBS QPAMs (including their officers, directors, agents
other than the Misconduct Entities, employees of such QPAMs, and UBS
Seconded Employees) did not know nor have reason to know of and did not
participate in the conduct underlying the Criminal Activity. Further,
any other party engaged on behalf of the UBS QPAMs who had
responsibility for, or exercised authority in connection with, the
management of plan assets did not know or have reason to know of and
did not participate in the criminal conduct underlying the Criminal
Activity.
(b) The UBS QPAMs (including their officers, directors, agents
other than the Misconduct Entities, employees of such QPAMs, and UBS
Seconded Employees) did not receive direct compensation, or knowingly
receive indirect compensation, in connection with the criminal conduct
that is the subject of the Criminal Activity. Further, any other party
engaged on behalf of the UBS 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 Criminal Activity.
(c) The Affiliated QPAMs do not currently and will not in the
future employ or knowingly engage any of the individuals who
participated in the criminal conduct underlying the Criminal Activity.
(d) At all times during the Exemption Period, no 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 Affiliated QPAM with respect to one or
more Covered Plans, to enter into any transaction with a Misconduct
Entity or to engage a Misconduct Entity 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. An Affiliated QPAM will not fail this condition
solely because:
(1) A UBS (or successor) affiliate serves as a local sub-custodian
that is selected by an unaffiliated global custodian that, in turn, is
selected by someone other than a UBS QPAM; or
(2) Services are provided by UBS Seconded Employees.
(e) Any failure of an Affiliated QPAM to satisfy Section I(g) of
PTE 84-14 arose solely from the Covered Convictions.
(f) A UBS 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 further the criminal conduct underlying the Criminal
Activity; or cause the UBS QPAM or its affiliates to directly or
indirectly profit from the criminal conduct underlying the Criminal
Activity.
(g) No Misconduct Entity will 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, except that each
may act as such a fiduciary with respect to employee benefit plans
sponsored for its own employees or employees of an affiliate. No
Misconduct Entity will be treated as violating the conditions of the
exemption solely because it 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) Each Affiliated QPAM must maintain, adjust (to the extent
necessary), implement, and follow the written policies and procedures
described below (Policies). The Policies must require and must be
reasonably designed to ensure that:
(i) The asset management decisions of the QPAM are conducted
independently of the corporate and management and
[[Page 3943]]
business activities of each Misconduct Entity, and without considering
any fee a related local sub-custodian may receive from those decisions.
This condition does not preclude an Affiliated QPAM, as defined in
Section I(b)(1), from receiving publicly available research and other
widely available information from a UBS affiliate;
(ii) The QPAM fully complies with ERISA's fiduciary duties, and
with ERISA and the Code's prohibited transaction provisions, in each
case 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 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 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 that time;
(v) To the best of its knowledge at that time, the 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; and
(vi) The QPAM complies with the terms of this exemption;
(2) Any violation of or failure to comply with an item in
subparagraphs (h)(1)(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. This report must be made to the head of compliance and the
general counsel (or their functional equivalent) of the relevant UBS
QPAM that engaged in the violation or failure and the independent
auditor responsible for reviewing compliance with the Policies. A 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 QPAM reasonably should have known of the
noncompliance (whichever is earlier), and provided that it adheres to
the reporting requirements set forth in this subparagraph (2);
(3) Each Affiliated QPAM must maintain, adjust (to the extent
necessary), and implement or continue a program of training during the
Exemption Period (the Training) that is conducted at least annually for
all relevant Affiliated QPAM asset/portfolio management, trading,
legal, compliance, and internal audit personnel.\47\ The Training must:
---------------------------------------------------------------------------
\47\ The exemption does not preclude an Affiliated QPAM from
maintaining separate training programs provided each training
program complies with this exemption.
---------------------------------------------------------------------------
(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 the requirement for prompt reporting of
any wrongdoing;
(ii) Be conducted by a professional who has been prudently selected
and who has appropriate technical training and proficiency with ERISA
and the Code to perform the tasks required by this exemption; and
(iii) Be conducted in-person, electronically, or via a website.
(i)(1) Each Affiliated QPAM submits to an audit conducted by an
independent auditor, who has been prudently selected and who has
appropriate technical training and proficiency with ERISA and the Code,
to evaluate the adequacy of, and each Affiliated QPAM's compliance
with, the Policies and Training described above in Section (h). The
audit requirement must be incorporated in the Policies.
(2) UBS shall provide the Department a copy of the engagement
agreement with the independent auditor within 15 days after its
execution. Within 45 days after executing the engagement agreement with
the independent auditor, and after consultation with the auditor, UBS
must finalize and provide to the independent auditor a schedule for
completion of the audit. The schedule must include target dates for the
auditor to send initial information and document requests to UBS and
for UBS to respond to those requests. The Department's receipt and
incorporation of the engagement agreement into the record, with or
without comment, should not be taken as an indication that the
Department has approved of the engagement agreement.
(3) The initial audit under this exemption must cover the period
that begins on June 12, 2024, and ends on June 11, 2025, and the audit
must be completed by Thursday, December 11, 2025. The second audit must
cover the period that begins on June 12, 2025, and ends on June 11,
2026, and must be completed by Friday, December 11, 2026. The third
audit must cover the period that begins on June 12, 2026, and ends on
June 11, 2027, and must be completed by Monday, December 13, 2027. The
fourth audit must cover the period that begins on June 12, 2027, and
ends on June 11, 2028, and must be completed by Monday, December 11,
2028. The fifth audit must cover the period that begins on June 12,
2028, and ends on June 11, 2029, and must be completed by Tuesday,
December 11, 2029. Notwithstanding the audit periods described above,
the audit required under PTE 2023-14 must be completed for the prior
period of June 12, 2023, through June 11, 2024 and delivered to the
Department in accordance with the terms of that exemption. The prior
exemption audit report(s) must be submitted in accordance with section
III(i)(9) below;
(4) 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, and only to the extent such
disclosure is not prevented by state or federal statute, or involves
communications subject to attorney-client privilege, each Affiliated
QPAM and, if applicable, UBS, must grant the auditor unconditional
access to its business, including, but not limited to: its computer
systems; business records; transactional data; workplace locations;
training materials; and personnel. Such access is limited to
information relevant to the auditor's objectives as specified by the
terms of this exemption;
(5) The auditor's engagement must specifically require the auditor
to annually determine whether each 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;
(6) The auditor's engagement must specifically require the auditor
to test each Affiliated QPAM's operational compliance with the Policies
and Training. In this regard, the auditor must test, for each
Affiliated QPAM, a sample of such Affiliated QPAM's transactions
involving Covered Plans, sufficient in size and nature to afford the
auditor a reasonable basis to determine such Affiliated QPAM's
operational compliance with the Policies and Training;
[[Page 3944]]
(7) For the 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 UBS and the
Affiliated QPAM to which the audit applies that describes the
procedures performed by the auditor in connection with its examination.
The auditor, at its discretion, may issue a single consolidated Audit
Report that covers all the Affiliated QPAMs. The Audit Report must
include the auditor's specific determinations regarding:
(i) The adequacy of each Affiliated QPAM's Policies and Training;
each Affiliated QPAM's compliance with the Policies and Training; the
need, if any, to strengthen such Policies and Training; and any
instance of the respective Affiliated QPAM's noncompliance with the
written Policies and Training described in Section III(h) above. The
Affiliated QPAM must promptly address any noncompliance and prepare a
written plan of action to address any determination as to the adequacy
of the Policies and Training and the auditor's recommendations (if any)
with respect to strengthening the Policies and Training of the
respective Affiliated QPAM. Any action taken or the plan of action to
be taken by the respective Affiliated QPAM must be included in an
addendum to the Audit Report (such addendum must be completed prior to
the certification described in Section III(i)(7) below). In the event
such a plan of action 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 an Affiliated QPAM has implemented,
maintained, and followed sufficient Policies and Training must not be
based solely or in substantial part on an absence of evidence
indicating noncompliance. In this last regard, any finding that an
Affiliated QPAM has complied with the requirements under this
subparagraph must be based on evidence that each Affiliated QPAM has
implemented, maintained, and followed the Policies and Training
required by this exemption. Furthermore, the auditor must not solely
rely on the Exemption Report created by the Compliance Officers, as
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 Exemption Review described in Section
III(m);
(8) The auditor must notify the respective 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;
(9) With respect to the Audit Report, the General Counsel, or one
of the three most senior executive officers of the Affiliated QPAM to
which the Audit Report applies, must certify in writing, under penalty
of perjury, that the officer has reviewed the Audit Report and this
exemption; that, to the best of such officer's knowledge at the time,
such Affiliated QPAM has addressed, corrected, and remedied any
noncompliance and inadequacy or has an appropriate written plan to
address any inadequacy regarding the Policies and Training identified
in the Audit Report. Such certification must also include the
signatory's determination that, to the best of such officer's knowledge
at the time, the Policies and Training in effect at the time of signing
are adequate to ensure compliance with the conditions of this exemption
and with the applicable provisions of ERISA and the Code;
(10) The Risk Committee of UBS's Group AG's Board of Directors is
provided a copy of the Audit Report; and a senior executive officer of
UBS Group AG's Compliance and Operational Risk Control function must
review the Audit Report for each Affiliated QPAM and must certify in
writing, under penalty of perjury, that such officer has reviewed the
Audit Report;
(11) Each Affiliated QPAM provides its certified Audit Report, by
regular mail to: Office of Exemption Determinations (OED), 200
Constitution Avenue NW, Washington, DC 20001; or via email to e-
<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="a4ebe1e0e4c0cbc88ac3cbd2">[email protected]</a>. This delivery must take place no later than 45 days
following completion of the Audit Report. The Audit Reports will be
made part of the public record regarding this exemption. Furthermore,
each Affiliated QPAM must make its Audit Reports unconditionally
available, electronically or otherwise, for examination upon request by
any duly authorized employee or representative of the Department, other
relevant regulators, and any fiduciary of a Covered Plan;
(12) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and used in
connection with the audit, provided such access and inspection is
otherwise permitted by law;
(13) UBS must notify the Department of Labor's Office of Exemption
Determinations (OED) no later than 90 days after the Effective Date of
this exemption, of the auditor selected to complete audits required by
Section III(i)(1) above for the periods covering June 12, 2024, through
June 11, 2029. Any engagement agreement with an auditor to perform the
audit required by this exemption that is entered into subsequent to the
effective date of this exemption must be submitted to OED no later than
two months after the execution of such agreement;
(14) At the Department's request, UBS and the Auditor shall provide
the Department with updates about the progress of the audit. The
Department's requests may be directed to UBS and/or the auditor;
(15) For only the initial audit required by Section III(i)(1) above
for the period covering June 12, 2024, through June 11, 2025, the
auditor must consult with the auditors who performed the audits
required pursuant to PTE 2023-14 for the period of June 12, 2023,
through June 11, 2024, unless such auditor is the same auditor selected
under paragraph 11 of this subsection. UBS must notify OED if for any
reason the consultation required by this paragraph 12 cannot occur and
must provide an explanation for why the consultation cannot occur. Such
consultation may, but need not, occur for subsequent audits; and
(16) UBS must notify the Department of a change in the independent
auditor no later than two months 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 UBS.
(j) As of the effective date of this exemption, with respect to any
arrangement, agreement, or contract between an Affiliated QPAM and a
Covered Plan, the QPAM agrees and warrants to Covered Plans:
(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 QPAM's
[[Page 3945]]
violation of any conditions of this exemption, 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 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 a Conviction covered under this
exemption. The term ``actual losses'' includes, but is not limited to,
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 as a result of a QPAM's inability to rely upon
the relief in PTE 84-14;
(3) Not to require (or otherwise cause) the Covered Plan to waive,
limit, or qualify the liability of the QPAM for violating ERISA or the
Code for engaging in prohibited transactions;
(4) Not to restrict the ability of the Covered Plan to terminate or
withdraw from its arrangement with the QPAM, with respect to any
investment in a separately-managed account or pooled fund subject to
ERISA and managed by such 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 such
arrangement involving investments in pooled funds subject to ERISA
entered into after the 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 such restrictions must be applicable to all such investors and be
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 equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in a like manner to all such investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting liability of the 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 UBS (and
affiliates), or damages arising from acts outside the control of the
Affiliated QPAM; and
(7) Within 120 days after the effective date of this exemption,
each QPAM must provide a notice of its obligations under this Section
III(j) to each Covered Plan. For prospective Covered Plans that enter
into a written asset or investment management agreement with a QPAM on
or after a date that is 120 days after the effective date of this
exemption, the QPAM must agree to its obligations under this Section
III(j) in an updated investment management agreement between the QPAM
and such clients or other written contractual agreement.
Notwithstanding the above, a QPAM will not violate the condition solely
because a Covered Plan refuses to sign an updated investment management
agreement. For new Covered Plans that were provided an investment
management agreement prior to the effective date of this exemption,
returning it within 120 days after the effective date of this
exemption, and that signed investment management agreement requires
amendment to meet the terms of the exemption, the QPAM may provide the
new Covered Plan with amendments that need not be signed with any
documents required by this subsection (j) within ten (10) business days
after receipt of the signed agreement.
(k) Within 60 days after the publication date of the notice of
final exemption in the Federal Register, each Affiliated QPAM provides
notice of the proposed and final exemption as published in the Federal
Register, along with a summary describing the facts that led to the
Covered Convictions (the Summary), which has been submitted to the
Department, and a prominently displayed statement (the Statement) that
the Covered Convictions result in a failure to meet a condition in PTE
84-14, to each sponsor and beneficial owner of a Covered Plan that has
entered into a written asset or investment management agreement with an
Affiliated QPAM, or the sponsor of an investment fund in any case where
an Affiliated QPAM acts as a sub-adviser to the investment fund in
which such ERISA-covered plan and IRA invests. The Summary will be
submitted to OED before it is distributed by each Affiliated QPAM. All
prospective Covered Plan clients that enter into a written asset or
investment management agreement with an Affiliated QPAM after a date
that is 60 days after the effective date of this exemption 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 asset or investment management agreement from the Affiliated
QPAM. The notices may be delivered electronically (including by an
email that has a link to the exemption).
(l) The Affiliated QPAMs 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 Covered Convictions. If,
during the Exemption Period, an entity within UBS's corporate structure
engages in conduct prohibited by Section I(g) of PTE 84-14 (other than
the Covered Convictions), relief in this exemption would terminate
immediately.
(m)(1) Within 60 days after the date of publication of the
exemption, each Affiliated QPAM must designate two senior Compliance
Officers (the Compliance Officers) who will be responsible for
compliance with the Policies and Training requirements described
herein. For purposes of this condition (m), each relevant line of
business within an Affiliated QPAM may designate its own two Compliance
Officers. Notwithstanding the above, the appointed Compliance Officers
must not be a person who: (i) participated in the criminal conduct
underlying the Criminal Activity, or knew of, or (ii) had reason to
know of, the Criminal Activity without taking active documented steps
to stop the misconduct.
(2) The Compliance Officers 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.\48\
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\48\ Pursuant to PTE 2023-14, the Compliance Officer also must
conduct and complete an exemption review within three months of June
11, 2024.
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(3) With respect to the Compliance Officers, the following
conditions must be met:
(i) Each Compliance Officer must be a professional who has
extensive experience with, and knowledge of, the regulation of
financial services and
[[Page 3946]]
products, including under ERISA and the Code;
(ii) Each Compliance Officer must have a direct reporting line to
the highest-ranking corporate officer in charge of compliance for the
applicable Affiliated QPAM or the highest-ranking corporate officer in
charge of the applicable Affiliated QPAM and
(iii) The Compliance Officers responsible for the Exemption Review
must provide the Exemption Report described in Section III(m)(4)(ii)
below to the Auditor within seven (7) days of completing the report.
(4) With respect to the Exemption Review, the following conditions
must be met:
(i) The Annual Exemption Review includes a review of the Affiliated
QPAM's compliance with and effectiveness of the Policies and Training
and of the following: any compliance matter related to the Policies or
Training that was identified by, or reported to, the Compliance
Officers or others within the compliance and risk control function (or
its equivalent) during the time period; the most recent Audit Report
issued pursuant to this exemption or PTE 2023-14; any material change
in the relevant business activities of the Affiliated QPAMs; and 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 Affiliated QPAMs;
(ii) The Compliance Officers must prepare a written report for the
Exemption Review (an Exemption Report) that (A) summarizes their
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, each Compliance Officer must certify
in writing that to the best of his or her knowledge at the time: (A)
the report is accurate; (B) the Policies and Training are working in a
manner which 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 correction taken
to date have been identified in the Exemption Report; and (D) the
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 UBS and to each Affiliated QPAM to which such report
relates, and to the head of compliance and the general counsel (or
their functional equivalent) of UBS, and the relevant Affiliated QPAM.
The Exemption Report must be made unconditionally available to the
independent auditor described in Section III(i) above; and
(v) The Exemption Review, including the Compliance Officers'
written Annual Exemption Report, must cover the Exemption Period, and
the Annual Review, including the Compliance Officers' written Report,
must be completed within three (3) months following the end of the
period to which it relates.
(n) UBS imposes its internal procedures, controls, and protocols on
each Misconduct Entity to reduce the likelihood of any recurrence of
conduct that is the subject of the Criminal Activity.
(o) Relief in this exemption will terminate on the date that is one
year following the date that a U.S. regulatory authority makes a final
decision that UBS or CSAG or an affiliate of either failed to comply in
all material respects with any requirement imposed by such regulatory
authority in connection with the Covered Convictions.
(p) Each Affiliated QPAM will maintain records necessary to
demonstrate that the conditions of this exemption have been met for six
(6) years following the date of any transaction for which the
Affiliated QPAM relies upon the relief in this exemption.
(q) During the Exemption Period, UBS must: (1) immediately disclose
to the Department any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) with the U.S. Department of Justice,
entered into by UBS or any of its affiliates (as defined in Section
VI(d) of PTE 84-14) in connection with conduct described in Section
I(g) of PTE 84-14 or section 411 of ERISA via email addressed to e-
<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="68272d2c280c0704460f071e">[email protected]</a>; and (2) immediately provide the Department with any
information requested by the Department, as permitted by law, regarding
the agreement and/or conduct and allegations that led to the agreement
via email addressed to <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="7411593b313034101b185a131b02">[email protected]</a>.
(r) Within 60 days after the effective date of this exemption, each
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 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 six (6)
months following the end of the calendar year during which the Policies
were changed.\49\ 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.
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\49\ If the UBS 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.
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(s) An Affiliated QPAM will not fail to meet the terms of this
exemption solely because a different Affiliated QPAM fails to satisfy a
condition for relief described in Section III(c), (d), (h), (i), (j),
(k), (l), (m), (p), (r), or (t); 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)(12),
provided that such failure did not result from any actions or inactions
of UBS or its affiliates;
(t) If the independent auditor or UBS or its affiliates learns of
any material noncompliance with a condition of this exemption, UBS must
send a notice (a ``Violation Notice'') to all affected Covered Plans
and the Department that prominently and conspicuously states or
describes: (1) that UBS, or the UBS QPAM, as applicable, failed to meet
the terms of this exemption (and describes the failure); (2) the extent
to which UBS QPAMs have potentially been operating without an exemption
due to the failure; (3) whether UBS plans to apply for retroactive
relief from the Department for this failed condition; (4) any further
transactions engaged in by the UBS QPAMs on behalf of Covered Plans
that may be non-exempt prohibited transactions unless the Department
grants retroactive relief for the period in which the transactions
occurred; and (5) UBS must indemnify and hold harmless the Covered Plan
for any actual losses resulting directly from the QPAM's failure to
comply with any conditions of this exemption, ERISA's fiduciary duties
and of the prohibited transaction provisions of ERISA and the Code, a
[[Page 3947]]
breach of contract by the QPAM, or any claim arising out of the failure
of such QPAM to qualify for the exemptive relief provided by PTE 84-14
as a result of a violation of PTE 84-14 Section I(g), other than a
Conviction covered under the exemption. The Violation Notice must be
sent to all affected Covered Plans and the Department within 30 days
after the independent auditor becomes aware of the violation. If the
Violation Notice is not sent within the 30-day period, the UBS QPAM may
self-correct the failure by sending the Violation Notice to all
affected Covered Plans and the Department with an addendum describing
the failure within 30 days after the completion of next scheduled
audit.
(u) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate at all
times.
(v) Each UBS QPAM must develop written processes that clearly
describe: (1) how the QPAM identifies and quantifies ``actual losses''
for purposes of Section III(j)(2); and (2) how Covered Plans may
recover or avoid incurring the losses that the UBS QPAM must indemnify
or hold Covered Plans harmless from incurring pursuant to Section
III(j)(2). Each UBS QPAM must develop these processes and deliver a
copy of the processes to each Covered Plan within 90 days after the
date the Department publishes a final exemption in the Federal Register
and notify Covered Plans of any subsequent material changes to the
processes within 30 days of the effective date of such changes.
Applicability Date: This exemption will be in effect for the period
beginning on June 12, 2024 and ending on June 11, 2029, as well as the
period of June 12, 2023, through June 11, 2024.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2025-00812 Filed 1-14-25; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on January 15, 2025.
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.