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CCH® PENSION — 06/28/10

EBSA proposes amendment to class exemption for transactions involving in-house asset managers

The Employee Benefits Security Administration (EBSA) has issued a proposed amendment to PT Class Exemption 96-23, which allows in-house asset managers (INHAMs) to engage in a variety of transactions with parties in interest, provided that the conditions of the exemption are met. The amendment would be effective as of the date of the publication of a final PT Class Exemption. Written comments on the proposed amendment must be received by August 13, 2010.

PTE Class Exemption 96-23 allows the portion of a plan managed by an INHAM to engage in transactions prohibited by ERISA §406(a)(1)(A) - (D) (sales, loans, provision of services, and transfers) with most party in interest service providers, except the INHAM or a party related to the INHAM. The exemption enables a plan to lease commercial and office space to the employer.

Definition of INHAM

EBSA is proposing to amend several provisions of the Class Exemption, including the definition of INHAM. The requirement in the Class Exemption that an INHAM be a wholly owned subsidiary of an employer or its parent organization unduly limited some entities from serving as INHAMs, according to EBSA. Accordingly, EBSA proposes to expand the definition of INHAM to include a subsidiary that is 80% or more owned by the employer or parent company. Additionally, the plan assets under management requirement would be increased from $50 million to $85 million, effective as of the last day of the first fiscal year beginning on or after the date of publication in the Federal Register of the final amendment to this exemption. The increase reflects the change in the Consumer Price Index.

Permitted counterparties

The proposed amendment would ease the restrictions on parties in interest to engage in transactions with the plan if the parties are "co-joint venturers." Under the amendment, a co-joint venturer may engage in a transaction with a plan only if the joint venture relationship is the entity's sole relationship to the employer, or if the entity is both a joint venturer and a service provider or an entity with a relationship to a service provider.

Related parties

The party in interest dealing with the plan may not be the INHAM nor a person related to the INHAM. PTE 96-23 currently provides that an INHAM is related to a party in interest if the party owns a 5% or more interest in the INHAM or if the INHAM (or a person controlling, or controlled by, the INHAM) owns a 5% or more interest in the party in interest. EBSA proposes to increase the 5% threshold to 10%.

To ease compliance burdens, ownership interests would be required to be calculated only as of the last day of the entity's most recent calendar quarter. In addition, ownership interests held in a fiduciary capacity would not have to be considered in applying the percentage limitation.

Exemption audits

PTE 96-23 currently requires an auditor to test a representative sample of a plan's transactions covered by the exemption in order to make findings regarding whether the INHAM is in compliance with the INHAM's policies and procedures, and with the requirements of the exemption. EBSA notes that practitioner uncertainty exists regarding certain aspects of the exemption audit and, accordingly, it is proposing to amend the class exemption to provide clarity to those provisions.

Leasing of office and commercial space

In addition, the proposed amendment would expand the relief provided by PTE 96-23 relating to the leasing of office or commercial space owned by a plan managed by an INHAM to an employer with respect to the plan or an affiliate of the employer. Under the proposed amendment, the relief would be expanded to include additional situations involving existing leases with an employer or an affiliate beyond foreclosure situations, provided that the decision to acquire the office or commercial space subject to the lease is made by the INHAM.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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