DOL to Extend UBS, Credit Suisse 401(k) Asset Management Exemption

The Department of Labor proposed extending exemptions to UBS Group and Credit Suisse Group, allowing them to manage ERISA-governed retirement plan assets after they merge later this month.

The two firms were both relying on temporary exemptions to act as qualified professional asset managers, or QPAMs, necessary due to both companies’ repeated violations of the law. The DOL said in a notice on the Federal Register on May 12 that it intends to apply these exemptions for one year to UBS after it finalizes a merger with Credit Suisse announced in March.

A QPAM is a registered investment adviser that can transact on behalf of a plan governed by the Employee Retirement Income Security Act in respects that would normally be prohibited for “parties in interest.” Because of the heightened need for integrity in managing regulated retirement plan assets, QPAMs can be disqualified for criminal convictions. But the DOL will often grant temporary exemptions, primarily to give plans working with the QPAM an opportunity to find another QPAM, as noted in the ruling.

“The terms of this proposed one-year exemption have been designed to permit plans to terminate their relationships with the Affiliated QPAMs and the Related QPAMs in an orderly and cost-effective fashion in the event of an additional conviction or a determination by a plan that it is otherwise prudent to do so,” the regulator wrote.

If confirmed, the exemption will last for one year from the date of the merger, though the DOL indicated it reserves the right to extend it or consider a new application for UBS if necessary to protect the interests of plans working with UBS in its capacity as a QPAM. Since both firms had an exemption and have not committed any disqualifying behavior while using those exemptions, it made sense to apply them to the post-merger firm as well, the DOL explained.

“Covered plan fiduciaries are strongly cautioned that the Department might not extend this one-year exemption following its expiration due to the significant number of convictions and the seriousness of the underlying conduct of the tainted entities that will now reside together within the UBS corporate umbrella following the merger,” the DOL wrote.

According to the DOL, it was not informed of the merger by either company and actually learned of it from news reports, which UBS later confirmed. UBS formally requested an updated exemption on April 17, according to the DOL. The stock sale which will formalize the merger is expected to take place on May 31, the DOL said.

Brad Fay, a member of Seward and Kissel’s ERISA and executive compensation group, explains that the exemptions that businesses receive from DOL require the firm and its affiliates not commit any new crimes. Since the two are merging, neither of their respective exemptions cover the other entity, now an affiliate. The exemption must be updated so that the crimes of the affiliate are not counted as “new.”

The DOL emphasized that this exemption is intended to protect plans from the consequences of an immediate disqualification of UBS, including the costs of finding a new QPAM and negotiating a new contract.

The convictions outlined against UBS and Credit Suisse in the DOL proposal included wire fraud, tax fraud, money laundering and currency manipulation. Credit Suisse assisted U.S. individuals in dodging taxes “for decades,” according to the DOL.

David Levine, a partner at Groom Law Group, explains that many financial institutions are massive and consolidated businesses with many divisions. If one division in a business breaks the law, it isn’t necessarily a threat to plans if personnel that handle retirement plans can continue their work as a QPAM, since they were not involved in the criminality. Levine underlines that one troublesome part of a business should not sink another just because they are under the same corporate umbrella.

Fay adds that the DOL recognizes that one large firm can have many pension plan clients, and disqualifying an entire bank immediately can have “historic ripple effects in the retirement industry.”

The firms’ merger was spearheaded in March by the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority, FINMA. The parties said they made the move to protect the “Swiss economy as a whole” due to threat of the Credit Suisse collapsing.