New PTE Procedures Could Be Coming Soon

Final regulations updating the existing procedures governing the filing and processing of applications for administrative exemptions from the prohibited transaction provisions of ERISA, the Internal Revenue Code and the Federal Employees’ Retirement System could be released soon.

The White House Office of Management and Budget’s (OMB) regulatory review dashboard shows that a final rule updating the prohibited transaction exemption procedures was submitted for review by the Department of Labor’s Employee Benefits Security Administration on Oct. 24.

While we don’t know just yet what’s in the final rule, a summary description explains that the guidance will revise the department’s procedure for granting prohibited transaction exemptions, which was last updated in 2011.

The DOL notes that, while some of the revisions are designed to improve the “readability” of the procedure, the majority reflect changes in its exemption application review processes that have occurred since the department last updated the regulation.

Among other things, the proposed amendment would:

• clarify the types of information and documentation required for a complete application;
• revise the definitions of a qualified independent fiduciary and qualified independent appraiser to ensure their independence;
• clarify the content of specific reports and documents applicants must submit to ensure that the department receives sufficient information to make the requisite findings under ERISA Section 408(a) to issue an exemption;
• update various timing requirements to ensure clarity in the application review process;
• clarify items that are included in the administrative record for an application and when the administrative record is available for public inspection; and
• expand opportunities for applicants to submit information to the department electronically.

Fits and Starts

The proposed amendment has gone through a number of fits and starts since first being proposed in March 2022. After a 30-day comment period that was scheduled to expire on April 14, 2022, the DOL extended the period for an additional 45 days to provide interested parties with a full opportunity to comment. Following a virtual public hearing held by the DOL in September 2022, the comment period reopened in October 2022 after the hearing transcript was posted on EBSA’s website, providing yet another opportunity to comment.

After the proposal was first published in March 2022, the DOL apparently received a number of comment letters that included the argument that the DOL’s proposal would have a “chilling effect” on the PTE process.

One such set of comments, for example, came from the Groom Law Group. The firm noted that it had submitted comments on the proposed rule for other clients and groups of clients, but after careful consideration, felt compelled to take the “unusual step” of writing on its own behalf to express its concerns with the proposed changes to the PTE application process.

“Although we appreciate the Department’s decision to seek public comment on some of its informal policies, we are dismayed by the Department’s efforts to make the PTE application process more difficult, costly, and time consuming,” the Groom attorneys wrote at the time.

The OMB generally has up to 90 days to vet the guidance and either approve it for release or send it back for modifications. Note that there is no minimum period for review.