Clock Is Ticking for Five Banks That Handle Retirement Money

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By Kristen Ricaurte Knebel

Five of the largest U.S. financial firms are up against the clock if they want to continue managing pension and retirement assets.

Deutsche Bank AG, Citigroup Inc., UBS Assets Management, JPMorgan Chase & Co., and Barclays Capital Inc. will all need the Labor Department’s approval by early next year to keep operating as “qualified professional asset managers.” The five banks are major players in the retirement industry, providing services to millions of retirement savers and managing billions of dollars in plan assets.

The Labor Department a year ago granted temporary exemptions allowing the five banks to continue operating as QPAMs, and those waivers are about to run out.

It’s almost a slam dunk that the Labor Department will grant new waivers to the five banks, attorneys interviewed by Bloomberg Law said. If for some reason the department doesn’t, the retirement plan market could be upended because these companies provide services to so many people, the attorneys said.

The decision on whether the DOL should grant these exemptions comes at a time when the Labor Department’s Employee Benefits Security Administration is without a leader. President Donald J. Trump nominated Preston Rutledge to head up the EBSA, but with nominees ahead of him in the queue and tax reform heating up, it’s unclear when his confirmation hearings may come.

If Rutledge is confirmed, his top priority would surely be revising the fiduciary rule, which requires financial advisers to act in their clients’ best interest when advising on retirement savings matters. To compound that, the agency is stretched on resources as it has seen its number of employees drop nearly 4 percent in the past quarter.

The agency hasn’t granted any exemptions for QPAMs in 2017, compared with the seven granted last year.

A DOL spokesperson told Bloomberg Law in an email that EBSA “is aware of the upcoming expiration of the one year exemptions. EBSA will take appropriate action to protect the security of Americans’ retirement assets.”

Barclays, Citigroup, Deutsche Bank, and UBS all declined to comment for the story. JPMorgan didn’t respond to a request for comment.

The QPAM exemption has become a hot-button issue for the DOL in recent years. Lawmakers have criticized the department for rubber-stamping every bank waiver request since at least the 1990s.

A few years ago, Credit Suisse Group AG found itself in hot water when it was convicted of helping thousands of American clients evade taxes. The bank’s ability to continue to manage U.S. pension assets subsequently was called into question, with members of Congress and consumer advocates pushing the DOL to deny the waiver. Credit Suisse was ultimately able to continue managing U.S. pension assets, but not before a public hearing in which the bank and the DOL had their feet held to the fire.

Approval Needed

So how did these five banks end up needing to get Labor Department approval to handle retirement money? Each had a subsidiary that was convicted of a felony, and under the Employee Retirement Income Security Act, that means the DOL has to give the OK for the banks to keep handling retirement money.

If the exemptions aren’t extended before early January, the financial firms won’t be able to operate as QPAMs for another decade, which would strike a heavy blow to the retirement plan market.

“It seems like it’s clear these exemptions will be granted and should be granted in some form. The sooner the better to give greater comfort to all market participants involved,” Steven W. Rabitz, partner with Stroock & Stroock & Lavan LLP in New York, told Bloomberg Law. Rabitz’s practice focuses on fiduciary responsibility, prohibited transactions, and ERISA plan funding rules.

“The impact on the retirement plan services market will be too great not to grant them,” Erin Cho, a partner at Groom Law Group in Washington, told Bloomberg Law. Cho is a part of Groom’s fiduciary responsibility practice group and has experience advising asset managers.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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