What Is PTE 96-23 for a 401(k) Plan?

PTE 96-23 is the class exemption built for large employers that manage retirement-plan assets through their own affiliated professional investment organization. It is not a lighter version of QPAM relief. The exemption substitutes a different control system: a qualifying in-house asset manager must actually control the plan assets and transaction, the counterparty must fit a defined relationship category without controlling or advising those assets, the economics must be arm's length, written compliance procedures are mandatory, and an independent auditor must test the program every year.^[1][2][3]

That architecture matters.

An employer cannot create an internal investment committee, call it an INHAM and begin trading with related parties.

PTE 96-23 is designed for a professional in-house investment operation with scale, regulatory status and independent compliance testing.

Why Does an In-House Manager Need a Special Exemption?

A large employer may have enough retirement assets to justify its own investment organization.

Instead of hiring an outside manager for every mandate, the employer can maintain:

• investment staff
• portfolio managers
• traders
• real-estate professionals
• risk personnel
• operations teams.

That can improve:

• institutional knowledge
• speed
• fee control
• integration across pension and savings plans.

It also creates a structural ERISA problem.

The manager is inside the employer's corporate family.

The plans it manages are sponsored by that same organization.

Transactions with:

• plan service providers
• banks
• consultants
• landlords
• vendors
• joint-venture partners

can create Section 406 party-in-interest restrictions.^[5][8]

PTE 96-23 is DOL's class-exemption framework for that in-house model.

INHAM and QPAM Solve Similar Problems From Opposite Directions

PTE 84-14 assumes a plan delegates transaction authority to an independent qualified professional asset manager.^[10]

PTE 96-23 assumes the employer deliberately keeps the investment function inside its organization.^[1][2]

That changes the protection.

QPAM

Independence from the plan sponsor is a central premise.

INHAM

Sponsor affiliation is expected.

Protection comes instead from:

• institutional scale
• registered-adviser status
• actual investment discretion
• transaction controls
• counterparty limitations
• written compliance procedures
• independent annual audit.

The exemptions should not be treated as interchangeable acronyms.

An Ordinary 401(k) Committee Is Not an INHAM

A typical investment committee may decide:

• which mutual funds appear on the lineup
• whether to add a target-date series
• which recordkeeper to hire.

That does not make the committee an in-house asset manager under PTE 96-23.

The exemption defines INHAM status through a specific organization, ownership structure, adviser registration and asset thresholds.^[2]

The practical target is a large institutional investment office.

Not a benefits committee meeting quarterly with a consultant.

The INHAM Must Fit One of Two Organizational Structures

Section IV(a) begins with ownership and governance.^[2]

The organization must be either:

80%-owned subsidiary route

A direct or indirect subsidiary that is at least:

80% owned

by:

• the employer, or
• a parent organization of the employer.^[2]

Membership nonprofit route

A membership nonprofit corporation where a majority of the members are:

• officers
• directors

of the employer or parent organization.^[2]

Both structures keep the manager clearly inside the sponsor organization.

That is intentional.

The 2011 Amendment Expanded the Subsidiary Route

The original exemption was narrower.

DOL's 2011 amendment broadened INHAM eligibility by making clear that a qualifying subsidiary can be:

directly or indirectly

80%-or-more owned by the employer or its parent organization.^[2][3]

That helps corporate groups where the internal investment adviser sits several entities below the public parent.

Legal ownership still needs to be traced.

A company name containing the employer's brand is not proof of the 80% test.

The Manager Must Be a Registered Investment Adviser

The INHAM must be registered under the Investment Advisers Act of 1940.^[2][9]

That requirement separates:

internal finance staff

from:

a professional fiduciary investment organization.

Registration brings a separate federal regulatory framework involving:

• adviser obligations
• books and records
• compliance
• regulatory examination.

PTE 96-23 does not rely solely on ERISA status.

It requires a regulated investment-adviser structure.

The Manager Must Control More Than $85 Million of Affiliated-Plan Assets

The 2011 amendment raised the managed-asset threshold.

The operative figure is:

more than $85 million

of assets attributable to plans maintained by INHAM affiliates and under the manager's management and control as of the relevant fiscal-year measurement date.^[2][3]

This is not:

the employer has $85 million in its 401(k).

The assets must be under the INHAM's management and control.

The Plan Group Must Also Have at Least $250 Million

There is a second scale test.

Plans maintained by:

• affiliates of the INHAM
• the INHAM itself

must have, in aggregate:

at least $250 million

in assets as of the last day of each plan's reporting year.^[2]

That means the exemption uses two different numbers for two different purposes.

Confusing them can create false qualification.

Example: $300 Million Plan Group, $90 Million Managed Internally

Employer group maintains:

• 401(k): $220 million
• pension plan: $80 million.

Aggregate:

$300 million.

Internal SEC-registered adviser manages:

$90 million.

Both numerical gates can be satisfied:

• $90M > $85M
• $300M ≥ $250M.

The organizational, transaction and audit conditions still need to be met.

Change the Internal Mandate to $70 Million

Same employer.

Same $300 million plan group.

Internal adviser manages only:

$70 million.

The plan-group threshold is satisfied.

The INHAM managed-asset threshold is not.

A large plan does not automatically create a qualifying INHAM.

The Exemption Covers Affiliated Plans, Not Outside Clients

The amended Federal Register notice states that the exemption applies to plans maintained by:

• the INHAM
• affiliates of the INHAM.^[2]

It does not provide INHAM relief merely because the internal manager also has discretion over an unrelated employer's plan.

That boundary makes sense.

The exemption is designed around an employer maintaining an affiliated professional manager for its own plan family.

An external-client business changes the premise.

Affiliate Status Uses a Special Control Definition

For the relevant INHAM and plan definitions, affiliate status draws on Code Sections 414(b) and 414(c) controlled-group concepts, but the exemption substitutes:

50%

for the ordinary 80% figure in those rules.^[2]

That produces a broader affiliated-plan group than a casual corporate-chart review may suggest.

An eligibility memo should therefore identify:

• direct owners
• indirect owners
• controlled trades or businesses
• relevant ownership percentages.

Do not assume tax or financial-consolidation labels answer the PTE definition automatically.

The INHAM Must Actually Control the Assets Involved

Part I requires the INHAM to have:

discretionary authority or control

over the plan assets involved in the transaction.^[2]

This is the operational center of the exemption.

The internal manager cannot be:

• ceremonial reviewer
• documentation channel
• compliance signoff after the employer decided the deal.

The INHAM must be the fiduciary investment decision maker for those assets.

The INHAM Must Control the Negotiation Process Too

Section I(a) requires the transaction terms to be negotiated:

• by the INHAM, or
• under its authority and general direction.^[2]

That prevents a sponsor business unit from agreeing to commercial terms first and transferring the nearly completed deal to the plan manager.

A fiduciary cannot independently negotiate a transaction whose economics have already been fixed by someone with a corporate objective.

Example: The Rubber-Stamp Transaction

Employer treasury negotiates with Bank B:

• $40 million private note
• 7-year maturity
• 6.25% coupon
• covenants
• closing date.

After commercial agreement, treasury asks the INHAM:

"Can the plan fund $20 million of this?"

The internal manager reviews the terms and says yes.

That is not the clean PTE 96-23 model.

The transaction was substantially shaped before the plan fiduciary controlled the negotiation.

Calling the last review:

INHAM approval

does not recreate independence after the economics are fixed.

A Property Manager Can Act Under Written Guidelines

The exemption recognizes that real-estate portfolios need local specialists.

A property manager can make a transaction decision if:

• it acts under written guidelines established and administered by the INHAM
• the INHAM retains full fiduciary responsibility.^[2]

The INHAM can delegate execution or property-level judgment.

It cannot delegate away the fiduciary architecture supporting the exemption.

Written Property Guidelines Should Be Operational

Useful guidelines can define:

• permitted lease terms
• market-rent evidence
• tenant credit requirements
• capital expenditures
• renewal authority
• escalation clauses
• prohibited counterparties
• dollar limits
• approval escalation.

A document saying:

"property manager shall act prudently"

is too abstract to demonstrate controlled delegated authority.

The $5 Million Rule Allows a Limited Sponsor Approval or Veto Right

PTE 96-23 contains a notable exception to pure INHAM control.^[2]

A transaction of:

$5 million or more

that has been negotiated on behalf of the plan by the INHAM does not fail Section I(a) solely because the plan sponsor or its designee retains the right to:

• approve
• veto

the transaction.^[2]

The sequence matters.

INHAM negotiates → sponsor may approve or veto.

Not:

sponsor negotiates → INHAM blesses.

Why Does the Rule Start at $5 Million?

The exemption recognizes that large transactions can carry:

• corporate reputational risk
• liquidity consequences
• balance-sheet implications
• governance significance.

A sponsor may reasonably want a final institutional approval right for a major deal.

DOL preserved that governance role without allowing the sponsor to displace the fiduciary negotiation process.

The threshold protects sponsor governance.

It does not create sponsor investment discretion over smaller trades.

Example: $12 Million Real-Estate Purchase

INHAM:

• sources property
• negotiates purchase price
• evaluates financing
• performs diligence
• recommends acquisition.

Corporate investment oversight committee retains final veto authority.

Transaction value:

$12 million.

The sponsor veto does not by itself destroy Section I(a) if the INHAM actually negotiated the transaction and the other conditions are satisfied.^[2]

Change the Value to $4 Million

Same structure.

Transaction value:

$4 million.

Now the specific $5-million-or-more language does not apply.

The sponsor cannot simply assume the same veto arrangement is protected.

The compliance process should recognize the threshold before governance rights are embedded in the transaction.

Part I Excludes Three Specialized Transaction Classes

PTE 96-23's general relief does not apply to a transaction described in:

1. PTE 2006-16 — securities lending
2. PTE 83-1 — mortgage-pool acquisitions
3. PTE 88-59 — specified mortgage-financing arrangements.^[2][11][12]

This is deliberate.

DOL had created specialized safeguards for those transactions.

The broad in-house-manager exemption is not meant to displace them.

Securities Lending Does Not Become INHAM Relief

INV-149 explains the securities-lending architecture.

Suppose the internal manager lends plan-owned securities to a bank that is a party in interest.

Even if:

• INHAM is qualified
• trade is market rate
• borrower is approved
• collateral is adequate

PTE 96-23 Part I is not the relevant class exemption if the transaction is described in PTE 2006-16.^[2][12]

Use the specialized exemption.

Mortgage Pools Have the Same Boundary

INV-158 covers PTE 83-1.

A plan cannot say:

"Our INHAM chose the residential mortgage pool, so we do not need the PTE 83-1 conditions."

Part I expressly excludes transactions described in that mortgage-pool exemption.^[2][11]

Specialized collateral, certificate and conflict protections remain relevant.

The Anti-Benefit Rule Stops Sponsor-Driven Favoritism

Section I(c) prohibits a transaction that is part of an:

agreement, arrangement or understanding designed to benefit a party in interest.^[2]

This condition is separate from price.

Suppose a transaction is technically at market value.

If the reason the plan enters it is to:

• provide liquidity to a sponsor vendor
• rescue a service provider
• favor a relationship bank
• support an employer joint venture

the anti-benefit rule can fail.

Fair price does not cure improper purpose.

Example: Market-Rate Rescue Loan

Service Provider S has a cash-flow crisis.

It provides major services to the plan.

Sponsor wants to keep S alive.

INHAM causes plan to make a:

$25 million loan

at a rate comparable with private-credit market terms.

The coupon may be fair.

If the transaction was arranged to benefit S because of its relationship to the sponsor or plan, the exemption can still fail.

Purpose matters.

Terms Must Be At Least as Favorable as an Unrelated Deal

Section I(d) requires plan terms to be at least as favorable as those generally available in arm's-length transactions between unrelated parties.^[2]

That test applies:

• when transaction is entered
• at a renewal or modification requiring INHAM consent.^[2]

The comparison should be transaction specific.

Credit

• spread
• fees
• covenants
• collateral
• maturity.

Real estate

• price
• cap rate
• rent
• concessions
• appraisal.

Service contract

• scope
• fee
• termination
• service levels.

INHAM status does not reduce the economic benchmark.

Not Every Party in Interest Is an Eligible Part I Counterparty

Section I(e) defines permitted counterparty status carefully.^[2]

A person can fit because it is a party in interest solely through:

• providing services to the plan
• specified relationships to a service provider.

The 2011 amendment also broadened a second path involving a person who is:

a 10%-or-more shareholder, partner or joint venturer

in a company that is at least:

50% owned

by the employer or its parent, subject to the control limitations in the exemption.^[2][3]

This is more nuanced than:

any related business partner qualifies.

The Co-Joint-Venturer Rule Has a Narrow Logic

Imagine Employer E owns:

60%

of Real Estate JV Company.

Investor J owns:

40%.

Investor J can become a party in interest because of that joint-venture relationship.

The 2011 amendment permits certain transactions where that co-joint-venturer status is the relevant relationship, assuming the other conditions are met.^[2][3]

But Investor J cannot be:

• controlled by Employer E
• controlling Employer E
• under common control with Employer E

under the exemption's specified route.^[2]

The point is to permit an outside joint-venture partner.

Not another entity inside the employer group.

A Counterparty Cannot Control the Plan Assets Involved

Even when the counterparty fits the service-provider or joint-venture status, it cannot have:

• discretionary authority
• discretionary control

over the plan assets involved in the transaction.^[2]

It also cannot render investment advice with respect to those assets under the exemption's referenced rule.^[2]

That preserves one decision center:

the INHAM.

A second conflicted fiduciary cannot sit on the other side while also influencing the same assets.

Example: Custodian vs. Discretionary Manager

Bank C is the plan custodian.

It has no investment discretion over the private-credit sleeve controlled by the INHAM.

A transaction with Bank C may fit the permitted service-provider counterparty route if all other conditions are satisfied.

Change the facts.

Bank C also has discretionary authority to allocate the same private-credit assets.

Now the counterparty limitation is a serious obstacle.

Service-provider status does not override investment control.

The INHAM Cannot Be the Counterparty Under Part I

Section I(f) says the party dealing with the plan can be neither:

• the INHAM
• a person related to the INHAM.^[2]

This is a bright structural boundary.

The basic exemption lets the INHAM manage transactions with external parties in interest.

It does not allow the manager to put itself on the other side.

"Related" Uses a 10% Ownership Test

The 2011 amendment raised the threshold from:

5%

to:

10%.^[2][3]

The INHAM is related to the counterparty if, as of the last day of the most recent calendar quarter:

• INHAM or a controlling/controlled person owns at least 10% of the counterparty, or
• counterparty or a controlling/controlled person owns at least 10% of the INHAM.^[2]

Ownership can be measured through:

• voting power or value for corporations
• capital or profits interest for partnerships
• beneficial interest for trusts or unincorporated enterprises.^[2]

Example: 8% vs. 12%

INHAM affiliate owns:

8%

of Counterparty A.

The 10% ownership trigger is not met solely on that percentage.

INHAM affiliate owns:

12%

of Counterparty B.

Counterparty B is related under the ownership test, assuming the other definitional elements apply.

The trade cannot rely on ordinary Part I simply because its price is fair.

The counterparty test comes first.

The Measurement Date Is Quarterly

The related-person ownership snapshot is taken at the applicable quarter-end date.^[2]

That means a compliance system should not rely solely on:

• annual ownership questionnaires
• last year's affiliate map
• static vendor file.

Ownership can change through:

• acquisitions
• financing rounds
• restructurings
• share repurchases
• joint-venture changes.

A stale related-party file can invalidate an otherwise careful transaction review.

Control Is Broader Than Ownership

PTE 96-23 separately defines control as the power to exercise a:

controlling influence

over the management or policies of another person.^[2]

A transaction team should therefore ask two questions:

1. What percentage is owned?
2. Does someone exercise controlling influence despite the percentage?

Ownership thresholds simplify screening.

They do not make control irrelevant.

Written Policies and Procedures Are an Exemption Condition

Section I(g) requires the INHAM to adopt written policies and procedures designed to assure compliance.^[2]

This is not generic compliance language.

Section IV(g) identifies objective requirements the procedures should address, including:

• INHAM qualification
• discretionary authority
• negotiation
• sponsor approval/veto mechanics
• excluded counterparties
• excluded transaction classes
• Part II conditions.^[2]

The document should function like an operating manual.

Not a summary of the Federal Register.

A Useful INHAM Procedure Starts Before the Trade

A strong control sequence can require:

Transaction intake → identify plan and assets → confirm INHAM authority → identify counterparty → test party-in-interest basis → test related-person ownership/control → check excluded PTE 2006-16 / 83-1 / 88-59 transaction classes → identify sponsor approval rights → benchmark economics → anti-benefit review → document negotiation → approval → audit file.

The best time to discover a PTE problem is before economic commitment.

The Annual Exemption Audit Is Not a Financial Statement Audit

PTE 96-23 requires an independent auditor with appropriate:

• technical training or experience
• proficiency with ERISA fiduciary-responsibility provisions

and a written representation of that capability.^[2]

The audit is designed to test:

compliance with the exemption.

It is not merely checking:

• asset balances
• financial statements
• performance returns.

A plan can have clean audited financial statements and still fail PTE 96-23.

What Must the Auditor Do?

Section IV(f) describes the exemption audit.^[2]

The auditor must:

1. review the written policies and procedures for consistency with objective exemption requirements
2. test a sample of INHAM transactions large and varied enough to support specific findings and an overall opinion
3. determine whether the organization satisfied the INHAM definition
4. issue a written report describing procedures performed and findings.^[2]

That is a substantive compliance examination.

Sampling Has to Support an Opinion

The exemption does not prescribe a simple:

10 trades per year

formula.

The sample must be sufficient in:

• size
• nature

to give the auditor a reasonable basis for findings and an overall compliance opinion.^[2]

A useful sample design may consider:

• transaction size
• counterparty type
• asset class
• renewals
• property-manager transactions
• sponsor veto cases
• Part II transactions
• exceptions.

Random sampling alone can miss the highest-risk activity.

The Auditor Must Reach an Overall Opinion

The written report needs more than a list of documents reviewed.

It must provide specific findings about compliance with:

• INHAM policies and procedures
• objective exemption requirements

and an overall opinion regarding the program's compliance.^[2]

That creates real accountability.

A report saying:

"No exceptions came to our attention"

may not satisfy a requirement framed around affirmative findings and an overall opinion without enough work behind it.

The Audit Report Has a Six-Month Deadline

Since the 2011 amendment, the exemption audit and written report must be completed within:

six months after the end of the year to which the audit relates.^[2][3]

Calendar-year example:

Audit period ends:

December 31.

Completion deadline:

June 30.

The deadline is part of the exemption condition.

Not a planning target.

The 2011 Amendment Made Audit Expectations More Explicit

DOL had heard uncertainty about:

• audit scope
• transaction sampling
• written report
• timing.^[2][3]

The amendment clarified the Department's expectations and made the six-month completion rule explicit.

This is one reason current reliance should use the 2011 reprinted text.

A compliance manual copied from the original 1996 notice can be incomplete.

Part II Covers Employer Transactions That Part I Cannot

The basic exemption is not designed for the employer itself as an ordinary counterparty.

Part II supplies narrow relief under Sections 406(a), 406(b)(1), 406(b)(2) and 407(a) for specified leasing transactions involving employers, affiliates and employees.^[2]

Those provisions should be read narrowly.

They are not a general employer-real-estate exemption.

Office or Commercial Lease Relief Begins With a Foreclosure-Type Acquisition

Section II(a) can cover plan-owned office or commercial space leased to the employer or employer affiliate where:

• plan acquires the property subject to an existing lease
• lease was negotiated by a party unrelated to employer or affiliate
• INHAM decides to acquire property
• lease relief lasts through stated lease term and qualifying renewals not requiring plan consent
• employer/affiliate space does not exceed 15% of rentable building or commercial-center space
• specified anti-benefit, procedure and audit conditions are satisfied.^[2]

The acquisition circumstance matters.

This is not permission for employer and plan to create a new sale-leaseback from scratch.

Example: Foreclosed Office Building

Plan holds mortgage on Office Building O.

Borrower defaults.

Plan acquires building through foreclosure.

Employer already leases:

12%

of rentable space under lease negotiated before plan acquired the building by an unrelated owner.

INHAM decides acquiring the property is best for the plan.

The 15% space condition can be satisfied.

Part II(a) can be relevant if the remaining requirements are met.^[2]

Change Employer Occupancy to 22%

Same facts.

Employer occupies:

22%

of rentable space.

The 15% cap is exceeded.

Part II(a) should not be treated as available merely because the plan inherited the lease through foreclosure.

The percentage is an objective condition.

Residential Employee Leases Have Two Space Caps

Section II(b) permits specified residential leases to an employee of:

• employer whose employees are covered by plan
• qualifying employer affiliate.^[2]

The employee must not:

• control the investment assets involved
• render investment advice over those assets
• be an officer
• be a director
• own 10% or more of employer or affiliate.^[2]

Terms must be no less favorable than comparable unrelated leases.

The space limits are:

• one employee: ≤5%
• all employer/affiliate employees combined: ≤10%

of rentable space in the building or specified residential subdivision.^[2]

Example: Apartment Building

Plan owns:

100-unit apartment building.

Assume units are comparable for the percentage illustration.

One employee leases:

4 units worth of rentable-space equivalent — 4%.

All employees combined lease:

9%.

Both caps can fit.

If one executive's leased units represent 6% of rentable space, the individual cap fails even if aggregate employee occupancy remains under 10%.

Public Accommodations Have a Simpler Rule

Part III covers services, facilities and incidental goods furnished by a plan-owned place of public accommodation to a party in interest when offered on a basis comparable to the general public.^[2]

Examples can include:

• hotel
• parking
• recreational facility.

The legal point is parity.

A participant, employee or service provider does not need to avoid a public business simply because the plan owns it.

Preferential insider treatment is different.

Example: Hotel Rate

Plan-owned hotel charges public:

$280 per night.

Employee of sponsor books at:

$280

under normal terms.

That fits the logic.

If employee receives a free suite because the employer sponsors the plan, the transaction is not comparable to ordinary public treatment.

The exemption is not a corporate-perk program.

Continuing Transactions Have a Timing Rule

Section IV(e) addresses transactions that continue over time.^[2]

If the exemption conditions are satisfied when:

• transaction is entered
• qualifying renewal requiring INHAM consent occurs

the requirements can continue to be treated as satisfied for that transaction under the rule's terms.^[2]

The provision prevents a long-term loan or lease from becoming nonexempt merely because facts change later in a way the parties did not cause at inception.

But it does not retroactively exempt a transaction that was defective from the start.

If a Transaction Becomes Prohibited Later, Timing Still Matters

The continuing-transaction rule also contemplates a transaction that was not prohibited when entered but later becomes a prohibited transaction because a party's status changes.^[2]

The exemption can be tested at the point the transaction would have become prohibited.

This is another reason related-party monitoring matters.

A vendor can become:

• plan fiduciary
• affiliate
• related owner

after the original closing.

Part I Does Not Generally Exempt Section 406(b)

The Federal Register summary is explicit:

the general exemption covers the specified Section 406(a)(1)(A)-(D) transactions but does not broadly relieve Section 406(b) fiduciary conflicts.^[2][5]

That means INHAM status does not allow the manager to:

• use plan assets for its own account
• receive conflicted third-party compensation
• act on both sides

unless another exemption applies.

A professional internal manager remains a fiduciary.

INHAM Compensation Is Not Automatically Exempt

The 2011 notice specifically states that the amendment does not provide relief for compensation received by:

• INHAM
• minority owner of INHAM

for investment-management services to a plan maintained by INHAM or affiliate.^[2]

The Department also pointed to Section 406(b)(1) concerns and the service-compensation rules.^[2]

This is a useful boundary.

PTE 96-23 is transaction relief.

It is not a blank check for internal management economics.

PTE 96-23 vs. QPAM

The choice is usually structural.

A plan does not casually toggle between them trade by trade.

In-House Management Can Reduce Fees and Increase Governance Cost

An internal manager can avoid some external management fees.

But PTE 96-23 adds real infrastructure:

• SEC adviser registration
• compliance personnel
• transaction screening
• party-in-interest mapping
• ownership monitoring
• policies
• independent annual audits.

For a sufficiently large plan group, that can be rational.

For a smaller employer, outsourcing can be cheaper and more credible.

The exemption's scale thresholds reflect that economic reality.

Independence Is Not the Only Way to Protect a Plan

ERISA compliance often uses independence:

• independent fiduciary
• QPAM
• unrelated broker
• outside valuation.

PTE 96-23 takes a different approach.

It accepts sponsor affiliation because the in-house manager is:

• professional
• regulated
• sufficiently large
• discretionary
• audited independently.

That is useful beyond this exemption.

ERISA conflict management can depend on:

institutional controls

rather than only corporate separation.

The 2011 Amendment Changed Four Practical Things

The current framework differs materially from the original 1996 text.^[2][3]

1. Broader INHAM ownership route

Direct or indirect 80%-owned subsidiaries can qualify.

2. Managed-asset threshold increased

From:

$50 million

to:

$85 million.

3. Related-person ownership threshold increased

From:

5%

to:

10%.

4. Audit expectations tightened and clarified

The amended exemption specifies the audit content and six-month completion deadline more explicitly.

It also broadened co-joint-venturer and employer-lease relief.^[2][3]

The Current OMB Information Collection Runs Through July 2029

DOL's current class-exemption page lists PTE 1996-23 with:

OMB Control No. 1210-0145

and an expiration date of:

July 31, 2029.^[1]

The information collection centers on:

• written policies and procedures
• annual exemption audit
• written audit report.^[2][4]

The OMB date is administrative.

It is not an automatic expiration date for PTE 96-23 itself.

The Audit Burden Is Not Trivial

DOL's information-collection materials estimate a relatively small population of INHAM users and meaningful annual audit cost.^[4]

That fits the exemption's design.

This is a specialized tool for large institutions.

A plan sponsor should not choose an in-house-manager structure solely because:

"we already have investment people."

The legal and audit infrastructure is part of the cost.

PTE Compliance Does Not Replace Section 404

ERISA Section 404 still requires fiduciaries to act:

• prudently
• loyally
• for participants and beneficiaries.^[6]

A transaction can satisfy every INHAM exemption condition and still be poor.

Examples:

• overconcentrated real estate
• weak private credit
• illiquid asset
• inferior expected return
• excessive risk
• poor diversification.

PTE 96-23 answers:

Can this related-party transaction occur?

Section 404 asks:

Should the plan do it?

Example: Legally Exempt, Economically Weak

INHAM negotiates:

$50 million private loan

to qualifying service-provider counterparty.

All PTE conditions are met.

Independent audit later finds perfect procedural compliance.

Loan still has:

• weak collateral
• thin covenant package
• yield only 20 bps above safer alternatives
• excessive maturity.

The PTE does not improve the investment.

Audit success does not equal investment success.

A Strong INHAM File Has Five Layers

1. Status file

• ownership
• nonprofit structure if used
• SEC registration
• >$85M managed assets
• ≥$250M plan-group assets
• affiliate mapping.

2. Authority file

• discretionary mandate
• transaction assets
• negotiation record
• property-manager guidelines
• sponsor approval/veto rights.

3. Counterparty file

• party-in-interest basis
• service-provider relationship
• joint-venture relationship
• discretionary authority
• investment advice
• INHAM ownership link
• related-person test.

4. Transaction file

• excluded-exemption screening
• market comparison
• anti-benefit analysis
• renewals
• approvals.

5. Audit file

• policies
• sampled transactions
• auditor qualifications
• findings
• overall opinion
• completion date.

That structure is easier to defend than one omnibus memo.

The ROIStreet INHAM Decision Map

Identify internal manager → confirm qualifying organizational structure → confirm SEC adviser registration → verify >$85M affiliated-plan assets under management/control → verify ≥$250M aggregate affiliated-plan assets → confirm the plan is maintained by INHAM or qualifying affiliate → identify transaction assets → document INHAM discretionary authority → document who negotiated the transaction → if property manager acts, confirm written guidelines and retained INHAM fiduciary responsibility → if sponsor/designee has approval or veto, confirm transaction is at least $5M and INHAM negotiated it → identify whether transaction is described in PTE 2006-16, PTE 83-1 or PTE 88-59 → if yes, use specialized exemption rather than Part I → test anti-benefit purpose → benchmark arm's-length economics → identify why counterparty is a party in interest → confirm counterparty has no prohibited discretion or investment-advice role over transaction assets → test co-joint-venturer route if relevant → confirm counterparty is neither INHAM nor related person → test 10% ownership using most recent quarter-end → follow written procedures → preserve audit evidence → complete annual independent exemption audit and report within six months → separately document Section 404 investment merit

The controlling question is not:

"Do we have an internal investment team?"

It is:

"Does the organization qualify as an INHAM, did it genuinely control this transaction, is the counterparty inside the precise permitted class, and can an independent auditor prove the compliance process worked?"

Frequently Asked Questions

What is PTE 96-23?

It is DOL's class exemption for specified plan-asset transactions determined by qualifying in-house asset managers.^[1][2]

What is an INHAM?

A qualifying in-house asset manager is an affiliated organization meeting the exemption's ownership or nonprofit structure, SEC adviser registration and asset-threshold conditions.^[2]

Does every internal investment department qualify?

No. The formal organizational, regulatory and asset tests must be satisfied.

What is the current managed-asset threshold?

More than $85 million of assets attributable to qualifying affiliated plans must be under the INHAM's management and control under the operative amended definition.^[2]

What is the $250 million threshold?

The relevant plans maintained by INHAM affiliates and/or INHAM must have at least $250 million in aggregate assets.^[2]

Does the INHAM need SEC registration?

Yes. The exemption requires registration under the Investment Advisers Act.^[2][9]

Can the INHAM manage an unrelated company's plan under this exemption?

PTE 96-23 defines covered plans as those maintained by the INHAM or its affiliates. It is not general INHAM relief for unrelated outside plans.^[2]

Who must negotiate the transaction?

The terms must be negotiated by the INHAM or under its authority and general direction.^[2]

Can a property manager make the final decision?

Yes under specified facts if the manager follows written guidelines established and administered by the INHAM and the INHAM retains full fiduciary responsibility.^[2]

Can the sponsor retain veto power?

For a transaction of $5 million or more negotiated on behalf of the plan by the INHAM, sponsor or designee approval/veto rights do not by themselves cause Section I(a) to fail.^[2]

Can the sponsor negotiate first and send the deal to the INHAM?

That is inconsistent with the exemption's requirement that transaction terms be negotiated by or under the authority and general direction of the INHAM.

What transactions are excluded from basic Part I relief?

Transactions described in PTE 2006-16 securities lending, PTE 83-1 mortgage pools and PTE 88-59 specified mortgage-financing arrangements are expressly excluded.^[2]

Does a fair market price solve every conflict?

No. The transaction also cannot be part of an arrangement designed to benefit a party in interest.^[2]

Who can be a Part I counterparty?

The exemption covers defined parties in interest, principally specified service-provider relationships and qualifying co-joint-venturer relationships, subject to the other limitations.^[2]

Can the counterparty manage the same plan assets?

Not under the ordinary Part I counterparty condition. It cannot have discretionary investment authority/control or render investment advice with respect to the assets involved.^[2]

Can the INHAM trade directly with itself under Part I?

No. The counterparty cannot be the INHAM.^[2]

What is the current related-person percentage?

The 2011 amendment uses a 10% ownership threshold in the related-person definition.^[2][3]

When is the related-person test measured?

Using the ownership position at the most recently completed calendar quarter-end.^[2]

Are written procedures required?

Yes. The INHAM must adopt written policies and procedures designed to assure compliance.^[2]

Is an annual audit required?

Yes. An independent auditor with appropriate ERISA fiduciary expertise must conduct an exemption audit annually.^[2]

What does the audit test?

It reviews the written procedures, tests a sufficient sample of transactions, determines whether the manager satisfied the INHAM definition and produces specific findings plus an overall compliance opinion.^[2]

When must the audit be completed?

Within six months after the end of the year being audited.^[2]

Does Part II allow employer leases?

It provides narrow relief for specified office/commercial leases acquired subject to an existing employer lease and for qualifying employee residential leases.^[2]

What is the office-space cap?

The employer or affiliate lease covered by Section II(a) cannot exceed 15% of the rentable space of the office building or commercial center.^[2]

What are the residential-space caps?

One covered employee cannot lease more than 5% of rentable space, and all employees of the employer or affiliate combined cannot exceed 10%.^[2]

Can an officer use the residential lease exemption?

Section II(b) excludes an employee who is an officer, director or 10%-or-more shareholder of the employer or affiliate.^[2]

What does Part III cover?

Plan-owned places of public accommodation can provide services, facilities and incidental goods to parties in interest on a basis comparable to the general public.^[2]

Does Part I exempt Section 406(b) self-dealing?

Not generally. The basic exemption is principally Section 406(a)(1)(A)-(D) relief. Separate Section 406(b) issues require their own analysis.^[2][5]

Is INHAM compensation automatically exempt?

No. The 2011 notice specifically warns that the exemption does not provide broad relief for INHAM or minority-owner investment-management compensation.^[2]

What changed in 2011?

The amendment broadened the organizational definition, increased the managed-asset threshold to $85 million, increased the related-person ownership threshold to 10%, expanded certain counterparty and lease relief and clarified the exemption audit.^[2][3]

Is PTE 96-23 still active?

Yes. DOL currently lists PTE 1996-23 and OMB Control No. 1210-0145 through July 31, 2029.^[1]

Does July 31, 2029 mean the exemption expires?

No. That is the current information-collection approval date, not an automatic sunset of the substantive exemption.^[1]

Does compliance prove the transaction is prudent?

No. ERISA Section 404 remains separate.^[6][7]

Sources & References

1. U.S. Department of Labor — Employee Benefits Security Administration: Class Exemptions — In-House Professional Asset Managers, PTE 1996-23 — https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/exemptions/class
2. U.S. Department of Labor / Federal Register: Final Amendment to PTE 96-23 for Plan Asset Transactions Determined by In-House Asset Managers, 76 FR 18255 (April 1, 2011) — https://www.govinfo.gov/content/pkg/FR-2011-04-01/pdf/2011-7655.pdf
3. U.S. Department of Labor: U.S. Labor Department Publishes Amended Class Exemption Expanding Transactions Involving Assets Managed by In-House Asset Managers (March 31, 2011) — https://www.dol.gov/newsroom/releases/ebsa/ebsa20110331
4. U.S. Department of Labor / Federal Register: Agency Information Collection Activities — Plan Asset Transactions Determined by In-House Asset Managers Under PTE 96-23 — https://public-inspection.federalregister.gov/2025-12909.pdf
5. Legal Information Institute / U.S. Code: 29 U.S.C. §1106 — Prohibited Transactions — https://www.law.cornell.edu/uscode/text/29/1106
6. Legal Information Institute / U.S. Code: 29 U.S.C. §1104 — Fiduciary Duties — https://www.law.cornell.edu/uscode/text/29/1104
7. Legal Information Institute / U.S. Code: 29 U.S.C. §1108 — Exemptions From Prohibited Transactions — https://www.law.cornell.edu/uscode/text/29/1108
8. Legal Information Institute / U.S. Code: 29 U.S.C. §1002(14) and (21) — Party in Interest and Fiduciary Definitions — https://www.law.cornell.edu/uscode/text/29/1002
9. Legal Information Institute / U.S. Code: 15 U.S.C. §80b-3 — Investment Adviser Registration — https://www.law.cornell.edu/uscode/text/15/80b-3
10. U.S. Department of Labor / Federal Register: PTE 84-14 — Qualified Professional Asset Manager Exemption — https://www.federalregister.gov/documents/2024/04/03/2024-05699/amendment-to-prohibited-transaction-class-exemption-84-14-for-transactions-determined-by-independent
11. U.S. Department of Labor — Employee Benefits Security Administration: PTE 83-1 — Mortgage Pool Investment Trusts — https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/exemptions/class/mortgage-pool-investment-trusts.pdf
12. U.S. Department of Labor / Federal Register: PTE 2006-16 — Securities Lending, 71 FR 63786 (October 31, 2006) — https://www.govinfo.gov/content/pkg/FR-2006-10-31/pdf/06-8968.pdf

Educational Disclaimer

ROIStreet publishes educational content about retirement-plan fiduciary duties, in-house asset managers, institutional investment management and ERISA prohibited-transaction exemptions. This article is not legal, fiduciary, securities, tax, investment, corporate-governance or plan-administration advice. PTE 96-23 is highly fact-specific. Availability depends on the internal manager's legal ownership, SEC registration, affiliated-plan assets, discretionary authority, negotiation process, sponsor governance rights, property-manager delegation, counterparty status, ownership relationships, transaction purpose, economics, written compliance procedures, independent audit and current law. An exempt transaction can still be imprudent, disloyal, overpriced or inconsistent with a plan's investment policy.

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