On July 9, 2013, the DOL issued a final amendment to Prohibited Transaction Exemption2007-5 (Exemption) that replaces the prior definition of "ratings agency" with a new generic definition. The new definition changes the circumstances under which retirement plans may invest in asset-backed and mortgage-backed securities.

Fiduciaries of employee benefit plans that invest plan funds in mortgage-backed or assetbacked securities must comply with fiduciary and prohibited transaction rules under both
ERISA and the Code. The Exemption allows investment in these otherwise prohibited
securities provided that the securities are rated above a threshold level. Fiduciaries are
required to confirm that the agency providing the rating for mortgage-backed or assetbacked securities transactions meets certain requirements.
The final amendment to the Exemption amends the definition of "ratings agency" by
providing that a "ratings agency" is a credit rating agency that:
  • The SEC currently recognizes as a nationally recognized statistical ratings agency;
  • Indicated on its most recently filed SEC Form NRSRO that it rates "issuers of assetbacked securities"; and
  • Has, in the 12 months prior to the initial issuance of the securities, provided at least three "qualified ratings engagements." A qualified ratings engagement is one:
  • Requested by an issuer or underwriter of securities in connection with the initial offering of the securities;
  • For which the ratings agency is compensated for providing ratings;
  • Which is made public to investors generally; and 
  • Which involves the offering of securities of the type that are granted relief by the underwriter exemptions.